Ken Lucci 0:27

Welcome to another exciting episode of the Ground Transportation Podcast. Welcome to the studio. unfortunately, my partner in crime is James Blaine from Pax, training is at an undisclosed location training chauffeurs. So you're gonna have to put up with me today only. this is something new. This is gonna be a kind of a monologue. I've been wanting to do this for a while. We're gonna put this message out in, in a variety of forms. I'm gonna describe a little bit today, kind of myths and misconceptions on what companies are worth, what values they have, what is important. what sells, what doesn't sell. And, um, there's a lot of misinformation out there. And I've been doing this since 2018. I always tell people, look, don't take my word for it. Talk to potential buyers or talk to operators who've bought companies in order to dispel, um, the myths I'm gonna talk about, or, you know. confirm the facts that we're gonna talk about. You know, everything we're gonna discuss today is absolute the truth based on my involvement in the industry. Review of 270 plus companies. And intimate knowledge with a hundred plus transactions. Okay, so let's get started with, we have two types of customers that are driving transactions. 65% of what we do is working with transportation company owners needing assistance. Being to grow, be more profitable, borrow to buy large assets. They want to get their financials in order to be able to do business with traditional banks. They're buying companies. We do a lot of buyer due diligence, and then we work with sellers. We're engaged by sellers to do enterprise values. So. For all our operated customers, we basically do the same thing, which is a comprehensive financial review and revenue KPI analysis. It's a fancy way of basically saying we determine the financial health of the business. So having done this since 2018, 270 plus companies from the chauffeur space to the motor coach space, we have the most expert insight into the industry. And the market for buying and selling financial and operational metrics, uh, of all these companies. So, you know, what is financial analysis and can my CPA do this? Very unlikely. Can my internal bookkeeper do this? Yeah, we can train her to do it. But here's the basic difference. There's two types of accounting. One is tax financial accounting, and it's used to determine a profit and loss and what you owe in taxes. Financial analysis or what's called management accounting, is to use to determine the complete financial health of the business by examining industry specific financial metrics and key performance indicators. Um, for example, you know, what's the average gross profit margin on an airport transfer? Uh, by the way, it's 30 to 35%, but you have to know what all your cost of goods drivers are to, to know that. And there is about. 25 financial metrics. We pull from financial statements and we can tell people whether they're healthy or unhealthy. Another example is, how much should I be paying for driver labor? Uh, 25 to 27%. We've seen as high as 31% in New Jersey. We've seen it out in California as high as, you know, 37%. So we have all those metrics and. Less than 5% of the companies in this industry do what we'll call ongoing financial analysis or management accounting. 95% of it, 95% of them do financial p uh, profit and loss statements and balance sheets just to determine tax, and quite frankly. It's the reason why they don't have a handle on the financial health of their business. Um, if you ask me what my biggest frustration is on my job is, it's when a seller comes to me under a total delusion on what his business is worth. Total delusion. And part of this today is going to be to correct those myths and misconceptions. Now, it's not gonna be quite like Mussolini from the balcony, but it might get close. Because I'm very passionate about this and I want people, operators to find out the truth of what their businesses are worth long before they decide to sell, long before they think that the sale of a business is gonna fund their entire retirement. So let's start with the reality. This is a, is a true statement. Every company is a business. But not all businesses are companies. So there are two types of businesses that I look at. One is operators are operating a lifestyle business, and the owner is doing much of the work seven days a week. It lacks the three Ps, processes, policies, and procedures. Very poor financial practices and record keeping. Very poor financial trends, low or no profits. Low ebitda, which we'll get into later. And basically a lifestyle business is an extension of the owner and is totally dependent upon them. they're not able to pay themselves a high W2 income, um, and the business could suffer, usually suffers, um, if they suffer and it ends when they end. Okay? So it can't run without the owner. A sellable company, a real company, focuses on growth and profitability as two equally important objectives. Two sides of an incredibly important coin because frankly, not all revenue growth is good growth. It's not all good for business. A company is a formal structure in systems. It has written policies and procedures. It has executable plans to grow annually, and it creates enterprise value through superior financial performance. What do I mean by that? The ability to show consistent net profits from the operation and healthy ebitda, and it keeps accurate financial statements, timely reporting, and it manages its debt well. So here's the reality. Of selling businesses, and this is not me. This is the small business administration, so I defy anybody to prove it wrong. 