[LEXIE LEE] The Married Entrepreneurs Podcast is part of the Practice of the Practice network, a network of podcasts seeking to help you market and grow your business and yourself. To hear other podcasts like Bomb Mom and Grow A Group Practice, go to www.practiceofthepractice.com/network. [RONLEE] Welcome to the Married Entrepreneurs Podcast. This is Ron Lee. [LEXIE] And I am Lexie Lee. [RON] We are professional counselors and serial entrepreneurs who are married [LEXIE] To each other. [RON] Thank you for joining us as we explore the business of life and the life of business. [LEXIE] Today, we have David Barnett who says he, it took him 10 years to unlearn what he was taught in business school. University had trained him to be a middle manager in big enterprises. He was totally unprepared for the realities of small business. After a career in advertising sales Barnett started several businesses, including a commercial debt brokerage house, hoping to finance small and medium sized businesses led to the field of business brokerage. Over several years, he sold dozens of businesses for others while also managing his own portfolio of income properties and starting his career as a local private investor. Welcome David. [DAVID BARNETT] Hey Lexie. How you doing today? Thanks for having me on. [LEXIE] I’m great and so glad to have you. Tell us a little bit more than what that bio said about you. [DAVID] Yes, sure. You kind of got up to the point where I got into business brokerage. When I was doing that finance brokerage, what happened is we ran into that big financial crisis of ’08/’09 and a lot of the companies that I was using as sources of capital for small businesses went under. If you recall, in the news, they were talking about this asset backed commercial paper that went bad. Well, I was one of the people creating the loans that became a part of the asset backed commercial paper and so when people didn’t want to buy that paper or those bonds which were a small, sliver of a big pool of loans, for example, the businesses, when people didn’t want to buy those anymore, it meant that the companies that were providing money to my clients didn’t have access to money. So they went under and I realized, hey, I need to make a pivot. That’s what got me into business brokerage. The reason I got into business brokerage was simply because I had seen so many deals being done poorly by people who really didn’t know what they were doing. I saw people in some bad circumstances, losing deposits and not having deals come together the way they should have or not having their interests properly represented and I thought here’s an opportunity for me to get into an area that I know is underserved here, where I live. So I got into business brokerage and in a three-year period, I did 36 deals. I helped buy and sell 36 other businesses for my clients and it was very exciting and very interesting, and also one of the worst and craziest businesses I’ve ever been involved in. The reason why I say that is because business brokers typically get paid when a business is sold and sometimes it can take two, three years to do a deal. You can have all of the expenses of a business, advertising, I had a receptionist at the front who was helping me with administrative tasks and I had all these bills, phone bills, my bills at home. You can imagine if you only get paid when a deal closes, then if it’s not regular, then it creates all kinds of stress. For anyone who’s ever seen my photo, the sides of my head are gray. I always tell people that I got my gray hair during this period of my life, because in those three years, even though I sold 360 businesses, there were three periods of at least seven or eight months each where I didn’t have a closing, which meant I had to get across a seven- or eight-month gap of time with no substantial revenue coming in. At the end of the three years, I had two young children. I couldn’t even make a household budget that would allow me to make a plan for the future. I just said, this is crazy. I got to get out of this. So I left business brokerage and I became a banker. It was funny, the first couple months when I got a paycheck every second Friday, I was so guilty getting that money Lexie, because I was like, I didn’t slay a dragon. I didn’t overcome some enormous obstacle. I showed up every day and I got this check. Like, it didn’t seem fair to my employer. I felt kind of guilty, but eventually I got used to it and over the four years that I was a banker every once in a while, my phone would ring. It would be somebody who had been given my name and someone looking for help to buy or sell a business. At first, I would say to people I don’t do that anymore. Then after a while I started to hear from people that I had helped with my business brokerage and they’re like, Dave we need help. We need someone who can help us handle, stick-handle our way through this negotiation or this deal. There was no conflict with my employment. So I said I can help you, but it’s got to be after hours. I have a full-time job. I started a little side hustle and eventually the bank reorganized and I had an opportunity to leave and I realized, hey, I can get back into this with a very different kind of business model. So I started to become a private transaction advisor and I would work with people on a consulting basis and I would help buyers analyze deals and help them put together offers. I would also work with