Selling your MSP - ERP136

Todd Kane: My guest today is Amy Babinchak. If you have been in the MSP industry for any amount of time, you probably know the name. Amy is a 22-time Microsoft MVP award winner and co-host of the SMB Community Podcast and a well-known speaker in the industry Amy, welcome to the Evolved Radio podcast. Amy Babinchak: Hey, thanks for the invite. I really appreciate being here. Todd Kane: Yeah, this is a useful topic that we're gonna get into that, uh, I, I think a lot of people need to think more deeply about and prepare for before they really start getting into, uh. Positioning and thinking about selling their MSP. So this is an experience that You have lived personally and have written a book on that is titled 20 Questions Every Owner Asks Before Selling Their Uh, MSP. So, um, this is a great framing for this and really helps people think through the process, and I think this is. As I said, something that people maybe sort of fall into based on pressures of, well, everyone else is selling and I keep getting these calls from these PE companies. Maybe I should do this and maybe come to it for the wrong reasons. You want to maybe kick us off on the emotions that you kind of go through in the consideration of selling your, your business and how you ultimately come to that. Amy Babinchak: You know. I hope that my book is gonna land with people who want to think about selling their business and not just wake up one day and go, that's it. I'm retiring tomorrow. Right. I see that happen way too much. That, you know, over at Selma, MSP, we, we work with a lot of people one-on-one, and. More often than not, it's, it's like a last minute decision. Like they started talking to somebody they met at a conference, or you know, a firm that they've known for a long time in their, in their neighborhood, reached out today and now they, now they gotta get their business ready in a hurry. Like, what do I gotta do? I'm like, man, you, you really needed to start to think about this before. So that's what I'm hoping that the, that the book will help people do. Right. You don't need to start thinking of it the day you wanna sell. You gotta start thinking about it three to five years ahead of time's. A great sweet spot for doing that. Todd Kane: Yep. Amy Babinchak: So yeah. When you decide to sell your company. You are entering into a major life event probably. Um, I know it was that way for me. You know, I, um, I put the, put a chapter right at the beginning of this book on the emotions of selling your business because it totally took me off guard when it happened. Um, you know, I had been helping people sell their business for 10 years, but I'd never sold my own. Um, and when I sold my own, the after effects was like. Grief. It wasn't like, Ooh, I got a big FB check and a Happy Bank account. You know, my retirement is is perfect now. It was like, oh, there's a hole in my heart. You know, something's missing. And I tell a lot of people, like, I felt like I just sold my cat. Or maybe you rehomed your cat. You know? Um, just, just that level of attachment that's now gone and it leaves a space. You don't know what to do with. Todd Kane: Yeah, is a similarly, I, I advise people, they're saying, oh, I'm thinking of selling my business. I'm like, great, you know you're in your. Mid to late forties. So what do you plan to do with your life? And the the inevitable answer is, oh, you know, I'm gonna, uh, gonna get it a lot more into fishing and gonna pick up my golf game. It's like, okay, great. Imagine you're six months from now, you're gonna be bored with. that every day. So, well Amy Babinchak: Yeah. Todd Kane: are you doing? They're like, I don't know. Or like, it's, it's wild how people don't think about. The, sort of the longer impact that selling their business will have on their life, especially because entrepreneurs are so, have such a, a wrapped identity with the business that they've probably spent 10 to 20 years building, and to just sort of detach from that and be okay with it, as you say, is like a, a, I think a huge emotional hurdle that people don't really consider. Amy Babinchak: Yeah, I, uh, I have, I have two other businesses, so for me, I was not. Retiring, I was just gonna get to spend more time doing other things I love. Um, and I'm, I also have a million hobbies, so my Todd Kane: helps. Amy Babinchak: threat of getting bored is like, is like zero. I always have a new idea, a new thing. I love change. I love, you know, getting into new stuff. I've got cell MSP, I've got third tier. I'm still, I'm still out there, right? I just don't have my MSP anymore, but. Um, I just, I just, um, one of the guys in my peer groups is 36 and he's selling his business and it's gonna pay him enough that he does never have to work again. But it's can't just be about the money because he's got another 40 plus years of life to fill. We're humans. We need some purpose, right? We gotta have. Something to do with ourselves or we're gonna fall into a major depression. If you've ever read any of the, there's, there's statistics out here and I, I can't quote 'em 'cause I'm not that familiar with them, but I've seen them over the years. The people that do not have a plan for after