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Build a Business Worth Buying brings you candid conversations with industry leaders, M&A experts, and successful founders. Learn advanced strategies to scale, optimize, and prepare your business for an acquisition—because building a business worth buying starts with smart decisions today.
Saul Cohen (00:00)
sometimes entrepreneurs are a little bit guilty of saying they've got twenty years experience, but actually they've got
one year's experience twenty times.
Aaron Alpeter (00:45)
So grateful that you chose to spend some of your time with us today. You know, we talk a lot about mergers, acquisitions, those sorts of things on this podcast. And I think that most founders spend years trying to grow their revenue, improve margins, increase EBIT, because that's how they've been taught how businesses become more valuable. And yet when the acquisition process begins, buyers are usually asking a different set of questions. They're not simply measuring historical performance.
They're really trying to understand how much risk they're about to inherit. And our guest today has spent his career helping founders bridge that gap. So Saul Cohen is our guest today. He's an acquisitions advisor, chartered accountant, and founder of the Expert Eye, a UK-based advisory firm that helps founder-led businesses prepare for acquisitions, improve enterprise value, and navigate successful exits. After beginning his career with PWC, Saul shipped his focus toward entrepreneurs, and he has advised more than 100 acquisitions.
This is why I saw a hundred acquisitions. Amazing. And he's worked alongside business owners to transform financial reporting from a compliance exercise into a strategic tool for creating value. so Saul's work really sits at this intersection between accounting, operational improvement, &A, and just generally helping founders understand not just what their numbers say, but what buyers are going to infer from those, those records.
And so I think why I wanted to have Saul on podcast was he's got a very interesting perspective.
He doesn't view financial statements as a record of the past, but he views them as one of the primary ways that a buyer will evaluate the future. It's every inconsistency, customer concentration issue, every gap in reporting, all those things you normally look at and talk about can boil down to a alternate risk narrative that impacts the evaluation conversation. And so today we're going to pull back the curtain, talk about how sophisticated buyers actually think. And Saul, thank you so much for being on Build a Business Worth Buying.
Saul Cohen (02:37)
Thank you so much for having me on.
Aaron Alpeter (02:40)
Yeah, of course. Did I leave anything out in your introduction that you want to start with? I mean, how did you end up in this space?
Saul Cohen (02:49)
so yeah, I was at PwC. Well, I actually started my own business when I was at uni. sold that business. yeah, that that was that was an interesting journey in and of itself.
It was a really small thing, it was nothing like major. But that was sort of my first sort of step into entrepreneurship, which I loved. and it taught me that I need I had a lot to learn, which I think is it's a good thing to learn in your in your early twenties. so I went and took a job at PwC. I really wanted to work with entrepreneurs. I wanted to sort of be a consultant for as many entrepreneurs as I could. and
Yeah, I I I loved loved the work that we did there. It was incredible. We did we added so much value. I was in our risk assurance team, so we looked at all different types of risk, financial and otherwise. and our our engagements were so varied. We had so many different types of stuff. It was really cool. I I I I loved it. I I the one thing for me that I felt was missing was I really wanted to be working directly with entrepreneurs and at that size.
I was working with corporate bodies, you know, big stakeholders, maybe the board, whoever it was, and we were reporting to them and not directly for the CEO. And that disconnect, I think, just it it it that was what triggered inside for me. And I was like, I I I need to get out and work with directly with owner operators, so that I can I can give them some of that value. and so I essentially, yeah, I essentially set up my firm at that point.
I did take a sort of contract role to sort of bridge the gap financially while I was setting up the firm. but yeah, set up the firm. and because of the fact that I just I looked at risk differently
I was asked to get involved on acquisitions a number of times and very quickly fell into it being a specialism. and yeah, we're
we're actually at over a hundred and fifty now. So we we've been involved in a lot. me and a couple of partners are in the process of launching a private equity fund so that we can start making well, I wanna make my own deals now, right? I've done it enough for other people. I've seen the
same pattern of mistakes play out which are really interesting on the acquisition side. I've seen what what makes really good exits. so it'll be i I think at this point the I can only learn now by doing it. So yeah, that that's gonna be an interesting journey.
Aaron Alpeter (05:26)
150 deals is pretty good. So that's congratulations. I'd love to dig into more of that pattern recognition. mean, what are some of the things that just pop out after 150 deals where you're like, you know what, every time I see this, like, I know this is gonna be good or it's like, no.
Saul Cohen (05:41)
from an acquisition point of view, I think it's two things. It's either cash flow or it's the the profile of the acquirer. So really difficult f to tell someone who's looking to make a a buy a business or make an investment that they could be the reason that the the deal goes sour. But nonetheless that that is that's true. It's either because they haven't done enough planning or you know, th they've got too much of an ego to to to see what they're doing wrong and you know they're so hedge.
Strong, they know exactly what they want to do, they've got this direction, and they just won't listen to reason one way or another. and then that links into the other one, which is which is cash flow. And ultimately, everything that goes wrong in an acquisition is one of those two things. Assuming the acquisition actually gets done, it's it's one of those two things. I I I actually, after doing this many acquisitions, I think that the thing that most people miss more than anything else is acquisitions like B2B says.
Sales is more about the people and the relationship between two people than it is about the numbers. Obviously the numbers are massively important. I'm not at all discounting
that, but a everything that goes around what what happened, you know, the the actual deal itself, having those conversations, if the deal's right for you, the cultural fit, it's all about you know managing emotion and managing teams.
