Ken Lucci 0:00

So here's some realities that people really don't necessarily like to hear. 75% of US businesses report under a million dollars in annual sales, right? Small businesses are the growth engine of, of the country. Sadly, only about 20% of these businesses ever sell to a second owner. Well, good afternoon, Ground Transportation Podcast audience. My name is Ken Lucci from Driving Transactions. I am here alone today, so I'm kind of a little bit lonely, even though I, my producer John is here. My partner in crime, James Blaine from PACS Training is not here, so this is a solo episode. James, uh, I'm sure you're out there training a group of chauffeurs and, uh, or CDL drivers, so have fun with that and just know that, uh, I miss you. On today's podcast, we're going to kind of give you a little bit of an M&A mergers and acquisitions update, but more more we're gonna try to I want you to be thinking about, your eventual exit of the business. I, I really, even if you're 25, 30 years old and you love the business and you don't plan to exit for years, you know, I want to dispel some myths about selling your business and really talk to you about the most important things that you can be focused on as you grow your business and then as you contemplate an exit. So first let's talk about the difference between running a lifestyle business and building a sellable company. So a lifestyle business is where the owner is the, a worker laborer seven days a week. He really can't take much time off, uh, or something suffers in the business. Even if it's as simple as, "Hey, I do all of the billing and invoicing for the company." What, if something happens to you, somebody's gonna know that process at the very least. But a lifestyle business is where the owner is the laborer seven days a week on call. The business lacks the five Ps, people, processes, policies, procedures, and profits. that's really straight down the list. It's, even if you're a solo practitioner, you should start writing down all of the processes and the policies and the, the terms, et cetera. And as you bring people on in the business, you should formalize those processes into a standard operating procedure. The ultimate goal is for you to be the least important person in the business, and we'll get into that. Lifestyle businesses usually have poor financial practices and record keeping. I can't tell you the number of businesses, and I've seen businesses up to five million in sales can't produce financial records, and that's a no-go when it comes to selling your business. No one is going to pay for a business, when you can't demonstrate accuracy in your financials and profitability, which gets me to poor financial trends. The business operates, it takes in revenue, it pays out cost, expenses, and it, it just doesn't make it. It doesn't make a profit. It's not gonna sell. So regardless of what you think on top line revenue, and we've seen $20 million companies that literally have no value for a variety of reasons, but the most important is they don't make a net operating income, and they have a low, what's called EBITDA, which is earnings before interest, taxes, depreciation, amortization. The most important thing about an EBITDA, and it's an accounting equation, is the earnings. That's your net profit. So if you're not making a profit after you do all this work, I don't care how much revenue you have, your businesses really doesn't have much value. Low or no owner W2 compensation on your profit and loss statements. Well, what does that mean? the owner of the business should be drawing a W2 payroll paycheck. Sure. At the end of the year, they should benefit from year-end distributions, but they have to demonstrate that they're paying themselves regularly every single week. The IRS would tell you that they like to see in small business owner compensation, 50% at least, maybe even higher, 50% at least, W-2 income, and then at the end of the year, close to the end of the year, you take distributions. lifestyle business is when the it's simple. If you can't take time off, the business will suffer or end, God forbid, when you suffer or end. So let's talk about a sellable company. You know, first of all, a sellable company has growth and profitability. Those are two equally important objectives. It's not one or the other. The business is growing in terms of revenue. We like to see a steady 10% revenue growth annually. And, you know, when you're adequately pulling the levers of your business and you have marketing programs and selling processes you should be able to grow 10% a year in top line revenue. Profitability comes down to your business should make a profit, which would be equal to the average profitability of a company your size in the industry. Now, they, that varies widely by the size of the business. And we've reviewed 300 businesses. I can tell you that, to strive for 10% net ordinary income from the operation. What does that mean? The activities that you run the business where you have revenue coming in, you sell a trip, you perform the trip, at the, and you build the trip. At the end of paying all your costs to do the work and expenses associated with the overhead of the business, you should have a minimum of 10% leftover, okay? you should have formal written structures and systems. Even if you're a two person or three person company, you should have formal structures and systems and terms so that people can operate the business without the owner. That's the key to a company. Written policies, procedures, processes, and that operate seamlessly. Job descriptions from employee one, you should have a job description. An executable plan, business plan to grow annually, both in revenue growth, profitability, and market share. You know, I'm shocked even when I see large companies with no budget. So what that tells me is they're gonna react to the market, and they really don't have a plan on how to proactively push the levers or pull the leverage of their business. Well, what do I mean by that? If you've got top 10 clients, and you should have a plan to try to duplicate them and make sure that all of your top clients, top 10, top 50, top 100, are utilizing all the services that you offer and know everything about the services that you can offer them. Create an enterprise value through superior perfor- financial