Conversations With Coffey

Insider Tips for Selling Your Business with Jennifer Ramos

• Guy Coffey • Season 2 • Episode 3

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In this episode I speak to Jennifer Ramos, a business broker and certified exit planning advisor based in California, about the key factors that make a business sellable.

We discuss clean financial records, minimizing personal expenses through the business, semi-absentee ownership, customer and employee satisfaction, and diversifying revenue sources. 

Jennifer emphasizes the importance of having an exit strategy from the start, even if the sale is years down the road. 

We also explore the potential opportunities for buyers in the market due to the impending wave of baby boomer retirements. 

Jennifer shares insights on valuation, preparation for sale, and the importance of thinking about business exit as a continuous strategy rather than a final step.

Jennifer J. Ramos, CEPA heads up JR3 Consulting - https://jr3consultinggroup.com/

Connect with Guy Coffey:
LinkedIn: www.linkedin.com/in/guycoffey
Website: www.guycoffey.com
Instagram: @guycoffey
YouTube: @guycoffey

 Welcome to Conversations with Coffee with me, Guy Coffey. I've owned independent businesses. I've been a franchisee of a global brand for over 17 years, and I co founded and successfully exited our own franchise brand. This podcast is dedicated to growing the lives and businesses. of entrepreneurs everywhere by sharing conversations with successful owners and some of my own experiences and insights.

So please grab a cup of coffee and let's just dive right into today's episode.  Hello and welcome to Franchise Business Real Talk. Today, we are going to be talking with Jennifer Ramos, who is a specialist in people exiting their businesses. And we're going to learn a ton about, even in the beginning, how you can set things up so it makes it easier to exit later.

And the importance of it. So without further ado, thank you very much for joining me today, Jennifer. Oh, thank you guys for having me. Yeah, it's great to have you here. Jennifer and I met at BNI about a decade ago when we were both launching our businesses. Um, it worked really well. So a little plug for BNI as well.

And 10 years later, we're still connected and having this conversation. So there you go.  Yeah, and a lot has changed since then. We were just talking about how our Children seem to be aging while we don't. And,  um, they're getting bigger and moving on into the world. But, um,  Jennifer is out in California. She helps people exit businesses they've built and has a lot of insight because she sees the end of this process all the time.

And most business owners don't get to see it, but once or twice, or, you know, some serial entrepreneurs get to see it more than that. But hugely insightful. Thanks for taking the time. And I'm going to start out with a loaded question, please.  And that would be when you are looking at businesses that come to you for consideration for you to represent what does the ideal role. 

Not in terms of size or anything like that, but what does the ideal client  show you that you're like, okay, I want to work with this gal. I want to work with this guy or this team, whatever the case may be, what are you looking for? Okay. That's a great question. It is loaded. So interrupt me if you have a question off of what I'm saying. 

So what we're looking for, what I'm looking for is a really strong, sellable. Business and what makes a business sellable is a business that's very, it's valuable and is driving value to, to the business. And so the first thing we look at are the financials. Um, we're looking to see that the books are clean and professional meaning that the financial statements are In order very clear not sloppy We also look for the business owner not paying too many expenses as discretionary for themselves I mean there are some allowable things, um that will will allow for and banks will allow for But if a business owner is running most of their personal life through their business, it's not it's not good.

It's a bad thing Um, so please don't do that  So that's what kind of the sloppy books means so we also look for you know, if at all possible with your industry Um semi absenteeism with the owner if the owner has a solid team in place where the businesses totally operational, uh, with or without that owner being present.

That's what we look for. Also, we look for customer concentration. And, and what that means is we want to make sure that the bulk of the revenue is not coming from one customer base. We want to make sure there's diversity there. And so that's another key, key factor.  We are looking for client satisfaction, customer satisfaction being very strong, employee satisfaction being very strong.

The brand being strong, you know, I've, I've, I've sold businesses in the past, our own and, and others, um, a lot. I used to be a business broker, like back in the nineties and early two thousands. And people will say, no, like my team loves me. The team loves being there. The clients love us. But what you're talking about is now we have tools for that.

So you could have an NPS score. You could have glass door ratings. You could have, you could just look at your Facebook and Google reviews, and a lot of that is going to be an objective number, not just the gal or the guy that is trying to sell telling you like, no, people love it. Yeah, no, you're totally right.