Aaron Alpeter (07:05)
That's really interesting. You know, when you mentioned kind of why a deal may or may not go through, of course, like everybody comes back to the cashflow, the EBIT and those sorts of things. You mentioned about the acquirer's profile. What is it about that? Can you say more about why that would have the determination on if the deal gets done or not?
Saul Cohen (07:25)
Yeah, I mean I think that l the problem is you you've got you've got generally you've got two types of people, right? You've got people who are vr
Very risk-averse, they like their own circle, and when they do make decisions, everything has to be right and box-ticked and whatever and perfect, right? Those people can't make acquisitions because yeah, nothing's ever going to be perfect, and nothing's ever going to be box-ticked, right? At some point, you have to make a call and say, We're just not going to know everything, we know enough. We've made a call, and you know, that's what the risk is in the acquisition. That's where you're getting paid on the multiple, right? It's it's it's you're taking a slight risk. hopefully, it's slight because you've
Done
due diligence, but you're still going to take some element of risk. and then you've got the other side of people, right? And the people who are really headstrong, they're creative people by nature, they're often a little bit impatient, they may be a little bit salesy, they relationships talking to talking to people. Problem is that those those guys can often miss the brine side, they don't look at the risks, and they overestimate their ability to execute. and
The problem is that in an acquisition, when you're overestimating your ability to execute, if you overestimate your ability as a leader, your position and the the business very quickly catches up to you.
And if you think that you're capable of managing a ten million pound or ten million dollar business, for example, or twenty million dollar business, and all you've ever done is run a two two million pound business or two million dollar business and you've never actually seen anything above, well the game's different at that size. You don't know what you're doing. And if you you at the bare minimum, you know, even if you're capable of executing at that level, you're gonna need people around you who can advise you, who you listen to. and I think
Quite often we fall into this trap of well, this there's there's two, I think, really crucial, crucial things to be aware of. The first is we don't know what we don't know, and I say this all the time. It's like the the best the the reason why we educate ourselves isn't necessarily to become an expert. It's you know you no one became an expert from you know doing a bit of research on Google or AI or or reading books, whatever. But you do those things to become to to build an understanding that is good enough to know what
where your limit your your limitations are, so that you can call in the right people at the right times and you have enough knowledge to be able to hold the experts to account. Right? That and I think that's that's a really important piece because I think people sometimes get that wrong. They think they're doing the research that they become an expert. you know, and and I I I don't think that's right. Or even worse, they don't even do the research because they think they've learnt it all by experience, which I'm sure they've learned that we all entrepreneurs learn a ton by experience, I'll tell you, I I
I've got to list the length of my arm of all the mistakes that I've made in running my business. But yeah, I mean i i and we do learn, it's true, but I think you've you've gotta know when is the right time to bring someone in or ask a question. I think the other thing is that sometimes entrepreneurs are a little bit guilty of saying they've got twenty years experience, but actually they've got
one year's experience twenty times. the hallmark of knowing whether you you which camp you're in is do you stop and reflect on a regular basis and measure how have I done and how am I going to improve in the next sprint? And if you're not doing that, I guarantee you it might have looked slightly different, you might have played with different different things, you might have even grown your business.
But you don't have twenty years' experience, you you've got the same year twenty times.
Aaron Alpeter (11:08)
Yeah, if they're being honest themselves, probably fall somewhere in the middle, right?
Saul Cohen (11:11)
Yeah.
Aaron Alpeter (11:12)
Where maybe I've got two years of experience and time, or things like that. When it comes to being reflective and actually asking those questions and making plans, how do you see the best founders approaching that? Because I think anybody can sit down and do a five minute exercise, like, oh yeah, I'd like to grow by 20 % here, and I need to do this, I need do that.
But how do you actually turn that into a habit, a mentality that goes with it? Because it's not just a one-time reflection, it's a period, it's a constant state of reflection, I think, is what you're getting at.
Saul Cohen (11:45)
Yeah, absolutely. I think that I think that first of all it it needs to be outside of the business.
my business coach advised me to do this once a month and I've started advising all my clients to do the same. So I take a day out of the business, I go and work somewhere completely different, not at home, in a new environment, an environment that I really like. I have, just general questions,
what have I done well? What are my key wins? What are we not doing so well? What are my current biggest threats? What are my current biggest o opportunities? You know, actually none of that stuff is is shocking to you. I don't I don't think any of those questions will be shocking. But I think it's the fact that you're taking time out in a different environment to do it. I spend a day on it and I'm I make a plan for, okay, well, if I was an investor, what does what does my business look like right now? What would an investor think
looking at my business as an investor, not as myself. That's why you've got be in a new environment. So you're not biased by other people coming in and and interrupted. You completely different place. And I think when you start doing that on a monthly basis
It's really funny 'cause you don't realise how much we can achieve in a year. We tend to overestimate how much you'll ach you will you will actually achieve in in a month and underestimate how much we can achieve in in a year or ten. I'm definitely guilty of that myself. and I think that's the way you habitize it, by by blocking it out in your diary and going somewhere else and and giving it a proper chunk of time.
Aaron Alpeter (13:15)
That's good advice. think it's something regardless of if you're a founder or you're just working in a business, that's a, that's a good life skill.