performance. Now, averages vary based on company size, but it's really simple. It's consistent net ordinary income, which is profit from the day-to-day operation of the business, from selling trips, performing trips, billing trips, et cetera. And then healthy EBITDA trends. So healthy accounting, the term is, again, EBITDA. And in our industry, healthy trends are somewhere between 17 and 25, maybe 17 and 23, depending upon the size of the business. Most importantly, you have to have accurate financial statements, and those financial statements have got to be timely, created timely. So here's some realities that people really don't necessarily like to hear. 75% of US businesses report under a million dollars in annual sales, right? Small businesses are the growth engine of, of the country. Sadly, only about 20% of these businesses ever sell to a second owner. Now, we have about an eight out of 10 p- track record, 80% track record of selling companies. It's not by accident. We don't take on We will value your company, we'll put a range value on it, we'll value your fleet. But if you're unrealistic on what you think your business is worth, it's not gonna sell to anybody. So we don't wanna spend thousands of dollars trying to sell your business. And the biggest, the most difficult businesses to sell don't have the above attributes. They don't have the things I just talked about. But that statistic on 75% of US businesses report less than a million dollars in annual sales, and t- only 20% of that category will ever sell to a second owner. That's reality. That's not Ken's words or opinion. That's reality by the SBA, the small business administration. Now, the bigger bucket, 20% of the businesses, report revenue between one million and 20, about 35% of those businesses sell. Sure, bigger businesses sell more, faster, right? But if you're a well-prepared and financially ready business, and you're realistic, there's an eight out of 10 chance that we can sell your business. Now, few things. For every business that is advertised for sale, okay, there are four that never sell. So when you hear about all the M&A trends in the industry, you know, it's the best companies for sale that end up transacting. And I always tell people, for every one you hear about, there are four or five that never sell. Y- mostly because the sellers are totally unprepared for the process, because it's extremely difficult, and we prepare people for the process every day. Sellers are unwristic as realistic as to the values or the process that we have to take people through. And by the way, we're not the only ones that do it. You can have a business broker do it, but we do a much better job. Businesses have fatal flaws that the buyers uncover or that the seller has not fixed, and it costs the business not to sell. Most of that is involved with profitability. Most of the flaws, either the company's never made any money or the record keeping is terrible, but the fatal flaws are all revolve around financial performance. there may be a high revenue concentration among a few clients. Those are difficult. If you have 30% or more of your revenue tied up with one or two clients, you know, it's gonna have an impact, but it's not, it's not something we can't overcome. the other reason, inaccurate financials, poor financial performance. I tell people, from the day you start your business, you need to be keeping accurate financial records. You need to look at your trends every single month. There's no question about it. It's the best value that you can have is a bookkeeper that, that keeps all the records for you in QuickBooks. Facts about selling companies, less than 25% of businesses that are listed for sale annually ever sell. Now, that's private businesses. That's a statistic from the investment bank and the US census and the Bureau of Small Business Administration. 75% of US businesses, we already covered that. Under, uh, less than a million in annual sales, only 20% will sell. 20% of US, businesses between one million and 30, about 30% of those will sell. 5% of all businesses have annual sales above 30 million. About 70% of them will sell. Bigger and more profitable absolutely is better and will sell. However, despite all the above statistics, businesses that can demonstrate terrific profitability and have a track record of financial success that they can demonstrate with financial record keeping that's accurate, have a three times more of a chance of selling, right? By the way, do it yourself business, do it yourself selling of your business, you might as well try do- it-yourself brain surgery. Maybe that's an overstatement. But DIY processes don't work. They just don't work. The we'll talk about our statistics as 80% success rate of selling businesses, and we'll talk about why the other 20% don't sell. But the typical general business broker has about a 20% chance of selling your business. When you try to do for sale by owner, okay, you have a 10% chance of selling your business. Now there are exceptions, which we'll talk about. If you have someone close to you, another operator or a business partner or a, an employee, sure, that's an inside sale. Those kind of belie the statistics a little bit. So why don't businesses sell? Why don't many companies sell? Number one, there is the 5% of the time there's no market for resale. That's difficult to, to realize, but that is when buyers look at a business and say, "You know what? I can really duplicate that business for much less than this person is asking." That's one of the reason why there's no market for resale, okay? And that's usually when people really, really overestimate what they think their business is worth. 30% of the time, it's unrealistic seller demands. That's usually the asking price. The terms are, or the terms are unrealistic. We have a pretty large comp- there's a large company for sale in our industry, in the transportation industry. It's been around for 30 years, companies maybe over $10 million, let's just say, and flat out. He, he expects to be paid 100% cash at closing. His fleet is old, so the buyers have called us that have looked at it and want us to do due diligence on it and help them with it. We look at the financials I question some of them, but when more, more than anything, we look at the terms that he expects. He expects unbelievably unrealistic value and he expects all cash at closing. 