sellers and I would help them figure out what their business was worth and how to best present it for people that might want to buy it and how to advertise it confidentially and how to manage and talk with people that would come along and want to make offers on their business. So today that’s what I do. I still work with buyers and sellers, help them go through this process of doing a transaction. It’s grown a little bit to help people prepare for these transactions and to help people who are transitioning into one of these businesses get settled a little better. I’m on YouTube and I’ve written different books on these topics and the big change for me of course, is that instead of having to slay a dragon every once in a while, to get one of these commission checks, I’m doing a little bit of work for a lot of people every week and submitting invoices to them. So my cash flow has moved out tremendously and it’s removed a lot of that stress. This is probably a lie, but since that time I haven’t had any more gray hair. I’m sure if you looked at a photo, you’d say that’s not true. [LEXIE] David, what I’ve heard is that one you’ve gotten really good at being able to pivot. The second thing in your story is that you were able to figure out how to go from one to one, to one to many so that it helped that cash flow. Thinking about our listener, a lot of them are beginning to realize that this business that they’ve started it would be nice to think that, oh, our kids are going to take over someday when in reality, that very rarely happens. So eventually at some point we may have to look at selling the business. So what advice would you have for someone who, they’re not planning on selling now, it will be years down the line, but they are thinking in terms of, okay, how can I make sure that this is a business that is sellable? [DAVID] Okay, so the very first thing is that you have to start to think about your business, like an asset that you own. This is difficult for 90% of small business owners, because the person who owns a roofing business thinks of themselves often as a roofer. They think of themselves in the role of what they do and what their business does. They don’t think of themselves as a business owner and that the business is some kind of thing separate from themselves. People get into all kinds of trouble because they don’t differentiate between themselves and the business. If you’ve ever heard of somebody who their business went under and they ended up declaring bankruptcy and they lost their home and all that kind of stuff, well, that usually happens because things go wrong in the business and instead of objectively looking at the performance of the business and the prospects of the business, people identify as the owner and they think if I don’t make this work, people are going to think I’m a failure. That’s when people start to borrow against their house and put their retirement savings into the business, trying to make things go, hoping that it’s going to turn around not realizing the actual proper decision to make as a business owner is to realize, hey, maybe something has changed competitively, or the market has changed, or some other aspect has changed. Maybe it’s not good to be in this business anymore and maybe we should get out of it and do something else. That’s what an investor does. That’s the kind of decision making an investor makes. So you have to think about your business as being separate from you and then you have to think what goes on in this business, what are the systems? Because everything that happens in every business is a system. Where is the system though? For most small business owners, that’s in their head and they get into their business every day and they’re running certain aspects of the business. Maybe they’ve delegated certain things to employees who handle those things pretty well but without having a operations manual, some kind of documented methodology for executing what you do every day, it’s going to be very difficult to get someone else to do it. Here’s the key. Lexie, there are five reasons why businesses go up for sale. Number one is burnout, fatigue and boredom. That’s the most common reason. Then there’s divorce, poor health, the need to relocate and retirement. Of those five, if you think about them, only one is planned for. The other four happen to you, what they say, life happens. So I get contacted a lot by people who say, this has happened. I need to sell my business. They believe that their desire or their decision to sell is what is required to sell the business and it’s not. That’s not at all what’s required to sell the business. What’s required to sell the business is have a business that’s sellable, and that can take time. So I’ll give you an example of that roofer I mentioned. You could be a roofing contractor and have a couple crews of people and you’re meeting homeowners and you are doing measurements and you’re preparing quotes and you are organizing your workers and the suppliers to deliver material. Then you go out and visit the sites and you’re supervising it and you’re making sure it’s done well then you send the invoice to the customer and you collect. So you’re doing all those things. If you don’t have properly documented systems, there’s only one kind of person who can buy your business. It’s somebody who knows the roofing trade, who happens to be younger than you. That’s a small pool of buyers whereas if you operate