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In this episode of Hot Takes with Jim Baker, Jim and Bill sit down with Tully Ryan, one of the Southeast's leading M&A advisors, to discuss one of the most overlooked topics in business ownership: exit planning.
With millions of business owners approaching retirement over the next decade, Tully explains why most businesses never successfully sell, what buyers are really looking for, and the common mistakes that destroy value before a transaction ever begins.
The conversation explores business valuation, private equity, growth through acquisition, owner dependency, business culture, succession planning, and why preparation should begin years before a sale is ever contemplated.
Tully also introduces IQ Exit, a new platform designed to help business owners understand their exit readiness and start planning long before it's too late. Whether you're a business owner, entrepreneur, investor, advisor, or executive, this episode offers practical insights into building a business that is valuable, transferable, and ultimately sellable.
00:00 – Introduction and why exit planning matters
01:00 – Meet Tully Ryan and his M&A background
02:00 – The coming wave of business transitions
03:00 – Why only a small percentage of businesses successfully sell
04:00 – What buyers look for before acquiring a company
05:00 – Why business owners should start planning years in advance
06:00 – The biggest misconception about business value
07:00 – How M&A advisors determine what a company is worth
08:00 – Financials, cash flow, and valuation multiples
09:00 – Lifestyle businesses versus sellable businesses
10:00 – Common mistakes that reduce business value
11:00 – Clean books, trust, and financial transparency
12:00 – Why strategic planning matters before an exit
13:00 – The emotional side of selling a business
14:00 – Why some owners struggle to let go
15:00 – Industry expertise versus transaction expertise
16:00 – Which industries are hottest right now?
17:00 – Why private equity loves trades and service businesses
18:00 – AI's impact on business valuations
19:00 – Growth through acquisition strategies
20:00 – Why some owners sell but stay involved
21:00 – The changing role of private equity
22:00 – Software, AI, and the future of business value
23:00 – Introducing IQ Exit and Exit Readiness Intelligence
30:00 – How IQ Exit helps business owners prepare
35:00 – Building a better M&A ecosystem
40:00 – Why banks care about exit planning
43:00 – Tully's advice for business owners
45:00 – When is the best time to sell a business?
47:00 – Legacy, culture, and finding the right buyer
49:00 – Why trust matters in every transaction
50:00 – Top takeaways for business owners
52:00 – Where to connect with Tully Ryan
Creators and Guests
Host
Jim Baker
Author of "The Adventure Begins When The Plan Falls Apart" Converting a Crisis into Company Success, Jim is a husband and father of 4, Baker has spent the last 30 years in the business world as an entrepreneur, investor, and advisor. He had a successful exit in 2014 after owning and managing a CRO and functional services company, Ockham, specializing in Oncology. During that time prior to exit, Baker grew ASG and then Ockham both organically and through M&A. Over time Baker has experience in acquiring and selling companies, working with investment bankers, private equity, and mezzanine debt funding. In addition, has vast experience in business branding and managing and leading people. After the sale to Chiltern International, Baker started Sumus Development Group, an advisory business focused on operational excellence, exit strategy and marketing. In addition, Baker is an active investor in the business community.
What is Hot Takes, Presented by Sumus?
Hot Takes with Jim Baker is where real-world business experience meets honest conversation with Host, Bill LuMaye.
Hosted by entrepreneur, advisor, investor, and CEO Jim Baker, this podcast explores the challenges leaders face every day—from raising capital and managing growth to hiring, firing, sales, culture, leadership, acquisitions, and long-term value creation.
Through the Hot Takes series, Jim sits down with business owners, executives, investors, and industry leaders to discuss timely issues shaping today’s business landscape. These candid conversations offer practical insights, hard-earned lessons, and perspectives you won’t find in a textbook.
The podcast also features the Wisdom Series, in which Jim and Bill interview accomplished guests whose decades of experience offer timeless lessons on business, leadership, success, failure, and life.
Whether you’re a CEO, entrepreneur, business owner, executive, or aspiring leader, Hot Takes with Jim Baker delivers actionable insights to help you build stronger organizations, create greater value, and lead with confidence.
Presented by Sumus Development Group, LLC. Helping organizations enhance value, strengthen leadership, and prepare for what’s next.
36 - Hot Takes
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Bill: [00:00:00] Ladies and gentlemen, welcome back to Hot Takes, presented by Sumous, and of course, my good friend Jim Packer. All of you know him. He's a, he's an author. He's a, a very successful entrepreneur, and he has a business now where he had, helps other businesses look for exit strategies.
And Jim, it's always good to be here with you. I appreciate being here, and how you doing?
Jim Baker: Yeah, good. Doing great. Thanks for being here today as well.
Bill: Always.
Jim Baker: Um, go ahead.
Bill: I was gonna say, you, you have another guest that I- Yeah ... I can't wait to talk to. You wanna introduce and kick it off?
Jim Baker: Sure, yeah. He's a friend.
[00:01:00] Also somebody who I've known for probably the last five or six years. Tully Ryan is with us today, and probably one of the premier M&A people for businesses of all types, small, large in the North Carolina southeast region. Um, he also has a unique new part of his business that I'm excited to hear about today.
But basically, the theme that I really wanted to cover with him, as you know, Sumous works with companies to get them ready to exit. Yes. Think of me again as a, a physical trainer, where I'm gonna get you in shape, and then hopefully you have choices down the road, and the choices aren't made for you, i.e.
liquidation and/or untimely deaths or whatever. Um, but we wanna be able to get you in the proper shape, so to speak, from a revenue, EBITDA, customer perspective culture perspective, so when you're ready to go, a guy like Tully can get you top dollar.
Bill: Right.
Jim Baker: So I thought we'd tackle his knowledge [00:02:00] today on what he likes and dislikes, and what he thinks business owners should be doing, um, to potentially get them ready to have the successful exits.
Bill: Right, can't wait.
Tully Ryan: Yeah.
Bill: Do you mind, can you tell us just a little bit about yourself?
Tully Ryan: Sure. Well, first of all, thank you for having me. And Jim, thank you, and, and you're right, it's been four, five, six years, and we've actually done a transaction together. So that was we got to know each other pretty intimately during that.
So, um, and I love the segue, Jim, because, you know, that's really what we're talking about, is helping businesses prepare. You know, there's, there's a lot of demographic information right now that people just don't realize, but it's coming down the pike, and, and you know- I've been doing this M&A for the last 10, 11 years, and you're right, I'm, I do deals agnostic.