There has to be evidence.  There needs to be  evidence to show that that you're backing up what your opinion is because your opinion is your opinion  and it could be wrong.  We want to make sure there's something tangible there. And, you know, the more objective that you can,  the more you can hand somebody.

The information on your business and not have to explain things. Yeah. 

Yeah. 

Yeah. And I, the other thing I'll say too is even from, so I always preach and I was telling you this before we started that, um, you know, an exit strategy in my opinion is the only real business strategy that makes sense because a hundred percent of us are going to exit our business, whether it's on our terms or someone else's is another thing.

Right. So obviously we want to make it on our terms. And so  from the time you open your doors. I really encourage folks to think about that exit later, whether it's five years, 20 years, 30 years down the line is irrelevant. Because if you're thinking of it by ways of what I'm talking about with the value add and what makes your business desirable and sellable, you're only going to be profitable faster.

And you're going to build a valuable business right out of the gates, or you're going to be, you're going to learn to achieve, to do that very quickly. Does that make sense? Absolutely. The other thing about that too, is You know, you don't know when you're going to have to sell your business.  You know, life happens, life events happen, people get sick, people die, people get divorced, you know, and sometimes business owners are forced to sell their business,  um, at times when they're not ready.

And so if you're thinking with the exit in mind, always.  You will be ready to some extent. 

That's a really important point to make. 'cause in general, if you're not doing it right from the get go, which a lot of companies don't, so if you're listening and you're like, oh, I haven't done this, the best time is the first day you open your business. And the second best time is starting today and learn how to do that.

And the best and the easiest way to do that it I think. Tell me if I'm wrong. This is just an opinion, but the first thing people are looking at when they're looking at a business is the financials, you know, what's the cash flow? What am I buying? And it's usually cash flow or, you know, sometimes it's I. P.

Or something like that. But for like for most businesses, would you say it's like they're buying a cash flow stream? Yep, they're buying future cash flows. Yeah, yeah. And, um, you clean up your financials first. That would be number one. Don't you think? Absolutely. And a lot of that, when, when people hear that, you know, I've run across all types, you know, like some people run everything through their business and, you know, and some people run almost nothing through their business or just the big items that are easily documentable so that you can add them back later.

But like the little ticky tacky things like your meals and like, I always used to tell people, Okay. Hopefully you're going to get, it could vary, you know, a three to five multiple on your cash flow, depending on your business could be way more than that. So you're, you're saving 30 cents on every dollar, but you could have shown that dollar is income that could have dropped to the bottom line and gotten paid 3 to 5 if we're using those multiples.

Absolutely. So think longterm, like. The people that are so worried about paying taxes on their business income is like, I get it. No one wants to pay more than they need to, but like you're, you're dirtying up your financials to save 30 cents on a dollar when you could have been paid a multiple on that dollar.

You're right. Yeah, that's totally true. Completely true. The first thing we look at the very first thing, and that's the first thing a buyer is going to look at.  Do you know what I mean? So anybody who is looking at your business, that is the first barrier to entry. 100%. Absolutely. And then, you know, and then go from there. 

There's lots of other areas that you can clean up operationally and process wise and hiring and maybe work on if you, you know, if you don't have great reviews, work on those. Those kind of things. But when someone is, you know, I used to tell people like, as soon as you start thinking about selling your business, you should really like look at what it's going to take to sell that.

So it could be a year or two long process, sometimes even longer. Tell me if I'm right on this, but the, the source of truth I'm guessing is still the tax return. Yes. Right. It's, so it's, it's not the PNL that your brother in law made up for you or that you have to explain. Well, we look at the PNL, but we look at the PNL to make, to make sense of certain things, but it's really the tax return is what we're looking at.

So if someone knows, and I understand like your CPA is doing their job by trying to minimize your tax liability, right? But by the time you're ready and thinking of selling, you know, in the next three to five years, that's when I would, I would encourage folks to really think about  what they're doing, um, with keeping that bottom line, because it's not healthy, um, because it's not about the revenue per se.

I mean, without the revenue, you don't have a business. So I get that, but it's really about what you keep. And your tax returns are what's going to be looked at. And if your tax returns, you know, the net on your tax return or your cashflow is really weak, that's the multiple. We're attaching a multiple to that cashflow.

And the multiple is also determined by how strong your financials look. So, I mean, the multiple is driven by  arguably 11 specific areas of your business. And if those 11 areas are weak, Your multiple is going to be really low. You actually want to be paying taxes. Right?  You want your tax return to show as big a net income as possible.