that business and you have a completely documented process: this is how I do estimations, these are the measurements we take. Here’s a form or an app that I use that I put the measurements into this then goes into an Excel spreadsheet, which calculates the area and the amount of material required. Then I can put in the pricing from the supply company and it can give me my costs and my labor estimates. Now I apply my margin and this is how I get my quote. If you’ve got all this stuff broken down and all these systems in place, you can teach anyone to run the roofing business. So what you’ve now done is you’ve expanded the pool of potential buyers from people who know roofing to anyone who can operate a system. There’s a famous book from Michael Gerber, the E-Myth, where he talks about this. This is why people get into franchises. This is why people who have experience working in the government, or as a school teacher will buy a franchise in a completely different field because they get taught how to run the business by the franchise. Or you can do the same thing in any independent business. It just takes a willingness to invest some time today to put those systems in place so that you will be able to then remove yourself. Once you’ve got this done properly, here is some of the amazing things that you can do. Number one, exiting the business may not mean selling it. Remember those five things I mentioned. One of those things could happen to you and you might decide I’m going to move to Florida. Maybe you’re in Ohio running this roofing business. Well, if you’ve got everything systematized and documented in all the process put it into place, you could hire someone and teach them how to do that and then you could move to Florida and you could have a couple meetings a week over the phone or zoom with that person and you could still be doing the payroll and managing payables and paying bills and stuff from Florida. Someone else could be going out and doing the quotes, managing the crews and everything and you could run that business, having reduced your investment to a few hours a week from a different place. If you don’t have it organized, you can’t do that. So working on your business and getting into a state where it’s an asset means that you open the doors to a lot more different opportunities for exiting, whether that means simply not being there anymore. I know we’re going to talk about married couples and stuff like that, but this whole idea of documenting and getting things in order and organizing is really the key to being able to sell. When people come in on the scene and they find a business that is making money, and it’s a hot mess, like nothing’s organized savvy business buyers who understand how to implement processes and procedures might look at that as an opportunity, but it’s an opportunity for them to buy your mess at a low price so that they can do the work I’m describing to you. If you invest the time and do the work in advance of putting it on the market, it means that someone else is going to be able to say, oh, I don’t have to do as much. You’re going to widen that pool of potential buyers. As I mentioned, a properly organized business is going to be easier to manage, number one. In almost every case, it becomes more profitable because in going through the process of setting up your systems and analyzing what’s going on in your business, you find bottlenecks, you find underutilized resources. You realize that someone has talent or skills that are being not fully used in your business or that you’re asking someone to do something that they’re really not well suited for. You can change how things are going when you analyze it when you’re working on it. When the business is in a state of being sellable, that’s when you can sell it quickly, if anything ever happens. So even though people may be thinking that they want to sell their business a few years down the road, there’s only two times to plant a tree. That famous quote today or 20 years ago. If you don’t put the work into the business today and get it organized, it means that you are going to be in a panicked mode with some pressing personal reason causing you to need to get out of the business. You’re not going to have the time or ability to fix it at that point in the future. This is something that needs to be addressed today. [LEXIE] Well, and I also think that if you’re doing this, it will take away the burnout, which is the number one reason that you listed. So even if you’re not planning on selling burnouts, come in for everybody that’s not planning. So being able to put this into place can help to like lessen that burnout or even taking it off the table. [DAVID] One of the, I’m in the world of helping people buy and sell businesses. I explain that some of the things I do have grown beyond that. So back when I was a business broker, I read that E-Myth book by Michael Gerber and I thought, Ooh, I’ve got some clients that really should be implementing this stuff. So I made a huge mistake. I bought copies of it and I gave it to people and you can imagine what happened, nothing. You give the book to someone and you’re like, read, I said, read this. It’s going to show you how to create some systems. It’s going to be easier for me to sell your business. People didn’t do anything. Then I thought, okay, maybe I can help people in a different way. So how do I do this? I thought, oh, I know, I’ll just do what Gerber