Subscribe
Share
Share
Embed
Evolved Radio Podcast: Interviews with technology experts, industry thought leaders, business leaders and other interesting minds. Exploring the evolution of business and technology.
Todd Kane: My guest
today is Amy Babinchak.
If you have been in the MSP
industry for any amount of time,
you probably know the name.
Amy is a 22-time Microsoft MVP
award winner and co-host of
the SMB Community Podcast and a
well-known speaker in the industry
Amy, welcome to the Evolved Radio
podcast.
Amy Babinchak: Hey, thanks for the invite.
I really appreciate being here.
Todd Kane: Yeah, this is a useful topic
that we're gonna get into that, uh, I,
I think a lot of people need to think
more deeply about and prepare for before
they really start getting into, uh.
Positioning and thinking
about selling their MSP.
So this is an experience that You have
lived personally and have written a book
on that is titled 20 Questions Every
Owner Asks Before Selling Their Uh, MSP.
So, um, this is a great framing for this
and really helps people think through
the process, and I think this is.
As I said, something that people
maybe sort of fall into based on
pressures of, well, everyone else
is selling and I keep getting these
calls from these PE companies.
Maybe I should do this and maybe
come to it for the wrong reasons.
You want to maybe kick us off on
the emotions that you kind of go
through in the consideration of
selling your, your business and
how you ultimately come to that.
Amy Babinchak: You know.
I hope that my book is gonna land
with people who want to think about
selling their business and not just
wake up one day and go, that's it.
I'm retiring tomorrow.
Right.
I see that happen way too much.
That, you know, over at Selma, MSP, we, we
work with a lot of people one-on-one, and.
More often than not, it's, it's
like a last minute decision.
Like they started talking to somebody
they met at a conference, or you know, a
firm that they've known for a long time
in their, in their neighborhood, reached
out today and now they, now they gotta
get their business ready in a hurry.
Like, what do I gotta do?
I'm like, man, you, you really needed
to start to think about this before.
So that's what I'm hoping that the,
that the book will help people do.
Right.
You don't need to start thinking
of it the day you wanna sell.
You gotta start thinking about it
three to five years ahead of time's.
A great sweet spot for doing that.
Todd Kane: Yep.
Amy Babinchak: So yeah.
When you decide to sell your company.
You are entering into a
major life event probably.
Um, I know it was that way for me.
You know, I, um, I put the, put a
chapter right at the beginning of
this book on the emotions of selling
your business because it totally
took me off guard when it happened.
Um, you know, I had been helping
people sell their business for 10
years, but I'd never sold my own.
Um, and when I sold my own,
the after effects was like.
Grief.
It wasn't like, Ooh, I got a big
FB check and a Happy Bank account.
You know, my retirement is is perfect now.
It was like, oh, there's
a hole in my heart.
You know, something's missing.
And I tell a lot of people, like,
I felt like I just sold my cat.
Or maybe you rehomed your cat.
You know?
Um, just, just that level of attachment
that's now gone and it leaves a space.
You don't know what to do with.
Todd Kane: Yeah, is a similarly, I,
I advise people, they're saying, oh,
I'm thinking of selling my business.
I'm like, great, you know you're in your.
Mid to late forties.
So what do you plan to do with your life?
And the the inevitable answer is,
oh, you know, I'm gonna, uh, gonna
get it a lot more into fishing
and gonna pick up my golf game.
It's like, okay, great.
Imagine you're six months from
now, you're gonna be bored with.
that every day.
So, well
Amy Babinchak: Yeah.
Todd Kane: are you doing?
They're like, I don't know.
Or like, it's, it's wild how
people don't think about.
The, sort of the longer impact that
selling their business will have on their
life, especially because entrepreneurs
are so, have such a, a wrapped identity
with the business that they've probably
spent 10 to 20 years building, and
to just sort of detach from that and
be okay with it, as you say, is like
a, a, I think a huge emotional hurdle
that people don't really consider.
Amy Babinchak: Yeah, I, uh,
I have, I have two other
businesses, so for me, I was not.
Retiring, I was just gonna get to spend
more time doing other things I love.
Um, and I'm, I also have
a million hobbies, so my
Todd Kane: helps.
Amy Babinchak: threat of getting
bored is like, is like zero.
I always have a new idea, a new thing.
I love change.
I love, you know, getting into new stuff.
I've got cell MSP, I've got third tier.
I'm still, I'm still out there, right?
I just don't have my MSP anymore, but.
Um, I just, I just, um, one of the guys
in my peer groups is 36 and he's selling
his business and it's gonna pay him enough
that he does never have to work again.
But it's can't just be about the
money because he's got another
40 plus years of life to fill.
We're humans.
We need some purpose, right?