they leave their business, after they retire, whatever, this major life change, they don't live very long afterwards. People that have a plan. Go on to go on to, you know, be happy with the rest of their life as they were when they were working. Hopefully. Todd Kane: Hmm. Yeah. Really important to have that plan. It's either maybe you start something new, maybe you focus on philanthropy. Uh, maybe you've got some, some other businesses you could start to dig into. But I think, uh, you're right, like there needs to be that forethought of then what. Right. Like this is a great event. It's amazing to be able to, recognize the success that you've had and pull equity off the table. And for a lot of people, it sets them up for a comfortable life. They don't necessarily have to work anymore, but, uh, retiring at 35 maybe sounds great in your head, but it will be incredibly challenging once you're six months into it. Amy Babinchak: You can only sit on the beach for so long. Todd Kane: Exactly. Yeah. Amy Babinchak: Yeah. You've, you've read all, read all the books you wanted to read your, you know, your, your buddies are not retired, so you can't go hang out with them, you know? It would be a thing you, you have to have your, what's next as part of this plan? I don't encourage people to rush into selling because they think, oh, it's a seller's market. I gotta sell right now before. Before that goes away. The lucky thing for us is we're at the point of maturity in our industry, right? This industry is about 40 years old and now. Uh, merger acquisitions, sales. This is just part of the way that business is done, and I don't think that will go away from now on. It will always be the strategy that as people are bringing up an MSP, they naturally go out and they make some acquisitions, sometimes small, sometimes bigger, right? But that, that's a normal part of our industry. That means that there's always gonna be an opportunity for you to sell your company when the time's right for you. You shouldn't feel any pressure. Outside of what's right for you and your family and your situation. Todd Kane: I think that's a really important thing to hear. 'cause like I would say maybe five to years ago, I necessarily, I wouldn't have necessarily agreed with that. But I think you're right that there, it's not something that you have to time. I felt like five to eight years ago there was a pressure of like, the multiples are so high. Like if you don't catch it now, like maybe it's gonna start to dwindle. Like, like the PEs won't be as in, uh, as interested or all the good sales are already gonna happen. I think there was a bit more of that narrative, but I, I think your reflection on that is, is wholly accurate. things are stabilized and there will will always be sort of a good deal to be had. Don't rush into things, which we'll certainly get to. But, uh, I think the pressure is off of like having to time the sail or feeling like you're gonna miss the boat. And I think that that does apply a lot of pressure to people where they feel like, I'm not necessarily ready to sell, but you know, maybe I'll miss the window if I don't do this within the next year. Amy Babinchak: Well, you know what I tell people is there's always a market for a well run profitable business. Todd Kane: Right. Amy Babinchak: It doesn't matter what else is happening out the world. If you are the person with the well run business that's making money reliably year after year, someone will be interested. Todd Kane: Yep. Yeah. Alright, so there's, I would say also two parts to timing. The, the sale for yourself and prepping for it, I think is maybe a better way to position this. There's both personally as well as prepping the business and I think, uh, some people will, will get this idea. We can expand on this a little bit of like, You should spend time optimizing your business so that it is a better. attractive, sellable asset, you could potentially get a higher multiple because it's more, uh, organizationally sound. You are not sort of the center of of, of the business. You have a team that can organize things. You have SOPs, a good, you know, well run organization that will get you a higher sale price. Ultimately, I think the part that people will sometimes miss in this is that you do actually need a couple years to prep your personal finances as well. And, you know, you know, I think there's good money to be spent on a great tax lawyer to prepare you for, you know, the, the windfall that you'll get. It depends on the structure of how you sell your business, but I think ultimately you wanna have that forethought of, if I'm, gonna have X amount of dollars in capital gains, you know, potentially millions of dollars you wanna prepare for how that actually. Lands in your bank account and what the tax implications of that will be as well, You wanna expand a bit on sort of the, the business prep and the personal prep as well. Amy Babinchak: Yeah. You know, I'm. well, I'm. I, I'm not on the financial side of selling businesses. I'm more of an operations person, but everybody does need a tax lawyer. Absolutely. You need to, you need to involve your CPA and you need to get a tax lawyer. And there are different people Todd Kane: Yes. Amy Babinchak: think that, Todd Kane: often not recognized. Agreed. Oh, I Amy Babinchak: yeah. Todd Kane: No, no, no. You need to go to talk to this person too. Amy Babinchak: Right. Yeah. Um, yep. I, I learned that by accident because I had a client that was in that business and so I, you know, I got to see a little bit of what, what they did and how they did it and the importance of it. So, so, yeah. You know, the accountant cares about, you know, money in, money out. Oh, bottom line, here's what you owe. Right? But they're not gonna sit there and optimize it for you. That's what the, that's what the tax lawyer is. You, when you sell your business to, you need, you need. You need at least three people. You need that tax lawyer. You need the CPA, um, maybe four people. You need a financial planner to help you know that. You've got the right number that makes sense for your future. Um, and you know how close, how close you are to your, your ultimate need and you know how you're gonna fill those gaps if there are any, um, and business lawyer to actually go through that, that transaction. Yeah. So if you've got those four people on your sale team, you're gonna be, you're gonna be set up really well. Um, but, and you know, when buyers come to you. And you get that letter of intent from them, what they're offering impacts all of those things, right? They're gonna offer to pay you in a certain way to structure the payout over, you know, some period of time, make it, uh, an asset sale, a stock sale, right? All these different things. And they will have that in their lois. So that is a large part of your consideration, right? Not only. How much am I getting paid, but how am I getting paid and does that, does my team think that this is a good deal for me? Todd Kane: Yeah, the structure of the sale, I think is, is another aspect that, you know, someone who's not familiar with the, sort of the details of m and a. There's a whole, you know, there's probably four to five to 10 different ways to, to slice this, up of. you would actually position and what you actually want as a part of the deal structure. So I usually position this as like, uh, how much cash you want up front, how much time you want to have freedom, Right. Like, do you, do you have to, you want out immediately, like you're ready to retire tomorrow, or you're ready to move on to your next thing tomorrow, or you willing to stick around for a year to three years? Like understanding those things is, is important. And then there's, you know, the. The amount that you'll actually get. And this is sort of like a, like a, like a, a bit of a, a bit of a triangle where like you, you have to shift the, the, your demands around, but you can't get all three. So you're, there's either more time in and more money or faster payout, but you know, less money, right? So you kind of have to factor in what are the parts that I want Amy Babinchak: Yeah. Todd Kane: I go here. Amy Babinchak: That, that's super critical. You know, when I, when I, um, when I sold my business, I knew I'm a strong entrepreneur. I, I knew it was gonna be impossible for me to go work for somebody else. So I had to fall in on the, I'm selling the business and it operates without me today, so it doesn't really need me to go forward anyway. Right. I, I made it that way. Um. I knew I did that because I knew I didn't wanna go with the business even for a year. I would be completely miserable. And that emotion part that we talked about, that grief would've been extended through that whole period, right? So that, so that. That's how it landed for me. A lot of times, um, I see offers coming in for businesses up to, up to three years of somebody still working in there, like one to three is really common. Um, however, when I, when you talk to other business owners, uh, two years is probably that sweet spot in the middle where they'll, they'll try to get you in there for two years. Um. People almost uniformly tell me that that was the worst two years of their whole life. Working inside of a business that you don't own anymore, you don't get to make decisions anymore. You have to implement the changes that the owner, new owner wants to make, and you have to sell it all to your clients that have been with you for. 20 years. Right. It's a really difficult position to be in. It'll get you a little bit more cash upfront, but it's a hard place to be. Todd Kane: Yeah, I strongly agree. Um, I, I often joke with very entrepreneurial people that, uh, you know, they, they basically never really had a. A real job outside of maybe some retail or some fast food. And then they started an IT business and have done this for 15 years. I'm like, congratulations, you're unemployable. Right. Uh, Amy Babinchak: Exactly. Todd Kane: an important reflection. Yeah. 