You know, my deals range from, you know, the, the $1 to $2 million up to the 20, $25 million range, just below investment banking and just above the, the business brokerage s- style, um, transactions. Um, [00:03:00] and we work with a lot of businesses, and we really work with a lot of businesses that aren't prepared, and it takes some time.
And I love, you know, what you were talking about, helping businesses prepare. And, you know, a, a lot of folks don't realize this, but every day in the United States, 10,000 people turn 65. And if you read some of the reports coming from McKinsey, they estimate that 6 million businesses are going to transition over the next 10 years.
And of course, it's just not a big wave. There's 36 million businesses after that. But just in the next 10 years, they estimate $14 trillion of genera- of, of wealth is gonna transfer with those businesses. McKinsey also says that only 5% of those businesses are gonna successfully sell. So so there's 92% the, the small portion is there's gonna be a succession, but 92% of those businesses, McKinsey is saying, that are gonna close their doors, [00:04:00] and most of it is because they're not prepared.
Exactly what Jim is saying. The capital is there, buyers are there, but they're not prepared, and I think that's a great subject for, for this, for this conversation.
Jim Baker: Yeah, so when you're going out and looking for companies, um, if I'm a business owner- Mm-hmm ... what advice do you give me, um And or what do you look for that you wanna tell us about that I can then say goodbye to you for six months or a year and then come back when I'm better prepared?
Tully Ryan: I love to have conversations years in advance. I mean, ideally, I would like to have a conversation with the business owner 60 months before a formal process even starts. 36 is good, too. But what we like to look at is certain things within the business, business culture, owner de- dependency, customer concentration, those type of things.
Certainly, we wanna look at the financials. All of those can be fixed, by the way, but it takes time. And if a business owner [00:05:00] finally raises their hand and say, "I wanna sell now," you don't have that time, and that's why a lot of these businesses don't sell. They just have too many problems that could've been fixed, that are preventable.
So what I, you know, what I would suggest to any business owner, to your point, is let's have a conversation. It may be with me, it may be with an- another advisor, maybe with your banker, your wealth advisor or so, but have a conversation. That's where it starts. Right now, this, the, the M&A ecosystem, as you know, Jim, is very, very reactive.
There's no- nothing, you know ... Business owners, you know, work 20, 30, 40 years building this business, and then the very last minute they decide to sell with no preparation. That's, that's something that we have to fix.
Bill: Sure. What do, what do you run up against? I mean, are there some ... You mentioned a few things, but I mean, when you're talking to somebody- Mm-hmm
and they haven't even really thought about it, I guess, you're catching them, it sounds like, at a time when they have now made it for one reason or another they have to sell. So w- what are the obstacles you have to get past with some of these founders?
Tully Ryan: Well, I do wanna make a [00:06:00] point that they do think about selling, but they just don't They don't follow through
they don't, well- Okay ... well, they, they try to follow through, but they don't vo- they don't tell anybody. Okay. Gotcha. So- All right ... so they're f- trying to formulate a plan you know, before it happens, but they don't have the right people in the room to make it happen. So but some of the things that we run up against is, I think the biggest is really expectations.
How fast can we sell it and for how much? And, and a lot of times that there's, especially on the, the value of the business, we're always resetting that expectation. Everybody thinks it's worth a lot more than it, th- than it is, and so it, it, that takes a little bit of time. A lot of deals don't get done because the owner thinks it's worth $10 million when it's only worth a million.
So that's, that's a big one.
Bill: How, how do you do that? How do you effectively value a company? What do you look at versus
Tully Ryan: the owner? Well, we look at their financials. Yeah, cer- certainly. Yeah. We, we look at their financials and we recast their financials. What we're looking for is [00:07:00] pure cashflow. And so there is a, a way to do that, um, and, and it takes a little bit of time, but we, we can do that.
And and then we also look at you know, what other businesses similar to theirs, s- similar size and, and so forth sell for. So we have comps just like in the real estate market, we have comps. And so we have to sometimes spread that information out with these with these sellers, and eventually, they may not like it but but e- eventually they kinda understand the value of the business is based on cashflow and based on the multiple of, of the comps.
Um, now at the same time, I also, also tell business owners that, "Hey, it is worth whatever somebody is willing to pay."
Bill: Right.
Tully Ryan: Right? And so they have, you know, so w- sometimes we go out without a price, but at the end of the day, most of the time that business has to be financed. So it may not even be up to the buyer or the seller, but it's also up to the financial institution that's gonna finance this thing.
So the banks will go through their own process and their own due [00:08:00] diligence and do their own appraisals or business valuations as well. So this is a very you know, there's, there's, there's a lot of, lot of moving parts in, in, in one of these transactions.
Bill: I can understand why you wanna get together, not the day before the sell, but maybe a year or more.
I mean, you do the same thing. You're trying to get the folks, first of all, thinking about what it's going to take and, and I can't imagine what goes into that process. Um, Jim, and, and I, I want you to weigh in on this, on this too, what are the necessary steps for an owner right now to, to be thinking about?
Eventually they're either gonna die or, or they're gonna sell for some reason. You know? Yeah. So it's inevitable. Yeah. They're gonna ... The business is gonna go somewhere. Yeah. So today, if they're, the folks who are watching, what are some of the things they ought to be really thinking about to get their business in a position to sell?
Jim Baker: I think from a, um, pure [00:09:00] organizational standpoint, they shouldn't be running their business as a lifestyle business that they're extracting their car payments through the business. They're taking their vacations through the business. Um, they're co-mingling their personal with the business. I mean, at a minimum, they're two separate entities.
You have your b- your, your family, your personal stuff, and you have this business, and there should be a wall. It should be separated. Mm-hmm. And somebody then from the outside who's looking at it could see, oh, I see where the owner took a distribution or a salary or a bonus to pay for whatever they're doing on the personal side, but it's separate.
And there's a lot of businesses, and I'm sure you run into a lot more than I did. Mm-hmm. But I remember when we were looking to acquire companies, um, you know, the, the wife had a credit card, the husband had the credit card, the kids were, you know, ciphering, siphoning off the business as well. And so you then you get, then you...
The ultimate thought that you have is, "I don't know if I can [00:10:00] trust- Trust the key word- Mm-hmm ... that this business is actually gonna be salvageable. Because if they are co-mingling their finances, that's probably the easiest thing to do.