We gotta have.
Something to do with ourselves or we're
gonna fall into a major depression.
If you've ever read any of the,
there's, there's statistics out
here and I, I can't quote 'em 'cause
I'm not that familiar with them,
but I've seen them over the years.
The people that do not have a
plan for after they leave their
business, after they retire,
whatever, this major life change,
they don't live very long afterwards.
People that have a plan.
Go on to go on to, you know, be
happy with the rest of their life
as they were when they were working.
Hopefully.
Todd Kane: Hmm.
Yeah.
Really important to have that plan.
It's either maybe you start something
new, maybe you focus on philanthropy.
Uh, maybe you've got some, some other
businesses you could start to dig into.
But I think, uh, you're right, like there
needs to be that forethought of then what.
Right.
Like this is a great event.
It's amazing to be able to,
recognize the success that you've
had and pull equity off the table.
And for a lot of people, it sets
them up for a comfortable life.
They don't necessarily have to work
anymore, but, uh, retiring at 35
maybe sounds great in your head, but
it will be incredibly challenging
once you're six months into it.
Amy Babinchak: You can only
sit on the beach for so long.
Todd Kane: Exactly.
Yeah.
Amy Babinchak: Yeah.
You've, you've read all, read all the
books you wanted to read your, you know,
your, your buddies are not retired, so
you can't go hang out with them, you know?
It would be a thing you, you have to have
your, what's next as part of this plan?
I don't encourage people to rush
into selling because they think,
oh, it's a seller's market.
I gotta sell right now before.
Before that goes away.
The lucky thing for us is we're at the
point of maturity in our industry, right?
This industry is about
40 years old and now.
Uh, merger acquisitions, sales.
This is just part of the way that
business is done, and I don't think
that will go away from now on.
It will always be the strategy
that as people are bringing up an
MSP, they naturally go out and they
make some acquisitions, sometimes
small, sometimes bigger, right?
But that, that's a normal
part of our industry.
That means that there's always gonna
be an opportunity for you to sell your
company when the time's right for you.
You shouldn't feel any pressure.
Outside of what's right for you
and your family and your situation.
Todd Kane: I think that's a
really important thing to hear.
'cause like I would say maybe five to
years ago, I necessarily, I wouldn't
have necessarily agreed with that.
But I think you're right that there,
it's not something that you have to time.
I felt like five to eight years
ago there was a pressure of
like, the multiples are so high.
Like if you don't catch it now, like
maybe it's gonna start to dwindle.
Like, like the PEs won't be as in,
uh, as interested or all the good
sales are already gonna happen.
I think there was a bit more of that
narrative, but I, I think your reflection
on that is, is wholly accurate.
things are stabilized and there will will
always be sort of a good deal to be had.
Don't rush into things,
which we'll certainly get to.
But, uh, I think the pressure is off
of like having to time the sail or
feeling like you're gonna miss the boat.
And I think that that does apply a lot
of pressure to people where they feel
like, I'm not necessarily ready to sell,
but you know, maybe I'll miss the window
if I don't do this within the next year.
Amy Babinchak: Well, you know what I
tell people is there's always a market
for a well run profitable business.
Todd Kane: Right.
Amy Babinchak: It doesn't matter
what else is happening out the world.
If you are the person with the well run
business that's making money reliably year
after year, someone will be interested.
Todd Kane: Yep.
Yeah.
Alright, so there's, I would
say also two parts to timing.
The, the sale for yourself and
prepping for it, I think is maybe
a better way to position this.
There's both personally as well as
prepping the business and I think, uh,
some people will, will get this idea.
We can expand on this a little bit of
like, You should spend time optimizing
your business so that it is a better.
attractive, sellable asset, you could
potentially get a higher multiple because
it's more, uh, organizationally sound.
You are not sort of the
center of of, of the business.
You have a team that can organize things.
You have SOPs, a good, you know,
well run organization that will
get you a higher sale price.
Ultimately, I think the part that people
will sometimes miss in this is that
you do actually need a couple years to
prep your personal finances as well.
And, you know, you know, I think there's
good money to be spent on a great tax
lawyer to prepare you for, you know,
the, the windfall that you'll get.
It depends on the structure of how
you sell your business, but I think
ultimately you wanna have that forethought
of, if I'm, gonna have X amount of
dollars in capital gains, you know,
potentially millions of dollars you
wanna prepare for how that actually.
Lands in your bank account and
what the tax implications of that
will be as well, You wanna expand
a bit on sort of the, the business
prep and the personal prep as well.
Amy Babinchak: Yeah.
You know, I'm.
well, I'm.
I, I'm not on the financial
side of selling businesses.
I'm more of an operations person,
but everybody does need a tax lawyer.