80% of private business sales have some sort of contingency that the current owner has to guarantee. 65% of private business sales have seller financing. 30% of private business sales have bank financing, and 95% of that is SBA backed, okay? what does that mean? if you want a bank to help you buy a business and financing it, that business you're trying to buy better be pristine. So 30% of the time, unrealistic sellers, 21% of the time, unrealist, reasonable buyers. We had that in a case recently, great, terrific seller, runs a nice business, smaller business, about a million, two million three. And we had a really, really solid financially qualified buyer who was just totally unrealistic on what he expected before the sale. and usually what happens is we vet out all those buyers. we don't even show sellers offers from buyers that are zero down. We don't even do that. We, we absolutely consider those buyers at this stage of where we are in what we do and the market for these businesses, okay? they should have lots more skin in the game, and if they're going to do a zero down at closing, it better be an unbelievably good offer and it better be backed with, "Hey, I'm gonna put up my house. If I don't pay you this money I owe you, I'm gonna, you're able to take my house." But doesn't happen. So 21% of the time, it's unreasonable buyers. 12% of the time, it's inaccurate valuations. Like that $10 million company that I talked about, legacy company in the country, everybody would know their name, and they hired a business broker who has no clue how to value the business. And he did things like adding back administrative expenses and adding things back that just don't make any sense because he doesn't know the market for the business. He also didn't take into account that about half the fleet has to be replaced within 18 months. So when a buyer looks at that business, he said, "Oh boy, not only do I have to buy the business, right? I have to get into debt to do that, but now I have to, I have to replace the fleet because the seller has, you know, just decided to milk the business instead of replacing the fleet." 10% of the reasons why businesses don't sell is seller misrepresentation. we flat out, when we do a financial review of a company, we find out all of the financials, all of the KPIs, all of the things that are fantastic opportunities that we can highlight, but we also think, see things that need to be fixed. In a DIY situation, this is when a seller tries to sell the business themself, and they make massive misrepresentations. 9% poor lawyers are advisors. You know, I put that in the category of a business broker who doesn't know the transportation industry or the industry of the company that's for sale, and then poor lawyers. You know, lawyers that are not transaction attorneys that are not properly managed, they ruin a lot of transactions because they wanna fight. Lawyers are trained to litigate and lower risk, et cetera, and they can be unreasonable. Number seven, economic uncertainty. If a business is really dependent upon, uh, having a good economy to make a profit, and it doesn't make a profit in a so- so economy, that's one of the reasons. Or if the outlook in general is really, really bad for the economy, which not the case today it causes businesses to go unsold. And then no capital for financing. A seller has got to understand that a private business, 60, over 65% of private businesses have some kind of seller financing. Now, we've got the experience where we, vet buyers financially, and we actually work with the transaction attorneys and, and go, take them through the process. If your seller is gonna, if the seller's gonna take any financing back, it has to be backed up. It has to have either tangible assets, it could be the fleet assets, it could be, the business owner or the buyer rather might have a piece of property, et cetera, but we make sure that the sellers, anything they finance is gonna be protected. So our message to operators who wanna sell is the time to focus on what your business is worth is not when you wanna sell the business. The real enterprise value is created by executing proven strategies to grow every year. Focus on profitable growth, not just churning money. You know, top line revenue doesn't mean anything if you're not keeping a good bottom line profit. Know your gross profit margins on every service type, every vehicle and every contract. We recently looked at a company that had a shuttle contract, and the seller said to me, "That's one of the most profitable things that I do. And when we really looked at the soft cost of the shuttle contract and the amount of time it took to manage the contract, and his staffing said flat out, "I spent half my work week working on the shuttle contract, and that wasn't factored into the cost of running the shuttle contract." It really didn't look that great, right? So we helped him actually renegotiate that contract well before he decided he's gonna put the business up for sale. Luckily, we have plenty of time. Document and manage your critical financial metrics and KPIs monthly. Manage the monthly. Fix the unhealthy financial metrics long before a well-planned, well-executed exit process. You know, that might mean that if you say you wanna exit, you wanna think about exiting, it may take 12 or 18 months to fix some things and to see what the trends look like after you make fixes. Well, what do I mean by that? You may have some costs and expenses there that are rich and heavy that we might be able to cut out to make your profitability look better. You know, we really do need 12 months of good trends to show that. Have diversified revenues, diversified services, diversified customers. Fleet size is absolutely not a measure of success and it's not gonna help you at closing, right? I know some of the most profitable businesses we've sold were more asset light. They had a great deal of their business was national farm art work. So in general, you wanna have less than 10% of your revenue with any one client. You wanna have greater than 30% of your revenue generated from vehicles and drivers that you don't, own, like farm out revenue, whether it's national or local or IO, that greater than 35% of revenue, not, you don't have to buy equipment to keep it going or