Selling a business is much more complicated than handing it over for an amount of money and then walking out of the room. On the part of the buyer, it involves a meticulous process of diligence and preparation. If those buyers, who are experts in buying, are taking the effort to be prepared before the transaction happens, why should you, the seller, who is probably selling for the first time, not want to achieve the same level of preparedness? Joining Bob Roark on the show, Raincatcher CPA Aaron Linnebach has some advice for business owners who are thinking about selling their companies at some point. Old wisdom tells us that “The early bird catches the worm,” and it couldn’t be truer when it comes to M&A. Listen in and learn why you should already be investing in exit preparedness now, even if (especially if) you’re not raring to let go of the reins just yet.

---

Watch the episode here:

Start Early: Hard But Necessary Advice For Business Owners Thinking About Selling With Aaron Linnebach

The one thing that I would tell a business owner is to start the conversation early. If you can find your advisory team before you're ready to sell, and start discussing the things you can do on your business so that when it comes time to close that deal, you're prepared. You've got a clear strategic goal. You've got a compelling investment thesis. Starting early before the deal is about to close is only going to create money. It's only going to create extended value for your business.

Our guest is Aaron Linnebach. He is the Managing Director of Raincatcher. Aaron, thank you so much for coming on the show.

Bob, thank you so much for having me. It’s always a pleasure to talk to you.

We have a little history. We've shot out a few birds here a little bit, so that's a good thing. I've seen him in the field, in his natural setting for lack of a better term. Aaron, tell us a little bit about Raincatcher. What is your role at Raincatcher? Your backstory about how you came into this field is interesting.

Raincatcher is a business broker and M&A advisor for small to medium-sized businesses. We help deliver it to you in our succinct form. We help business owners buy and sell remarkable companies. We exist to represent sellers when it's time to go to market. My personal role in that is incredibly exciting. I get to spend all day every day working with my team and our business owner clients to help shepherd that business through the process of getting ready to go to market, pulling the trigger and go into the market, navigating all the uncertainty in that path, and then successfully closing that deal. It is an incredible honor and privilege to be a part of that process.

For us, it boils down to four main value add activities that we take. The first is emotional. It's a big deal to sell a company or your business. It's not all about the numbers and the Ps and Qs. Oftentimes, it's about the heart as much as anything else. We help navigate that part of it. We help take the mystique and the mystery out of selling your company. The next part is educational. It's making sure the business owners are smart on what they need to do today, what they need to do tomorrow, and what they need to do the day after that to complete that objective of selling the company successfully. The next one is strategic. That’s where we differentiate ourselves. It’s being able to take a strategic perspective on the overall life cycle of your business and why now is the right time to go to market, and then it’s tactical. It's the blocking and tackling. It's the boots on the ground grind of crunching the numbers, telling the story, putting together marketing materials, contacting buyers, negotiating on your behalf.

At the end of the day, you take all of those things together. What we do is serve business owners. When a company comes to us and says, “Guys, I'm thinking about selling,” our response is, "Great. Why?” It's not, "Great, let's sign you up and get the process going.” We try to dig in and understand the motivations behind that. That tucks into my personal story. This slightly circuitous path I took to get out here. I started in the family business. My education is in accounting. I've got a CPA license hanging on a wall somewhere out there. We owned and operated group homes for people with developmental disabilities. It was a great business. I worked in that company for about 5 years of the 25 or so that my parents owned it. I got to help work that to a sale.

Being a part of that team gave me an insider's look into a day in the life of a business owner. It can be incredibly rewarding on one hand, and incredibly challenging on another hand. Walking arm and arm with my family members as we tried to monetize the business that they had built was incredibly eye-opening for me. It sparked a passion in me to move into the role I'm in now, which is helping small business owners, helping them get through that path of going to market and successfully closing a deal.

[bctt tweet="Run your business like you’re going to own it forever, but be prepared to sell it any moment." via="no"]

It's an honor and a privilege to be a part of that process. It's emotional. It's heart level for me. I've been fortunate in my career to move both from a corporate side into a big company, public accounting at a Big Four firm. From there into deals, and now for almost the last years, I have focused 100% of my time and energy on helping businesses prepare for, go to the market, and successfully sell their company. It’s fun and I love doing it. It gets me out of bed excited every single day.

I think about the journey of getting to work in a family business, report to your parents effectively, then take and watch the emotional journey for your folks. As they say, "We're going to take in and plan on selling the company.” You see it go to the transaction, watch the emotional behavior of your folk’s post-sale. Was there anything surprising that you noticed as your folks got closer to closing the transaction?

There were far too many surprises to answer that question honestly. Without diving too deep into the specifics, what I'll say is as an organization, we're not as well prepared as we should have been. The unfortunate truth is it costs the shareholders money. We were not able to get a valuation that was more appropriate for the business had we taken some steps early on. Specifically, it's things like making sure our accounting records are complete, accurate and consistent. It’s making sure that our key management team is in place and incentivized to stay in place after the sale. Even making sure that the right people on the team are involved in the process of selling the business.

A lot of times, and we were guilty of this, business owners have this concern that their management team is going to panic as soon as they hear the word sell. The reality is what I found with most business owners when they collaborate with those key personnel, when they take steps early on to shore up the financials, to shore up the story of the business, it makes for a better process. Someone who's going to buy a company is not coming in to buy what the company did yesterday. They're coming in to buy what it's going to do tomorrow. For sellers thinking about creating an enterprise that's easily transferable to a new owner, that's going to create a ton of value. It takes preparation. We learned some hard lessons there. I've seen other businesses learn some hard lessons. That's one of the things I try to help my clients avoid in the future.

There's that old statement, "Tuition is expensive,” paid tuition and the transaction. For the business owner that’s listing and they go, "How do I know if now is the right time to sell?” What do you tell that person that goes, "Should I wait? Is this the right time?” 

There's an answer that's relevant now, and then there's a different answer that will be relevant in a couple of years from now. Let me explain that. Business owners that are coming to me now asking that question, "How do I know if the time is right?” My response at the start of 2021 is the time is right now. We’re in an environment where we've had about a ten-year run-up in private company valuations. We may not be at the very peak from an evaluation standpoint. I don't know exactly, but we're certainly near the end of what's been a very long economic growth cycle for privately-held businesses. That’s one thing. You're never going to nail the top of the market, but now is an opportunity to get close.

The other part of that is because of the stimulus package passed by Congress and a couple of different iterations. There are some additional factors in place that are helping deals get done more easily. If it's a deal that's going to be an SBA insured loan, an SBA loan to go buy a business, which is the most common way to buy business under about $5 million in enterprise value. The SBA is waiving the guarantee fee. Ordinarily, that’s 2.5% to 3% of the total price of the deal. They're waiving that and they are also making the first six payments, principal and interest, on any acquisitions completed before the end of September 2021. Collectively those represent anywhere from 3% to 4% of total enterprise value up to about 6% of the enterprise. That's just a discount that's going to buyers, which means as a seller, there are some opportunities in place for you to get a little bit more for your business. It's a little easier to get it done in this environment.

That’