Selling Your Practice 101: What Every Practice Owner Should Know

Simone 00:00:00 Welcome to the Flychain Reaction, a podcast designed to empower healthcare providers like you to master the business side of running a practice. Each episode sparks a chain reaction where actionable insights on financial management, operational efficiency, and growth strategies build upon each other, creating a powerful ripple effect to help your organization thrive. With Flychain's financial expertise and insights from industry leaders, we'll dive into everything you need to ignite success. Join us and let the Flychain reaction spark growth in your healthcare business.

Ethan 00:00:41 All right, welcome to another episode of the Flychain Reaction. We're excited about today's topic of conversation, which is really how you want to think about selling your business. What does that market look like? What does that process look like? And we always say, probably three years before you even want to maybe sell or entertain that notion, it's helpful to really start thinking through these things to help prepare your business for that ultimate exit at some point in time.

Ethan 00:01:10 And there are different flavors of that, but we're gonna get into a lot of things today, specifically as it relates to preparing, what things you need to look at. And really our goal here is to kind of connect the dots. This can be kind of a scary notion. There's this notion also of scary, evil private equity coming in and rolling up independently owned businesses.

Ethan 00:01:29 And, you know, we're excited to bring Justin from Cinnamon Hill Partners here today to kind of help us think through this, talk through this. And with that, Justin, thanks for joining us. And would love to learn a little bit more about yourself, Cinnamon Hill Partners, and we can then really jump into the thick of things.

Justin 00:01:29 Awesome, Ethan, thank you. Great to be here. As Ethan mentioned, I'm the founder of Cinnamon Hill Partners, and we are a search fund, a topic that you might not know much about, but we will get into a lot as we talk about the different types of financial buyers out there. But we are a potential buyer and I am a healthcare entrepreneur, trying to acquire an existing excellent healthcare business and grow that business.

Justin 00:02:14 Behind me, I have a group of investors, former entrepreneurs, healthcare investors, who all they do is now invest in small businesses and help them grow. But backing up further, Ethan, and not just the basics of who I am, but I'm originally from the Pacific Northwest, I'm from a family of small business owners.

Justin 00:02:32 So, my parents still go to work each and every day and are building a small business. I know the blood, sweat and tears that go into that. And my older brother is a physician. He's going into the pain management space. And so I've always had an interesting background of family being entrepreneurs, older brothers going down the medicine route. And so I've dedicated my career to kind of the intersection business and healthcare, trying to be a healthcare entrepreneur and buy and grow, practice, partner with doctors, really take on the business side of health care, and let doctors do what they do best, which is care for their patients.

Ethan 00:03:10 Thanks, Justin. I think one of the reasons why we wanted to bring you on is we kind of hit it off when we met for that same reason of, hey, my family as well, a lot of folks in health care, small business centers, but also that mission, or even shared mission of wanting to help these folks, our customers, your potential, partner down the line. Focus more time on delivering care, running the clinical components of those business.

Ethan 00:03:38 For us, we take certain things off the plate from a technical standpoint and financial standpoint. And for you, certainly a lot of those business ops and things like that I'm sure we'll focus on today. But appreciate setting the stage. And one of the things that we wanted to kick off here would be, there's a\...it's a complicated buyer universe. There's a bunch of different flavors could buy your practice, whether that be a large private equity firm, maybe a strategic buyer, a search fund like yourself.

Ethan 00:04:09 For our audience, maybe it would be helpful to kind of articulate what are the differences there, maybe some pros and cons associated with each, knowing that there are different flavors of each of those. But maybe from your perspective, you know, what is a private equity firm? How do they approach this versus a search fund versus maybe an organic, more strategic buyer of someone that may be in this space. We'd love to just hear your perspective on that because it is a little convoluted.

Justin 00:04:37 Yeah, absolutely. And it may be a good place to start here as we think about different types of buyers. Before we even talk about types, what's even more important for you as you are thinking about selling your practice or transitioning at some point in the future is make sure you align with the right strategic partner. That doesn't mean every time it's going to be a search fund like myself, or a private equity fund, or a strategic. Really, this is a huge decision to sell your practice and sit down and think about what do you want for your future.

Justin 00:05:10 So now let's talk about the different types to help you frame this and give you a framework to understand that a little bit better. Maybe we can start with strategic because that's an easy one. That is a local competitor, maybe a larger that would come in and acquire your practice.

Justin 00:05:28 There are a lot of pros and cons to this. Pro being the potential buyer here, knows the business and knows the healthcare practice really quite well. It might be a smoother transition where they can absorb your practice well. Downside for this, maybe an obvious one being that you're just joining and lumping into a potentially much larger organization. So things like\...Okay, what about your current employees? What about the legacy of the business that you've built? What's the future of your practice? That's really gonna be determined by the larger organization that you do join.