said. I’ll create a system. I sat down and I thought, how can I create a system for systematizing businesses that are already running? It eventually became the basis of a program I offer today called Build A Business that People Will Want to Buy. We go through and we create a plan for the business and we create an org chart and we create a vision, targets, et cetera. We start to build all the task, lists, everything. It’s done step by step in bite size pieces that are easy for people to accommodate. So I built this program, Lexie, and I started to bring certain clients through it who wanted to sell and then the worst thing that can ever happen for a broker happened. As the businesses became more organized and as they became easier to manage people changed their mind. They said, “I’m not sure if I want to sell this now.” Because they started to actually get an experience that they envisioned before when they started the business and they thought how it was going to be. They actually started to get a glimpse of that future and they started to live that life where they weren’t stressed all the time and they were able to go home and have dinner with their family every night. The employees were doing things that they were supposed to be doing, and then they didn’t want to sell. I was like, geez, that’s awful. Now I’ve lost a listing kind of thing. To your point though, it, it creates the opportunity for somebody to be able to go and do other things, to expand their business through acquiring other companies. Again, the roofer, if the roofer put all that effort into fixing up their business and having all these systems put into place, well, now you want to grow the business bigger, let’s say. Let’s say you’re in a competitive marketplace, and it’s really hard to gain market share from your competitors because they’re good at their business too. So what’s another way that we could grow? Well, maybe we acquire another roofer in the next state or the next county over. You go and you buy this other business and he’s not organized, but it’s okay because you know how to organize a roofing business. So you implement your systems in that guy’s business and then you get a manager over there and now guess what, even if you don’t grow the revenue, even if both businesses stay the same, you’re now increasing your purchase volume. Maybe that means you get like 2% better pricing at the building supply company. So now both businesses are performing better because you’ve changed the scale of your business and you’ve already got the roadmap and the plan and the systems in place to run that other business in the neighboring county, because of the systems you built in your own business. It allows you to start growing and expanding. It ties in with some of the biggest problems that I find when you have partnerships or, and I know your audience is married couples, partners are married couples because one of the reasons people get into business with partners is they think I’m not going to have to do this alone. I’m going to have someone else who can help me out. Now, here’s the problem with that. If you’re not properly organized, it means that everything starts to become a decision by committee. So now, instead of one person making a decision, you’re always waiting and waiting for time to meet that other person so you can discuss things together. What that means is decisions get delayed and it takes longer and now you have doubled the human resource expense for every kind of administrative decision being made. So the business actually becomes less efficient. What I teach in that program is that you want to create a, we start by creating a sketch of what the business looks like in the future, so the desired future state. Then we create an org chart for that future business, which is bigger than the business you have today. We then outline all the different roles that are in that company, in the future and then we figure out what tasks need to be done in the different roles and then we assign them. If you can imagine a business that has 25 roles, my own business is me and my assistant, so there are two of us and I also have a couple of subcontractors that do different things. So there are four bodies in my business, but my org chart has 22 roles. These are different roles that people are doing. It’s just that there are only four names in all of these boxes. When you are organizing with your spouse or any other partner, you create your org chart, you create the different roles, duties and responsibilities, and then you assign them. One person is going to get to be the president, but both people are at the board of directors. If you think about a big company, think about Coca-Cola, the board of directors is meeting every month or every quarter, and they’re creating the long-term vision and decisions of the goals of the enterprise. They tell the president; this is what we want you to do. We want you to get a 3% revenue increase, and we want you to cut costs and open a new plant over there. The president then takes those directions from the board and they make the decisions and they give direction to their vice presidents and whatnot. So you and your spouse, you’re on the board together. You’re both owners. One of you has to be the president. Together you decide on your goals and your long-term vision, but then the person whose name is in the president’s box, they are the boss. Now they’re going to then tell the