Absolutely.
You need to, you need to involve your
CPA and you need to get a tax lawyer.
And there are different people
Todd Kane: Yes.
Amy Babinchak: think that,
Todd Kane: often not recognized.
Agreed.
Oh, I
Amy Babinchak: yeah.
Todd Kane: No, no, no.
You need to go to talk to this person too.
Amy Babinchak: Right.
Yeah.
Um, yep.
I, I learned that by accident because I
had a client that was in that business
and so I, you know, I got to see a
little bit of what, what they did and
how they did it and the importance of it.
So, so, yeah.
You know, the accountant cares
about, you know, money in, money out.
Oh, bottom line, here's what you owe.
Right?
But they're not gonna sit
there and optimize it for you.
That's what the, that's
what the tax lawyer is.
You, when you sell your
business to, you need, you need.
You need at least three people.
You need that tax lawyer.
You need the CPA, um, maybe four people.
You need a financial planner
to help you know that.
You've got the right number that
makes sense for your future.
Um, and you know how close, how
close you are to your, your ultimate
need and you know how you're gonna
fill those gaps if there are any,
um, and business lawyer to actually
go through that, that transaction.
Yeah.
So if you've got those four people
on your sale team, you're gonna be,
you're gonna be set up really well.
Um, but, and you know,
when buyers come to you.
And you get that letter of intent
from them, what they're offering
impacts all of those things, right?
They're gonna offer to pay you in a
certain way to structure the payout over,
you know, some period of time, make it,
uh, an asset sale, a stock sale, right?
All these different things.
And they will have that in their lois.
So that is a large part of
your consideration, right?
Not only.
How much am I getting paid, but how am I
getting paid and does that, does my team
think that this is a good deal for me?
Todd Kane: Yeah, the structure of the
sale, I think is, is another aspect
that, you know, someone who's not
familiar with the, sort of the details
of m and a. There's a whole, you know,
there's probably four to five to 10
different ways to, to slice this, up of.
you would actually position
and what you actually want as
a part of the deal structure.
So I usually position this as like, uh,
how much cash you want up front, how much
time you want to have freedom, Right.
Like, do you, do you have to, you want out
immediately, like you're ready to retire
tomorrow, or you're ready to move on to
your next thing tomorrow, or you willing
to stick around for a year to three years?
Like understanding those
things is, is important.
And then there's, you know, the.
The amount that you'll actually get.
And this is sort of like a, like
a, like a, a bit of a, a bit of a
triangle where like you, you have
to shift the, the, your demands
around, but you can't get all three.
So you're, there's either more time
in and more money or faster payout,
but you know, less money, right?
So you kind of have to factor in
what are the parts that I want
Amy Babinchak: Yeah.
Todd Kane: I go here.
Amy Babinchak: That,
that's super critical.
You know, when I, when I, um,
when I sold my business, I
knew I'm a strong entrepreneur.
I, I knew it was gonna be impossible
for me to go work for somebody else.
So I had to fall in on the, I'm
selling the business and it operates
without me today, so it doesn't
really need me to go forward anyway.
Right.
I, I made it that way.
Um.
I knew I did that because I
knew I didn't wanna go with
the business even for a year.
I would be completely miserable.
And that emotion part that we talked
about, that grief would've been extended
through that whole period, right?
So that, so that.
That's how it landed for me.
A lot of times, um, I see offers coming
in for businesses up to, up to three
years of somebody still working in there,
like one to three is really common.
Um, however, when I, when you talk
to other business owners, uh, two
years is probably that sweet spot in
the middle where they'll, they'll try
to get you in there for two years.
Um.
People almost uniformly tell
me that that was the worst
two years of their whole life.
Working inside of a business that
you don't own anymore, you don't
get to make decisions anymore.
You have to implement the changes that
the owner, new owner wants to make,
and you have to sell it all to your
clients that have been with you for.
20 years.
Right.
It's a really difficult position to be in.
It'll get you a little bit more cash
upfront, but it's a hard place to be.
Todd Kane: Yeah, I strongly agree.
Um, I, I often joke with very
entrepreneurial people that, uh,
you know, they, they basically never
really had a. A real job outside of
maybe some retail or some fast food.
And then they started an IT business
and have done this for 15 years.
I'm like, congratulations,
you're unemployable.
Right.
Uh,
Amy Babinchak: Exactly.
Todd Kane: an important reflection.
Yeah.
'cause people end up miserable.
They're like, what?
What?
Look what they're doing to my baby.
Right.
Uh, as they sit there, you know,
with very little influence on,
on what the, the outcomes of that
business can be is very challenging.
Amy Babinchak: Oh yeah, yeah.
When I reflected back on my career
before I started my business, and
I, I did have one, not for a lot
of years, about five years or so.