'cause people end up miserable. They're like, what? What? Look what they're doing to my baby. Right. Uh, as they sit there, you know, with very little influence on, on what the, the outcomes of that business can be is very challenging. Amy Babinchak: Oh yeah, yeah. When I reflected back on my career before I started my business, and I, I did have one, not for a lot of years, about five years or so. Um, and I, I was actually in the environmental consulting field and I was really lucky to have. Bosses, and I knew this of myself, so I was really careful to interview my employers to make sure that they were gonna let me run because I could not, I could not be. I could barely be managed, much less micromanaged, but I'm gonna be the most productive person and fast learner that you've ever seen if you just let me go. Right? Todd Kane: Yep. Amy Babinchak: And I, I had a couple of great bosses that, that let me do that. Um, so yeah, I always tell people like, oh no, I, I'm a lousy employee. You do, you do not want me to come work for you. Todd Kane: Stuff will get done, Yeah. Amy Babinchak: Stuff will get done, but you know, it's not gonna be the way you think. It's structure is not, not quite the same as a person you might hire who's used to happy to work underneath other people. That was never me. Todd Kane: Right. So we're sort of suggesting people should, uh, think about, you know, the structure of the deal that they want, thinking about, you know, uh, the preparation to sell, having their team in place. Um, what about sort of how you value the MSP? Like you, you should, you, you talk about sort of knowing your number in the book, and I think that that's a really important aspect of what do you want outta this? Uh, Amy Babinchak: Yeah. Todd Kane: one of the sides that I see of this, I think you, we have sort of a. different, uh, ends of the, the, the spectrum here as far as perspective that I think will be interesting to get into. But one of the situations I see is the smaller operators that have maybe an inflated sense of what their business is worth, because either they hear the stories in the industry of so and so got X amount, and, you know, I think my business is worth this, or they ascribe a certain number because that's. What they want, not necessarily what their business is worth, right? So they end up, uh, way I describe this is they almost wanna get paid for the sweat equity that have put into the business. They've worked so hard, so therefore it should be worth, worth x. It's like, well unfortunately it's not really how, you know, bankers and spreadsheet people will value your business. So how should people think about understanding the value of their business, assuming maybe they don't have a great sense of m and a finance. Amy Babinchak: Yeah, the buyer's gonna come along and they're gonna value your business based on a whole bunch of factors. But if we just kind of boil it down to the top ones, um, right. How standardized is your business? How well does it run without you? Um, how much profit? Pushing to the bottom line. Net profits. Right? And they're gonna do their EBITDA calculation. And I hate EBITDA calculations 'cause every firm seems to have their own little twist on it. Todd Kane: Isn't it. Amy Babinchak: But Todd Kane: is supposed to be a universal number that allows businesses to compare more organically to each other, yet none of them are really calculated the same way. Amy Babinchak: None of 'em are really calculated the same way. You know, when I see the P firms come in, they're using EBITDA as just a like, uh. Bottom level, like we're not gonna go below this. So there's sizing businesses by ebitda. They're not valuing businesses by ebitda. What they're valuing the business on really is the net profit. What do, what net profit have you been operating at? Is your business showing a nice smooth growth line over the last five years? Uh, and. Can they get that same profit? Do they think they can actually raise it? Right? Can they, can they add efficiencies to what you've already got there? Um, that's really where their, that's where the valuation part comes in, and it's very, um, yeah, it's very kind of analytical. They don't, they don't have the same emotional attachment to your business at all. Right? They're just, they're looking at, you're, you're gonna give them a bunch of financial reports. They're gonna come back at you with some questions and a number. Um, and so they're not gonna ask you about, you know, how do you like that guy over at that client? You know, do you, are you guys buddies? Do you go to their birthday parties? Like none of that matters to them, right? As small businesses. That kind of stuff matters to us. 'cause that's our, you know, you've had a client for such a long time. You know, your, your friends, right? All that stuff doesn't matter. That's not part of the valuation of your business. The valuation of your business is, what does it make? Um, you know, are, is your, is your pricing in line with the industry, right? Are you overpriced? Are you underpriced? Is your staff up to standards on today's skillset, or are they lagging behind? How much are you paying your people? Right? Are you paying them too little or too much or, or just Right, right. Everything you can get into that just right zone. The buyer's actually gonna offer you more for your business because it hits all of those middle, middle places where the standards are right. Speaker: Tired of fighting the MSP fires alone? The Opsleader Pro group connects service delivery professionals who understand your daily challenges. From KPIs and workflows to career planning and team