employ drivers, that's a really good selling point. Maximize your owner income and other owner consideration on the books. Now, your CPAs might conflict with this, but they're not thinking about what it's like to sell your business. the IRS likes to see small business owners take a W2 income. Make sure you're paying yourself benefits. Make sure you have other expenses to run the business on the books, on your P&L. What do I mean by that? Charge private car. Put your p- put your car on the P&L, pay yourself for gas, pay yourself for the car allowance. Make sure you have life insurance, again, on the books. What's not on the books mean? Cash means nothing. There's nothing you can do with that. The other thing is year-end distributions, and I have to even explain this to some CPAs. A year-end distribution is not added back to the valuation. So if you write yourself a check out of the checkbook, out of cash at the end of the year, if you don't have it on the P&L, it's what's called a balance sheet cash item, and that cannot be added back to the value. Now, let's talk about this. If you're the owner of the business, and every day, you know, you go in and you make sure the business runs, and, the business runs without you, I can actually add back a lot of your expenses, right? But if you're in there and you're doing the billing and you're doing the dispatching and you're doing the reservations, which is fine when you're growing up in the business. But later on when the business is mature, if you're sitting there two to three days a week doing the books and you're also doing the dispatching, your labor has to be replaced by the new owner. So it's tough to add you back, right? So create predictable profits. Net ordinary income is net ordinary profit, from the operating profits. Manage your cost and expense structure, forecast your revenue growth, create and manage a monthly budget to adjust the levers of your business along the way. What do I mean by that? Just talk to a great operator who, uh, who's become a client who said, "Hey, what should my average van be doing on a monthly basis in my market?" And we told him, and he's got too many vans. So we actually looked at the number of days where all those vans are out at the same time. He's selling three of them, right? So that's gonna reduce his insurance costs and ex- his expenses because we told him what the averages were. Okay. So the top 10% operators that we have helped exit this business, this is what they all had in common. First of all, they paid themselves and their family members well over many years in a W2 salary, on the books, other on the books compensation. There's absolutely nothing wrong with having family members on the payroll. You're allowed. There's nothing wrong with actually something called the Augusta rule, where you can actually rent your house for a certain number of days a year and the business pays for it. So owner compensation includes W2 income from payroll and all other owner consideration. Everything you take out of the business, the key is it has to be on the profit and loss statement so we can add it back. the other things we've noticed is the top 10% of operators we've helped exit have created personal wealth outside the primary business. They've had enough consistent profits where they've used the business as a vehicle, no pun intended, to create wealth. Great customer I just tried to, that we just sold his business and, his business was smaller, but he had it in a building. He owned the building and the building was paid for. So we were able to negotiate a lease with the buyer for five years. and the buyer also can exercise the first right to buy it if he wants to. I know other owners that actually have purchased rental property, okay, because they've made so much in their primary business. They also have life insurance. That life insurance is an expense of the business. I'm not a life insurance expert, but the life insurance that the business pays for, some of it has cash value some types, and that you can also borrow against it. They also have a team of professionals at their side. They have tax planners, they have financial planners, they rely on their CPA, and of course they hire us, an M&A exit professional, someone to come in and value the business and help them through the process. They were well prepared for the exit in advance. We are preparing companies now, two to three years in advance because, you know, we've got a great reputation in the business and we don't advertise much besides sponsoring industry events. And people coming to me and they're in their late 50s and they're saying, "You know, think it's time we think about this. I'm like, "Yeah, just prepare." So they operate companies with the five Ps. They have people, they have written processes, policies, procedures, and provable profits. And they're not killing themselves seven days a week. Of course, they're available, but they have people that run the businesses while they travel. Their financial reporting and their processes were pristine, they were well managed, and the numbers told a great story. You know, that's what sells businesses. Businesses don't sell by what you say about them if they can't be proven in the financials, okay? And you have to master them, that's part of your job. they will manage using monthly financial statements, not their reservations and their revenue reports. Revenue reports mean nothing. Total top line revenue means nothing if you don't make any money, if your cost structure is so big and bloated, and your financials are not managed. All the companies we've exited that have been the top 10% in terms of what they've gotten and how much their net their private wealth is, they all manage by these things. They manage with an annual budget and an executable written annual business plan. Even if it was three or four items, they had a business plan. They recognized that selling their transportation business was not going to fund 100% of their retirement plan. It was a bonus. You know, if I could turn back time when I was a kid, there's a few things I would do. Number one, I would master personal finances, real early, and I would have started putting a few hundred bucks away every single week and figured out a way to just don't ever touch it. Now, thankfully, I sold a few businesses along the way. First