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Welcome to the podcast where you find all the very best information on business investing, how to buy and sell businesses and become a dealmaker. In Business Buying Strategies podcast #13, Jonathan Jay from The Dealmaker’s Academy covers:
- Business investing entrepreneur Paul Green reveals the importance of psychology when buying a business
- Andy Gwynn explains how to get the best from LinkedIn search functionality
- Our HR expert Kelly answers questions from our Mastermind Programme members
- More key negotiating skills that you’ll need to become a successful dealmaker
Listen to find out:
- How to identify motivated sellers
- Why cash is not always an owner’s motivation to sell a business
- Why buying someone’s business can help them to achieve a better life
- Why time could be so crucial in your negotiations
- Why dealing with an owner directly will help you to identify their pain points
- Why you should meet with owners of businesses you have no intention of buying
- How to avoid divulging too much information to private equity investors if you’re selling your business
- How a conversation with a seller will help you to identify what you need to do to make the deal work for them
- How to use LinkedIn to find the business owners you want to connect with
- Why it’s not a good idea to have more than one LinkedIn profile
- What to do if the business you are acquiring has people doing similar roles to your existing business
- How to deal with a collective redundancy process fairly
- How to stagger redundancy payments to longstanding employees
- How to make the offer of staggered redundancy payments appealing to employees
- What to say to employees when the business does not have the funds to pay them immediately
- How to use a document wallet to gain a psychological advantage when meeting a seller
- Why you should prepare an agenda for a meeting with a seller and distribute copies of it
- The phrase you should use when the other party says something you disagree with
- When to suggest calling in an expert third-party
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Read the transcript here:
Hello and welcome, this is Jonathan Jay from the Dealmakers Academy and welcome to Business Buying Strategies. The podcast where you find all the very best information on how to buy and sell businesses and become a dealmaker. Welcome to episode 13.
This week business investing entrepreneur, Paul Green, talks about the importance of psychology when buying a business and looks at a deal from the viewpoint of the business seller.
We’ll be hearing, for the last time, from LinkedIn, Andy Gwinn and looking at how to get the very best from LinkedIn search functionality. He’ll also be answering a great question from a member of our live audience.
My HR specialist Kelly will answer three questions from our Mastermind group, earlier this month and I’ll be teaching you a few more negotiating skills that you’ll need as an effective dealmaker.
So let’s get started.
Last week we heard from serial dealmaker Paul Green, talk about how he went about raising funds to buy a series of independent veterinary practices, with the aim of creating a single, sizeable group.
This week, Paul talks about the importance of psychology when buying a business and looks at the deal from the viewpoint of the business seller.
It’s all about – I mean many marketing is putting yourself in their shoes and this is really hard for us to do as people. We’re very good at looking through our own eyes and judging the world as we see it – and we forget that… Just turn and look at the people sitting with you at the table.
Turn now and have look at them. They’re a lovely bunch, aren’t they? Aren’t they gorgeous? There’s a lot of blue shirts in the room, I notice that but a bunch of very interesting – very gorgeous looking people. Every single person round this table thinks differently than you.
They know different things than you. They have a different experience from you. Someone on your table is potentially going through a divorce or has potentially got someone that’s ill in their family or is just tired or is distressed or he’s got that thing that’s worrying them or can’t sleep because of this.
Or they just don’t give a shit about anything anymore and they’re in a completely different, totally different emotional state to the one that you’re in.
All good marketing is about looking at the world – trying to look at the world through that person’s eyes and I think identifying motivated sellers is exactly the same thing.
It’s about looking at someone and asking the right questions and probing lots of different things to find what it is. With the vets that we talk to, the number one factor that would make them sell their business to us was time.
They wanted more holidays, it was never about the cash. Cash was a factor but it was never the factor.
They wanted more holidays, they wanted more time with their other half and they wanted – most of them, and this is quite sad, their kids had grown up without them and those of you with young children and I mean by young, the sort of pre-teens – although my seven-year-old has turned into a teenager just like that.
How the hell did that happen? She’s a nightmare. They do grow up so quickly and I think for these professionals, especially any business owner that’s been in something for 20 years and their kids have grown up without them.
They’ve missed the sports days, they’ve missed the pantos, they’ve missed all of that.
They realise too late and they almost realise their own mortality and you can actually free someone and give them a better life by buying their business off them and doing something different with it.
Even if they continue to work there, they can address the work-life balance in a way that they simply never could have done, if they continued to own it, because of the mental burden of owning the business.