management, Opsleader Pro has systems for you to use. Join operations leaders from successful MSPs who are sharing real solutions for managing client expectations, optimizing service delivery, and making your service delivery team as effective as possible. Opsleader Pro, 'cause your service desk deserves more than just survival mode. Visit opsleader.co. That's O-P-S leader dot C-O to apply to join the public community. Amy Babinchak: let's get into your thing about, um, business owners may be thinking that their business is worth more than it is. I, I'm gonna blame our industry press for that because the only articles they ever write are the, are the miracle sales where somebody got, you know, 10, 13 times multiple for their business. Right. It. That's, you know, one in a thousand. Um, and, you know, everybody else gets something less than that. Uh, I heard recently of a firm that sold up in Alaska for really high multiple because it was one of the only well-run firms in the area that they, that they wanted and they wanted to get a foothold. So they're willing to pay a premium for that. But most of the time that doesn't happen. Right. If you're a smaller MSP, you're gonna be in the four to five range. If you're a medium-sized MSP, five to eight range, and if you're, if you're a true outlier, you'll go above that. Right? But our industry is made up mostly of those small players, and they don't ever hit the news. Todd Kane: Yeah. so that, that's, uh, the, the, the four and five, uh, uh, four and five x is a multiple of ebitda as, as, as the number here just to, to fill in that. Amy Babinchak: Yeah. Todd Kane: the other part that I see you had a different perspective on this is, um, a lot of, you know, if you're over 10 million, then you know, you, you're a much more attractive acquisition target and we'll potentially pull a higher multiple just based on, on that revenue number We're. You know, hopefully your EBITDA is good, but you know, just Amy Babinchak: Yeah. Todd Kane: will tend to make you more attractive, as you noted. Um, one of my favorite stats about the industry is 90% of the industry is sub 1 million, which is a massive, massive portion of the industry. And you had a perspective that you, you, uh, shared with me before we started recording about, um. A lot of those businesses, um, may or may not feel like they have something to sell, and you tend to bump into this occasionally in, in your travels in the industry of like, well, who would buy this, this business? Like, I need to get bigger before I could actually sell my business. And you maybe tend to feel that's not true. You wanna expand on that? Amy Babinchak: Yeah, that I, I honestly didn't know it was 90%. I knew it was a lot, and I usually think of it as sub 2 million, right? Almost all of our industry is sub 2 million. So if it's 90%, it's sub 1 million, I'll, I believe you. Um, and yeah, these, you know, they tend to be. Sole proprietors, right? It's one, one guy running the business or maybe one with a other, you know, a second person in the company. And, um, their plan is usually just to. Taper off, right? What's your plan? Well, you know, I'm just getting rid of some of my clients that I don't really like are the ones that aren't that profitable and they just sort of shrink, shrink, shrink, shrink, shrink, shrink until one day there's like four clients left and they're, they're 70 years old, and then they just give it to somebody else that they know from a user group from years ago. I see that all the time. And I think it's really sad. You know, you've worked in this business for 20 plus years. It's not worth zero. It just isn't. There's a, there, there's a number there. Your business is probably the largest asset that you own, even if you're in that sub 1 million range, right? You're still probably the largest asset that you own and. You should get paid for it. That's a, that's a valuable thing that, that you can add to your retirement next day when you're ready. Todd Kane: Because even selling a book of business is still a very viable way to, you know, to sell your business and for other businesses to grow is in an acquisition strategy. I know a number of large MSPs that really like buying books of business. It's very uncomplicated and they're very. Confident in the fact that they can retain those businesses and they can grow, you know, um, depending on their size obviously, but, you know, five to 15% pretty easily By acquiring a stable book of business that would've taken them years to grow organically or, you know, to, to fund the sales group in marketing group in order to acquire, uh, a, an equivalent base. So Amy Babinchak: Yeah. Todd Kane: viable strategy. Amy Babinchak: It's a, it's a great strategy. I did that four times in my business. You know, I, I bought small books, small books of business, and added them in and paid out the owner over the course of two years from what those businesses, what those new clients made. A hundred percent of the time that I did, that, I always made more money from those customers than they ever did. Todd Kane: Yes. Amy Babinchak: they were, they, they were, they were tapering off, maybe not doing all the latest things. They just weren't. As involved in it anymore, and