one was when I was 25, but at the end of the day, what breaks my heart and truly does is when people are in their mid 60s or, or, or actually older and they say to me, "Well, I need to sell my business in order to be able to retire." I don't have anything else, Ken. Okay. Business values are what they are in this industry. Your business is not dr- different. It's not special to anybody but you. And it will always be a buyer's market. And I, I have a, an operator that we valued who thinks this business is just worth so much more than reality. And I said, "Listen, I always tell people this, don't take my word for this. Go to a bu- business broker. Go- call every other operator that you know who's exited their business. The things that you think are special about your business that are gonna add to the already existing multiples that banks use and every buyer knows, they're just not there because this industry is what it is. We are in what's called a sell or do Business. What does that mean? Sell or do means you sell a product, and then you provide the service. Sell and do. We're in the service at will business with a depreciating hard assets, you continuously have to put capital into it. And the labor to run these businesses is about 50% of total revenue. And it's a 24 by seven day commitment. So the costs are increasing margins are shrinking if you're not careful, and operating profits are modest at best. So what am I saying to you? I can sell eight out of 10 businesses that come our way because we financially prepare them and we don't offer businesses for sale to bu- to anybody un- unless we know they're profitable and the businesses are in order. So that's pretty much what the message is. And the best people who exit the top 10% all had businesses of, with these attributes. So let's talk about 2026 trends. To- the top 10 elements that buyers are looking for when purchasing companies, consistent profitability. The average in our industry of net ordinary income, meaning income from doing the actual work not doing the work and then selling off fleet, right? Just doing the work every day, a million dollars worth of trips. You should be able to have 80 to $120,000 left over. If you've, for per million dollars, after you pay yourself, you should have that kind of money in cash left over. at the end of every year, you should have eight to 12% leftover. Your EBITDA was, is normal EBITDA, which we can, email me and I can go through that calculation. Earnings before interest, taxes, depreciation, and amortization should be between 15 and 20%, plus all your add backs. The second element is accurate financial records. If you say, "I pulled 300,000 out of this business," you better be able to prove it with monthly financial statements. Third element, profitable revenue growth only. You know, nobody is interested in buying a business that does tw- $10 million in revenue. Just monster amount of daily transactions at low dollars because it's just a, they're a horrible business to try to manage. So profitable revenue growth only. Low inbound affiliate work. You know, we like to say less than 20% of your work should be inbound affiliate. Now, if you have more than that, it's okay. As long as it's spread out among two or three hundred affiliates. But if you have one or two large affiliates and they make up about 20% of your income, Any buyer's gonna look at that and say, "Whoa, what if that company doesn't do business with me? So we have to deal with that. Newer fleet, including larger vehicles, you know, you need to turn over your fleet. Industry average for a sedan and SUVs, you turn it over every three years. Vans, you can keep five to seven. Many coaches, five, seven, even 10. I think they're getting along in the tooth. When you decide to sell, the rule of thumb is that the business, the buyer, wants to be able to run that same fleet for at least three years, right? Sedans and SUVs, they know they're gonna turn over, but they wanna run that business and make sure it's profitable. Majority of the revenue from charter and profitable contracts. Airport only businesses are tough to sell. I mean, we have a sedan and SUV company that is doing extremely well financially. And we keep saying to them, "Guys, you have to get into vans and minis because when you go to sell, that's where there's gonna be good money." Um, and they're all local. The other option we say to them is start generating more farm out work. Nationally, people love that stuff, but it's gotta be national. You can't keep buying equipment constantly to keep doing this revenue. Management, team in place, not owner dependent. When you're gonna sell your business, if you want to, retire completely, we can make that happen for you. Some buyers like the owner to s- the seller to stay on for a period of time to make sure there's no disruption. Um, some buyers will say, "You know what? We're gonna pay you more if you stick around for three years." But if you wanna leave immediately, we can try to make that happen. The easiest way to help you do that is make sure you have a management team that actually runs the business. You should be a quality brand in growing markets. You know, the rule of thumb, the top three businesses in all markets, if they're profitable, they're gonna sell. Uh, no one client making up more than 10% of your revenue. We talked about that. It's ideal to have greater than 30% of your revenue coming from trips that your in- house fleet does not perform. And national and global trips are about 25 to 30% gross profit. Okay. So our best advice is to be ready and realistic. I am so pleased I have a younger guy, call him a younger guy. He's 58 years old. I'm 61. And he said, "Ken, I wanna be done by the time I'm 63. We're gonna start now." I'm like, "You are my ideal client because you still got some juice left. You can help the buyer grow the business, but at the end of the day you came to me early. We can If there's any problems, we can fix him, but he's very profitable, so now we can absolutely say to the buyer, Hey, this is a great business for you to buy, and he'll stick around to help you grow it. He just wants his Saturdays and Sundays off. Okay. Right now, there are 40 businesses for sale. If you go to bizbuysell.com and you go to Transworld and you go to other for sale websites, we counted 40 chauffeur businesses for sale that are, been for sale for over 18 months. The odds of selling them are less than 15%. Most of them are overpriced and the financials are absolutely not there. And there's a lot of do- it-yourself that's there, okay? Find yourself someone if it's not us that knows how to sell these businesses. We do a pretty good job at it. So what are the healthy metrics that people look for? On the screen, if you're just listening to this, I'm gonna just take you through. Profit and loss statements, people like to see growing businesses. Five, 10% year over year growth. 