Absolutely.  If you like this show, would you do me a huge favor and share it with one more person? It's super quick and easy to do and it will help me impact more people in a positive way. Thanks. Now back to the episode. Is there a ways that someone could work with you if they came to you and said Hey, I'm going to sell, you know, I'm moving.

I want to sell, I want to go to Texas or wherever. Um, I put my, put my business on the market.  That's obviously you would look at their, qualify them, see if they're a business and a client that you would want to work with. Because I know you guys are very cheesy on who you work with so that you can get out of that number.

We had shared earlier that A lot of businesses that go on the market,  they're just not ready to sell or they're not being represented the right way. And it's an alarming number. What was it that businesses that go on the market that don't sell? Yeah, it's about 70 percent of businesses that do not sell that are listed on the market.

And it's, it's for a number of reasons. They're, they're just, they're not ready. Or the broker lists the business in hopes that, you know, kind of throwing spaghetti on the wall. Um, but a lot of those businesses, I mean, you don't, you can't, numbers don't lie. And 70 percent is a really high number. It's better it from years prior, years prior, it was like 80%. 

So it's getting better. So I think, I think folks like me that are exit strategists and brokers that are kind of ed more in the education space. and educating business owners on these key factors to when you are going to go sell. I think that's starting to make an impact, which is great, you know, and so the more education that business owners have, the better.

Yeah, that, that makes sense, especially for this.  Point of your business ownership journey,  which as I, as we said before, a lot of people go through at once and they're done.  So I really like that term and I think it's a better descriptor of what you do than business broker. Like you're an exit strategist.

How long, there's your cat.  I like it. It's more action in the video.  Yeah. Um, so how long will you work with somebody? To either get their business ready for sale or put it on the market. Or someone comes to you and says like, Hey, next year, my, my kids graduated from college, um, the year after that, we want to move down south and, um, I've got this business I want to work with you so that I can maximize the value I get when I do sell.

That's something that people do like really proactive people. I can only speak for myself. So the more I'm out there and doing videos and webinars and podcasts like, like this one, and just speaking to folks, the more, uh, I find business owners are more, um, alerted to this issue of selling. And even if they're not ready to sell, I think there's more and more are starting to get to the idea of that.

This is a strategy. And a lot of their wealth is tied up into their business. And I think once you kind of baby shake them into understanding that, you know, this is a big deal, this is a big undertaking having this, this business. And it's, we can get in the weeds of the day to day of operating the business, but if you're not strategically doing it.

With a bigger lens and, and kind of thinking about the end game. I mean, it could implode on you later, you know? And so I'm really passionate about, um, helping folks from the get go. I mean, I'll work with people in their first year of business. I'll work with people in their last year of business. It really, my whole drive is just to meet them where they're at and get them to improve and empower them.

And get them to understand that they are in the driver's seat the entire time that they're engaged in this journey of ownership. They are in the driver's seat but are they asleep at the wheel or are they really driving their business and ultimately their destiny to harvest all the income they can out of it?

Are they in the weeds? Are they too in the business rather than on the business? And it is as much as it's It's hard  for people to hear. Um, I've heard it myself as a small business owner, entrepreneur, it's like you got to work on it even when rather than in it is my distinction here  because it needs somebody up in the tower, you know, looking out for icebergs on the ship as it goes.

You can't all be behind the wheel all the time. 

I had another question. We're going to shift gears on you and that is how do you guys handle valuation? Do you guys use external third party? Do you do it in house? Um, one of the things that I found that I didn't do all the time, to be honest, is I'm having valuations done on our businesses on an annual basis.

Sometimes the valuation company will do it for less money. Um, if it's an ongoing project, you know, it's not going to be the big ticket price. But what I found for me is it tells me which way that the business is going. And then I get this third party financial wizard looking at my books and saying, this is what we see as good.

And this is what we see as bad. Because most likely a sophisticated buyer is also going to either be that financial guru or they're going to hire someone and they're going to be looking at the same things. Yeah. So to be able to speak the same language, looking at the same KPIs. makes a big difference.

But how do you guys do with valuation? I encourage getting evaluation done every year. Same. So that's really, that's really wise because you're, you're, you're trying to find the value of the business in the market today, right? And what it's worth today. And it's, it's nice because the valuation also, if whoever you're getting the valuation from and what we do, Is we'll go through the valuation and explain how we came to the results that we came to and why.