Right. It was always that case where I talked about, right, they tapered off and they got down to their last 4, 5, 8 clients and I would say, yeah, I'll buy those from you, no problem. Todd Kane: Mm-hmm. Amy Babinchak: And then we just built them up and he's, and they were surprised. They're like, wow, you're making more money than I ever made. Todd Kane: Yep. Amy Babinchak: Like, well, you know, that's why I bought 'em. Right. Todd Kane: if you're, if you, you have organizational maturity enough that you're growing and able to acquire, you're probably gonna be sophisticated enough to increase the share of wallet with that, that, that client base, right? Yeah, Amy Babinchak: Yeah, absolutely. Todd Kane: So that Amy Babinchak: Yeah. Todd Kane: to, to, uh, uh, finding the right buyer. Um, so there's, you know, the PEs. Uh, that everyone's familiar with is, is sort of what I think everyone thinks about in general in the strategy is, you know, there's some massive company that's gonna come acquire me. Uh, that is a strategy. Uh, there's, you know, as you mentioned, some rollup peers. There's, you know, the, a larger MSP in your region that's potentially an acquirer. Uh, and what I wanted to, to bounce off, you see how much you see of this is seller based financing. Uh, I know you mentioned this in the Amy Babinchak: Okay. Todd Kane: and, um, one of the ones that I feel like. Has more of an opportunity than maybe comes to light. Is the owner actually selling the business to the employees? Not in an ESOP way, but seller based financing, say to the leadership team. And I, I wish this was maybe more prevalent than it is. I've seen this ha transact in a couple of cases. Um, but I, I think it's a really underserved and potentially valuable strategy, especially if you've got a team that you really like and. You, you feel like they could carry the legacy for that organization, so maybe work backwards from there in the different acquisition strategies. What, what's your thought on sort of seller based financing to the existing, um, leadership team? Amy Babinchak: I think that's an, an awesome idea and it's incredibly rare. And like you, I, I'm, I'm not really sure why, although, you know, I will say that in my own case, um, I was interested in doing that, but. It's different to go from being an employee to an owner and you have to have your family backing that. Then in my case, the, um, the, the guy that was running my business, his family was not in support of that. Right. They wanted, they wanted more flexibility. They didn't wanna be tied to a place they, you know, so, so it wasn't, so, it wasn't gonna be viable. Um, I do, I do know someone who is doing it now though. Um, and I think it's gonna work out great. You know, I mean, there's no more stability than someone who has been in that position. Running this business for a number of years already. Like that's a pretty safe bet, right? So if you're confident in your team and they're not gonna all of a sudden break out and do something bizarre after you leave, um, you know, I think that's a, that's a great way to go. And I do, I do also know an ESOP firm where the owner sold to the six employees that she had, um, and. I will say that they are. Struggling a bit to understand how to navigate the relationships that an ESOP enforces on everybody. Todd Kane: Yes. Amy Babinchak: that's a, that's, that's I think, a little bit more difficult than selling to maybe one or two, you know, leaders that you have in your team Todd Kane: Yeah. Amy Babinchak: have been more, hopefully working together for a long time. I, I wouldn't do it unless you had, um, a business that really they're already running. Like you guys just need to keep doing it. Right. And it would be good. Todd Kane: Yeah, I've seen ESOP explored a number of times, but it, the, the extent of it is usually paying, you know, $20,000 for an ESOP consultant and then it stalls out there. 'cause everyone sort of realizes like, whoa, this is actually kind of complicated. Like, am I gonna get my family's, uh, support of funding this? You know, how am I actually gonna raise the capital for this? Am I gonna, you know, take the equity outta my home in order to have the initial capital for it? So it is, it is complicated, but as, as we say, I, I wish it were more prevalent, but I get that these, these, uh, these models, uh, tend to be a little more, uh, a little more risky and not from a outcomes perspective, but just, um, for the people participating in them. They're like, they're also not. Familiar with m and a and, uh, the acquisition strategy versus, you know, the PEs and the VCs that, you know, they do this stuff all day, right? Amy Babinchak: Right. Yeah. Yeah. The, the p VC market though, starts to fizzle out around 5 million. So, uh, and some of 'em will go a little smaller, maybe down to three, but like, none of them go below that. Todd Kane: Exactly. Amy Babinchak: So you have to be a business of a certain size. Um, and, and in the MSP world, there's a gigantic hump at 2 million that makes it difficult to grow. Past that. And, uh, so most people don't, right? That's like a, there's a, there's a big stopping, there's a big stopping point there. Um, and that's for a whole other discussion, but, Todd Kane: That's what I refer to as Death Valley. Between one and 5 million. Yeah, Either you make it or you don't. Amy Babinchak: Yeah, that's a, it's a, it's a tough place to be. Um, there's a lot of reinvestment, restructuring, reorganizing that has to be done in order to grow beyond it. So, um, which means, you know, that's another reason why most buyers won't be looking at the, at the PE VVC marketplace. I wish they would come down a little farther. 