Saul Cohen (13:22)
Mm.
Aaron Alpeter (13:24)
I want to
come back to what you said earlier about kind of EBIT and, I feel like a lot of founders will live and die by EBIT. And they say like, this is the main crux of the valuation. Everything comes down to EBIT and what multiple I'm going to get. I read the
Elsewhere you've argued that it's almost backwards and that when buyers first receive information about a business, they're really trying to understand it. EBIT is one element of understanding. What do people look at beyond EBIT? How do you really understand a business as an acquirer?
Saul Cohen (14:01)
Yeah, so let's think as an investor looking at your business, what are they actually buying? Right? What does an investor want when they make a when they're buying a business? And for most businesses, let's say sub one point five million dollars, you know, below where private equity are starting to get involved, for most of those businesses, an investor is looking for positive cash flow.
Right. And so EBIT is obviously that that's what it gets. that's the number, right? That's that's your positive cash flow balance. So it is an important metric. and knowing that and having confidence in that balance, so having clean financials, is absolutely the first step. That's a non negotiable. however
There's there's another side to this, and that is the investor now wants to look at, well, what is the risk that I'm going to attach to that.
positive cash flow. So let's say making half a million, you've got EBIT of half a million dollars, right? If I'm looking to buy your business, I'm saying, great. So Aaron, you've got half a million dollars. How do I know that that half million dollars in eBay is going to recur in the next five years of my ownership? how risky is that five million dollars or half a million dollars, sorry. and what I do is I make a judgment
On how risky that that balance is, and I inversely will give you a multiple based on that risk that I'm attaching.
Very arbitrary because it's very hard to measure a lot of the risk management tools in in a smaller business. So what we do is just depending on size, we've got rough bands and depending on our conversations, how comfortable I am in due diligence and and the structure of the deal, you're gonna get a valuation that's gonna give you something that you're happy with. However, what they're actually looking for is what I've I've sort of put together a framework of the thing.
That I think make up that multiple, that they make up that
risk or or lack of it.
So that I could remember it, I gave it an acronym. so it's it's SCORE, right? S C O R E. and the S is for systems, very simply. They want to make sure that you've got good systems, optimized in in the business, everyone knows what they're doing, how they're doing it, it's very clear, it's documented, you've got a new joiner coming in, people know what to do, they know the process, it doesn't operate, if
You got run over by a bus and and couldn't come in tomorrow, how would people know what to do? You've got good systems. the next one is commercials. and that's all about your sales, right? So what's your process for winning work? Again.
If you, Aaron, are like you you've got all the client relationships, then when you leave, how do I know that these people are going to stay loyal to the business? worse, how do I know that we're gonna get new work in? If we've got like customers and we don't have a recurring model, how do I know that we've got repeat business? What's your pipeline look like? What's your process? What's your top of funnel look like? That funnel, by the way, it's important. That's an asset in your business. It might not show up on your balance sheet, but it's absolutely an asset.
So that's the next thing, the commercial side, so your sales. Then you've got the organization itself, the people in your business, your team. Can they run the business without you? How much of an influence do you have? By the way, investors know that you are not replaceable in your business. You think you're replaceable.
You're not, okay? Right? Every every start up business has something called the founders I I call it founders like stardust, right? You're special. you know, and almost every founder at some point in their journey will make the mistake of saying, I just need another one of me. Right? So I'm gonna go out and look for another one of me. And they make this it's beautiful because it's so humble, right? It's it's rooted in humility. They think that they're like they're not unique at all. But actually the
Founders are incredibly unique. and successful founders. If you go over over a million dollars and you've been running for ten years, you're you're the top one percent by the way. Right? You know, that that that that's not a common thing. You know, you think that that's it's normal because it might be normal in your world, but it's not. And so to find another one of you is impossible.
And so investors know that. They know that you're gonna lose a little bit of your stardust, they're taking it on a different journey, they're accepting a little bit of that, but they wanna make sure that you've replaced the pocket knife that is you with a portfolio of scalpels, right? And how have you done that? How have you built that?
Again, remember, in a large company, say Coca-Cola, the biggest brand in Coca-Cola is the name Coca-Cola, right? So the biggest asset is the brand name, Coca-Cola, right? Easy to put a value well, not easy to put a valuation on it, but we can all know and see that that's a tangible value.
In a small business, and I mean this with absolute no disrespect to any business, your brand is not Coca-Cola. there's no asset. The biggest asset in your business, the biggest sole asset outside of your pipeline and your ability to generate new business without you, is your team. And that's really important for you to be aware of. and then
The next one is the R, so that's the regulatory environment. So what contracts do you have in place? How does that hold up? and then the last one is E, so that's exposure in your marketplace. So for example, right now in you know all professional services, AI is a little bit of an exposure in that area. investors are a little bit spooked, no one knows
what's gonna happen. And it does, it caps the multiple in those areas. So the exposure to your industry, to your specific business, that will cap and bring down your multiple slightly. And each of those have a different weighting that we've sort of
hypothesise, we're getting it tested at the moment. but that's that's what we've come up with, that that framework. And in our experience it tends to pretty much account for the the multiple that a business gets given.