75% of businesses in the United States report less than a million dollars in annual sales. We're a small business country, but only 20% of those businesses under a million will ever sell to a second owner. Now 20% of US businesses report revenue a million to 30 million. Now, that's an incredibly large swing, okay? That only increases the probability of sale to 35%. Now, I will tell you, in this industry what's ignored is the fact that a seven day a week business is not as exciting to a new generation of business owners. As a tech company, as a digital marketing company, et cetera. Now, having said that. If you are operating a true company with all the things I talked about, you have a pretty darn good chance of selling your business if it's above a million. Very good chance, and we'll talk about the below a million, uh, as we go through this. Now, the one thing I wanna tell you is this industry's going through what I call m and a mania. Okay? But you gotta realize something. For every successful transaction you hear about, there are four that don't sell. Because the sellers are totally unprepared for the process. Their financials are a nightmare. The sellers are unrealistic as to price and terms on what they think their businesses are worth. We actually just, you know, party company with a client that was way out of their, the league on what, what these businesses are worth. No bank would financing, no buyer would buy it. Businesses have fatal flaws. And the buyers don't want to. Buyers don't. Buyers don't wanna fix your problems, okay? And that's why businesses don't sell. There's a high revenue concentration with a, with a few large clients like affiliate work in our industry, and the financials are inaccurate. Um. Or there's poor performance. So those are the reasons why for every one successful transaction, you hear about four of them. Never sell. Never sell. Okay, that was like Mussolini there for a minute. Okay, so let's talk about again, a well-prepared company has a three times better chance of selling than a company that is not profitable. That's not prepared to sell. Ideally, you wanna prepare to sell your business three years in advance for the people that are selling their businesses because they're approached by a buyer. I can tell you the businesses are never, ever, ever ready to show. If somebody comes knocking on your door, you, it's like inviting somebody into a dirty house. So, why is it the only 25% of private businesses ever sell As a general rule. Number one, there's no year to year growth in revenue and profits. Those are equally important. you know, a lot of people in this industry like to brag about their total revenue. I. And I have looked at companies that have grown from 10 million to 20 million in five years that are absolutely worthless and upside down because they have so much debt and they have lack of profitability. So year over year growth in revenue and profitability is critical. The profits of these businesses are below industry averages and their consistent losses. That's why they don't sell. There are major flaws. The, the, the businesses and the buyers don't wanna fix them. Okay? And that could be financial problems, operational issues, personnel problems. The big one is old vehicles. You know, no offense, the companies that don't sell are the ones where the vehicles are past their prime earning years. They're past their, they're way past in mileage or years, and they could break down and people don't want to use them. So they need to be replaced. The other reason three out of four don't sell is there's no brand recognition, no value niche, no market presence. So I can tell you that the top three companies in every market, I'll go out to say the top five, have twice the chance of selling. Um, the other reason why businesses don't sell, 75% of them don't sell. And this is critical for small companies. This is for, you know this. Again, don't take my word for it. Talk. Talk to any other buyer out in the marketplace. The business could easily be duplicated for much less than the seller is asking. So over if, if you're a less than a million dollar operator and you are asking some exorbitant amount of money, what the buyer's gonna say to them is, wait a minute, what if I started from scratch? Would I spend this kind of money? When I spend what this guy is asking big problem for companies under a million dollars, I would argue under 1,000,005. They, they, the sellers are just, uh, really unrealistic on what their businesses are worth. The business has always been a lifestyle job for the owner, and it can't run without them. Nobody wants those businesses. Nobody wants the business today. When they're not on an existing, operator's gonna pay much less if the labor to run the whole business has been provided by the owner. Right. It's a lifestyle job. Right? Great. You've made a great living, but if something happens to you, the business suffers and. The other reason is they don't sell three, three out of four is they're unprepared and the sellers are, uh, in documentation, financial documentation, and they're uninformed sellers who think selling is easy. Selling is fast and they're the ones that set the prices. Let's just clarify a few things. Number one, selling takes a long to do it right and to get the most value. It takes a long time. It takes time to prepare the business. We're gonna talk about that today. It takes a long time and the market sets. The business, the prices for these businesses. Okay. Undeniable truths about buying and selling businesses. Number one, the most profitable companies sell first accurate financial statements and provable profits sell businesses. Not what your revenue is, not what you think your domain name is Worth, not what your uninformed lawyer or uninformed CPA, who's never transacted a business tells you it's the market that dictates it. The market and the industry dynamics determine the ultimate price and sellability of the business. And the real value of a business is what a qualified buyer is willing to pay for it. Now in our industry. Statistically about 68% of the limo companies in the United States post less than a million dollars worth of revenue. Now, I could sell 'em. We've sold quite a few companies that are between 500 and a million, but they take a long time. And when they have the attributes I just talked about, they don't sell because the reality is the average million dollar landscape company