10% year over year. Every year, growing by 10%, absolutely good business to buy. Cost of goods, what does that mean? Cost of goods, everything it takes you to turn the key and do the work to generate the revenue should be on your p- financial statement, cost is between 60 and 70%. It varies by the size of your business, the type of fleets you have. Example. Motorcoach companies, their total cost is high, but it shouldn't be over 70%, and we know the individual metrics. But what does this all mean? It means that you have a gross profit margin that's predictable, somewhere between 30 to 40% gross profit. So if your buyer looks at you, he says," Hmm, you know what? I can work with this. I have a smaller overhead and I can fold this business into my current business. Or I see where he's paid the seller's paid himself a lot of money. He's gonna come right off the overhead of the business. I'm gonna have a little work, bit to work with here. "Your overhead also called G&A should be about 25 to 30%. And most importantly, all of what I just said adds up to net operating income or net ordinary income of greater than 10%. Best I've ever seen in the space is a 17% net ordinary income. The best, the standard EBITDA. You should be looking at a greater than 17%. Everybody listening to meet my voice. Go to your CPA, just finished your taxes. I hope he's got this information. And tell him, ask him what your standard EBITDA was for 2025, and it better be above 17. The key with balance sheet, not to go into a lot of detail, is all of your loans have to be paid off before you go to sell the business. Either the buyer pays him off and he gives you a net check called net equity, or you've paid off most of your bills and maybe the buyer assumes the vehicle loans. So the key here is a couple things. Simple, debt to income ratio. What does that mean? That means if you do a million dollars worth of business, you should not have any more than 300,000 or 0.3, 30% on your balance sheet owed. So that means you A- and it should all be vehicles, by the way. Long-term debt that is not associated with fleets, like lines of credit, those are bad. And if you have multiple lines of credit, your business is sick. Your business has a problem. Come see us. If you have an EIDL loan, which is a COVID type of a loan, and right now, it's, you're just only paying interest. First of all, it has to be paid for, paid off before you sell the company. Well, my CPA told me it's gonna be forgiven. Absolute nonsense. It's not gonna be forgiven. You have to pay it off. And if you're only able to pay interest now, you get a problem. We're four, five, years away from past the pandemic. You gotta start paying that off because as long as you have that kind of principle out there, we have some businesses. Guys have called us recently. They're small operators and they owe, like a half a million dollars on a company that does a million dollars in revenue. You gotta clear that up. The business is not worth anything. oh, it's assumable. No, it's not. It's not assumable at 3%. And we have this directly from the bankers we work with. If there's an EIDL loan and you go to sell the business, there's only two options. Number one, it has to be paid off. Or number two, the SBA may rewrite a loan, but it's gonna be at current interest rates, which is eight, nine, 10%. Know when to sell. This is, um, I'm showing something on the screen, but let me describe it for you. You know, businesses have a life cycle and the business is under the ownership lifecycle. You know, when you start up the business and then the business is growing, at some point, growth slows. You wanna sell, ideally, you wanna consider selling the business if the while the business starts is still growing, but growth is slowed, that's the ideal time to sell the business. It's either that, or figure out a way to keep the business growing. Because under a new owner, you know, if another operator buys your business and rolls it into his company, he's gonna try to grow that book of business. Or if an out of the industry entrepreneur buys it, he's going to try to leverage it. You know, he's got new ideas, he's got new energies, and he may be a better salesperson. But ideally, you wanna think about selling your business when the, it's at a specific maturity, and before it starts declining, because sustained declining leads to decay, and that's when businesses are, are very difficult to sell. Nobody wants to buy a business where the sales are falling. If that's your case, give us a call. We have can try to help you figure out how to grow the business. So there are eight key drivers to selling a business, eight key drivers to company value, and we have an internal assessment. The first is financial performance, and we're gonna score your most recent three to five year performance, your record keeping, your accuracy, the professionalism of your records. All your financials should be in QuickBooks, should be updated monthly, you should have a monthly P&L. The quality of the revenue, we're gonna look at your gross margins, we're gonna look at repeat customers, we're gonna look at client revenue trends, your largest clients. Are they spending more with you or less? The Switzerland effect, we're gonna score the business and see if it's dependent on any one employee or any one customer, right? Those are very difficult. Client satisfaction, always great to see fantastic five-star revenue and rev- uh, excuse me, five-star reviews and see great reviews on Google, Yelp, Glassdoor, and BBB. We had a customer come to us, potential customer, whose review scores are so bad and the complaints are so horrible about his company. I won't even embarrass you to tell you he's in Chicago. I won't embarrass him by saying he's in Chicago, uh, and