Bill: Sure.
Jim Baker: And it's also the one thing you shouldn't do. It's kinda like you get in trouble with your financial situation and you have to pay the bank, the IRS or your medical bill, well, first entity you should pay is the IRS.
The other two you can always negotiate with.
Bill: Right.
Jim Baker: So it's the decision-making that then erodes the trust as far as I'm concerned. There's a m- million things. I could sit here all day and answer- Sure ... those questions but I want Tully to speak in. But that's, like, one of the simplest things you could fix right away.
Sure.
Tully Ryan: Yeah. Yeah, I think that's v- very key, i- is, is keeping your books clean. I mean, we see everything, you know. We see boats o- on, on the, on the- ... you know, on the, on the balance sheet and going through the financials. Country club memberships. I've even seen, um season tickets for the Pittsburgh [00:11:00] Steelers.
That's okay. I mean, it's, it's- Packers would be
Bill: okay,
Tully Ryan: but Steelers- Oh, Packers okay. Well, yeah, right. I understand you, but yes. And, and, and again, that's okay as long as we can document it. What we call those are, are add backs. But I would go back, you know, the first question I would, I would, um, ask a, a business owner is w- w- what is their plan?
You know, even if it's, if, you know, three, five years out, what is their plan? Where's their strategic plan? Some bu- you know, some, some owners may not be ready to sell, and some owners may be frustrated because they can't grow. And so a lot of them been we, we've been involved in this. I also represent buyers, strategic buyers, t- to help them grow their business through acquisition.
So, you know, there's, you know, I start at a very basic level, but if, if it is determined that they want to sell their business even years out, I will suggest let's go ahead and do evaluation so you can see exactly where you are. And and that is key. And then how do we optimize the [00:12:00] optimize the value going forward?
And then doing exactly what- you know, exactly what you recommend, and that's just kinda cleaning things up. But but yeah, it, and, and every business owner is different, for sure.
Jim Baker: I think the hardest part for someone like you would be you engage with a business owner and they said they never wanna sell.
Tully Ryan: But that's okay. They just wanna sell. That's okay. But back to your point, there's only two r- two way, two things that are gonna happen. They're, they're either gonna close the doors or they're gonna s- sell or, or some sort of succession plan- Right ... to the family.
Jim Baker: Right.
Tully Ryan: There's no other ... There is, it, you know, the business isn't gonna go on by itself.
Jim Baker: Right. So- So then when that happens, though, do you then try to educate the owner on what you just said, "Hey, this is life. This is inevitable. Here's the three things that are gonna happen." Right. You're not gonna live to be 7,000 and have this business forever, so.
Tully Ryan: Well, that's a easy conversation. I think they under- Is it?
Yeah, I think they understand that. Now, at the same time, I've been at closing tables where the business [00:13:00] owner is very emotional. The business owner could not hand over the keys. So even after the paperwork has been signed, I, even though the, the check has been, you know, slipped out, he still could not ... W- we've had to be, we were asked to l- l- leave the room by the wife, and then we came back in.
She popped her head out. We came back in, and she had the keys 'cause he could not physically hand it over. If you think about somebody, you know, building a business from scratch, 20, 30 years, that is that person's identity in, in a large part. Yes. You know?
Jim Baker: Oh, yeah.
Tully Ryan: And, and so this is a very emotional type of transaction.
And, and, you know- We've talked about it a lot. This is a relationship business. Totally. There's a lot of numbers and a lot of other things, but this is all about relationships.
Bill: The the businesses themselves when you finally get to a point where they wanna sell, do you create the game plan? Do they create the game plan?
Is it a ... I mean, how is it done where you go from step [00:14:00] one to the end game?
Tully Ryan: We, we c- we, w- we create the game plan. We create the narrative. We put the marketing plan. They wanna be involved in it. What I tell business owners, "The best way you can help me sell your business is run the business like you're gonna run it for the next 10 years.
Make the same exact decisions day to day as if you're gonna run it for the next 10 years. Do not take your foot off the, off the gas pedal. Keep doing it. Keep making the same hiring decisions, inventory decisions, all of that." They do that, we're gonna be fine. It's when they, they try to micromanage the process, and the process is the process.
Jim Baker: How do you overcome the, um belief that because you're an expert at selling businesses, but you're not industry specific-
Tully Ryan: Mm-hmm ...
Jim Baker: and we had a situation last year- Mm-hmm, mm-hmm ... where you weren't-
Tully Ryan: We had that conversation ...
Jim Baker: healthcare centric.
Tully Ryan: Yep.
Jim Baker: Um, and this owner was healthcare.
Tully Ryan: Mm-hmm.
Jim Baker: Um, how do you then overcome that?
Tully Ryan: Well, [00:15:00] i- it really depends on the owner if we overcome it or not, but, um, you know, I, I think i- if you know, if you're a M&A advisor and you know the process, and you understand business, and you understand their business, you can sell. Um, I think a, a lot of times, and, and look, not judging other M&A a- advisors that, that focus or cater to specific industries, but the way I look at it is if they are representing the same industry over, and over, and over again, and they're selling to the same handful of buyers over, and over, and over again, there's a little conflict of interest there in my mind.
Because who are you really working for? Are you working for the-
Bill: Right ...
Tully Ryan: seller, or are you working for the buyer that you're gonna come back to in another month or two with another opportunity? So it's a little interesting there, um, but I just kinda let the dust settle however it's going to settle. It's really up to the seller at the end of the day on who he, um, he wants to utilize, [00:16:00] and in some cases he or she may feel it's better to have somebody that knows the industry intimately, um, more than somebody that's kind of more agnostic.
And I will say this, there is enough business to go around. Sure.
Bill: Are businesses, hotter than others? Location-
Tully Ryan: Always ...
Bill: always, just like
Tully Ryan: real estate. Always. Always. Always. Um, location is, is im- important because when you find a you know, especially an individual s- the smaller, you gotta, you know, the location makes a difference.
Do you wanna be in the mountains or do you wanna be at the beach? Do you wanna be in a m- metro area or do you wanna be in rural parts of the, of the country, right? Um, but certainly the industries the verticals are, you know, th- they're just up and down all, all around. Right now business services like HVAC, plumbing electrical work, roofing, those are hot, hot businesses right now.