posts. Three times more profit than the average limousine company that does less than a million dollars. Why? No one cares how old the mower is. Nobody cares who's behind the mower. The insurance is cheaper. The owner is doing some of the work, okay? And the reality is it's a Monday through Friday business. Remember that when you're thinking of selling your, your company, or we can sell 'em, it just takes, the best ones are the ones that sell in that category. So let's talk. Um, what really we tell people to focus on, first of all, the time to focus on what your business is worth is not when you want to exit. Ideally, it's three years before, five years before, three years before is good because if there's problems, we need some time to put the, to correct the, the problems, real value. Is created by executing proven strategies to grow profitably every day. You can't juice your value for six months. You can't juice your profits and for six months and a good market and expect it to change. The value of the business. Value of the business is determined over the last three years. Okay, so focus on profitable growth only net profits, not just churning money. So those shuttle contracts that are not making you a lot of money, uh, those are, those are actually costing you because they're, they're just not adding the gross margins that you need. Manage using monthly financial metrics and KPIs and fix what's unhealthy. Fleet size is not a measure of success and neither is top line revenue. The most profitable businesses in this industry that sell have 30% of their revenue coming from non in-house fleet vehicles That's making a good 30, 35% margin. The businesses that sell have maximum owner W2 income, a business that cannot pay its owner. A W2 salary are not sellable. By the way, if your CPA is telling you to take year end distributions as your compensation, they're wrong. Because not to get technical, a distribution is a balance sheet item. You need your income. On the W2 that I can add back, you need a, your pro, your W2 income on your p and l, so I can add you back in. We tell people to, to create predictable profits. And it's much more important than just revenue growth. Profit solves all problems, you know, and the other thing I'm gonna tell you is if you think there's a large pile of cash waiting for you when you sell your business, and that's how you're gonna fund your retirement. And I've had too many disappointing conversations with 65 plus year old operators who have no savings and think that this is going to fund their entire retirement, you will be disappointed. Now, unless that's, unless you're in the top 5% in terms of total revenue in the industry, top 5% net profit and ebitda, those three things. But the average company out there, it, it's gonna help you with your retirement, but it's not gonna fund all of it. So the idea, the top 5% owners out there that I've dealt with for five years or seven years longer. The top 5% pay themselves and family members very well in a W2 salary. They take money off the table annually and they invest outside their primary business. Okay? They use their business as cash flow. To buy commercial real estate rental properties in invest investment accounts and other businesses. Uh, they don't just buy toys. The most profitable and the most successful sellers, the top 5%. Pay themselves extremely well. They make a profit enough to take a good W2 salary, take money off the table annually, every single year, and invest it outside the primary business. that's the key because you're diversifying. You're diversifying your financials. If you think you are gonna retire on the sale. Of a limousine company that's worth that, that is, you know, doing a couple million dollars. Unfortunately, you're not, and again, 68% of the businesses in this industry do less than 1 million. So if you're banking on that, I. It's a problem. And if you're buying toys along the way, you know, I'm seeing the Rolexes on Facebook and the, you know, and the real expensive, you know, toys, et cetera, et cetera, you're gonna be disappointed. Take money off the table and invest it in other things. Okay, so let's talk about the companies that can sell. Let's talk about the attributes of companies that sell. First of all, the number one reason why people buy companies is because they're profitable consistently. Both revenue and net profit. So if, if you've posted losses on your p and l and you had made, made money this year and think, oh, this is a good year to sell, that's not what banks and buyers want to see. They want to see consistent profitability. They want to see growth in revenue, but as importantly, growth in profit. Okay? The only reason, the only way you can do that is to manage by a strategic business plan and a monthly financial plan that includes a budget. A revenue forecast. Okay? That's the number one way you can make sure that you can grow consistently and profit consistently, is to have a budget. What, what, how was last year? Because that's the best predictor, right? And how are we gonna get our business? How are we gonna get the revenue this year? So created an annual financial plan and a profit roadmap. Ideally, you want to be 10% increase in annual revenue, if you can do it. You want to post a greater than 10% net profit from the operation, and you want to have a greater than 15% ebitda, which we'll talk about. You know, the other reason to do an annual plan is to rally your team around the plan and your annual goals. work on your business, not just in it. This is what they mean when they say that working on your business is examining the financial health. Really mapping out your growth instead of just, you know, going with the wind. You know, bankers and buyers, like businesses that are profitable. Their revenue is growing and they hit their goals, and the most important reason to do this and have a strategic business plan and a financial plan is you really can't achieve or improve upon what you do not measure. Okay? So we do this with our clients starting