is the worst, worst reviewed company in Chicago. And he came to us and his, his comment was, "I don't really care about review scores. I just wanna grow the value of the business." Your reputation is critically important. Next score, growth potential. This is when we value businesses and we uncover, wow, he's only got one motor coach or two motor coach operators that he competes with. We can add a lot more large vehicle growth here, or there's great opportunity because he's got two or three great like clients and there are, other potential clients out there like them. So We do a lot of work, to uncover the opportunities so that we can show them to potential buyers and increase the value of your company. Capital and cash position. People wanna know whether this business is gonna be a cash suck or a cash spigot. So we have a customer that's got millions of dollars in cash sitting on their balance sheet and we're able to say to the potential buyer, "Look at how much b- cash this business generates. Competitive advantage. What are the barriers to entry in the industry? How will the business how your business is differentiated from current competitors?" Now, unfortunately, anybody with a sedan or an SUV can do airport service, but the larger equipment, vans, mini coaches, and motor coaches, little bit of a barrier to entry there, so we score you that way. And then hub and spoke. What is, that's really around what is your role in the business and how does the business perform without you? We assess your performance, your people, your processes, your policies, et cetera. let's talk about the acquisition process. There are about 12 steps to the process. Financial review and KPI analysis, we come in and we look at the business over the last three to five years. step two, we establish a value range and we say, "This is what your business is worth from and two. This is what your fleet is worth and together this is what they're worth." Step three is preparing the business for sale. You know, we might wanna fix some financial flaws. We might wanna fix some operational flaws. If they're big, we might need 18 months before we can sell that business. In general, the rule of thumb is we wanna fix the problems and have I'd like to have six months minimum to be able to give you, give the client, the buyers a trailing period to say, look at what we just did. We just brought on a huge client. It's multi-year client, multi-year contract rather, and this is the profitability difference. Wow, we've had it for six months, now the business is worth more. We want The step four is assembling the data, building a data room, creating an e-file package. That's what we do. We create a confidential information package on the business. This is all done before we market the business for sale. Now, no one ever knows your business for sale. The other day, I saw an ad for business for sale that listed the company's name, and I happen to know the largest customer fi- found out that company was leaving, and they're gonna be bidding out their shuttle contracts next year. It was ridiculous. So we qualify, uh, potential buyers. Confidentially marketing for the sale is, our internal process. Um, we have buyers that we know are looking for companies, but we also do confidentially advertise. You know, we have a company for sale in a specific region. Then we qualify potential office buyers. We make sure that we do the financial due diligence. We check their bank accounts, their reputation, their bank statements, we execute non-disclosure agreements before they even know who you are. Then if we're lucky, we're gonna review multiple offers and we're gonna create a counteroffer. Then we, uh, execute what's called a letter of intent with the final potential buyer. And that buyer is gonna go through a due diligence process. We assist with drafting transaction agreements so that your attorney doesn't have to start from word one. Step 11 is we close the transaction, and step 12 is we work on a post-closing transition plan. If the buyer wants the seller to stick around a little bit, we look at what that means to the seller. There's obviously other things that go on, but it is a pretty complicated process, but those are the 12 steps. Now, your all- star acquisitions team, I can't emphasize to you, don't do this alone. You know, we, we turned down a company up in the New England area, that's all I'll say. I've known his company's been for sale for three years because it's the worst kept secret out there. He brought in some people that he felt, you know, had sold their businesses and they could help him. Well, apparently they talked about it. And, we flat out said, "This is how our process works and, you know, you didn't help yourself out, but we really need with what you tried to do there." But you need an all- star team. You need us, we're an industry specialist, M&A advisor, we're certified valuation analysts. By the way, certified means we have, we are certified, we have a certificate to perform valuations and our valuations are recognized by banks. You know, your, your CPA is not, typically doesn't do m- m- M&A, and there's certainly, if they're not certified as a valuation specialist and they don't have transaction experience in the industry, they're not doing you any favors. It's also not your attorney beca- unless they are full-time M&A transaction attorneys and they know the space. I'm not comfortable with general business brokers because I've seen they do very little work and they want to take just a bare minimum of information and start advertising the business. And they have about a 20% chance of selling a business because they really don't know the values, they don't know how to uncover the opportunities and the right buyers to show it to. You want a certified experienced tax planner. You want them to be engaged well in advance of contemplating the sale. We are not a tax planning company. Neither is your CPA. certifications for tax planning are separate. S- to have a certified tax planning, ta- tax planner, okay, they should have also asset sales tax planning experience. Um, 95% of the CPAs out there don't have that cer- certification. You should be investigating all of your tax implications and what you can do with the proceeds. Certified experienced financial planner Frankly, if you're a business owner, you