And h- honestly, where, where I'm seeing and, and what with private equity, we deal with a lot of private equity firms coming in. They're [00:17:00] looking at industries that aren't gonna be touched by AI.
Bill: Really?
Tully Ryan: Yes. So the, you know, they, they're, they're looking at the, you know, kind of a man in, in you know, two men and a truck type of businesses and where they believe that AI
Now AI, I believe, is gonna touch every business mostly on efficiency. But but that's what they're looking at. So we're seeing private equity firms where you always thought that private equity firms would buy businesses in the $50, $100 million range. They're coming down downstream, and you've probably seen this- downstream a lot to where, you know, they're buying, you know, a- again, they're buying businesses for 5, 10, $15 million. they're acquiring these businesses and, and we could talk m- more about this how to do this, but they are putting a platform together and and then growing it that way.
Jim Baker: Wow. I mean, as we become more and more technologically advanced, you still have to drink water. Plumbing.
Bill: Yes.
Jim Baker: You still have... You want heating and air conditioning.
Bill: [00:18:00] Yes.
Jim Baker: You want to- It's
Bill: quite a good repair
Jim Baker: model ... you want goods delivered to you.
Bill: Yep.
Jim Baker: Um, you are gonna move at some point in time.
Bill: Yes.
Jim Baker: So y- you have all these basic things, I think, that a lot of these schools have overlooked, right?
You know, 'cause everybody wants to go get a white collar job somewhere. Yeah. And you know, I, I do some volunteer work at a local high school, and I keep telling them, I mean, think about what I just described, owning an HVAC company that sells for $20 or $30 million, you know, or an electrician company or whatever, um, instead of just going off and, you know, saying you wanna be a middle manager some- somewhere because that's what's gonna get crushed by AI.
Yeah.
Tully Ryan: And if you think about AI and you think about what they're talking about through robots and so forth, it would be hard to send a robot out to somebody's house, crawl under the crawl space or, or go behind the house and, and take t- take apart a, a HVAC, you know, unit or whatever. So you're always going to, um, you know, need boots on the street to do that.
Um, although AI is gonna make it [00:19:00] much more efficient. I mean, there are companies out there, um, Skill Maker AI, which is a Wilmington based company, um, is, is really providing, um, those type of, of folks, um, AI, where they're actually using these goggles and, and th- and they're basically have a playbook on how to fix these things, and they're doing that for car mechanics, they're doing it for HVAC companies, and really um, they're s- they're speeding up the whole education process even.
So there is companies out here bringing, rolling out AI to help even those industries. But at the, at the end of the day, you're gonna need, you know, boots on the street to do it.
Jim Baker: Yeah.
talk to us a little bit about, you talked before about getting to the table and you're ready to close.
Mm-hmm. And the buyer's, seller rather, is crying. It's his baby. Mm-hmm. Um, how do you advise them to, I guess, separate the emotion from the actual business? Because I think in my world, you have people that are extremely passionate about their [00:20:00] business. Mm-hmm. And you could look at the business from the outside and say, "Man, if you did this, this, and this, it would triple in value."
Tully Ryan: Mm-hmm.
Jim Baker: But they won't do it because they've always done it the way they've done it.
Tully Ryan: Yeah.
Jim Baker: And it's, it, to your point, it's their life. It's their identity. Yeah. How do you overcome that? Well,
Tully Ryan: I think that's personality too. I mean, there's a lot of folks that just wanna stay in their comfort zone, right? In- inside their box, and not really get out of it.
And so they're gonna, you know, they're gonna find ... I was talking to a business yesterday, and it was obvious to me that they are just happy to, to do what they're doing, and they're gonna be a business that, you know, their trajectory is gonna be what it is and pretty flat lined. And y- you know, and, and that's great.
Somebody will buy it. They'll see the opportunities. And what I like to do, you know, just from my background of being an entrepreneur as well, is I like to look at business and say, "What if?" What if the, you know, what if they did this, this, and that? And so that's how I present businesses, matter of fact. So it's not what the current owner has done or what the c- c- current owner says could be done, 'cause we don't [00:21:00] value businesses on, on that.
Mm-hmm. But what, w- what, what I like to do is pitch to the buyer, um, what the business is and what could be done to improve the business or grow the business. Um, and that has been, you know, from my, you know, from the way I operate, you know, um, as an advisor, that's kinda helped me. But I don't try to change the way that the, the business owner is, is running their business.
That's not my, my job. My job is to optimize the value that he's put into the business, so when we sell it, he gets every penny he deserves.
Jim Baker: Right, but that kind of falls back to your 15 minute ago response where the owner thinks the business is worth 10 million-
Tully Ryan: Right ...
Jim Baker: and it's only worth one.
Tully Ryan: Right.
That's setting expectations. I had to bring them back. Saying it's not,
Jim Baker: right? Right, but if you're not willing to tell them or advise them to change-
Tully Ryan: Well, but so- ... then they're
Jim Baker: never gonna get to 10.
Tully Ryan: Y- you, you, you're right. But I'm not telling them it's worth 10, they are. So they probably should- Sure ... should think about how [00:22:00] they wanna get it to 10.
And if they want to get to 10, I'm, a- I'm happy to have that conversation. Sure. Because my answer would be, "Okay, let's go acquire one or two more businesses." Right. "Fold them in, and then over time, three to five years after that, you will be worth 10."
Bill: Right.
Tully Ryan: There's the e- easy solution, if that's what he wants.
It just, it's about communication and a little bit of collaboration.
Bill: So- Is that the only ... I'm sorry. Go ahead. Go ahead. Is that the only way you can close the value gap, so to speak? I mean, are, are there other methods? The owner's overvalued it. The reality is one million. Is there a way to close it without operational, or is it just expanding the business?
Is that the only way to do it?
Tully Ryan: if the gap is small, we might be able to get there.
Jim Baker: Yeah.
Tully Ryan: You know? So if it's, it's, if it's within 10% of the value, I'm okay with that. Sure. But when you get into 1000% difference- Yeah ... of expectation, there's probably no reas- no way to, to close that gap. So, um, and we could close it.
Look, I, that's why I like working with private equity, that's why I like working with strategic buyers because there [00:23:00] is ways to close the gap, and it's based on deal structure. So it's not just a cash deal. It could be done in, you know, you've been involved in this with earn-outs and, and rollover equity and, and things like that.