Um, and I, I was actually in the
environmental consulting field
and I was really lucky to have.
Bosses, and I knew this of myself,
so I was really careful to interview
my employers to make sure that
they were gonna let me run because
I could not, I could not be.
I could barely be managed, much less
micromanaged, but I'm gonna be the most
productive person and fast learner that
you've ever seen if you just let me go.
Right?
Todd Kane: Yep.
Amy Babinchak: And I, I had a couple of
great bosses that, that let me do that.
Um, so yeah, I always tell people
like, oh no, I, I'm a lousy employee.
You do, you do not want
me to come work for you.
Todd Kane: Stuff will get done, Yeah.
Amy Babinchak: Stuff will get
done, but you know, it's not
gonna be the way you think.
It's structure is not, not quite the same
as a person you might hire who's used to
happy to work underneath other people.
That was never me.
Todd Kane: Right.
So we're sort of suggesting people should,
uh, think about, you know, the structure
of the deal that they want, thinking
about, you know, uh, the preparation
to sell, having their team in place.
Um, what about sort of
how you value the MSP?
Like you, you should, you, you talk about
sort of knowing your number in the book,
and I think that that's a really important
aspect of what do you want outta this?
Uh,
Amy Babinchak: Yeah.
Todd Kane: one of the sides that I see
of this, I think you, we have sort of
a. different, uh, ends of the, the, the
spectrum here as far as perspective that
I think will be interesting to get into.
But one of the situations I see is the
smaller operators that have maybe an
inflated sense of what their business
is worth, because either they hear the
stories in the industry of so and so
got X amount, and, you know, I think
my business is worth this, or they
ascribe a certain number because that's.
What they want, not necessarily
what their business is worth, right?
So they end up, uh, way I describe this is
they almost wanna get paid for the sweat
equity that have put into the business.
They've worked so hard, so therefore
it should be worth, worth x. It's like,
well unfortunately it's not really
how, you know, bankers and spreadsheet
people will value your business.
So how should people think about
understanding the value of their
business, assuming maybe they don't
have a great sense of m and a finance.
Amy Babinchak: Yeah, the buyer's
gonna come along and they're
gonna value your business based
on a whole bunch of factors.
But if we just kind of boil it
down to the top ones, um, right.
How standardized is your business?
How well does it run without you?
Um, how much profit?
Pushing to the bottom line.
Net profits.
Right?
And they're gonna do
their EBITDA calculation.
And I hate EBITDA calculations
'cause every firm seems to have
their own little twist on it.
Todd Kane: Isn't it.
Amy Babinchak: But
Todd Kane: is supposed to be a
universal number that allows businesses
to compare more organically to
each other, yet none of them are
really calculated the same way.
Amy Babinchak: None of 'em are
really calculated the same way.
You know, when I see the P firms come in,
they're using EBITDA as just a like, uh.
Bottom level, like we're
not gonna go below this.
So there's sizing businesses by ebitda.
They're not valuing businesses by ebitda.
What they're valuing the business
on really is the net profit.
What do, what net profit
have you been operating at?
Is your business showing a nice smooth
growth line over the last five years?
Uh, and.
Can they get that same profit?
Do they think they can actually raise it?
Right?
Can they, can they add efficiencies
to what you've already got there?
Um, that's really where their,
that's where the valuation part
comes in, and it's very, um, yeah,
it's very kind of analytical.
They don't, they don't have
the same emotional attachment
to your business at all.
Right?
They're just, they're looking at,
you're, you're gonna give them
a bunch of financial reports.
They're gonna come back at you
with some questions and a number.
Um, and so they're not gonna ask
you about, you know, how do you
like that guy over at that client?
You know, do you, are you guys buddies?
Do you go to their birthday parties?
Like none of that matters to them, right?
As small businesses.
That kind of stuff matters to us.
'cause that's our, you know, you've
had a client for such a long time.
You know, your, your friends, right?
All that stuff doesn't matter.
That's not part of the
valuation of your business.
The valuation of your business
is, what does it make?
Um, you know, are, is your, is your
pricing in line with the industry, right?
Are you overpriced?
Are you underpriced?
Is your staff up to standards on today's
skillset, or are they lagging behind?
How much are you paying your people?
Right?
Are you paying them too little or
too much or, or just Right, right.
Everything you can get
into that just right zone.
The buyer's actually gonna offer
you more for your business because
it hits all of those middle, middle
places where the standards are right.
Speaker: Tired of fighting
the MSP fires alone?
The Opsleader Pro group connects
service delivery professionals who
understand your daily challenges.
From KPIs and workflows to career
planning and team management, Opsleader
Pro has systems for you to use.