'cause there are some excellent businesses in the one to $2 million range that I think would make make sense for the PEs even to. Pace them together, you know? But, Todd Kane: seen as a, as a decent strategy. Like I've seen a few organizations where they kinda work together to cobble together a larger organization. So you take kinda one company that acts a bit more as the flagship, maybe they're doing. You know, 2 million, 3 million. And then they pull together a couple of other groups that are doing a million, million and a half, and then they, they pull together and then maybe do one or two more acquisitions and then do another turn and sell, uh, once they've sort of pulled that, that unit together. I kind of, I describe this as a bit of the acquisition drag effect where people try to sort of. Build themselves up to be a bit bigger, to signal to the larger entities that are more at, say the 10 million and the 8 million is sort of the more their sweet spot if, but if you can pull together a business that all of a sudden clips past five or six, then you know, all of a sudden you'll have, uh, a lot of people circling you with interest as well. Right? Amy Babinchak: Yeah, you have to reach a point of stability though after that. So they're not gonna want, they're not gonna be interested in you right. After you make those acquisitions. You have to have made them a couple years ago and proved, proved that, you know, this is actually working. So, um, what was the other thing that you wanted to talk about is, um. Todd Kane: the, I I would say just, uh, you know, PEs rightly and wrongly get a, maybe a bit of a bad rap in some cases. I've seen some absolute horror stories of, uh, acquisitions that. Uh, you know, the, the owner ended up really regretting the circumstances that they ended up in because despite all the niceties in, in, in sort of the description of how this is partnership is, gonna go, uh, the, the truth was much different and they were very interested in growth for growth's sake. There was a lot of cutting. Uh, client relationships were not maintained. Uh, you know, the respect of the owner was a bit dismissed. Uh, those, they can end up in some of those really awkward situations because some of those companies are really not in it for the surface in the service. They're in it for. of growth and, you know, they're, they're, they're looking at the spreadsheets. um. and I think that that can be a difficulty in finding the right partner. 'cause there are absolutely great PE groups that, Amy Babinchak: Mm-hmm. Todd Kane: uh, you know, a legacy for those people. Give them even growth positions to go into in some of the umbrella corps and things like that. So I think, uh, there are good ways to get into this, but maybe. You can get sold on a bag of goods on, you know, this is supposed to be an amazing strategy. Here's what we propose, and then it ends up being different. So how should Amy Babinchak: Yeah, Todd Kane: about almost interviewing the PE groups that may potentially acquire them? I. Amy Babinchak: well, you know, they're, you're right. They come in so many different flavors. One of the trends that I see right now is, um, those firms taking. Some of the money maybe up to 20% and saying, oh, you're going to, you're going to, we'll pay you, we'll pay you the 80% on this typical, like, you'll stay here, work two years, we'll do all this stuff, this 20%, you're gonna invest that in our company. And then, you know, when we exit. You'll, you'll get more than that 20% back. Right? So you're, you're, you're now an equity partner in their business. Um, there's a lot of risk in that, you know, I, uh, 20 percent's a lot. So, um, and that seems to be the number that they're going for. Uh, it's taking a lot of risk off of, off of them. And, but that's placing that risk on you, so you have to figure out. Where you're, you know, are you willing to gamble 20% of your company on the success of the firm that bought you? Um, that's a, that's a huge decision point. Um, you know, and they will typically offer you maybe a little bit more because they are asking you to accept some risks. So the more risk you're willing to accept, the bigger the number will look on the bottom line. But it may or may not actually happen. Right. Um, if you are more risk adverse, you know, and you just wanna get your money in the bank, then the number itself is gonna look a little smaller, but it'll be in the bank, right? It's a sure deal. So you all, all of these negotiations, like you said, it's that triangle, right? You're trying to figure out is this the right person? On the emotional side of things, you might say, man, I really don't wanna sell to a huge firm that's gonna roll us up into a national MSP because, um, you