There are mechanisms within the deal structure that will close the gap that will make both sides comfortable. And so- Interesting ... um, so there, there are ways, but to a certain extent. Right. That's what I'm saying.
Jim Baker: Well, I think also, Bill, you have to, what, what is the value, how is the business valued in the industry that business is in?
Mm-hmm. If it's based on EBITDA, which is operating profit- Right ... and there's a multiple of that, then you, to answer your question, you have to tweak the operating profit. Mm-hmm. You have to reduce your expenses or you gotta grow the revenue. If they don't care about profit at all, they just care about growth and footprints everywhere, you know, then you gotta invest and you gotta get more footprint to get the value from that 1 million to 10 million.
So it just depends on what the how it's valued. But I do think that overall, and you could [00:24:00] speak for this, it's most of the business on average are valued based on their operating profit.
Tully Ryan: Yeah. Their, their EBITDA, c- ca- cash flow- Right ... is really what it is. That's how the bank is going to, is gonna base their financing on as well.
So yep.
Jim Baker: So.
Tully Ryan: All right. We call that E- EBITDA or a seller discretionary earnings.
Jim Baker: But-
Tully Ryan: Small business ...
Jim Baker: I think one thing a lot of owners fall in the trap is, "I'll just grow my way out of it." Well- Right ... if you've been an organic growth company for the last 10 years-
Tully Ryan: Yeah ...
Jim Baker: and let's say you average 10% a year, why suddenly are you gonna go to 25 or 30 without changing- Yeah
and doing things differently? Right. So you're never gonna grow your way out of it.
Tully Ryan: Yeah.
Jim Baker: The only way you can do that is if you change or you buy.
Tully Ryan: Yeah.
Bill: Right.
Tully Ryan: And that's a real strategy is, is growth through acquisition. That many, many businesses are using
Bill: I need to buy some businesses.
I need to grow.
Jim Baker: [00:25:00] So have you run into situations where you're, you got a business to buy, but as you're as they're buying, everybody's realizing that the seller in this case is, has more bandwidth and actually would be better to run that business going forward? Even though the buyer- Yeah ... has the money-
Tully Ryan: Yeah
Jim Baker: and but once they're together, the seller has the talent. And have you ever run into that before, and how do you overcome that? Well,
Tully Ryan: I, I'm dealing with that e- almost every year for the last three, four years, is that sellers will come to me and say, "Look, I'm not ready to retire. I wanna [00:26:00] grow the business.
I wanna..." You know, these are, these are, you know, these are individuals that are, might be in their, you know, mid to 40s, mid to higher 50s, and they're not ready to retire. They wanna take a few chips off the table, but they wanna continue on, and they need the capital and they need the resources to grow their business.
Those are perfect. I know exactly the type of buyer that we need, and that's usually private equity. And that happens more and more, and I've kind of, there's a little niche to, to do that. And, um, and those are the typ- those businesses, th- those are, those transactions are actually kind of fun for me- Mm-hmm
to do. But that's happening a lot because these, these business owners, they're a little bit frustrated that they're not growing as fast as they want, and they have a passion for their business. I'm dealing with one right now that wants to stay on, and he wants to grow it and and we've hooked him up with a private equity firm.
It's under LOI, and we're gonna hopefully close in the next you know, 45, 60 days on that. But those are, those, those type of conversations [00:27:00] are happening more and more
Jim Baker: From your standpoint based on the market right now- Mm-hmm ... i- are technology companies, service companies, product companies?
Tully Ryan: Yep.
Jim Baker: What's hot, what's not hot? What's higher value, what's not
Tully Ryan: valued? I think first of all, I think, well, the SBA has increased their limit from 5, 5 million to 10 million just in the ... I think it goes into effect July 4th, and that's going to even expand the buyer market e- even more. So that's really exciting for, for, for both buyers and sellers coming up.
Um, technology companies, you know, software companies, I think from what I'm seeing out there, you know, there's, there's kind of a tectonic shift going on because of the AI. Mostly because software as a service, that monetization model just doesn't really work with AI. If you think about software as a service is based on the number of seats, and that was great for any type of software that had workflow and so forth.
But with AI, with efficiencies, those re- those seats are gonna [00:28:00] reduce if, if the, if, if the software and the AI implemented into the software is, is really good. So there's a, there's kind of an interesting, um, play going on in, in that space right now and it's, it's gonna be interesting to see how the dust settles there.
Um, I think software as a service is not dead, but it's going to change. And um, I think, you know, I think those ... You know, I, I think that space is primed to have some aggregation as well. Um, but y- you know, this AI, you know, this whole AI conversation is really kind of interesting in all businesses. Mm-hmm.
I mean, it touches every single one of the businesses out there, or verticals. But especially in the software, um, software realm. You know, what I'm seeing is i- in, in this business, and I've just been studying it because I'm kind of involved in a little bit of it right now, is it's not so much software that they're selling, it's intelligence that they're selling.
And how do [00:29:00] you monetize intelligence? And there's certainly different ways, but that's kind of the conversation that's going on in boardrooms and, and management meetings, in startup ecosystems right now is how do we, how do we shift that? So that's, that's a whole show, by the way. Yeah,
Jim Baker: I
Tully Ryan: know. Yeah, yeah.
Bill: let's talk about your new AI tools.
Tully Ryan: Well, I, I would say it's not a AI tool, but- All right ... But it, it gets back to what I just mentioned.
Sure. It's, it's a, it's a i- intelligence layer. Um, and so we created this after years of seeing you know, what was happening in the M&A space, and really the success that these businesses, like we talked about, a, a lousy success rate of, you know ... You know, businesses are going out to market only 25%, you know, successful transaction, transaction success.
McKinsey 5%. And, you know, in any type of engineering, that is, that is failure. That's not good. Right. [00:30:00] So my colleagues and I have been thinking about this for years and how do we improve that? How do we improve those, those, those rates? And you can't improve ... Just by everything we talked about, you cannot improve the success rate of a transaction if you start the day that the owner wants to sell, which is within probably 12 months of his goal of, of getting out.
So we developed a, a company called IQ Exit, Smart Exit, and through the lens of what we do day to day. And, um, what we do is, is really, and, and IQ Exit is all about exit readiness intelligence. And exactly what your mission is, is to help businesses- Prepare. Now, we're not a, we're not a exit planning tool, we're not a valuation tool, we're not a marketplace, we're not a brokerage.
