April 27, 2020
Over the past few weeks, we’ve been receiving a lot of interest from our listeners about selling and acquiring a company. Fans of To The Point will recognize our guest today, and we feel there’s no one better to speak on the matter of buying and selling businesses than our friend Ken Goodrich, President and CEO of Goettl Air Conditioning & Plumbing.
Throughout his incredible career, Ken has been both a buyer and a seller. He’s been through the process many times, purchasing and selling both struggling and successful businesses. He knows from experience just what you’re thinking and feeling in all of these situations, how to communicate properly to get a deal done, and everything in between. So, if you’re considering an acquisition or the sale of your business, this is a great opportunity for you to gain some insight from someone who’s seen it all.
Not every sale is the same, and it’s important to categorize the type of business being sold to better position yourself for success. Ken lays out three main types of acquisition, each with its own benefits and type of return.
The least expensive type of acquisition, acquiring a database is merely for mining customers. It’s important to note, however, that a database acquisition tends to be the highest performing and lowest cost lead generation you can get.
The second type of acquisition is a midsized or underperforming business. This might be a contractor that’s hit a wall, is burnt out, or just feels like they can’t continue with the business. This often happens right around the 2 million dollar mark. These acquisitions are worth tackling to increase your platform, expand your territory, and find talent to bring on to your team.
The third and most expensive type of acquisition is strategic. This is the purchase of an enterprise that runs with a management team with little to no influence from the owner. This means investing in a predictable cash flow. Strategic acquisitions are something Ken is always looking out for the stable income stream.
The perfect analogy for these acquisitions is found in the real estate business. You can buy a piece of land and build a house, buy a fixer upper and work on it, or buy a high rise apartment with a fixed money flow and just maintain and improve that existing situation. Ken started out with the struggling ones, buying up databases and struggling businesses. Later in his career, he started to learn about the strategic acquisitions, but only after a lot of experience. Even now, Ken is constantly always looking for all three.
If you’re in a spot where you feel like your only out is to sell your business, you need to know how to set yourself up to sell and yield the best results. The good news is that no matter what position you’re in, there’s always a way to monetize your business. What you don’t want to do is wait and let your business lose value every day out of fear. Ken sees a lot of businesses that aren’t performing and because the owner doesn’t want to expose who they are to buyers, the business gets less and less valuable every day.
Selling your business is really no different than any other type of sales. You can’t just wait for Prince Charming to show up and knock on your door. You have to advertise, and you have to be actively trying to sell. Find out who is buying companies right now. Do your research. There are all kinds of sites, Facebook groups, and people in the industry that can help you on your way. Don’t be shy about it. Go out there and seek advice, get an evaluation, and find some different ways to look at or go about it.
The most valuable business is one that doesn’t create a job for the owner or potential buyer. It has proven systems, a solid management team, and more or less runs on its own. The best way to achieve this is by always having an exit strategy. If you create a business with an exit strategy in mind, you will build a business that’s going to be valuable. Always have a mindset that you might sell the business someday. That’s the way to ensure you make sure the business is valuable.
Your job as an owner is to create a business that runs perfectly without you because you’ve implemented the right people and the right systems. Your business is something you own, it’s not your life. Keep your mind focused on building value, and no matter what happens you’ll find success for both the seller and the buyer.
The acquisition of a company is a sales job. You have to think of it like that. You have to be mindful that you’re talking to a person about their life’s work. Be respectful, don’t put the business down, and don’t judge the owner or any aspect of the company. This is simply a time to find an agreed value.
Most owners have a tendency to price their business on how much they deserve based on the sweat and tears they put into it. The market doesn’t work that way though, it’s based on multiples of profits. Still, you don’t need to tell them the price is inflated. Focus on building a relationship with the owner so you can have honest and meaningful conversations in hopes that at some point down the line you can come to a reasonable price.
Ken has been out scouting companies for 25 years, every single day. He’s always networking; keeping himself visible in the industry by attending conventions so he knows the people and the players. Now he’s gained a reputation for acquisitions, people often come to him. Much like branding a business, Ken branded himself, more or less, and advertised that he was a person who could handle acquisitions. You always have to be looking for companies, and staying active so that if there’s an opportunity, you’ll be sure to know.
We’re excited to announce a live episode of To The Point with Ken Goodrich! You’ll be able to ask and have your questions answered live on May 5th at 10AM PST/1PM EST. Come prepared with all of your pressing issues about the trades, business, and more! Be sure to follow us on Instagram, Twitter, Facebook, and LinkedIn for more updates and reminders.