This is why sometimes it’s difficult when you go via a broker because you get that shield and you don’t see the pain in the eyes of the owner?
Exactly yes, because the broker tells them, ‘Don’t show that emotion.’ They walk into the broker and they sit their crying saying, ‘Oh my kids have grown up. It’s terrible. This is awful, we’re losing this.
This person’s going to sue me,’ and the broker’s like, ‘Yes, let’s forget all of that and let’s look at the positive. So what’s the forecast for the next three years? What initiatives have you got to boost this and…?’ That’s what the broker presents and it’s… You must look at listings of businesses for sale, perhaps obsessively, because I know I do. It’s become the toilet of activity of choice.
It’s like, ‘Right let’s have a look and see what we’ve got.’ Its’ really interesting to look at something and I would suggest, as a habit as part of this training, if you don’t already recommend this – don’t look worried, it’s a good thing.
It’s just to contact businesses that are on sale, where you have no intention of buying them and just talk to the business owner and go meet with them, take them out for a cup of tea and just probe them.
Ask them really good open questions. It should be a case of your talking for a minute for every 50 minutes they’re talking and just try and understand – because you’re not going to buy this business, so who cares about the financials and stuff. Just ask them about stuff.
I did a series of doing that. I haven’t done it for a while but I did it for about a year. I went out and met the café owner who’s got a £40,000 turnover and the guy’s sitting there, every five minutes, trying to concentrate on this guy, hopes he’s going to buy his business but what he really wants to do is get back because the lunchtime rush is going to start.
Well that’s revealing. It’s revealing from a business you don’t want, for a start, but it’s revealing about how he thinks. I took a guy out who owned a company that’s rented fitness machines into your home and over about a two-hour meeting in Starbucks, he told me his whole business model and how he shipped in these machines from China and like bought them for £10 and was renting them out at like £100 a month.
It seemed like a really good business and the more questions I asked him it turns out that it was an 18-hour a day business and people trashed the machines and all of this kind of stuff.
Which is why the brokers don’t want you to get too close to the owners because they know that the owner will reveal all of this information and the clever private equity people dress it up a little bit.
They say, ‘Let me take you to a beautiful restaurant,’ and you google the restaurant and you think, ‘Oh that looks lovely. Look at that, oh that looks fantastic.’ You can’t wait to go there and then they want to pour you more and more wine and the trick is you never drink because they want you to show the pain because as soon as they’ve seen the weakness, they know exactly where to strike.
Where when you’ve got the corporate finance house or the broker in the middle that your restricted from seeing all of that. So if you’re the buyer, the closer you get to the seller the better it is because you understand exactly what you need to do to make the deal work for them and the broker doesn’t want you to know that.
No, exactly.
We’ll be hearing from Paul one final time, next week. In last week’s episode LinkedIn guru, Andy Gwinn talked about the importance of featured content, as well as skills, endorsements and testimonials.
This week he talks about how to get the best use from LinkedIn search functionality.
I want you to play around with this search function. I’m not sure who you might be looking for but I’m going to – I should’ve put my glasses on – purchasing.
I’m going to put purchasing manager just because we were talking printing and I’m guessing it might be purchasing managers you might want. LinkedIn keep changing stuff, remember, if I click on people there and let it re-load, it now says that there is 407,000 – just under 408,000 results.
Now that’s first, second, third-tier. So here’s the search. I said that there’s 407,000. You can then search by location, look. Let’s just go into the UK and apply, 29,500.
We can narrow it down, you could go by town. Point I want to make, this is search my profiles for profiles with the word purchasing manager in.
That first one, Harriet Butlin it says she’s a second-tier connection and there’s the six shared connections we have. I have a bunch of choices, I could click connect and send her a message, ‘Hey Harriet, I’m looking to connect with purchasing managers in the…’
You might need to drill down and find out the town and where she’s at and what sort of business type but I can also click on those six connections.
What if there’s one of them I know really well? I don’t message my connections and say, ‘Hey Koshi, I came across Joe’s profile, could you introduce me?’ I tend to just connect and say, ‘Hey Jackie, I came across your profile. I see you’re looking at buying business.
I notice we also share a bunch of mutual connections, some very close friends of mine, I hoped we could connect.’ I don’t need to get Koshi to introduce her, I don’t really, I can jump that.