Join operations leaders from successful
MSPs who are sharing real solutions for
managing client expectations, optimizing
service delivery, and making your service
delivery team as effective as possible.
Opsleader Pro, 'cause your service desk
deserves more than just survival mode.
Visit opsleader.co.
That's O-P-S leader dot C-O to
apply to join the public community.
Amy Babinchak: let's get into
your thing about, um, business
owners may be thinking that their
business is worth more than it is.
I, I'm gonna blame our industry press
for that because the only articles they
ever write are the, are the miracle
sales where somebody got, you know, 10,
13 times multiple for their business.
Right.
It.
That's, you know, one in a thousand.
Um, and, you know, everybody else
gets something less than that.
Uh, I heard recently of a firm that sold
up in Alaska for really high multiple
because it was one of the only well-run
firms in the area that they, that they
wanted and they wanted to get a foothold.
So they're willing to
pay a premium for that.
But most of the time that doesn't happen.
Right.
If you're a smaller MSP, you're
gonna be in the four to five range.
If you're a medium-sized MSP, five to
eight range, and if you're, if you're
a true outlier, you'll go above that.
Right?
But our industry is made up
mostly of those small players,
and they don't ever hit the news.
Todd Kane: Yeah.
so that, that's, uh, the, the, the four
and five, uh, uh, four and five x is
a multiple of ebitda as, as, as the
number here just to, to fill in that.
Amy Babinchak: Yeah.
Todd Kane: the other part that I see
you had a different perspective on
this is, um, a lot of, you know, if
you're over 10 million, then you know,
you, you're a much more attractive
acquisition target and we'll potentially
pull a higher multiple just based
on, on that revenue number We're.
You know, hopefully your EBITDA
is good, but you know, just
Amy Babinchak: Yeah.
Todd Kane: will tend to make you
more attractive, as you noted.
Um, one of my favorite stats about
the industry is 90% of the industry
is sub 1 million, which is a massive,
massive portion of the industry.
And you had a perspective that
you, you, uh, shared with me before
we started recording about, um.
A lot of those businesses, um, may or
may not feel like they have something
to sell, and you tend to bump into
this occasionally in, in your travels
in the industry of like, well,
who would buy this, this business?
Like, I need to get bigger before
I could actually sell my business.
And you maybe tend to
feel that's not true.
You wanna expand on that?
Amy Babinchak: Yeah, that I, I
honestly didn't know it was 90%.
I knew it was a lot, and I usually
think of it as sub 2 million, right?
Almost all of our
industry is sub 2 million.
So if it's 90%, it's sub 1
million, I'll, I believe you.
Um, and yeah, these, you
know, they tend to be.
Sole proprietors, right?
It's one, one guy running the business
or maybe one with a other, you know,
a second person in the company.
And, um, their plan is usually just to.
Taper off, right?
What's your plan?
Well, you know, I'm just getting rid
of some of my clients that I don't
really like are the ones that aren't
that profitable and they just sort
of shrink, shrink, shrink, shrink,
shrink, shrink until one day there's
like four clients left and they're,
they're 70 years old, and then they
just give it to somebody else that they
know from a user group from years ago.
I see that all the time.
And I think it's really sad.
You know, you've worked in this
business for 20 plus years.
It's not worth zero.
It just isn't.
There's a, there, there's a number there.
Your business is probably the largest
asset that you own, even if you're
in that sub 1 million range, right?
You're still probably the
largest asset that you own and.
You should get paid for it.
That's a, that's a valuable thing
that, that you can add to your
retirement next day when you're ready.
Todd Kane: Because even selling a
book of business is still a very
viable way to, you know, to sell your
business and for other businesses to
grow is in an acquisition strategy.
I know a number of large MSPs that
really like buying books of business.
It's very uncomplicated and they're very.
Confident in the fact that they can
retain those businesses and they can
grow, you know, um, depending on their
size obviously, but, you know, five
to 15% pretty easily By acquiring a
stable book of business that would've
taken them years to grow organically
or, you know, to, to fund the sales
group in marketing group in order to
acquire, uh, a, an equivalent base.
So
Amy Babinchak: Yeah.
Todd Kane: viable strategy.
Amy Babinchak: It's a,
it's a great strategy.
I did that four times in my business.
You know, I, I bought small books,
small books of business, and added
them in and paid out the owner over
the course of two years from what those
businesses, what those new clients made.
A hundred percent of the time that I
did, that, I always made more money
from those customers than they ever did.
Todd Kane: Yes.
Amy Babinchak: they were, they, they
were, they were tapering off, maybe
not doing all the latest things.
They just weren't.
As involved in it anymore, and Right.
It was always that case where I
talked about, right, they tapered off
and they got down to their last 4,
5, 8 clients and I would say, yeah,
I'll buy those from you, no problem.