Aaron Alpeter (20:29)
Yeah, that is an excellent framework. So kudos to you guys for coming up with that. I it definitely makes sense to me sometimes I feel like people treat multiples as, as like a sacred text, right? Where they're infallible, they're immutable. And
people are like, well, you know, the multiple for this kind of business is two and a half or 1.5 or 10 or whatever it's going to be. And I like how you kind of walk through and said, no, you've actually got to come up with
you're on multiple and there are up elevators and down elevators and things you're looking at. Do you have an example you can share of a deal where maybe the EBIT looked good, you know, the numbers looked good, on paper everything was going right, but as they dug into that, whether it was exposure that was coming out in the score model or other things, you know, it ended up going off the rails and not being nearly as attractive.
Saul Cohen (21:20)
Absolutely. So my my favorite one of these is it's actually the one that prompted me to realise that there are there there's assets that don't turn up in any sort of financial model in in a business. it was before I I read a fantastic book called Twenty Four Assets, by the way.
Aaron Alpeter (21:37)
I love
it. It's a good one.
Saul Cohen (21:38)
Yeah, yeah, so it's a great book. But before I'd read that book I was supporting really impressive woman, incredible entrepreneur. and she'd run and scaled several businesses really successfully. She was making an acquisition, we were doing the due diligence and I I rang her up, I won't say her name because it's yeah, confidentiality and all that. But I I rang her up and I'm like, Hey, by the way, like business is fantastic, like you know, been
Through diligence, it looks like you've got a really great deal here. you know, the the pipeline looks good, the the forward forecasts look great, the financials all stack up, the cash is coming in, cash flow is really positive. We're we're we're all good. You know, there's a couple of niggly things, there's always a couple of niggly things, a couple of niggly things, but you know, we just we'll draft a couple of clauses in the SPA, absolutely no problem. I don't think this is gonna be an issue at all. It's just like, hey, yeah, no, thanks for calling, really appreciate it.
But but I think that I think we're terminating the deal. And I said, Whoa! I was like, I couldn't believe it. I was like, what do you mean? Like, why? and she said to me, She was like, I went in there last week on Thursday, and I I can't get it out of my head. She was like, I went in there just like on the spot check to speak to some of the senior guys. The the owner wasn't there, and
I just couldn't believe it. She's like the culture is so toxic. She's like there were thirty five people in there
She was like, two of them are sleeping with each other. Everyone was like complaining about each other. It was like there were fights going on. She was like we take that the the owner right now is the only thing keeping this thing from falling apart. You take him out, the whole business is gonna fall apart within six months. They're gonna rip it to pieces, this team. She's like the the culture is that toxic.
And I was like, Wow, okay, like yeah, yeah, I hear that. You're absolutely right. And I didn't catch that on on on any of the work that we did in due diligence.
Aaron Alpeter (23:40)
wasn't in data room.
Saul Cohen (23:42)
Yeah. Right, exactly. It was not in the data room. it really made me think. It really, really, really made me sit down and be like
What's the value in my due diligence if we can't catch the risks for our clients? That's ultimately what we're trying to do. which is what made me sort of stop and think and and go back and and and build out the model. but yeah, that deal really, absolutely was it it hit home for me more than anything else.
Aaron Alpeter (24:11)
Yeah, that is a great illustration too. I talked to so many people who kind of wonder what does the future look like in an AI first world. And I think that AI will be very good at crunching numbers, doing that sort of analysis. But that human element that you're talking about, which sounds like it's probably just as important, if not maybe a little bit more important than the numbers, is a key thing I think will require judgment and experience and those sorts of things.
What advice would you have for that owner if it was flipped in the other way in terms of like, it looks like they have done everything right, but the machine was dirty. How do you go about encouraging them to actually fix it? Where would you start?
Saul Cohen (24:54)
Look, I I think the owners often note the problems. owners aren't stupid. They they ca tend to have one of two problems. one is well, actually sometimes they have buried they're buried their head in the sand. That that absolutely is possible. often does happen. but sometimes I think and I speak for myself when I've had this, is that sometimes the worst thing you can have is an employee who does most of it right. But
terrible attitude. and that's really difficult because it's always difficult. No one likes getting rid of someone and definitely you hate getting rid of someone when sometimes, you know, sometimes people are good at their job.
Sometimes people you know, I I've had accountants who are absolute fantastic accountants, really, really, really good, but just their attitude sucks. Right? You know, they get off the phone with a client and they just I hate you such a pain in the back. I it that's just that doesn't create an environment where you're adding value or with d do you know what I mean? And it doesn't matter how much value you might have added on that call, the wider circle, the wider environment people aren't gonna be happy working there and
And and i it's really difficult. You c you just can't have that. And that
is a really difficult decision for business owners to make. It's really, really hard. this is where it's easy to be a consultant and and not actually there in the weeds. It's really easy as a consultant to say you need to get rid in and replace them. There are loads of people who are technically gifted. Attitude is what matters. But when you're there, and particularly if that person is protecting you as a technician, if you're like a technician and they're protecting you from doing all the stuff that you can't do or you don't have time for whatever it
is, then then that's really difficult for you to turn around and say, that this person's a lynchman. They they're really good in their business in that business. how do I replace that? They've got existing relationships, they've got X, Y, Z, whatever. And you can tell them that in every case where the person removes an employee like that, the business thrives.
But they won't see it because there is such a big pain initially coming up. So I do th I think culture is a really, really difficult one. It's not something that changes overnight. It's not something that's doable to change overnight. I think it's the hardest one of all of the five to build. it's the one that you're absolutely in control of that really takes the most amount of work. yeah, absolutely.