But what if I know somebody really well? Then I ring up, ‘Hey Koshi, how well do you know Harriet?’ ‘Oh I know her really well, here’s her mobile number and when you speak with her, ask her how her husband is, he was ill.’ ‘Hey Harriet, I hope you don’t mind me calling, a close connection of ours, Koshi, gave me your number, said you wouldn’t mind, said you might be interested in talking about how I can get you top dollar for your business.’ Fine, connect and…
F: Engage.
…engage. Who’s going to go and play with that? Go and search. One of the things as a franchisor, I’m looking for people who want to go into business. I search for ‘looking for opportunities’. Thousands come up on LinkedIn. I messaged someone, what sort of opportunities? ‘I’ve got a franchise,’ ‘Oh no, not that opportunity.’ Well why the bloody hell didn’t you say in your profile, save us both a bit of time. Go play with that search. Go search for the type of people you want. I know you could certainly find deals from third-party strategic alliances. I mentioned insolvency practitioners, you know who else. I’m guessing accountants, business owners who want to sell their business, as well as people direct. If John you’re looking to buy physiotherapy practices, go search for physiotherapists on there.
Before Andy wrapped-up a member of our audience asked him whether it’s a good idea to separate business interests by using more than one LinkedIn profile? Here’s what he said in reply.
Great question, no. I get it from property investors. They’re schizophrenic. They have their property investing and they’ve got their contracting or they’ve got their employment. Why, you do not want two profiles.
First of all LinkedIn will shut it down if they find out but more importantly you’ll create confusion for yourself. If I come across you, who do I connect with, which one? What you need to do is you need to position – there’s the word to write down, both in the summary and then especially split your experience sections to talk about both. ‘Hey, I’m looking to buy businesses in this area and this is what I can do for you,’ and the next one physio centre business, ‘I run a physio practice and we do this, this, this and this.’ Position it both.
The great things for you, you’re like my property investors.
Everybody out there or every business own out there at some level, not just business owners, people who know business owners.
My father’s a retired doctor, he knows a business owner, they may know somebody, at some point who’s talked about being stressed out and wishing they could get out their business or who’s looking to retire or sell their business for whatever other reasons you know about.
So the great thing with you, like property investors, tell everybody what you’re doing and this is the great thing with LinkedIn is you can tell everybody what you’re doing.
So you’ve just got to think strategically.
This is what I said about your strategic call, if you want a strategy call is to talk about because there may be people in the room without a business, you may be looking at it.
It’s all about how we position it but then what the strategy is, so it’s a great question. No, you want to keep one profile because it’s all about the three degrees of separation, remember. Who do you know that might want to sell their business.
I hope you agree how valuable Andy’s advice and suggestions have been over the past few weeks and I encourage you to put more effort into your own LinkedIn profile to get maximum value from it.
We will hear more from experts like Andy in future episodes. Last week my HR specialist Kelly talked about what to do if you find yourself having to negotiate redundancy payoffs when the business doesn’t have the funds to settle them.
This week it’s over to our live audience and Kelly was asked what steps to take when the company you have acquired has many roles duplicated with another business that you already own? How do you justify who is best for each role in a way that is demonstrable and fair to everybody?
Here’s her answer.
So if you’ve got people coming in doing the same or similar roles as those you’ve already go. You have to put them all into one pot and effectively you are going through the redundancy process as a collective, not just the people that have come in. So you do have – and there’s a selection process.
So it’s an opportunity. Let’s say you’re combining a new business with your existing company, it’s your opportunity if you’re making a redundancy to get rid of some of the people in your own company that you might want to move on as well?
Yes, and you might may well go through an interview process also as part of it, so that you can… The same when you’re recruiting somebody so that you can ascertain their skills and their competency, then you would have that. So you would have what it says on their CV, so qualifications, experience, et cetera, but do an interview as well and that means interviewing the people that you’ve probably known for the last ten, 15, 50 years.
Okay, so we could create a skills matrix, and we cold tick lots of boxes and we could use that as our evidence because we kind of know who we want to keep and who we don’t want. I mean, we know that. We’ve just got to evidence it in some way. So are you saying that that evidence could be the interview?
As well as.
As well as. So you’ve got your skills matrix, you know they can do this, they can do this but they can’t do these things but then it’s just that some people interview better than others, don’t they?
They do.
When they apply for a job, but here, effectively, you’re interviewing them to see – some people might… You might decide that this interview, you know, they are perfect for the role and this person here isn’t, based upon the interview and your notes afterwards.
Well you could do but you’d have a scoring process. So you’d ultimately have a score at the bottom which would take into consideration other factors other than just what’s within the interview. Also, if you’re planning that well and you’re doing this at the point of purchasing the business, for example, you could even involve the transferring company in the process and get their input on the person’s…
Oh so the seller’s input?