So I'll sit down with my client and say, this is where you're at here. Here's the weaknesses that we see are opportunities to build more wealth here or value to the business. And here's where you're hitting. Wonderfully, like just double down on what you're doing here, because it's adding tremendous value to your business.

And so that way they have some direction and some strategy of where to. where to stay, you know what I mean? And so doing it every year, I mean, things change throughout the year of having your business. And so as things change, your strategy might have to adjust. And so getting that valuation and understanding.

You know, where you need to tweak a little bit is really, really something that you should, I would encourage everybody to do. It's depending on how much you're spending on it. What I've found is since early on, there's been a lot more  cost effective valuation opportunities than there used to be in the past, you know, it used to be.

A lot of money and someone that's working on their business, trying to work on the cash flow, didn't want to spend that amount of money just to get some number that they're probably not going to share with anybody. You know what I mean? It's not like, Hey, I just got my valuation number. I'm going to share it with everybody.

Well, and guy, there's two different valuations. I don't know if you know that there's a broker opinion of value, which is, um, what business brokers and M and a professionals will do. And then there's a certified valuation and the broker opinion of value is a much more affordable for business owner. It's going to range between roughly 2000 and 6, 000 depending on the entity, but a certified valuation is upwards of 10, 20, 000.

And that a lot of times the certified valuation is for litigation. Like if you're in a litigation or state planning situation, so there's two different types And so, um, and it's really good for the business owner to know and I feel like when you're just strategizing your business And you're you're trying to get the value for for growth opportunity and value building opportunities A broker opinion value is is great So, I mean you don't valuation When you could just get a broker opinion of value.

How does that work? If somebody's working with you on a multi year, you know that That person that I mentioned earlier is like, I'm going to sell in 2027. I want to work with you. I know you like the business. Um, I want to get a valuation  because all the valuations, they should be based on tax returns, not, not PNLs.

Right.  And it's good to have at least three years. So it's kind of tougher for, for people to sell within the first three years because you usually don't have a tax return and most banks, you know, cause let's, I mean, let's face it. Like most of these businesses are transferred using third party financing.

And they might have a valuation. They might not take everybody's valuation unless it was certified or something, but I still think it's worth the money in the meantime. Cause to be honest, like when I get my valuation done and it's higher than it was last year, I don't brag about it. I don't tell anybody what the number is, but I'm like, all right, we're going in the right direction.

Like I'm not, I don't, I have very, very clear clarity. And even if the cashflow is down because we spent a bunch of money on reinvention or signage, you know,  you know, just the things that come up, I'm still like, yeah, but I'm, I'm building this asset. So I think in the beginning, people are really focused on the cashflow that a business will bring to them, but you have to have that mindset.

And I think working with an exit strategist, at least at the get go, like starting out so that you can set things up the right way is, is the way to go. Yeah, it's critical. I used to own home health agencies, as you know, because that's how we met and I had my home care agency and I've had I've had five of them.

So, and I had exits with all of them myself. So I understand from a business owner perspective, right? Like I understand what it's like to be a business owner. I understand that pull to be in the weeds of the business and all that kind of stuff. But what, what the reason why I feel like working with an exit professional well.

Is they're coming from another lens that's only going to benefit you, it's only going to benefit you,  and it's going to make the exit for your business irrelevant, the timing irrelevant. And so that way you're poised to sell at any point of the journey of your business, whether it's the third year in business or the 15th, it just is. 

You know, as long as the owner is, is coachable and open and understanding, you know, that this is a strategy and, um, and open to the ideas of building wealth through building value. Cause some, some business owners just aren't.  And there just might not be ready to hear it, but it is. It, it's wise to seek out an exit professional to help you understand, right.

You'll look at the business from a different lens. You just will. If you are interested in learning more or from our guest today, please check out the links in the show notes. If you wanna learn more about me, please check out my LinkedIn at Gee coffee, that's G-U-Y-C-O-F-F-E-Y. Or for more personal and behind the scenes info, check me out on Instagram.

Which is at the same handle at Geek Coffee. Now, let's get back to the episode.  We sold our franchise system last year, and we went down the path with a number of investment PE companies.  And the due diligence that a buyer will do, even on a smaller business or anything, it's, it, it can be either Like a show off of like how great your data room is, um, or it can be like scrambling to find the information all over.