Aaron Alpeter (27:25)
Yeah. Yeah. So interesting
as you're, as you're talking through that, I'm just thinking about the hiring process and, you know, if you just went off of what someone's experience was and what the resume or LinkedIn looks like, you would hire very differently than if you were hiring for culture and for fit and things like that. And, know,
Saul Cohen (27:44)
Yeah.
Aaron Alpeter (27:45)
I know in our own business, we've, we've really over indexed on the culture side and we want people who
you know, are personable and can engage and you know, really good. you know, I think sometimes it's, uh, I wouldn't necessarily, it's called a bad attitude. It's just like not the right fit. So it can be very, very good and just not the right fit from a mindset or a person I've been working That can be very difficult to do. But I think that, you know, we, we spend so much time thinking about culture and thinking about the right fit from an employee perspective. And yet when it comes to acquisitions, we don't really think about that a whole lot. And
you know, I've seen a couple of acquisitions where the culture fit was not there, right? And, and those businesses ended up being massive write-offs and very difficult and painful for everybody. have this us versus them mentality. And, and so I think that, yeah, it is, it is a huge element that most people probably don't give it a good view. And I think even if you ask that business owner, you know, what's your culture like, they are probably going to look at it and say,
it's fine, it's good, know, look at all these things that we've done and how we're able to do there. But culture isn't necessarily what you say, it's what you experience, it's what you do, it's what you feel.
Saul Cohen (28:58)
Yeah.
Aaron Alpeter (28:59)
And it sounds like, know, kudos to that potential choir who said, I'm just gonna go in and check on things. Because that's really how you learn about culture, it's not necessarily a deck.
Saul Cohen (29:09)
No, absolutely. I I'd really agree and I've I've seen businesses get that wrong and and I I exactly as you say, it's really painful. It's it's not one that you want to be dealing with and I think actually it's outside of cash flow, it's the number one well therefore it's the number two reason. number two reason that deals fail or yeah, the it's culture, cultural fit.
particularly when you've got an existing business and you're trying to merge or two and and how do you do that and you know it people getting the people right I think that is the biggest leverage play that you can make, right? Is is when you take on your first employee, you move from a sole trader to an entrepreneur. And you know, you now are in the game of leverage because you're you're one to many. And you're doing that at bigger scale with acquisitions. And I I personally
I think that the people part is the hardest, most undervalued, but actually the hardest part to get right. Because it's the thing that we can't really control as well, right? You know, we can't really change other people. I can change a system, I can implement a system, I can get people to follow it. I can't change someone else to be better or to act a certain way if that's not them.
Aaron Alpeter (30:31)
You shared something 10 or 15 minutes ago that I absolutely loved and talked about how an entrepreneur needs to replace themselves, not only just with a single pocket knife that they are, the, I think, drawerfuls, scalpels that are there. What have you seen be the best way to approach that? Because I think that that hiring piece is so hard, especially when you're a young, growing, aspiring business, because there's potentially a cost element here where it's like the people who you know be really good, you're like,
Okay, can I afford them?
Saul Cohen (31:02)
Mm.
Aaron Alpeter (31:02)
You're raising your fixed costs, which again, hurts the cash flow and therefore, are they better people? Are they able to do this thing? So how do you help someone think about going from a single pocket knife to a drawer full of scalpels?
Saul Cohen (31:17)
think it it it depends if we're talking about management or or below management. I think i generally in your team, you know, if you think about someone who's you know running a running a warehouse, you know, manufacturing facility, they they can't be doing every area of that job, but they need to make sure that the person who is the floor manager
absolutely has been higher up the mountain. Absolut it it just needs to be. And that's what the budget for that role has to be. Because that's it's such a linchpin of that operation. And if that person is not
the the an A player, the whole business won't be an A A star business. It just won't be because they are the linchpin. So I think every business has a different linchpin person. and that's the one you go for first and you say, right, this is the most crucial person hire that we need to get right. Let's get that person in first and then we build out below them. in my business, like I'll tell you personally, I started out trying to employ a bunch of juniors to do work.
And then we're
obviously forgot how hard it is to actually coach people because I came from PWC where that just sort of happened and right. and then I realised I had to do it the other way around. And it is you yeah, sure you make less profit but y you deliver a much better quality service when you go in and you get really good technical people who've then got other people below them who, you know, they've got the right attitude and so the right attitude gets learnt by the others in the business. and it it's sort of
it builds biosmosis. I think it's just one at a time. One area at a time. you always have to be thinking about what what's going to move the needle the most for me right now. What hire is it that's going to change me my what right now. And by the way, the lucky thing for most small businesses when they're thinking about budget is the thing that will probably free them up the most, that will probably take them to the next level more than anything else, is an admin assistant.
And getting a good admin assistant is relatively much cheaper than hiring a CFO, right? And so, it it sometimes you're right, the budget can be a constraint, but I I just I don't think it needs to be as much as it is.
the other thing that I would also say is obviously and it depends at what stage of your business you're at. But if if you're running a larger business, the difference between a medi the mediocre budget and the A star budget is is it's it's not actually that big, right? You know, even if it's ten percent, if you're thinking about that on extrapolating that out across your business, you could probably t stomach that cost and absolutely you're gonna wanna make sure that you're getting an uplift on the value of that of that cost.
every employee should pay for themselves. I I absolutely believe in that. I'm an accountant, right? You know, you want to make sure you're seeing the the return on investment. But
I just I I think that sometimes we get wrapped up a little bit too much in like, let's keep cost let's contain cost because we want to protect what we have. But sometimes when you're looking to expand, you're looking to grow, it it does require
a bit of an investment. And do you need to monitor it? Yes. Will you get it right every time? Absolutely not. Ask me how I know.