Yes, the transferor’s, yes.
So if the seller’s input has said to you, like you said earlier, there are two or three people here who aren’t that great, then that would be part of the decision-making process, the scoring system?
Just don’t put, he said they’re not that great.
F: That’s terrible.
Requires improvement. Another member of our audience asked Kelly how to handle the purchase of a small business when some of the workers are also existing directors or even shareholders?
They will have their shareholder agreements and their director agreements and we’d have to look at what’s written in those but you would be looking at the terms and conditions of their employment along with everybody else’s but you’d really be looking at that scenario separately and, on a case-by-case basis.
You put in the sale and purchase agreement that upon completion, their directorships are terminated. They resigned as directors and they resigned as employees and there are no additional benefits, basically the money stops at that moment. So that is part of your negotiation?
Yes.
Yes, so they can’t sell you the company and then come back with an employment claim afterwards. So basically, you’re drawing a line in the sand upon completion?
An IR35 is to do with when you’re contracting. Again, it’s to do with the wording of the agreement and the work that they’re doing and how the work’s provided and if anyone can do the work on their behalf, et cetera, there’s a whole raft of tick boxes to establish whether IR35…
But if HMRC determines that they are actually your employees, it’s you that’s liable. It doesn’t fall back on them at all, it’s you that has to pay the National Insurance, going back years.
And they are looking, I believe, they’re putting it into the private sector also, which is just going to be – oh that’s another session.
And finally, Kelly was asked how whether it is possible to stage payments to longstanding employees if you need to make them redundant following an acquisition?
So ordinarily and I know we talked about how we did do some stage payments. Ordinarily they would receive that money either within their last pay packet or within a certain amount of time.
Now if it is a substantial amount of money then if you sit down and talk to them you could have a settlement agreement and a part of that is that you will receive x amount on this date. X amount on that date and some people might like that because actually it’s a bit of a regular money rather than receiving a full amount.
If you don’t pay it to them then that’s an unlawful deduction and they can take you to a court and tribunal to get that money anyway but if you just, say, explain to them and say, ‘It’s not that, we just haven’t got it at this moment. You realise we’re going through a huge process.
We’ve got a lot of people we’ve got to pay, so this is what we would like to do and you will get…’ They’re going to get it and it may even straddle over two pay years, so that actually it’s tax-efficient for you.
A good selling point, yes, I like that.
So that’s, if it works that way then it… Because you could, potentially, they could be getting a large lump sum within one tax year and therefore paying more tax or if you get another lot, in the next tax year then you’ll be paying slightly less tax. It could move them into the 40 per cent bracket or whatever, it could be beneficial to them. It’s talking to them.
And a key thing to remember, it’s not your fault. You say the bank account hasn’t got much in it because of the way Jeff was running the business, he didn’t really have his eye on the ball in the last couple of years, you know, you know that. That’s why we’re here. It’s not your mess-up that they’re suffering because of, it’s the previous boss and people do get that. They realise, you’ve only just arrived on the scene.
We did have this conversation. We did say, ‘If we don’t do this, you won’t get any money because there’s nothing. There’s no money.’ So, really, this is in everybody’s interests to do it this way because otherwise we’ve just got to close the company and the company won’t exist any longer. Quite blunt but it’s just having that conversation with them and being a bit honest.
As I hope Kelly’s input has shown, these past few weeks, I cannot stress enough the importance of having a trusted team of qualified experts, like her, around you when you are buying or selling a business, it can save you a fortune. So by now you’ll know that each week we’ve discussed many of the key negotiating skills you’ll need as an effective dealmaker. Here’s me discussing a few more earlier this month.
So here’s an interesting strategy, which is when you go for the meeting, whether you are – the seller’s accompanied by a broker or not, it doesn’t really make too much difference.
You get out your – you get your case out on to the table and you’re still standing up at this stage and they’re sitting down and you’re making the pleasantries about the journey in the snow and that sort of thing.
You get out of your case the – I don’t know what they’re called, like the document wallets, the multi-coloured wallets, the file wallets with the flap. You get out of your case half a dozen and each one has a label on it and it’s Project Wokefield, for example, labelled on one.
They’ve got some papers in them and you shuffle through them and say, ‘Yours is in here somewhere,’ and you go, ‘Oh, there it is,’ and you put those back in your bag. What signal does that send?
M: Multiple deals.