in October. You know the last ones. We will do an annual budget and financial plan for the next year. Would be February 15. Somebody, people like to start early. Some like to start late. By the way, you could do this on your own. There's like a ton of business plan softwares out there. Okay, number two. The companies that sell are pricing services to create financial success, demonstrated financial success, okay? You wanna be in on, in far as your market is concerned, you wanna be in the middle to high end of your market. Low end, low price. Companies don't sell. Okay? They just don't. Nobody wants that. So price your services to create financial success in both net, ordinary income, net profit, and year over year ebitda. The only way you can do that is when you know your financial metrics. Okay. Um, low profit or, or low, low margin, low profit businesses means that the sellers are not managing their expenses. They don't know their profit margins, and they lack pricing for predictable profits. If you don't know how much it costs you to do a, a trip. How much do you spend in, uh, in labor as a percentage of income, fleet expense, fuel, fleet insurance, et cetera? You can't predict your profits, but you can if you know the healthy metrics you're operating under. So sellers who price for predictable profits are creating long-term enterprise value. So you're not just having a good year, but you're building on three or four or five years of really good performance regardless. Of what the economy does. If you have a handle in your business, you can adjust accordingly. Okay? So the cost structure of your business and your desired profit should dictate your pricing, not whatever your competition is charging. Okay, here's a safe bet for you. Make the assumption that your competition has absolutely no idea or a handle on their financials. Be the one in the market that knows your financials and prices accordingly. You are better off doing five very profitable trips, or seven very profitable trips than 10 trips with low margin. Nobody wants that. Create financial performance on all your services and all the contracts you're going after and all the vehicle types so you know your gross margins and we can help you with that. Establish and maintain gross margins that are above industry averages in all services. I say I'm gonna give, just give you some general stuff. The airport transfers you're making, everybody, the ones people we work with that are doing well are making about 35% gross margin on. Airport transfers 40% on, uh, sedan and SUV charters, but 30, 35% on sedan and SUVs to the airport. Vans and minis, you should be making 40% margin. I like to see 45% on charters. Motor Coach. You should be making 40%. Again, this is charter work with a good quality motor coach. So being above the market in terms of price increases the value of the business, and it also increases your chance of selling. Okay? Lowest price. Companies that do a ton of airport work and they do a ton of affiliate work are not worth anything. Don't take my word for it. Talk to any buyer who's an operator. So every problem in business can be traced back to lack of profitability. So I don't know why there's such an aversion to making a good profit, but if any decision you want to make in business. It's only enhanced when you make more profit. You can do it. I want to hire a new salesperson. Great. You have the cash to do it. I want to buy another uh, SUV because we're doing so much work. Great. You have the cash to do it. Okay. Number three, if you wanna sellable business address the known operational organizational fational. Now, a sellable company has written prices, procedures, and policies for every single. Person in every function. So update your job descriptions or write them, update your ops, manual or write it so that there is a process and a checklist for everything. And if you're just starting out, nothing wrong with writing things down so that the next person that comes in that does the work that you're doing now knows how to do it. Update your sales processes, update your terms and conditions, and a pricing manual. A seller just sent me a pricing manual that said 2019 on it. I said to him, I sent it back. I said, I'm not showing this to a seller. they're gonna know that you haven't raised your prices and this is why you're not profitable. Avoid the key person syndrome. And that includes, you always have the ability to have a bench ready to train. I'm never gonna forget that. When my dad passed away, I was a, a transp, I was a limo operator, when he passed away. I had some really good people take care of my company for 10 days. I was gone for 10 days, and if you don't have a bench ready and they don't know how to run the business without you, then again, you're running a lifestyle company. Manage your fleet assets so that you have 50% equity in your fleet. So, you know, buying it zero down is not a good idea. You should have a good, good deposit when you buy a, a new vehicle. So 50% fleet should be paid off, and then you should also have 35, 30, 30 5% remaining useful life of the vehicle, right? So this is the way we look at it. Look at the industry norms. Everybody gets rid of their sedans and SUVs depending upon the market between, you know, 3, 4, 5 years. Okay? If you're running 7-year-old vehicles, your company is not gonna sell, excuse me, 7-year-old sedans and SUVs. If you are running mini buses that are 15 years old and motor coaches that are 15 years old. No buyer wants to buy a business and then invest in loss of equipment, right? So that's why we say you should have a good 35% remaining useful life of vehicles. And if I had to look at the number, if you have 36 months left in, in your big stuff, you, you're doing okay. But if you are still running mini buses that are 2000 and twelves or 2000 and tens, you have a problem. You know, we have a customer that, You know is running 1998 motor coaches and the buyers looked at it and said, you gotta be kidding me. I have to spend $1.5 million because I'm