Aaron Alpeter (34:44)
How do
you know?
Saul Cohen (34:48)
'Cause I I've cocked it up more than anyone else. I've yeah. I I used to keep a tracker because I thought it was fun, of how much the wrong employee had cost me in my business, either through recruitment or wages I should have been paying or lost clients or whatever it was. And then it got so big it got really depressing.
Aaron Alpeter (35:11)
You're like, man, if I had just been, I know what I know now, I could have avoided all those things, but I kind of joke around with our team that every now and then you'll have something that costs money and you're paying tuition, right? And it's up to you to determine if you are gonna learn the lesson or you're gonna repeat it. And so there's no avoiding it when these things happen. You are paying the tuition, it's just are you gonna go to class or not?
And so
Saul Cohen (35:39)
Absolutely.
Aaron Alpeter (35:40)
I think it makes sense. know, so much of what we talked about so far is just like the binary. Does the deal happen? Does the deal not happen? But there's this whole element in between just around discounts and you know, how someone feels about a multiple they're willing to put forward and things like that. Can you talk to me a little bit about the most common types of discounts that, that people will make when they're assessing risk that influence the multiple that they're willing to give and
And what can a seller do to try to put them at ease and make that discount not as large as maybe it was initially?
Saul Cohen (36:18)
Yeah, okay.
I think it's very rare that in in fact it's incredibly rare that I've had in fact in a hundred and fifty I've had two times where we've had this, that I send a report and I say the deal is so bad you you cannot buy this business twice.
I've d I've done it twice. and both times were because I felt like the quality of accounting report records was so poor that there was something that they're they're hiding something and we can't tell you what it is. I cannot I cannot even get to the bottom of it to assess any risk, right? So, you know, we're we're trying or whatever it is, but we've got such a big concern over what's going on, th it might be, you know, something is is fraudulent and it
might be that the business is absolutely fine but we whatever it is, we can't measure it and so do not buy this business. every other time, every other time that we have found an issue, it's been a negotiation point for the buyer to get a discount on the business.
And that is so varied. It can be literally you've got three customers here, right? Three customers account for seventy percent of the business. We think that you need to discount the multiple because that's a really high risk. Or you want to change the terms of the deal because, you know, maybe put a contingent fee in so that if one of those go, then, you don't have to pay so much.
it could be on on on the sales process that the sales will rely on one or two people and if they leave then they can they'll take a bunch of clients with them. it's any of those score areas will create a risk and that risk will give you an opportunity for the buyer to renegotiate the the the business the business that purchase.
And ultimately, when you're presenting it to a seller of a business and you present it to them really clearly in black and white, like, look, you know, this X, Y, and Z people, they're the key linchpins in your business. If they go, neither you or I are in control of them staying, right? Obviously I'm gonna do everything I can to keep them, you're gonna do everything you can to encourage them to stay. I'm gonna give them this and such and such package. This is what I'm gonna do. But if they leave, the business falls apart.
You know, a a seller a seller's got their highest time behind their back. They can't do anything but say, Yeah, you're right. it's actually a really difficult position for the seller to be in.
and unfortunately most sellers don't come to prepare their business for exit at all until they're actually selling the business, which is often too always too late. so I think that is a bit of a problem. The one thing, the only thing that the seller has at their disposal at that point is the terms of the deal.
Right. And so you can be flexible on terms or you can be flexible on value. And if you want all the money up front, that's fine, but you're probably gonna get much lower value. And if you could be more flexible on terms, then you're gonna get higher value because it's no less risky for the acquirer, they can fund it out the future profits. if you're willing to do a contingent fee, so like I said in the case of a client falling off, then that's fine, right? I'm not bearing the risk. You're
willing to share the risk with me. So I'm happy to maintain the valuation as is, because I'm happy to pay for the business if the business is what we agreed it was. but if it's gonna be that it loses these three customers or any one of these three customers, suddenly the whole business is much less profitable.
I'm a lot less interested in owning it. but you're happy to shoulder some of that risk, okay, we can still get the deal done. And I think it's that. nine times out of ten at this level, people are all being reasonable, people no one's trying to sort of pull the rule over your eyes. And I think if we can if you could just think about it in those terms,
then often you can come up with some way to try and get the deal done at the term or in a way that you're still happy.
Aaron Alpeter (40:24)
It's really interesting because it's like, on the one hand, we talked about how important it to get the team right and to get people and to elevate them and to get the right people there. On the other hand, it's like having too much dependency on those people is also a risk. so, I would imagine that it's a better premium to have people not the founder who you're more dependent on as opposed to just being all based on the founder.
Is there a certain size of the company or certain element of specification that just makes it more palatable? I feel like there's got to be some sort of exit velocity where, you know, whether it is 10 people or 50 people or 100 people, you start to go from individual heroics to more of a standardized process or just this inertia culture that's there. What have you seen in terms of the right size to exit where it is a durable business? You know, there are...
fewer holes that an acquirer can poke into the story put forth.