Multiple deals, they’re not the only one. You’re doing other things you are a professional and we’ll talk about the code name in a minute but having files on other deals and really, you should have files on other deals if you’re doing what we’re saying. Take them with you to the meeting and pull them out and go, ‘Yours is here somewhere.’ Oh it’s always going to be the last one, isn’t it – ‘Oh there it is, yes.’ So what you’re doing is you’re positioning a situation, your reversing the tables so what was happening was that they were saying to you, ‘We’ve got other buyers interested,’ you’re now saying, ‘I’ve got other deals.’ Again it’s the psychological advantage of you are not desperate.
You don’t need to make this happen. Have an agenda for the meeting, oh this is a surprise, this is a good one because you sit down with the seller and maybe the broker, depending on the size of the deal, the broker’s accompanied them – the bigger deals the broker will be there, the smaller ones they can’t be bothered because they don’t think they’re going to sell it anyway and you say, ‘I prepared an agenda for the meeting.
Here’s a copy for you, a copy for you, a copy for me.’ Again you have multiple copies so you don’t run out of copies and it’s like, ‘Oh well shall we get it copied, shall we get it photocopied?
Oh you two can share. No, have mine or we can sit like this.’ None of that so you’ve got more than you’re ever going to need and you have an agenda for the meeting.
The first point is vendor explains business background and then it’s just a logical progression through what a meeting like this would involve, you have an agenda. Now what does that do when you produce an agenda from your case?
M: Puts you in charge.
Puts you in charge.
It also, actually, it keeps the meeting on track, doesn’t it? It puts you in charge of a meeting that is now going to run on track and you could even set a timeline for the meeting.
I don’t think that meeting should really be longer than 90 minutes because you start to get a little bit tired. Everyone gets a little jaded. You start to forget things, 90 minutes is sharp and it goes past quickly. So let’s say you’re meeting at 11 o’clock, so you say 11 o’clock open, 12:30 pm close and you can put in any other business in the last 15 minutes if you want to but you have produced an agenda for the meeting.
It says you’re professional, it says you’re in control. It says you’ve done it before. It all adds to the personal credibility. Here’s a great phrase to use. ‘It’s our policy…’ So if they say something that you don’t like the sound of you say, ‘Well, it’s our policy. It’s our policy that we review the last five years accounts rather than the last three years accounts.’ Now to be fair there’s probably absolutely no reason going back five years, but it’s not bad to have a few policies.
So now they’re playing the game your way because you’re setting the rules. ‘It’s our policy that when we get to commercial due diligence, we speak to six clients of yours and we select off an anonymised list, who those six clients are and we’ll do it in your presence and you will phone me and introduce me as a colleague.
We’ll agree what the questions are in advance.’ ‘It’s our policy that we always have a 12-week exclusivity from signing the Heads of Terms.’
So, it’s our policy is a very, very strong phrase because it’s very hard to argue with someone else’s policy. Again it puts you in that stronger position. Let’s say you’re talking about numbers, or talking about anything really – it’s usually numbers – and they’re saying, ‘Well we think the profit is this, even though the stat accounts say it’s that, we think it’s this.’ I say, ‘Well, in fairness, we can really only base the information on what has been filed at Companies House, rather than your internal management accounts, simply because Companies House accounts trump management accounts.’ They say, ‘Well, no, because there’s some cash in the business and we don’t…’ ‘Well, really, I’m not sure, do I need to hear this? I’m not sure if I want to hear this. So let’s get an expert’s opinion.
So let’s bring in an accountant. Let’s bring in an expert. Would you be prepared to split the cost of the expert to determine this?’
Now they’re selling the business and now you’re telling them they’ve got to incur additional fees. So we’re now in an interesting situation here because we can’t agree. You say, ‘Well okay, well the easiest way is to… Let’s call in an expert.
Would you be prepared to split their fees?’ Suddenly they start to cave because they don’t want to delay matters and they don’t want a bill. ‘But I think it’s fair, look if you and I can’t agree, well let’s call in… You’re not an accountant, I’m not an accountant, well let’s call in an expert to determine.
Now there’ll be a fee involved, would you be prepared to split the fee 50/50? I think that would be fair.’ They don’t want, it’s the last thing they want because really what you’re saying also, this is going to delay things for another month and you know that they want to move to Mauritius as quickly as possible.
And I’ll be giving you some more negotiating tools and techniques in future episodes. So that about wraps it up for this week. Remember to visit our website at www.thedealmakersacademy.com. Have a great week and see you next time.