Todd Kane: Mm-hmm.
Amy Babinchak: And then we just built
them up and he's, and they were surprised.
They're like, wow, you're making
more money than I ever made.
Todd Kane: Yep.
Amy Babinchak: Like, well, you
know, that's why I bought 'em.
Right.
Todd Kane: if you're, if you, you have
organizational maturity enough that
you're growing and able to acquire,
you're probably gonna be sophisticated
enough to increase the share of wallet
with that, that, that client base, right?
Yeah,
Amy Babinchak: Yeah, absolutely.
Todd Kane: So that
Amy Babinchak: Yeah.
Todd Kane: to, to, uh, uh,
finding the right buyer.
Um, so there's, you know, the PEs.
Uh, that everyone's familiar with
is, is sort of what I think everyone
thinks about in general in the strategy
is, you know, there's some massive
company that's gonna come acquire me.
Uh, that is a strategy.
Uh, there's, you know, as you
mentioned, some rollup peers.
There's, you know, the, a
larger MSP in your region
that's potentially an acquirer.
Uh, and what I wanted to, to bounce
off, you see how much you see of
this is seller based financing.
Uh, I know you mentioned this in the
Amy Babinchak: Okay.
Todd Kane: and, um, one of
the ones that I feel like.
Has more of an opportunity
than maybe comes to light.
Is the owner actually selling
the business to the employees?
Not in an ESOP way, but seller based
financing, say to the leadership team.
And I, I wish this was maybe
more prevalent than it is.
I've seen this ha transact
in a couple of cases.
Um, but I, I think it's a really
underserved and potentially valuable
strategy, especially if you've got
a team that you really like and.
You, you feel like they could carry
the legacy for that organization, so
maybe work backwards from there in
the different acquisition strategies.
What, what's your thought on sort
of seller based financing to the
existing, um, leadership team?
Amy Babinchak: I think that's an, an
awesome idea and it's incredibly rare.
And like you, I, I'm, I'm not really
sure why, although, you know, I
will say that in my own case, um, I
was interested in doing that, but.
It's different to go from being an
employee to an owner and you have
to have your family backing that.
Then in my case, the, um, the, the
guy that was running my business, his
family was not in support of that.
Right.
They wanted, they wanted more flexibility.
They didn't wanna be tied to a place
they, you know, so, so it wasn't,
so, it wasn't gonna be viable.
Um, I do, I do know someone
who is doing it now though.
Um, and I think it's gonna work out great.
You know, I mean, there's no
more stability than someone
who has been in that position.
Running this business for
a number of years already.
Like that's a pretty safe bet, right?
So if you're confident in your team
and they're not gonna all of a sudden
break out and do something bizarre
after you leave, um, you know, I think
that's a, that's a great way to go.
And I do, I do also know an ESOP
firm where the owner sold to the
six employees that she had, um, and.
I will say that they are.
Struggling a bit to understand how
to navigate the relationships that
an ESOP enforces on everybody.
Todd Kane: Yes.
Amy Babinchak: that's a, that's, that's
I think, a little bit more difficult
than selling to maybe one or two, you
know, leaders that you have in your team
Todd Kane: Yeah.
Amy Babinchak: have been more, hopefully
working together for a long time.
I, I wouldn't do it unless
you had, um, a business that
really they're already running.
Like you guys just need to keep doing it.
Right.
And it would be good.
Todd Kane: Yeah, I've seen ESOP
explored a number of times, but it,
the, the extent of it is usually
paying, you know, $20,000 for an ESOP
consultant and then it stalls out there.
'cause everyone sort of
realizes like, whoa, this is
actually kind of complicated.
Like, am I gonna get my family's,
uh, support of funding this?
You know, how am I actually
gonna raise the capital for this?
Am I gonna, you know, take the
equity outta my home in order to
have the initial capital for it?
So it is, it is complicated, but as, as
we say, I, I wish it were more prevalent,
but I get that these, these, uh, these
models, uh, tend to be a little more,
uh, a little more risky and not from
a outcomes perspective, but just, um,
for the people participating in them.
They're like, they're also not.
Familiar with m and a and, uh, the
acquisition strategy versus, you know,
the PEs and the VCs that, you know,
they do this stuff all day, right?
Amy Babinchak: Right.
Yeah.
Yeah.
The, the p VC market though, starts
to fizzle out around 5 million.
So, uh, and some of 'em will go a
little smaller, maybe down to three,
but like, none of them go below that.
Todd Kane: Exactly.
Amy Babinchak: So you have to
be a business of a certain size.
Um, and, and in the MSP world,
there's a gigantic hump at 2 million
that makes it difficult to grow.