Saul Cohen (41:24)
I think from a seller's point of view, i I I think that's too much to worry about. And I'll tell you why, because I think obviously there is there's a size at which the the whole game changes, right? Everything changes. The risk profile of the business, the risk the business becomes inherently less risky, almost not risky at all. it just needs to be run run well. And that size happens to be the size that private equities start getting involved, right? Or your family offices are starting to be involved.
Aaron Alpeter (41:52)
about $10
million would be my guess.
Saul Cohen (41:53)
Right. Yeah, it's it's a little bit more, I think probably about yeah, fifteen, ten, fifteen. obviously the bigger a business is the less risky it is. If you've got a hundred employees, you're spreading your risk over a hundred different people, you know, your sales team's maybe got five to ten people in it, depending on on what you're doing. But obviously that's inherently less risky than having a business of twenty five people. But a business owner might not want that business. They might be in it for a lifestyle business, they want a really good lifestyle business that's gonna give them everything that they need
In their lifestyle. There's no reason that they have to go out and build that hundred million pound business or a twenty million dollar business. It may not be necessary for them and it may not be the journey that they want to be on. They just need to know that so that they can make other investments and they can plan for their retirement. And the the wealth in the business, the value of the business is just one of the one of the assets in their own personal portfolios.
so I wouldn't think about it too much from a seller's point of view. I do think they should think about the value, they should know it so that they can l well what does my what does my retirement look like and you know, what am I gonna do after? and, you know, can I do things to make my business more saleable? But
At the level that we're we're operating at most commonly, see your SME businesses, really good businesses coming to be selling sold, they're always going to be an element of risk. That's why there's so much opportunity here. you're right, when you get to that sort of and and again, you know, 1.5 million is inherently less risky than than half a million, and five million, ten million profit is inherently less risky than one point five. do the multiple chains above that, actually they don't change too much, it's just that they
get different assets. The assets become so much more stronger. we got brands, we've got people assets. It the the assets in the business become so powerful themselves that the business can run whoever's there and and it almost runs itself. It's become something much bigger. But I think if you're gonna have that
from a seller's point of view, if that's not the journey you're on, don't try to build that. It's just gonna be really painful, you're not gonna enjoy it, it's gonna be really difficult, and you're just you're you're gonna hate your life. I wouldn't ask that from the seller's point of view. I would say from the seller's point of view, the better question t would be based on the fact that I want X amount in my business and employees the more employees you have, the more
different troubles you've got. So I I'm wanna cap it at a number that's comfortable for me and maybe that's twenty-five or whatever. What's the best way to make my business as saleable as possible? and that I think is is different. Because look at the end of the day there's a big difference between the three times multiple and the five times multiple. And that that that's a in of itself can be a life changing number.
From an acquirer's point of view, absolutely, again, you you do want to know that. But I think most acquirers of SME businesses know that they're inherently less risky and they're buying them because they're getting a good multiple
and they want the upside. Right? and so I think if you're buying an SME business, that that's part of the territory.
Aaron Alpeter (45:05)
That's so fascinating. When do you think that the owner, founders need to kind of make that decision? Because it feels like for at least in my experience that you build a business pretty much the same way, whether you're building as a lifestyle business or you're going to exit to another company for about 80 to 85 % of everything you do. But that last 10 to 15%, you do things differently, right? If it's a lifestyle business, it's all about keeping.
Fixed costs as low as possible. It's about cash flowing. It's about those sorts things Whereas if you are building towards something that you're going to sell one day you want redundancy you want to be able to to allow people to be developed and to leave and to not ruin the business stuff again. So it's inherently like a different element What do you think is the right time for an owner to think about which path they're gonna go down?
Saul Cohen (45:55)
Mm-hmm.
Aaron Alpeter (45:56)
and you know, what are are some of the indications of
what they should do versus what they shouldn't do.
Saul Cohen (46:01)
Okay. so I think as early as possible, start with the end of mind. when you're setting up, you should think about it. the next best time is today. you wanna know what do I really want in my life. I would question that I'd say most business owners want flexibility and they want a good income. and
Funnily enough, I think that the flexibility is more likely to come from the lifestyle business. a performance business, as Daniel Priestley calls it, it's a different beast.
let's compare for example Uber to your standard sort of like local cab company, sort of taxi company, right? When when they were setting up Uber, they knew this is gonna be a different beast, right? That's the sort of environment where, we're sleeping in the office, we're not leaving, it's proper start-up hustle and that start-up hustle never really changes. We're going for fund round after round after round, we're raising money, we're never really
Leaving, we're in this for the long haul. We're gonna go for a large exit at one day, and that's how we're gonna make our money. our wealth is gonna be generated out of the sale of this company. All of our wealth, everything we're going all in on this business, it's really difficult. From day one, you need to have really good contracts, you need to make sure you've taken really good legal advice. You know, from day one, you need to make sure that when you when you're employing people, not necessarily day.
one but right the as early as possible you need to make sure you've got really good employment contracts you've got a star players on your team because you know where you're going you're going to a really different destination I think most other most businesses probably ninety percent of businesses probably ninety-five actually or business owners want a lifestyle business
and they are much more similar to that sort of taxi company that's sort of maybe in a city and they're building it. It's much more stable. It's much more you know, we don't maybe want a nice niche team, ten people, maybe fifteen people, it's gonna operate really well, it's gonna r have really high profit per employee. you're still gonna wanna replace yourself. You're still gonna wanna take yourself out, de-risk the business.