not gonna put these this equipment out. It keeps breaking down. Use technology to reduce labor, reduce risk, and improve efficiency and measure, improve every aspect of your business, including the client experience. So this is all about really all about. Fixing the known problems of your business. Now, the number one flaw we see, the number one flaw we see is the organization is too dependent on the owner. If the business, your business cannot exist without you making all of the decisions and you're performing multiple major tasks every day. Chances are your business is not sellable for a decent value. Likely it's gonna be what I call the earnout, right? The, the, the, the earnout with no number at the end. because you are the one that's a lifestyle business. So you know, what you've created is a great job for yourself and a lifestyle, but it's not a company that can survive on its own without disruption or revenue degradation. So the fourth way. You wanna make sure your company is sellable is to build a company that the buyer would spend more creating, right? So if a buyer looks at you and they can make a credible case that, that, that they can spend the same money or less money over a defined period, then why would they buy your business? This is incredibly true with businesses under a million dollars in in revenue. So if a buyer can recreate your results over. 2, 3, 4 years, they could duplicate the revenue, duplicate the profits, duplicate the market share, and duplicate the customers. Then why would they buy your business? This is, this is reality. So how do you do that? You gotta get on Google Page one. Above the fold. You have to be on Google My Business app and, uh, and maps. Google My Business Maps in the top five places you've gotta be. On the new Main Street is Google Page one. 80% of new customers search for providers on their phone or on, on their, uh, desktop during the day. The number five thing that you can do as far as making a company more sellable is build a superior brand recognition and build or build a value and a value niche in your business. So here's what I mean by that. When your ideal customer in your market thinks about limousine service, the airport service mini bus service, motor coach service is your brand name on the tip of their tongue. That's having brand recognition. By the way. You're not building brand recognition with PPC. You're building brand recognition holistically by being SE oed on page one without the ad and being known out in your community. So how do you do that? You design a brand persona. What does your brand stand for? And it better not be low price. You consistently promote your brand. Out in your marketplace and continually foster real market presence, consistently ask for and receive five star reviews on the service you're providing. Now, I always do this. I always embarrass my friend Doug Schwartz. Um, Doug Schwartz runs executive limousine out in, uh, long Island, and he's a medium sized operator. And I had the bad fortune of trying to sell, uh, an operator that was quadruple his size. They had re and they had reviews of 2.3 stars and Douglas has eighteen hundred and ninety six five star reviews. Now that stuff matters to buyers and it matters to customers. And he's got one of the best reputations on, on Long Island 'cause he's cultivated five star reviews. Okay? So how do you create another, a permanent brand presence because making your brand known. Not a cult of personality, not. Everything comes through your cell phone. That's a cult to personality too. Reliant on the owner. You have to create permanent presence on Google, not just PPC ads. You have to have real search engine optimization. Google Page one, real online presence. Companies that are in the top three to five in their market. Always have a higher value and they have a much better chance of selling. So the other piece of the puzzle here is your market may not be in the Geographic. It, it, it actually could be the 25 wealthiest zip codes in your area. It could be best known in an industry. Um, I have more lawyer clients and professional service clients than anybody for ex, you know, that's a good example of one. it may be that you do business with a lot of entertainment media, et cetera, et cetera. So it can be a client type or it can be a segment of, of your area that 25 wealthiest zip codes. The key is you have brand net recognition somewhere. Number six, assure that the company is not dependent on a few large clients. So this is a, issue in our industry. So buyers want to buy companies that have a growing diverse customer list, and you wanna see 80% of your annual revenue spread among up a hundred to 300 clients. Most of the time when we do reviews, we see 80% of the revenue. Is tied up with a hundred clients, which is good, but if you have revenue concentration, if 10% of your revenue is tied up with one client, okay, it's a problem. If 20% of your business is tied up in affiliate work, it's affiliate work and it's one or two affiliates, it's a problem. And this is not me saying it's the market saying it. Uh, famous case I had with a client, um, in Los Angeles. 