VPs and the managers what to do, and guess what some of those VPs and managers are going to be themselves and their spouse. You have to operate within the framework of your business. So it means that if one spouse is the VP of marketing and the VP of marketing is in charge of the marketing budget, that means that they have to make all the decisions about how the marketing money is going to be spent. It doesn’t mean when a salesperson calls and says, hey, we’ve got a deal on radio advertising that you then go running to your other spouse and say, hey, should we take advantage of this radio ad program? No, it’s not a committee decision. The person who is the marketing manager is in charge of that budget, is in charge of spending the money. They’re the ones who are going to make that decision and be accountable for the outcomes that are derived from that decision making, just like any other big business would function in this way. We’re not bogging everything down with group decisions all the time and wasting a lot of extra time. The worst thing that can happen when you’re in this kind of scenario with partners, whether they’re married or not, is if things are being discussed all the time, and then something goes wrong, well, then the two partners start pointing the finger at each other, either overtly saying, we had a meeting and you said this or covertly where nothing is said, but both of them then start to have a little bit of ill will towards the other where they’re saying I don’t feel good about this because I thought we had an understanding and I thought, this is what we were doing. Now, all of a sudden, it’s my fault, because something didn’t work out the way it was supposed to. Well, if you’re the person in charge of marketing and you make a decision that doesn’t work out it, you can own it. It’s your responsibility. It didn’t work out and you can deal with it and move on just like you would in a job if you did something that was wrong. That’s the kind of business, sophistication and maturity. I use the word maturity because you have to understand that at different points in the day, when you’re in a small business and at different points through the year, you’re going to be wearing different hats. You’re going to wear the owner hat at the boardroom meeting. You’re going to be wearing the VP hat when you’re making decisions. You could be taking direction from your spouse, who is the president, making your own decisions, then informing them of something you want them to do in their role as the installer of the equipment in the case where they report to you. So you’ve got to be able to know what position am I in right in this moment, what am I acting as right now? And it can be confusing for people and that maturity or that willingness to write it down so you can actually look at it and say, this is what our business looks like and these are the roles I do and this is the decision I have to make this week. Not everyone’s able to do it. [LEXIE] Well, and it goes back to that mindset shift that you talked about at the beginning, that you have to have that mindset of I’m an owner. I’m not just a roofer, that I own a roofing business. You have given us some great tips today. If our listeners wanted to get more from you, how can they find you? [DAVID] Well, anyone who’s interested in learning more about buying, selling, financing, or managing small businesses come and sign up for the podcast or my YouTube channel. I put out a new video every week. Occasionally have guests on that I interview. It’s all for free. You can find it all at davidcbarnett.com. If anyone is out there wondering how they can get better organized and put these systems in place that program I mentioned, Build A Business that People Will Want to Buy, you can get to it directly by going to easysmallbiz.com (B-I-Zsystems.com). Easysmallbizsystems.com goes directly to that. It’s just a couple hundred dollars. There’s about half a day’s worth of videos where I explain the different steps step by step. Then there’s all kinds of samples, spreadsheets, and documents, and workflows and things that I’ve worked on with other clients and where you can actually see this is how, what it looks like when it’s done. This is how it is built step by step. I get people all the time who do the program, and they reach back out to me a month or two later, and they say, this has changed my life. It’s easy to do, and it’s not a big investment. It just takes a willingness and a desire to set aside a few hours to work on it. It pays enormous dividends. [LEXIE] What great resources. Again, thank you, David, for spending time with us today and helping our listeners to really think about how to set those systems in place. [DAVID] Awesome. Lexie, thanks for having me today. It’s been a great time. [LEXIE] Thank you for listening. Time is our most valuable resource and we appreciate that you shared your time listening to us. If you enjoyed our show, please rate us or give us a review. You can share this episode with someone that you think may benefit. You can find more from us at marriedentrepreneurspodcast.com. [RON] This podcast is designed to provide accurate and authoritative information in regards to the subject matter covered. It is given with the understanding that neither the host, the publisher or the guests are rendering legal, accounting, clinical, or any other professional information. If you want a professional, you should find one.