Past that.
And, uh, so most people don't, right?
That's like a, there's a,
there's a big stopping, there's
a big stopping point there.
Um, and that's for a whole
other discussion, but,
Todd Kane: That's what I
refer to as Death Valley.
Between one and 5 million.
Yeah, Either you make it or you don't.
Amy Babinchak: Yeah, that's a,
it's a, it's a tough place to be.
Um, there's a lot of reinvestment,
restructuring, reorganizing that has
to be done in order to grow beyond it.
So, um, which means, you know, that's
another reason why most buyers won't be
looking at the, at the PE VVC marketplace.
I wish they would come
down a little farther.
'cause there are some excellent
businesses in the one to $2 million
range that I think would make
make sense for the PEs even to.
Pace them together, you know?
But,
Todd Kane: seen as a,
as a decent strategy.
Like I've seen a few organizations
where they kinda work together to
cobble together a larger organization.
So you take kinda one company
that acts a bit more as the
flagship, maybe they're doing.
You know, 2 million, 3 million.
And then they pull together a couple of
other groups that are doing a million,
million and a half, and then they, they
pull together and then maybe do one
or two more acquisitions and then do
another turn and sell, uh, once they've
sort of pulled that, that unit together.
I kind of, I describe this as a
bit of the acquisition drag effect
where people try to sort of.
Build themselves up to be a bit bigger,
to signal to the larger entities that
are more at, say the 10 million and the
8 million is sort of the more their sweet
spot if, but if you can pull together a
business that all of a sudden clips past
five or six, then you know, all of a
sudden you'll have, uh, a lot of people
circling you with interest as well.
Right?
Amy Babinchak: Yeah, you have to reach
a point of stability though after that.
So they're not gonna want, they're
not gonna be interested in you right.
After you make those acquisitions.
You have to have made them a couple
years ago and proved, proved that,
you know, this is actually working.
So, um, what was the other thing
that you wanted to talk about is,
um.
Todd Kane: the, I I would say just, uh,
you know, PEs rightly and wrongly get a,
maybe a bit of a bad rap in some cases.
I've seen some absolute horror
stories of, uh, acquisitions that.
Uh, you know, the, the owner ended up
really regretting the circumstances
that they ended up in because despite
all the niceties in, in, in sort of the
description of how this is partnership
is, gonna go, uh, the, the truth was
much different and they were very
interested in growth for growth's sake.
There was a lot of cutting.
Uh, client relationships
were not maintained.
Uh, you know, the respect of
the owner was a bit dismissed.
Uh, those, they can end up in some of
those really awkward situations because
some of those companies are really not
in it for the surface in the service.
They're in it for.
of growth and, you know, they're, they're,
they're looking at the spreadsheets.
um.
and I think that that can be a
difficulty in finding the right partner.
'cause there are absolutely
great PE groups that,
Amy Babinchak: Mm-hmm.
Todd Kane: uh, you know,
a legacy for those people.
Give them even growth positions
to go into in some of the umbrella
corps and things like that.
So I think, uh, there are good
ways to get into this, but maybe.
You can get sold on a bag of goods
on, you know, this is supposed
to be an amazing strategy.
Here's what we propose, and
then it ends up being different.
So how should
Amy Babinchak: Yeah,
Todd Kane: about almost
interviewing the PE groups that
may potentially acquire them?
I.
Amy Babinchak: well, you
know, they're, you're right.
They come in so many different flavors.
One of the trends that I see right
now is, um, those firms taking.
Some of the money maybe up to 20% and
saying, oh, you're going to, you're
going to, we'll pay you, we'll pay
you the 80% on this typical, like,
you'll stay here, work two years, we'll
do all this stuff, this 20%, you're
gonna invest that in our company.
And then, you know, when we exit.
You'll, you'll get more
than that 20% back.
Right?
So you're, you're, you're now an
equity partner in their business.
Um, there's a lot of risk in that,
you know, I, uh, 20 percent's a lot.
So, um, and that seems to be the
number that they're going for.
Uh, it's taking a lot of
risk off of, off of them.
And, but that's placing that risk
on you, so you have to figure out.
Where you're, you know, are you willing
to gamble 20% of your company on the
success of the firm that bought you?
Um, that's a, that's
a huge decision point.
Um, you know, and they will typically
offer you maybe a little bit more because
they are asking you to accept some risks.
So the more risk you're willing
to accept, the bigger the number
will look on the bottom line.
But it may or may not actually happen.
Right.
Um, if you are more risk adverse,
you know, and you just wanna get your
money in the bank, then the number
itself is gonna look a little smaller,
but it'll be in the bank, right?
It's a sure deal.
So you all, all of these negotiations,
like you said, it's that triangle, right?