should start The minute you start making a profit, you should have a financial planner, and that planner should know what to do, how to recommend that you work with the proceeds that you make. You need an experienced M&A transaction attorney, not your commercial real estate attorney, and not a generalist counsel. M&A transaction attorneys look for problems in contracts, and they will put protections in contracts that your general attorney won't know. Your current CPA, 100%, has a role in this process. They're there to help make sure that all your financial statements and tax returns are accurate and have any information ready during the due diligence process. The typical CPA does not have a role in enterprise valuations or tracks- transaction negotiations or what I call on the fly tax planning. If you own an asset like a business that's worth something to you, you should consult a tax planning a professional tax planner who's certified in tax planning. Those guys have specialized gals, have specialized practices. Okay. So most important thing about the M&A side of what we do is most of what goes on about M&A is below the surface. So if you hear about a transaction that's closed, there are above four companies that don't sell. Never trust industry rumor mills on valuations or tan- transaction terms. Follow a systematic formal exit process and don't go it alone. It's never too early to assemble your team. It's never too early to, consult us. Any f- every Friday, you can, just request 30 minutes with me and tell me what the situation is and we'll walk you through the process. Owners have really three options when they wanna exit a private business. Number one, sell the business. This is often the first option, but it also requires the most preparation to get maximized value. Ideally, you wanna start 18 months before. We absolutely wanna start that early. I'm happy when I see people call me two to three years in advance, because we can put them on a program to literally give them financial management and KPI management reports every single month. We work with them on a budget, we do tax prep reports, et cetera. Second option is an orderly liquidation. That sounds dramatic, okay? You know, but it is straightforward. It's the most straightforward option. You wind the business down. Um, this is particularly relevant if your business value is primarily tied up in the assets or tied up in you. Well, what do I mean by that? You know, if the business is not profitable, it's made you a nice income. What you're left with is maybe selling off the customer list and selling off the vehicles. That's what's called an orderly liquidation. Number three is you keep the business. simplify it. You improve profits. You plan for a gradual owner exit and what's known as a succession plan, okay? Look at every process in the business, simplify it and engineer yourself out of it. Create several option succession plans if something happens to you unexpectedly. Uh, we had a situation recently where a very good friend went into the hospital and he called me before. He said, "Listen, something happens to me. This is my wife's cell number. She's got your sale number." Grow my replacement and offer them an incentive to grow the business. By the way, we are not a fan of giving away stock. Uh, there have been people in this industry as consultants who have said, all you need to control your business is 51%." Minority stockholders have rights and those rights are, different in every single state. And when you go to sell your business, there's potentially in some states that that minority stockholder can stop you from doing that, or they can demand specific things in the process. We are not a fan of giving away stock to keep employees in place. There are plenty of ways to give them incentives to really help you grow the business. The worst thing that you can do is option four is do nothing. The worst of all you can do is do nothing. Don't prepare. Just leave the financials, you know, a mess. And something happens to you, unfortunately, we are all just one problem away from a sickness or a death. And the other piece of it is be prepared in case, God forbid, of a divorce. So those are your options as far as a private ownership is concerned. So I wanna thank you this afternoon for your attention. This was a little bit of a serious subject and, which is fine, but I've recently, there's been a lot of misnomers about M&A in the industry that I, I thought, you know, we had done a really good job talking to people about, no, you know, that it's just not the case. The multiples are not like that. It's not, uh, gonna be an all cash sale. And I'm gonna leave you with this. As I say to everybody, don't take my word for it. Talk to any operator that's ever bought a business. Talk to an operator that has successfully sold a business. And what I mean by that is an operator who's actually been represented well and, and he's been paid. Uh, there's a lot of really bad transactions that have taken place in the industry before our time. Uh, I think we're about 37 out of 37 as far as selling and people getting paid. We've worked on 300 financial reviews. We've been involved in a hundred transactions on the buy side, sell side or lender side. And the worst thing we can see is sellers who are not prepared. And frankly, they think that anytime they decide to sell their business, there's just gonna be a line of people around the corner. Not gonna happen. It takes a long time to try to sell these businesses, and people in transportation need to recognize that you're not just competing against another transportation company that may be for sale in your market. Anybody looking to buy a business is judging you against every type of business that's for sale. So your ideal buyer might be the operator across town that you might not like. Uh, my suggestion is you cultivate the best buyer personas, the best buyers you think, and, work with them as best you can along the way. In any event thank you very much for, uh, listening today. I hope you've gotten some value out of it. The presentation will be on YouTube as part of us launching the podcast. And, This has been the Ground Transportation Podcast. Thank you for your time and attention, and we'll see you again next week.

Speaker 3 54:55

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.