This is strictly exit readiness intelligence. And, um, the way it works is that banks, now the banks have a problem as well in this, but banks will provide this to their [00:31:00] business owner customers. One of the first banks that are coming on, they have 50,000 commercial customers out there, business owners that own businesses.
These businesses, business owners, first of all, they don't know what their business is valued at, and, and they don't know, you know, um, what, what is happening in the M&A market and trends and so forth. And the bank, more importantly, they don't know what the intent is from these business owners. They don't know if these business owners are looking to sell in the next year, five years, 10 years, or whatever.
So there is a disconnect there. And, and so what IQ Exit does is simply surface that exit intent by the business owner. And so, um, what is happening in the market today as it relates to the bank is, and, and, and you and I have ta- talked about this, a week or two before the closing happens at, from a business transaction, the business owner will call the bank and say, "I need my payoff amounts for the credit line or for the b- business loan," and so forth.[00:32:00]
And the banker or the relationship manager at the bank will say, "I just had lunch with you last week. What is going on?" There's no... Nobody really knows, or they're not surfacing that intent early enough. So the bank, by the time they hear about it, it's a week or two before closing, they don't have time to react.
They don't have time to refer that business owner to wealth. They don't have time to, you know, refer that business owner to treasury. They don't have time to position the bank to be the f- the financier to the, the deal. So typically what happens is, you know, they, they, they lose the account, they lose the deposits, they lose the, you know, the loan, the opportunity, and most of all, they lose the opportunity to bring on assets under management Based on the tr- transaction itself.
Bill: Sure.
Tully Ryan: So what banks are telling us is a regional bank is losing somewhere between 80 and $100 million a year, and that's why IQ Exit helps. It also helps the communication that we've been talking about today, [00:33:00] getting that business owner starting to think about it and communicating with their advisor, being it the bank or the wealth advisor or the CPA, about getting prepared, you know, th- 60 to 36 months ahead of time.
So that's what kinda IQ Exit is, and it's, it's, it, you know, it's, it's ... We launched it coincidentally at a great time with all these businesses transitioning and st- and at the great time where all these banks are trying to figure out how to solve this, because it's affecting their balance sheet big time.
And and if we let the success rate ... If you think about six million businesses transitioning and the success rate of anywhere between 5% and 25% being successful- Wow ... think of all those businesses that would just close. So there is a bigger, a bigger issue than we could even dream about,
Bill: so. Well, and then the, the, the banks and the opportunity to keep an account, if they're losing 80 million,
Tully Ryan: 80 million a year.
That, that's a lot And that's many, many different accounts, right? Right. That's- But that's [00:34:00] still a lotta, a lotta deposits. It's, it's, and that affects their, their balance sheet, and there's risk there.
Bill: And the business owners themselves, you know? Yeah. They may be very, may be very good and well-
Tully Ryan: Yep ...
Bill: well in tune to what they do, but they probably don't know how to transition a, you know, from business and then to selling and what needs to happen.
And so, I mean, I wish I'd thought of it.
Tully Ryan: Well
Bill: That's all I'm gonna say. I wish I'd thought of it. That's a wonderful idea.
Tully Ryan: We, we, we, we saw it inside the transactions. We saw it inside the- Yeah ... you know, the M&A ecosystem, I, I would say. And being involved, you know, kinda the center of the ... I call it the center of the bow tie.
Being the center of the bow tie of all these transactions, we talk to bankers, we talk to the attorneys, we talk to the CPAs during the transaction, so we see what everybody's pain, pain points are. Sure. And so what we're trying to do is just bring the whole ecosystem together. The ecos- the, the M&A ecosystem as, as you know, Jim, is very fragmented.
Everybody's working their own little silos, and until the very end of the process, we bring everybody together. [00:35:00] That needs to end. We need to bring people together much earlier to have more success i- in, in these transactions, and it has to be done. And so we think IQ Exit is positioned ... And again, this isn't a l- little, um, app.
This isn't, you know you know, artificial intelligence. Th- this is a infrastructure that we've built, and there was really nothing in the industry, um, in that space. And when I talk about space, I'm talking about, you know, 18 months, 24 months before a, before a transaction. We're, we're upstream from any formal transac- you know, process.
So that, that space, we're actually, um, trademarking it as um, exit readiness intelligence. That's kind of our space up there.
Jim Baker: What's the process for a business to use the tool?
Tully Ryan: Great question. Um, so we, we've worked with business owners, and we know that their time is valuable. We know that their bandwidth is, [00:36:00] is, um, not sometimes not all there, right?
They're thinking about 10 different things. So it is key for us to provide a superior pr- you know, phenomenal user experience. So the way the process works is the bank will introduce IQ Exit to their customers through an invitation or through a, you know, some sort of email or, or maybe even on their account page.
The business owner will go in, register with us, this is all free by the way, and within 60 seconds, providing us some very basic information, um, we will provide them with a exit readiness record, and which that record will provide them with that indicative value range or projected value range based on their intent, you know, time of intent of, of exit.
But we also provide a, a, a, a superior, um, executive summary of the business. We also provide them with benchmarking so they can compare their business to other businesses like theirs and, you know, that, that are out there on the market. [00:37:00] And we also provide them with M&A trends, what is happening out there in their, in their own vertical.
Um, and so the business owner kinda knows where they stand, and this is all permission-based, so with one click, they will provide that same record to now the banker or their wealth advisor or their CPA or even attorney for that matter, whoever introduced them with one click. What that does is now the advisor has the same sheet of paper, and they can have that, that real first conversation saying, "Okay, this is what your business does.
Here's what you're thinking. You wanna s- you wanna exit in three years. This is your, you know, um, indicative value range or projected value range. Are you happy with that?" "Yes, if I can get that, I'm happy," or, "No, I want it to be $10 million," like we were talking about. Well, then the advisor can say, "All right.
As a banker, I'm not, you know, I'm not doing transaction. Let's pull the right people. Let's get people around the table to help you." That's the kinda conversation that we want to happen.
Bill: [00:38:00] Oh, I could see where that would be a real upside to all the parties involved.
Tully Ryan: The time is, is important. It, it ta- it nearly
You know, we've timed it because we're, we're so focused on, you know, the user experience. It takes a business owner from start to finish less than 60 seconds to fill out. I mean, there's only seven things that we really need to know to do this, and it takes our system ... And, and look, we do leverage AI, and it takes our system roughly six or seven seconds to f- to, to, um, create a, a exit readiness record.