You're trying to figure out
is this the right person?
On the emotional side of things, you might
say, man, I really don't wanna sell to
a huge firm that's gonna roll us up into
a national MSP because, um, you know, I
know my clients aren't gonna like that.
You know, this is not, it's not me.
You know, I want.
This, this business grew
up here in this community.
And you know, the offer from the local
MSP, um, that wants to come into the, the
mar marketplace that I'm in, you know,
that's how it happened with my company.
They were in a smaller market.
They wanted to come into
the market that I was in.
Um, then you essentially have a
transaction that's more like you.
Right, and it maybe feels
a little more comfortable.
Um, the numbers probably
are slightly smaller.
Todd Kane: Yep.
Yeah, I, that's a really
important consideration is it's
not just about the money, right?
Like this is, uh, this is in a
way your legacy, uh, and you know,
the continuity of, uh, employment
for your staff, how your, your
customers are supported long term.
I think those are really important
considerations when you're,
you're considering offers.
And it may not just be.
You know, these, these guys offer
me, offer me seven x and this
other guy offered me five, so of
course I'm gonna take the seven x.
Well, you know, hold your horses.
Like maybe that situation is,
uh, is not, not as simple as that
number defines it as you know.
Amy Babinchak: Some people
are really cutthroat that way.
Todd Kane: Yep.
Amy Babinchak: you know, oh,
whatever happens to my employees,
I don't, you know, whatever.
They'll, they'll find jobs.
They're good people.
They'll find jobs.
Um.
Others, you know, for me, I
always felt really personally
responsible for their wellbeing,
for their, their, their livelihoods.
They were supporting their families off
of the, you know, money I was paying them.
So, like, I'm supporting all of these
different family groups out there, right?
That was a responsibility that I
took very seriously and I think a
lot of small business owners do.
So, um, yeah, so they're, I, you know,
you can put guarantees in the deal, right?
You gotta, you, you
need to hire everybody.
You gotta keep 'em for a
certain amount of time, right?
You may want, want them to all have
employment contracts that they're,
have some place to safely land,
whether they choose to stay there
or not, you know, that's up to them.
But at least I've given
them a safe place to land.
I haven't just abandoned them.
That's, that's often really important
to, to business owners that that happen.
Todd Kane: Agreed.
well, there's some great, Amy, uh,
anything we haven't covered that
we should dive into from your book?
Obviously I'll, I'll link to, to the book
and, and show notes and things like that.
Anything we haven't covered that
you'd like to, to dive into?
Amy Babinchak: You know, uh, the
reason I wrote this book is because
I wanted people to start to think
about selling their business.
I wanted 'em to think about it earlier
than they probably were going to.
Um, so I mean, just.
Tell folks sort of the way that
this is, is structured too.
I wanted it to be easy.
It is not a book you don't
like open page one and read it
till page, whatever it is, 244.
Um, you can jump in at any of the
20 questions that is speaking to
you at this moment and, um, you
know, I write a few pages of, you
know, answering that question.
Then there's uh, you know,
some key takeaways for you to
remember about what you just read.
There's a story, 'cause a lot
of us learn through stories.
So you get to see sort of what an.
When, how they, how particular
MSP went through, thought about
it and what their outcome was.
And then there's a series of questions at
the end to help you go through and come
up with your own answer to that question.
'cause we're all just a little
bit unique from each other.
Um, so it's a, you know, so
it's a little bit teaching,
it's a little bit work workbook.
And, you know, I think there's a
lot of stuff in here that if you
did this, you just are gonna come
out running a better business.
And it's.
I keep telling people it's never too
soon to start running a better business.
And so you know this, this can also help
people do that even if you don't decide to
sell your business for another five years.
Todd Kane: Yep.
As a, as an ops person.
Degree more is, uh, you know, the, the
revenue is the size of your business.
The bottom line is how
well the business runs.
And you know, if you, if regardless
of if you intend to sell anytime
soon or you have no thoughts of.
Of selling, uh, at the time you should
think about your bottom line and
the improvement of your operations
because it's easier to get those
things started now and position
yourself for potentially millions more.
Not only will your, your company
grow in a more stable fashion, but
you can get more money for it when
ultimately you are ready to sell.
So I really, really strongly endorse that
approach of think through these things.
Uh, for the, for the, for the ideas
themselves and just figure out what
you could potentially improve to
set yourself up for a potential, uh,
better, better situation in the future.
Agreed.
Amy Babinchak: Awesome.
I couldn't say it better myself.
Todd Kane: Well thanks Amy.
We appreciate you coming on and, uh,
encourage people to check out the book and
improve their operations and then position
themselves for a better sale of their MSB.
Amy Babinchak: Thanks for having me.