Business, you want to do other things, but most of your investment, time, money, after a certain point in time in your life, once you've got the business to a certain level of success, most of your investment's going to be into other assets, right? Because this is now you you're optimizing your life for your lifestyle. And that might
Aaron Alpeter (48:35)
Hmm.
Saul Cohen (48:36)
be you want to travel, you want to spend time
with your kids, whatever it is for you. You want to optimize for your lifestyle. And so you
You don't wanna be dragged all in by investors and held accountable to to other business owners. Wow, the worst thing that you can do for a business owner who has optimized for the their business for their lifestyle is to give them a partial exit. gosh, that is painful. I mean it never ever works. Never. And business owners, bless us, we are an optimistic bunch. And
Despite the fact that you say, I've never seen this work, they will always say, Yeah, but I'm different for X, Y, and Z reason. But you know, again, if you're in a performance business and that's what you want, that's the journey that you're going for. You've accepted that already. You've accepted, I'm gonna need to take on investment, and that's part of my journey. You're not optimizing for your personal lifestyle, you're optimizing for your eventual exit. and you want to know that as early as possible. Absolutely.
Mm-hmm.
Aaron Alpeter (49:42)
That's interesting. think that there's probably some misconceptions that are out there too, which is, and maybe I'll just run past the ones that came to mind and you can let me know if they're accurate or not. But one of them is that a lifestyle business is hard to exit because of all the founder dependency and stuff like that one. And the second one is that if you raise money, you have to be a performance business. You can't be a lifestyle business. Do you agree with those or is it?
Saul Cohen (50:08)
so
the first I definitely I don't agree. I've s I've seen really good lifestyle business being sold. Lifestyle really, really good ones. I think one of the misconceptions that I always hear is, yeah, but I wanna earn X amount a year and you can't do that as a lifestyle business. I've seen lifestyle business owners earning a lot of money. Like
I've seen I was in really cool lifestyle businesses. you know, sort of guy, he was doing designs for all sorts of people, and he'd he'd he was making like two point five million in profit a year. That did really, really well. and he he had a small team of guys behind him, really elite elite business.
There is no cap on how much you can be well, I suppose there is a cap, but in in terms of our conceivable profits, there isn't a cap on the size of your profits. There probably is a cap on the size of your team because you don't want to be in a point where your team gets so big it gets hard to manage and and then it gets quite difficult. You don't wanna be in that environment. That's when you sort of get dragged in. so yeah, particular and particularly now with AI
You know, they they're waiting for the first unicorn with one one employee.
Aaron Alpeter (51:21)
Yeah.
Saul Cohen (51:22)
I don't I don't think we're that far off. you know, you can do tremendous amount with a small team. and I think that that that's that so I think that's a huge misconception. remind me the second one. What was the second one?
Aaron Alpeter (51:36)
If you take that investment, you have to be performing.
Saul Cohen (51:42)
I think it really depends on the type of investor that you're bringing in.
If you take on institutional investment, then absolutely I disagree. I think you do have to be a performance business to take on institutional investment. I think by the fact that you're taking on institutional investment, you have become a performance business. that that is true. If you're taking on like a small loan from maybe someone who backs you or someone who believes in your journey, or you know, maybe you've got
someone in your network who is like, you know what, I really love what you're doing, I'd love to be involved in a little bit way, maybe I'll be a non executive and I'll give you some money to support you on your on on getting there a little bit quicker and give you money to build your team up, then you can have it as a lifestyle business. but I I really think it depends on the investor and the relationship with the investor.
Aaron Alpeter (52:31)
Saul, this has been so fun. Thank you so much for joining and for sharing your framework, your wisdom, your experience here. If there were a couple of beliefs that founders have about valuation that you hoped would disappear forever, what would you share in terms of close this out?
Saul Cohen (52:51)
so I think the most important one is that I I think act on fact rather than on what your friends d down the pub or have told you. yeah, I d I'm not sure what the American equivalent would be, but yeah, I think you get the gist. you know, don't don't just assume that the numbers are are are big. That that that to me is
Is the biggest thing. Act on fact. Get a valuation more regularly. it doesn't have to be war and peace, doesn't have to be super expensive, but do it so that you you've got a line in the sand, you can plan your investments, and you're you're you're actually being intentional about the way you build assets and your business is one of those assets. I think to me that's the single biggest message that I can get out to the world as much as I can by being on podcasts and writing the book and whatever. Like that's a message that I want to get out there. Just act on fact, and if you're happy.
With your business valuation as it is, great, I'm so happy for you, that that's incredible. But if you're not, as most people like they want to grow it and and most guys that we know, like now you can do something about it. Right? Don't beat yourself up about it. It's way better that you know with five years left in the tank than you find out and you're about to exit and you're like, my gosh, how am I gonna make my retirement work? And I think that's that's a real shame 'cause I've seen that loads of times and it it's it's devastating.
Aaron Alpeter (54:14)
Well, Saul, thank you again for being on the podcast. And we'll thank our listeners for tuning in. Please share this episode with somebody you think who would benefit from it. I think there were a lot of great gems that were here. And until next time, good luck building.