Justin 00:06:04 So if it's a larger group that you really appreciate and you've gotten to know, and you know that they're gonna take a great care of your employees and your legacy, then the strategic could be a great option. If it's a large hospital health system that has maybe a poor reputation in the local community for just acquiring and stripping out unneeded employees, that's maybe where you're not quite sure about if that is a great option for you. That's just strategic.

Justin 00:07:08 I don't think we'll get into that nitty gritty today, but as far as-. No, no, yeah, I don't think you or I can really opine on, on the data we've only read the articles that the other physicians and academics have written about. But what's important to keep in mind for a financial buyer like a private equity group is that they are certainly in the business of making money and they will take control of your practice and more likely than not choose to either strip out unnecessary costs or try to grow as quickly as possible in order to sell to a larger private equity group down the line.

Justin 00:07:44 So things like, your current employees, the legacy of the business that you built, I think are seriously in question unless you can really get to know who the buyer is. Now, I also mentioned search funds. Cinnamon Hill Partners, the firm that I founded, is a search fund. A search fund is pretty unique in this space.

Justin 00:08:04 It is a financial buyer from the aspect of we are a group of investors, but it's different than private equity because the search fund is neat, like Cinnamon Hill Partners, I founded. Cinnamon Hill Partners is just myself. It's the vehicle for myself to acquire a single practice. So I'm dedicating my career to just a single practice.

Justin 00:08:28 And so the things I mentioned earlier, like how you really should get to know who is buying a business and the values that they have, what's the future for your business, that makes it a little bit easier with the search one because if you and I align and our values align, and the plan that I talked about for your practice aligns with what you hope for. And when I say things like, Hey, I'm dedicating my entire career. I'm moving my family to the location of your practice. And I'm taking on the business side of healthcare and letting you and the physician team handle the clinical side.

Justin 00:09:04 And if that aligns, then things like your legacy, things like your employees, things like what are the, what's, who's going to be clinical oversight of the practice then it would really align with the search fund. So obviously I'm biased from a search fund perspective because I'm dedicated in my career to this, but hope to be as objective as possible in outlining those three. And Ethan, we can dive into the more than 80-grady of those and share a visual if it's helpful, but that's the overview as far as the buyers.

Ethan 00:09:32 I think that would be honestly really helpful because we just introduced this concept in different types of buyers, but kind of peeling the onion here, we do want to educate our customers as\...tactically as possible. So yeah, if you wouldn't mind kind of maybe sharing something and walking us through it, I'm a visual learner myself, so that would be helpful.

Justin 00:09:54 Let me share my screen here, Ethan. And let me know. Good to go. Can you see everything all right?

Ethan 00:10:01 Yeah, yeah, it came through perfect.

Justin 00:10:03 So this is, now we're getting into more of the leads here and happy to spend a little bit of time on each of these, but I'll also let the audience digest this visual a little bit. The three columns on the top are the different types of buyers that I mentioned. Strategic, you have your private equity or venture capital in the middle and then you have your search funds on the right.

Justin 00:10:26 On the left, each of these factors that you and your spouse need to sit down and think about when we're ready to sell our business and sell our practice, what's our priorities? What are our priorities? It's a huge decision. The top one being, okay, company's future. What does that look like? What's the strategic? Well, you're gonna be merged or integrated into the larger business. So again, if it's a larger business that you appreciate, you've gotten to know the folks at the larger business then that could be a great option for you.

Justin 00:10:56 Private equity now, you're gonna be one of the many practices within a larger private equity portfolio. So a typical private equity fund, maybe they have 10 or 15 on the smaller end, a smaller private equity funds. A larger private equity fund, there might be 50, 60, 70 businesses that you would be one of those. And so you will certainly have the time and attention of a handful of folks at the private equity shop. But chances are you are just one of many.

Justin 00:11:25 The search funds now, as I mentioned, I'm dedicating my career to this. You'll be the sole focus of the entrepreneurial buyer. There will be investors behind the scenes that help form the board and they have larger portfolios, but you're getting the complete dedication of that search fund entrepreneur.

Justin 00:11:43 The next one is seller legacy. Competitor strategic buyers, that legacy, probably lost, potentially lost in the larger business. Again, you're being merged into a larger group in the private equity world. That's a little uncertain. Again, you're one of many of their portfolio companies. Are you gonna allow to keep your legacy? Will it be preserved and appreciated? A little uncertain from a search fund perspective. If you and I align and we wanna keep your legacy in place and keep that into the next stage of the business, that will be preserved and appreciated.