Now let me also mention, we call it record and not a report on purpose because this is temporal by design. So they could start ... You know, they could create a exit n- readiness record with IQ Exit, and over time we will be updating that record based on market, based on comps, based on different things. So we will be constantly updating that record, and then we will nudge the business owner and say, "Hey, your, you know, your, your indicated value range went up," or, you know, "You're s- we're seeing that a [00:39:00] big trend of people going or companies going to market like yours in the next six or nine months."
So we will give them, you know, continuous updates on where they are, and of course, they will con- continuously update the, you know, every once a, once a year their, the revenue or or their, their, um, exit intent. So this is ... This, you could start this the day you start a business, and it, it lasts the whole life cycle of the business.
Bill: So it's online now?
Tully Ryan: Yes. It's, it's line. Slight change. We, um, we, we have CPAs we've got wealth advisors we've got other advisors using this. We just got notified just this week that a very large advisor platform, over 1,000, um, advisors are gonna be joining this. So this is growing really fast.
We I am speaking later this week in Charleston and, and I was kinda going through my notes and we launched in February. So as of Friday it'll be we've launched 106 days [00:40:00] ago, and we've already got one, um, large in- Internet enterprise bank client that's doing somewhere between 10 and $15 billion si- you know, regional bank.
We're already going through procurement with, with that bank, which is phenomenal, and we've got two other banks lined up right behind them, and we've got, you know, conversations going on. And these aren't conversations just with community banks, regional banks, but we're also talking with s- super regional and national banks.
So every, every, every bank that we're talking to, they recognize the problem of, you know, their blind spot is this business owner exit in- intent, and that's what we're surfacing. So this is a very easy ... I don't really have to talk about the product itself. I, I just have to talk about the problem and how we're solving it, and people are kind of- You know, migrating our way, which is fantastic.
Jim Baker: Yeah. How'd you, um... I, I see the need why the banks would want it, but did you, did that, you stumble upon that, or did that just, [00:41:00] was that primary, was that part of your strategy?
Tully Ryan: Well, y- you know, interesting, I talk to a lot of people, and, and he's, he's one of them, by the way. Yeah. I talk to a lot of people, and there was a meeting I had, um, that was very influential to m- to the way I was thinking about it last summer, and I'll just say it publicly.
Um, you know, I, I met with Chris Knott, who was the founder of, um, Peter Mallari, now he's with, um, Johnny O. here, here in Raleigh, and we were talking about it, and I was really picking his brain about brand, and he said something really important to me, and he said, "You know, you gotta think about your brand of where you are, but more importantly, where you're not.
You don't wanna be there," right? And so I was thinking about IQ Exit and how in our distribution model and where we wanna be and where we don't wanna be, and I was thinking, "Well, w- where we wanna be is with the banks, with the wealth advisors," because they have already built trust. And so we use that. I don't know if this answers your question, but we- we're [00:42:00] using, we're using the, the trust and the relationships that have been built by the banks as our distribution.
And so, so with that, trans- that translates into when a business owner with an invitation, the business owner kind of feels trust with IQ Exit. Sure. Yeah. So, um, so did we stumble across it? I would say no, 'cause I knew the banks had this problem. Did we stumble across how we created the model and our distribution model?
Maybe we stumbled across it, but it was very strategic, you know, based on conversations with- Yeah ... many, many people, and that's how a lot of these entrepreneurial things get started anyway.
Jim Baker: That's good. That's good. I can see where that would be a very relevant tool, and obviously it engages the business owner along the way.
Yep. Um-
Tully Ryan: And it really, you know, to your point wh- when you opened up about helping businesses prepare, you know, exit planning and, and so forth, again, we are not, IQ Exit is not a exit planning tool, but what we can tell the advisor or the [00:43:00] banker is when exit planning needs to start.
Jim Baker: Right.
Tully Ryan: And I think that's really, really important.
We, we ... Look, I advocate for exit planners. I advocate for business brokers. I advocate for M&A advisors, investment bankers. Whoever it can, and this is the way the business owner should really think about it too, whoever can help me sell their b- sell my business for as much as, you know, that I want or I could get, the business owner should invest in that.
Jim Baker: If you were giving some advice to business owners, what are the primary dos and don'ts that they should be focusing
Tully Ryan: on? Well, it kind of gets back to the same theme I just mentioned. Trying ... You know, the don't is don't, don't- Don't think you could do it by yourself. It takes reps. You know, if you think you can go out
Another conversation. If you think you can go out and shoot par- ... for the first time ever-
Bill: Yeah ...
Tully Ryan: you're not gonna do it. It takes a lot of practice, a lot of reps. And, um, so my advice to the, [00:44:00] to the business owner is find people that will be part of your deal team that have a lot of reps, whether that's a, a wealth advisor, a CPA, um, you know an attorney.
Make sure the attorney has reps in M&A. Mm-hmm. Same thing with your intermediary, whether it's a business broker or M&A advisor, make sure that they have a lot of reps. And it doesn't necessarily have to be in the vertical that you're in, but just getting deals done. Make sure they have, make sure they have the reps.
Um, so th- you know, that's, you know, my, my don't is don't try to go on your own, and the last thing is do not wait until the last minute. 'Cause again, you have a ... If you're, if you're in business right now, that business has value. Don't wait till the last minute when y- you know, y- you don't have time to fix some things.
Every business is not perfect, and so there are things that, that need to be fixed, and don't wait till the last minute to, to fix them.
Jim Baker: On that point too, the optimal time to sell a business is when you're, what? 75% the plan?
Tully Ryan: [00:45:00] Yes. So if you look at, if you look at the, you know, life cycle of the business it's a bell curve.
Think about a bell curve. You wanna be going up. You don't wanna be plateaued, and you certainly don't wanna be having a, a negative trajectory, right? Right. Going down. So you want to go right before you always want to sell when you're going up. So keep growing.
Jim Baker: And do you always advise the seller to take the best deal monetarily or the best overall deal, um, based on culture, money fit, et cetera, et cetera?
The latter
Tully Ryan: always. You know, business owners are different. There are some business owners that just, you know, want, you know, want as much money and they're done, right? Um, I work, I've worked with some of those business owners. Um, most of the business owners that I will engage it... 'Cause I have a, I have, I have my own decision who I wanna engage with.