know, I know my clients aren't gonna like that. You know, this is not, it's not me. You know, I want. This, this business grew up here in this community. And you know, the offer from the local MSP, um, that wants to come into the, the mar marketplace that I'm in, you know, that's how it happened with my company. They were in a smaller market. They wanted to come into the market that I was in. Um, then you essentially have a transaction that's more like you. Right, and it maybe feels a little more comfortable. Um, the numbers probably are slightly smaller. Todd Kane: Yep. Yeah, I, that's a really important consideration is it's not just about the money, right? Like this is, uh, this is in a way your legacy, uh, and you know, the continuity of, uh, employment for your staff, how your, your customers are supported long term. I think those are really important considerations when you're, you're considering offers. And it may not just be. You know, these, these guys offer me, offer me seven x and this other guy offered me five, so of course I'm gonna take the seven x. Well, you know, hold your horses. Like maybe that situation is, uh, is not, not as simple as that number defines it as you know. Amy Babinchak: Some people are really cutthroat that way. Todd Kane: Yep. Amy Babinchak: you know, oh, whatever happens to my employees, I don't, you know, whatever. They'll, they'll find jobs. They're good people. They'll find jobs. Um. Others, you know, for me, I always felt really personally responsible for their wellbeing, for their, their, their livelihoods. They were supporting their families off of the, you know, money I was paying them. So, like, I'm supporting all of these different family groups out there, right? That was a responsibility that I took very seriously and I think a lot of small business owners do. So, um, yeah, so they're, I, you know, you can put guarantees in the deal, right? You gotta, you, you need to hire everybody. You gotta keep 'em for a certain amount of time, right? You may want, want them to all have employment contracts that they're, have some place to safely land, whether they choose to stay there or not, you know, that's up to them. But at least I've given them a safe place to land. I haven't just abandoned them. That's, that's often really important to, to business owners that that happen. Todd Kane: Agreed. well, there's some great, Amy, uh, anything we haven't covered that we should dive into from your book? Obviously I'll, I'll link to, to the book and, and show notes and things like that. Anything we haven't covered that you'd like to, to dive into? Amy Babinchak: You know, uh, the reason I wrote this book is because I wanted people to start to think about selling their business. I wanted 'em to think about it earlier than they probably were going to. Um, so I mean, just. Tell folks sort of the way that this is, is structured too. I wanted it to be easy. It is not a book you don't like open page one and read it till page, whatever it is, 244. Um, you can jump in at any of the 20 questions that is speaking to you at this moment and, um, you know, I write a few pages of, you know, answering that question. Then there's uh, you know, some key takeaways for you to remember about what you just read. There's a story, 'cause a lot of us learn through stories. So you get to see sort of what an. When, how they, how particular MSP went through, thought about it and what their outcome was. And then there's a series of questions at the end to help you go through and come up with your own answer to that question. 'cause we're all just a little bit unique from each other. Um, so it's a, you know, so it's a little bit teaching, it's a little bit work workbook. And, you know, I think there's a lot of stuff in here that if you did this, you just are gonna come out running a better business. And it's. I keep telling people it's never too soon to start running a better business. And so you know this, this can also help people do that even if you don't decide to sell your business for another five years. Todd Kane: Yep. As a, as an ops person. Degree more is, uh, you know, the, the revenue is the size of your business. The bottom line is how well the business runs. And you know, if you, if regardless of if you intend to sell anytime soon or you have no thoughts of. Of selling, uh, at the time you should think about your bottom line and the improvement of your operations because it's easier to get those things started now and position yourself for potentially millions more. Not only will your, your company grow in a more stable fashion, but you can get more money for it when ultimately you are ready to sell. So I really, really strongly endorse that approach of think through these things. Uh, for the, for the, for the ideas themselves and just figure out what you could potentially improve to set yourself up for a potential, uh, better, better situation in the future. Agreed. Amy Babinchak: Awesome. I couldn't say it better myself. Todd Kane: Well thanks Amy. We appreciate you coming on and, uh, encourage people to check out the book and improve their operations and then position themselves for a better sale of their MSB. Amy Babinchak: Thanks for having me.