Justin 00:12:19 And then maybe last one I'll touch on Ethan and then we can talk about any of these as well. I just want to be mindful that I'm doing a lot of talking. I want to keep this conversational. It's just the seller's future. And so how do you want to be involved in the future? Certainly, if you are a physician owner and you are there in the day-to-day, still doing your clinical work and from a business perspective are driving some of the revenue, you got to really think about what does that future hold?

Justin 00:12:51 And a competitor or strategic buyer, you're going to be typically compelled to stay for months or years for a very long period of time. Or you might be pushed out to the point of, thanks, we got it. We got this going forward. So really think about those two. Similar from a private equity perspective, you might have to sign an agreement to stay for three, five years or longer. Or you might be forced to leave.

Justin 00:13:16 From a search fund perspective, I think there's some flexibility there, depending on the type of search fund you're talking with. If you're a doctor that is driving the revenue in there day-to-day, we're absolutely going to want you to stay so we can partner with you. Or if you're ready to, hey, I want to transition in three years. Great, that's part of the discussion with the group. But I think that's the main point from finding the right buyer, this visual Ethan, but is there anything else you wanted to double-click on and spend more time on?

Ethan 00:13:47 No, I mean, I think the one takeaway from my lens, and this is born out of just talking to all of our customers is really like this seller's future legacy, of course, but that seller's future and what should they expect. I think the takeaway is different buyers have different goals around keeping owners on and there is some flexibility here depending on that type of relationship. And it really is once again, I always like to say, we'll get to this. It is a dating process, right? Like it's none of these transitions ever happen. You have some timelines there, which I thought were pretty interesting.

Ethan 00:14:21 It doesn't happen overnight. It's not like getting a loan where you're going to go apply, you're going to get a yes or a no and here it is. There's a qualitative element to all of these discussions and I think business owners, when they go into these conversations, should have in their back of their head, kind of for all of these variables, like what is their ideal outcome here?

Ethan 00:14:42 Because, one buyer might, you know, that could be a deal breaker for them and it's a deal breaker for you. So dating and starting to really communicate around these specific things will help when that time does ultimately come to kind of put you in the best chance for success where everyone's happy. But the big takeaway for me is like, have an understanding of this stuff. And then when you're going and approaching these conversations, you know, you'll be able to tease out relatively quickly who the right buyer is because they're meeting you where they are, where you are.

Ethan 00:15:12 And on that same- Yeah, yeah. Justin, on the same front, you had some information and insight around finding the right buyer and what practice owners should look for in that. And I always like to think there's sort of two lenses that are always coming to all of these discussions, right? It's the seller, their lens, who should they look for? And then also, what is the buyer looking for?

Ethan 00:15:37 And I think to give our customers who would ultimately want to be selling or taking this investment, kind of giving the other side's perspective on this, I always find that to be really helpful. And maybe if you could kind of share, I know you put some other things together around, what are the things that you as the buyer look like so we can tell our customers? Because part of this is packaging, part of this is understanding what that buying universe needs to see to put yourself up in that sort of best chance for success.

Justin 00:16:06 Yeah, that's a great question. If you don't mind, I'll just go back to our faces and then can share more. I think understanding both sides here is really important because as a buyer, from the buyer's perspective, we look at companies to acquire all the time. And there are deals that come across and potential companies that come across every day, especially from a private equity perspective, like your entire job is just to evaluate deals. Is this a good investment opportunity?

Justin 00:16:36 So it's easy for us to think that companies exist in my spreadsheet or companies exist in a pretty powerful point presentation and forget that companies are built by real entrepreneurs that are there, day in and day out and putting their careers online to grow a business. I think I have a perspective on this because my family, I've watched them do that most of my life.

Justin 00:17:00 So that's the buyer's perspective is they can think of this as a transaction, just a\...something that lives in a spreadsheet, like I mentioned. Whereas maybe if I could opine on the other perspective, as like, hey, you are in the weeds of your business day in and day out. And if you're a physician, like you're seeing patients every single day, you're worried about the headwinds as far as where is the industry going, but also like there's just a lot going on. And so how can those two perspectives come together and it is that dating process like you mentioned, Ethan.

Justin 00:17:38 So from my perspective, I'm a buyer, I'm trying to put myself in your shoes of growing your business each and every day and being in the weeds. But I think what is really important in this dating process and I might sound like a broken record here but really get to understand the intentions of the other person at the other side of the table.

Justin 00:17:58 So from a buyer's perspective I really want to understand, why are you selling business? Are you selling your business because you're ready to transition? It's in the next stage of your life. You're ready to retire in the next three to five years. Or you're selling your business because the business is about ready to blow up, right? You got to build that trust in some level. As a buyer, I'm trying to really get to understand you as a seller. What are your reasons for selling? How have you built your business, like I'm really trying to put myself in your shoes.