50% of his revenue was tied up in two or three networks that pretty much any decent buyer was gonna say, holy crap, if I lose that account, I'm, this business has gone way down in value. The, the seller was not accepting of that, and that's why his business never sold. So the best way to achieve exceptional value, sell more stuff to the same people, continuously engage your existing and past customers. Nothing says success. Like continually repeat customers always remind them of everything you do. You know, here's a misnomer. They're not sitting on your website going page after page to figure out what you have. You have to continually, repeatedly let them know what you do. Another way to do this is to create an online sales engine where your website is actually an e-commerce website. Get on Google page one and make sure people can get quotes, make sure people can order services. There's some great software out there in CRMs to be able to do it, chat bots, et cetera, et cetera. Review your aggregator and affiliate revenue. And here's the simple thing I tell people. If you lost your biggest aggregator, you know, like in our business it might be Limo Link or savoia, and you or you lost one of the big networks, if you did a lot of affiliate work, you know, for any of the Bigs empires, Boston Coach, RMA, Carey, et cetera, if you lost that work, how long would it take you to make it up? If you don't have a good answer, and that answer is not 60, 90 to 120 days, you got an issue. It'll affect the value of the business. Manage a client, use trends and market to them. Now we have an internal sales tool that we use for our clients. It's, it's basically a sales heat map where we look at the past few years to determine the. Biggest clients and look at the revenue trends. Are they using you for more or less now? The, we do it simply red fur. They're using you less yellow, you're, they're about 10% down and green is, they're above the last reported period, so. 24, they did more business with you than 23. Right? Great stuff. But if you are not measuring that, you are also losing a lot of sales. You're taking your clients for granted. So we recommend that you compare the use trends of the last two to three years, and also you compare your next 90 days. To look at where your business came from last year and reach out to the largest ticket clients. So we do that with our clients with a sales forecast. You know, use the op, this opportunity to look at how they're doing business with you to to visit them, refresh the relationship, and. Discuss your full capability. I mean, I can't tell you how many times people say, well, I didn't know you had a motor. They, they didn't, my customer didn't know I had a motor coach. They didn't know I had that new mini bus that, that was 45 passengers, et cetera, et cetera. So, so again, good practices with customers. Number seven, the biggest thing I will tell you is create a real company. To create a real company. It has. Lots of Ps. It has good profits. It has an exceptional team, exceptional team of people. It has processes, policies, procedures, and it has a principle, an owner who is focused on strategic planning. Operational supervision and financial oversight. In other words, it has a principal owner who is focused on working on the business and what comes next, and how are we doing instead of someone who's working in the business. So people laugh at me when I say this, but the owner should make down the least important person in the actual day-to-day operation of the business. I mean, I've owned five companies, five different companies. And if I wasn't at three o'clock in the afternoon, I wasn't doing something I love to do. There was a problem, right? Everybody at my limousine company knew how to run it better than I did. So owners should focus on strategy. Key customer relationship, business plan, execution and ongoing p and l and financial management. If you are leaving your financial management to your CPA, number one, you're not maximizing profitability, you're not maximizing your income. They don't care and they don't know. What you should be making for gross margin, what a good industry average, et cetera. But they'll tell you how much you own taxes. So the owners should again, work on the business and not in the business. Okay, and I have a question for you. If you are not gonna do it, who's gonna do it? If you are deep knee, deep, seven days a week in the block and tackling, taking reservations and dispatching, who is working on the plan to grow this business? And you know, there's a big reason why businesses don't grow, and this is the number one reason is the owner doesn't replace themselves in the primary roles. Okay? So the number one p, it's profit. It's the only indicator of success. Financial performance trends are measured over two to three years when it comes to the value of a business, and it really speaks to the long-term viability of the business, and it, it is, is totally used for enterprise value. If you have no profits. You have no value. So in our industry, net ordinary income profit from the day-to-day operation should be between eight and 12%. Best. Best we've ever seen. 19%. But the average company out there, the average company is doing eight to 10. The average EBITDA for a a well performing financially healthy company is 15 to 17%. Now, we've worked with people and we've helped in to get EBITDA and net profit up to over 20% on the ebitda. You know, mid-teens on the NOI net ordinary income, but it takes time. So, by the way, NOI net ordinary income is the profit from the day-to-day business. It's not the sale of vehicles, it's not a one-time expense, right? It is how much money did you make from doing what the business does every single day, the transactions of the business. So those are the numbers that you should shoot for. And if you're not showing a profit of eight to 10 to 12%, and your EBITDA is not at 15 to 17%, chances are you don't have value to sell. And again, you wanna see a, a buyer wants to see, and a bank wants to see 2, 3, 4 year trends of solid numbers. Okay. Um, or the business is not sellable. So the owners of private businesses, you know, I, I, I have to tell you, I admire them. I was growing, you know, I was raised by people that owned businesses and my parents worked in businesses, their businesses for 50 years. You know, you have really. Three options when it comes to the disposition of your business. Number one is you. You have a plan to sell it, and the ideal exit strategy, exit plan should start three to five year prior to execution because there's always things to fix and improve. The second thing you could do is what's called an orderly liquidation. Now, while this might sound dramatic. It happens with the majority of private businesses that are under, 3 million bucks in sales. Okay? It can be the most straightforward approach, and it definitely, if you don't have the time to do a