Mm-hmm. And so when I go [00:46:00] in and I look at a business, first of all, I'll spend some time with the business owner. I would typically walk around the, the business with the business owner, and I could feel the culture. I want to represent business owners that have built culture, and that's really important.
And so when, when I understand that and I understand what, you know, their core values are, and I think that is so important and, and, and overlooked when you're selling a business. What is your mission and what is your core values, and does that buyer represent the same? That's really important. And I think you know, so, um, s- yes.
Y- So I, I look at all of that. I'd rather work with those type of businesses and business owners. Those are gonna be very successful sales. We might have to go through a couple more, um, buyers- Mm-hmm ... to find the, the right match, but once... Because it's not just about getting the transaction done, you want the transaction to be successful long term.
And-
Bill: I would assume a lot of those owners would like to have their culture, [00:47:00] their, their trust continued.
Tully Ryan: Well, that's their legacy.
Bill: Yeah. Right.
Tully Ryan: And so we talk about that, you know, in, in our first or second meeting. What is your legacy? What is it? You know, and, and a lot of these, a, a lot of these transactions, the business name is gonna carry on, um, in, in most, most cases.
So that is the business owner's legacy. And most business owners are not, you know, in these metro areas. A lot of these business owners are in smaller communities, which it, which it matters. You know, they have their logo at the c- at the you know, the, you know, the baseball diamond and, and you know so the- On the
Bill: baseball shirt, the soccer
Tully Ryan: shirt.
Right. E- exactly right. Right. So they're infused, they're infused in that community- Yeah ... so it does matter.
Bill: I don't know if I should ask this, but has there ever been a business you walked away from, that you, you said, "No, this is, this is not gonna work for me"?
Tully Ryan: Yes. And it's not very hard.
Bill: Really?
Tully Ryan: It's not very hard.
For me, it's not very hard. Yeah. Um- What, what
Bill: kinds of things popped up?
Tully Ryan: Well, I don't wanna go into a lot of details. Well, I don't wanna get detailed, no ... but, you [00:48:00] know, it's, it's, it's, it's when you're sitting down with the, with the owner a couple of times and there's contradictory, you know, kinda misinformation- Okay.
Gotcha ... and so forth. And it's ... Look, th- again, this is a relationship business, and when I engage with an owner, um, that transaction is gonna tight- take, you know, I, I, I set the expectation from start to finish it's gonna take a year. So through that process, the, the business owner and myself are, are gonna be very intimately involved in getting this transaction done.
I'm gonna spend a, a, a amount of time with this business owner.
Bill: Yes.
Tully Ryan: My question to myself is, "Yes, do I think I can sell the business, but do I wanna spend this time, you know, it, with, with him?" So I do look at it l- in a different, you know, through a little bit different lens.
Bill: Well, you'll do a better job for somebody, I
Tully Ryan: think.
I would do the ... I'll do ... Look, I'm doing a, I'm gonna do a great job for anybody.
Bill: I understand.
Tully Ryan: But I won't have such heartburn A
Bill: better way of
Tully Ryan: putting it. Th- going through- Absolutely ... the process. Let's put it that way.
Bill: [00:49:00] All right.
Jim Baker: Yeah, I think also, too, the ... I think sometimes business owners will overinflate initially the, their success of their businesses.
Mm-hmm. Just be honest, because Tully hates surprises. You know? Um, buyers hate surprises. Everybody hates surprises. And it's okay if, you know, you're not growing at 30%, you're growing at 5. It's okay if you've lost a client, you know? Um, and especially if you know what you're doing to make up for that client.
But when you're hiding things, then that becomes a big problem down the road. And,
Tully Ryan: and to your point, Jim, what we do in, in, in, at my firm and, and in my team, we go through due diligence before we put it out on the market where a buyer will go through due diligence. We, I mean, we go through weeks of review, um, not only financially, but we also go, you know, we have our own way of going through.
And we actually take them through a due diligence process, and to find those [00:50:00] surprises, because i- if there's a surprise at the end, then we're gonna start all over.
Jim Baker: Yeah.
Tully Ryan: We're gonna have to go find another buyer. So, That's just, you know, how we do it. There, I mean, there are um, intermediaries that will, you know, list a business for whatever the business owner wants them to list it for, and they just get it on the market tomorrow. And I I, you know, I'm certainly not gonna judge because sometimes, you know, a, a blind squirrel finds a nut.
But that's not typical, the, the process that needs to take place. So there needs to be due diligence on the beginning end.
Bill: Seems, trust seems to be the big big word here.
Jim Baker: Big, big, it's, it's a lot of it. Of
Bill: all of
Tully Ryan: it. Yeah.
Bill: Yeah.
Tully Ryan: Yeah. It's, it's, it's a, you know, it's a M&A is a different, it's a different game.
Bill: So guess what time it is.
Jim Baker: It's
Bill: that time already. It is. Well, this is where we go to you, and we've talked now for a bit. Um, for those watching, what are the top five takeaways do you think they should get from our little get-together today? What are [00:51:00] the five things you think are important?
Tully Ryan: Start early.
Bill: Mm-hmm.
Tully Ryan: And then think about starting earlier than that.
Bill: Okay. That's two right out of the way.
Tully Ryan: And I would say, you know, um, you know, Jim was talking about how he's positioning to help business owners, um, sell their businesses. Talk to Jim. Talk to other professionals. You know, the Exit Planning Institute is a great place to start, you know, and, and you could look up, and there's people, you know, you know, not too far from every business owner that has that background that can help.
That's what I would, that's what I would, um, suggest they take away from this. Start early, and then start earlier.
Bill: And be sure to get that report and hook up with you and the great thing you do.
Tully Ryan: Well, they could get the report. They could reach out to their banker. Yep. They could reach out to their wealth advisor, their CPA, and eventually they will have access to that, but that's how a business owner will- Terrific
will get the report, yeah.
Jim Baker: Right. Tully, if anybody's interested, [00:52:00] where, where can they find you,
Tully Ryan: well, if, if they wanna reach out to me, they could go to carolinabusinessbroker.com. I've got a website there. And I also write for the Wilmington Business Journal. I have insight columns there. So they could, they'll be able to find me online somewhere, so just, um, Google Tully Ryan and M&A advisor, and I will most likely come up somewhere.
Bill: Beautiful. Tully, thank you. I learned a lot, and I appreciate your time. Thanks.
Tully Ryan: Thank you. Thank you,