But someone did tell me in the beginning, um, he goes, you'll never know your business as well as after you go through due diligence with a really astute buyer. Yep. Right? It's true. It's true. It's really true. It's uncomfortable. And it's a grueling process sometimes for the seller. And it's, I mean, it's vulnerable.

You're exposing everything in your business and you're uncovering a lot. And so when now imagine doing that, not prepared,  you know, doing it, because you have this, God forbid, a diagnosis that is life changing and you have to sell. Now you're opening up the business to these buyers that are scrutinizing your business and you're not prepared and it's, your value is just, isn't there.

It's exposed. And so not only are you dealing with live events and trying to sell your business and thinking you're going into it, thinking that it's worth all this money because your revenues are strong, but then a buyer is the one that's telling you, Nope, we're discounting because of this, because of this, because of this, because of this, it's heartbreaking.

But if you had three or four really strong valuations over the past three or four years, you could be like. You'll, you'll know that terminology, you'll know what's, what's good and bad about your business and you can look back and be like, well, somehow I've managed to increase the value of the last three years.

So I, I, I think you're giving me a value offer. That's like from three years ago. And here's why. And you could share that with them once you're in due diligence and an NDA is signed and all that, right? So if you don't mind, I'm going to shift gears on you and ask you a macroeconomic question. And, you know, if this is not in your, your realm or you don't have any perspective on it, just let me know.

But, you know, with, with the baby boomers, a lot of them kind of getting to the point where they do want to either exit their business, pass it down to kids. I've recently had two instances where  good businesses, the kids just have no interest. They're, they're doing other things. They're doctors and lawyers.

And they're like, I don't want a machine shop or whatever the case may be. Right. Um, are you seeing, um, and you're in, you're in Southern California. So there's a lot of. A lot of density there. Are you seeing like baby boomers having these businesses that they've built up and coming to you, you representing them?

And then I guess my question is, do you think that there's a lot of opportunity for buyers right now to buy high quality businesses that are cash flowing? They're priced accordingly. They're priced reasonably. Do you see a lot of opportunities on the buy side right now because of that? Yes, I do. It's significant.

I think in the next five years,  Five to ten years, it's going to be huge, huge opportunity for buyers. And for two reasons, because of just the sheer mass of  baby boomers exiting their business, The opportunity is just, it's insane, honestly, and it's exciting.  The other flip of that is it's an opportunity for the buyer to buy businesses that aren't ready. 

And the reason why I'm saying that is because some of these baby boomers, um, I mean, I love them. So, but the facts are a lot of the boomers are not of that generation or school of thought of seeking out exit strategists. to help them prepare for that exit. And so because they're not doing that, unfortunately, I, I feel like there is, um,  going to be a significant amount of these businesses that are going to be sold for pennies on the dollar,  which is going to benefit the buyer.

But not so much the senior or the, the, uh, baby boomer seller. So I'm trying to get in front of personally, um, I'm trying to get in front of baby boomers more to educate them on how to build value in their business. So that way they are more prepared when that time does come. You have such a background working with seniors, which is baby boomers.

Um, I'm, I'm near that cusp. So 

it's a big, it's a big age range. 

But no, that's, that's good to know for, you know, for  Potential sellers that are listening to this and, and potential buyers down the line, you know, no one wants to rip anybody else off, but like, you know, it's like there's going to be opportunities to buy really good businesses at fair prices. So that is good to know.

So we are going to link up everything so that people can reach out to you directly. Do you work across the nation, Jennifer? Yeah, I do. Yeah. I'm in California,  but I work across the country. So, and do you have a, uh, a specialization? that you'd like to share or is it? Yeah, I kind of niche down to health care, um, but anything really related to health care, um, spa centers, just anything, home health, hospice, spa centers, fitness centers.

I kind of can work with any business really. Um, as long as As long as the business owner is, um, is willing to hear about exiting and exit strategy and value building really any business business is business. And so, yeah, I just niched down to healthcare a little bit because that's what my background is.

So I have a lot of  connections there. Yeah. But, um, if someone came to you with a widget manufacturer, you probably know somebody in the industry that you could point them to.  Yeah, absolutely. Okay. All right. Well, Jennifer, thank you so much for sharing your expertise in this, in this area of business. It's hugely important.

I mean, it's usually our last stage, you know, in the business world. And I love what you're doing. And just from knowing you, I think anybody that's working with you is really lucky and you're, they're going to get a hundred percent of you, um, your personality, your expertise, your professionalism. And, um, I really appreciate you sharing your time with us today.