formal exit plan, it's probably what's gonna happen. You're just gonna sell off the fleet. and maybe give somebody the customer list. You know, your third option is to keep the business, simplify it, improve profit, and gradually have an owner exit or succession plan, or at least the ability for the GRA gradual. The owner from taking the most onerous parts of what they do and have the business run on its own so that they can come and go as they please. So how do you do that? You look at every process in the business and you simplify it and you engineer yourself out of it. Period. End of story. Okay. You have to have somebody that can do everything you do except I, you know, you, you, you don't want them in the checkbook, but you don't want them in the financials necessarily, but. The day-to-day, every day-to-day operation, a process rather, you need to engineer yourself out of it. The second way to do it is to create several options for a succession plan if something happens to you unexpectedly. Now, we just had a client that suffered a, a, a, an automobile accident, and he had a traumatic brain injury and he was out of the, out of his business for seven to nine months and his poor wife had to run it, you know, and the business is a classic lifestyle business, and the business has gone down because of it. So have a plan. I, whether it's a part-time driver that you can teach to do reservations in dispatch, whether it's other operator who can help you, but the bottom line is to turn your business into a sellable company. It cannot depend on you to do the day-to-day block and tackle. Oh, there is a fourth thing that you can do, uh, besides sell orderly liquidation, or keep the business and try to engineer you yourself out of it is to do nothing. Don't do anything. Don't listen to anything I say. Don't listen to anything that anybody who has expertise in business. transition exit strategies. That's the worst of all, because we are all mortal and we are all one sickness, death or divorce away, God forbid, from our business suffering. So if you ever want to sell your business, my message is simple. Create an exit strategy with several options multiple years before you want to do it. Ideally, three years, because we need some track to track record to fix problems if we're having profitability issues. So let's wrap up here. So let's talk about again. Real companies that sell. Number one, they have profits. Number two, they have people, they have a team of people that can run it, and you're a part of it, but you're not all of it. It has written processes, policies, procedures, and it has demonstrated success year over several years. That can only come when the principle of the business is focused on strategic planning, supervising. My dad used to say. Inspect what you expect and the financial oversight of the business. That's the most important thing that make businesses sellable is those Ps. The NU number one P is profitability. If your goal is to show a loss every single year, and your goal is to hide money. Business is not sellable. It's not bankable. Banks that look at it for a buyer will understand it because understand something. In order for your business to be financeable at the time of sale, your financials need are as important, if not more important than the buyers. The buyer can put up stuff. The buyer can do certain things, but if the asset he's trying to buy does not have demonstrated profitability, the bank's gonna say no. Alright, we're gonna finish up with something today because there is a misnomer out there about the how long it takes to sell a business. Okay? I'm gonna give you the steps. There are 12 step one is to do a financial and profit review and KPI analysis on the business to see where you are now on the financial health and performance of the business. Number two, it's establishing that current value range, kind of a from, and two that you as a seller agree with. By the way, if you don't agree with the range. We wouldn't put the company up for sale. Uh, there's a reason why 20% of generic business brokers, their success rate is 20%. Okay? Because they don't know the industry, they don't know the value range, and they overprice things, but you've gotta be realistic. So that's step two is to do a value range on everything. Step three is prepare the business for sale. Sometimes that takes time, fixing the financial flaws, fixing the operational flaws, and if the flaws are big. He could take. 18 months to two years. Step four, assembling the data, creating a data room, and to have creating an e-file so that when people ask for information, we have it. Step five is our confidentially marketing the business for sale. Basically, that involves telling buyers that we know about that. We have a company coming up for sale in New York, or we have a company for sale, you know, near the Philadelphia market, for example. Then we qualify the buyers. We make sure that we do a financial due diligence on the buyer. We execute non-disclosure agreements and we make sure they understand. This is completely confidential, by the way. Sellers should keep it confidential as well. We have dropped clients. They tell the world that their business is for sale. It makes the drivers look at going other places. It upsets their employees. It's the worst thing in the world that you can do. It's a confidential process until a certain point. Step eight, ideally, is we review multiple offers and we create counter offers once we find two or three qualified buyers. Step nine is you execute a letter of intent. Uh, with the final person. Step 10 is that the step nine rather is execute an LOI. Step 10 is draft transaction agreements, by the way, we do that so that your lawyer doesn't have to write contracts from Ward. One. Step 11 is you close the transact transaction, you have a closing. You sell the business and step 12 is you help with the post-closing transition. Sometimes that's a short amount of time. Others times the buyers want you to stay on for a period of time. But fundamentally, the best case scenario, this is a six month process. If the business is profitable and it's in a good market and it's got good revenue growth and it's of a specific size. The worst case scenario is it could take a couple of years, and again, if that's if it's a desirable company. Finally, besides us, an m and a advisor, who do you need on your team? Well, first and foremost, you need an m and a advisor who's certified to do valuations in your industry. Okay, well in advance of the contemplated sales, by the way, it's not your CPA unless they have m and a transaction experience, and it's 30% of their practice. If m and a is 30% or greater. Go with God. Use your CPA if you don't believe what we're saying. If you want to go in a different direction, it's also not your lawyer, unless they are in an m and a transaction attorney. If they're commercial real estate lawyer or generalist, they're not the person to to represent you. Okay, MA advisors facilitate sales. Most lawyers, if they're not directed properly, kill sales. They kill deals. So you don't want to, uh, in my estimation, a generalist business broker, just look at the numbers they sell one out of five of what they have. That's a universal industry stat. That's not my stat. You're certified and inexperienced tech planner. I cannot emphasize this enough. 95% of the CPAs out there are not certified tax planners, and they have no asset sale tax planning experience. Okay. That's, that's a separate certification. You need a tax planner who keeps up with all of the changes in tax, investigate all of your options on seller proceeds distribution, so that. You, you limit your taxes, write them into the purchase agreements. There are many ways that you can take capital, by the way, popular to do a 10 31 exchange. A good tax planner will tell you, you can take the proceeds of your business and do certain things with it. You need an m and a transaction attorney, not your commercial real estate lawyer or a generalist counsel. They don't know what to look for in agreements, and they're gonna make mistakes. I've seen it too often. Current CPA's role is to make sure all the financial statements and tax returns are accurate and they're available and have any information needed during a due diligence period. At the ready and accurate, and they typically don't have a role in transaction negotiations or tax planning. Again, unless they're certified, and again, unless 50% of their bi practice is tax planning, you need a separate tax planner, okay? If, if not you, you're gonna pay more than you expect. Finally. Let's talk about the types of transactions that are out there in the Chae for transportation space. There's basically three types. You know, TRA transaction type one is when somebody comes in and buys the business and they, they pick and choose the fleet, and that's done separately. Um, there's, in most cases of the sale of private businesses, there are seller financing options. The best companies. We will sell the fastest if the seller is willing to take back a promissory note. The second type of transaction that's out there is what's called an all in transaction. And that's a business that's, that's a transaction where the buyer is buying all of the business and all of the fleet. and in those cases, you know, sometimes the buyer wants. The seller to stay on for a period of time. and again, there's some seller financing on those transactions and there's always some sort of a contingency if something changes in the business where seller proceeds, you know, will be adjusted. The third type is, again, all in business and fleet transactions that are SBA financed and normally. Yeah. SBA financed is not gonna get you the top value because the SBA wants to cover their bets. The SBA wants to have plenty of asset coverage. Usually it's 80% cash at closing and 20% delayed payment to the owner. usually it's four to five years out, and in, in those cases, the owner would stay on for 30 to 90 days. Those are generally what happens. I can tell you every transaction is different because every company is different. You know, the emphasis I will make is it takes much longer than you think it's gonna take. the other piece I will tell you about, about mergers and acquisitions is besides the statistic of, for every one that closes, there are four that don't most, the most important information. About merger and acquisition transactions in any industry is below the surface. It is literally, you would never see it as a buyer or a seller. It's what bankers know, what investment banks talk about, what we talk about with private equity firms, what we talk about with potential buyers. So. That is why people usually hire someone whose full-time occupation is doing valuations and mergers and acquisitions. So I hope I gave you some information, uh, straight talk about what your business is worth and what the process is like. I can tell you if you ever plan to exit. There is no such thing as starting too early. Conversely, if, if a buyer knocks on your door today, I can almost guarantee you with certainty. Number one, your business is not ready to sell, and number two, you will not be paid the highest value because you are not ready your business. Definitely needs conditioning. It needs fixing, it needs adjustments. It needs improvements in the financials. So, um, again, thank you for joining today. I hope I didn't bore you too much. and we'll be back next week with, uh, James Blaine and hopefully we'll have another, uh, another guest to talk to. Thanks and have a great day.

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Thank you for listening to the ground transportation podcast. If you enjoyed this episode, please remember to subscribe to the show on apple, Spotify, YouTube, or wherever you get your podcasts. For more information about PAX training and to contact James, go to PAX training.com. And for more information about driving transactions and to contact Ken, Go to driving transactions.com. We'll see you next time on the ground transportation podcast.