Justin 00:18:30 And I guess my advice for folks that are sellers is like, try to put yourself in the shoes of the buyer. So like, what is their plan for my business post acquisition? Are they gonna take care of my legacy? Are they gonna take care of my employees? What does the transition process look like?

Justin 00:18:48 All of these are questions that you should be asking your buyer and ask really specifically, what does the transition process look like? What is your plan for me post-acquisition? I'm happy to work for another two, three, four, five years, but what is your plan for me? Am I gonna have clinical oversight? That's a huge question. Am I gonna have clinical oversight by business after the acquisition? What's the plan for my employees?

Justin 00:19:15 And you can get deeper into this as the dating process gets further, it's like the

Ethan 00:19:42 I love that. And I would love to see some of the insights, but also just wanted to double-click on one thing and it's around like putting protections in place. So we kind of talked about... All right. I'm going to sell. We've been dating for a while. I like you, Justin. I want you to join this journey and take over and institutionalize and grow. But I've got 25 employees and I want to make sure that they're taken care of. What are some of the maybe typical legal elements of a transition plan that can get put in place to make sure everyone is happy?

Ethan 00:20:17 Like, one example that you mentioned is, hey, you are going to have as the owner a salary for X amount of time. But what are some of the other things that you've seen in your, you know, your career that would give owners more peace of mind? Is it, you know, we're going to keep X amount of employees for this amount of time, or we're going to keep the name the same? Like, what are some of those leverage points or levers rather that, you know, you as an owner can go into because at the end of the day, you do want to keep, you know, some legacy, some, some imprint on that, whether that's yourself, your staff, making sure everyone's taken care of, I guess, maybe is the simplest way to distill it.

Justin 00:20:53 Yep, yep. That's a great question. And can we include a legal disclaimer here, like Justin and Ethan are not lawyers. This is not legal advice. Talk to a qualified legal professional with all those disclaimers in place. I think let me speak as if I'm having a conversation with my lawyer and asking these questions from a buyer's perspective.

Justin 00:21:16 I think some of the basics are that all sellers should keep in mind is first yourself. And if you are a physician seller or you do some of the day-to-day from a clinical perspective. More likely than not, you're going to be encouraged to stay with the business for at least, I would want to say, two to three years. I have seen up to five-year employment agreement in place. And from your perspective as the seller, if you're okay to work for another five years, really make sure you get to the specifics of what that three to four to five-year contract looks like as far as what your compensation is and how much clinical oversight you're going to have.

Justin 00:22:00 I would encourage you to keep as much clinical oversight, of course, as possible. But also, think from the buyer's perspective, if you are a main revenue driving force, they're going to want to make sure you continue to come to work every day. And frankly, when a lot of sellers get a big paycheck at the date of the sale, they're less enthusiastic about doing the day-to-day clinical work. So there might need to be some back and forth between you and the buyer on what that specifically looks like as far as how you're compensated and if you continue to come to work every day.

Justin 00:22:35 But let's assume you're not a physician seller and you're not necessarily doing the day-to-day clinical work. Then what might be more typical is\...Let me speak from a search fund. I don't necessarily know strategic or private equity, what they might have in place for you. They might encourage you to just retire right away, which is maybe something you'd prefer. But from a search fund perspective, dedicating my career to this, but I'm a young entrepreneur who has a lot to learn. And sure, I'm a high-powered, highly motivated individual, but I've got a lot to learn about your business.

Justin 00:23:09 So what's typical and what I'm asking of sellers that I'm talking with is, can we have a six month to a one year transition period? Or maybe you step into executive advisor role or you. We can play with the title, but you step into an advisor role where myself and you are running this business almost as partners for the next few months, as I learn the business as a CEO. Maybe after three months, you don't necessarily need to be in the office every day. It's more of a part-time.

Justin 00:23:43 And then maybe after six months, you don't necessarily need to be in the office at all. And maybe I, you and I just, just check in every once in a while, because hopefully I'm a really quick learner and I really understand your business well after six months. And I can take over really fully at that time period. So that's what it would look like for you as the seller.

Justin 00:24:04 That would also include a non-compete agreement as we get into maybe some of the legal, legal discussions here, as far as like, for the next five years, you can't just launch a competing business across the street. That's typical in any transaction that you would probably have to sign something like that no matter the buyer. As far as your employees now, let's transition from you to your employees. It's common to sign employment agreements with your top management team or your top employees.

Justin 00:24:34 So if you've got two or three people that come to mind that are like, ah, they are really crucial to the future of this business then put yourself in the shoes of the buyer. I want those people to stay and I want those people to be highly motivated. And at least from a search fund perspective, those key employees are gonna be more crucial than ever to the future of your business, which is why we talk about your legacy, excuse me, your legacy being honored. It's because I need your team.

Justin 00:25:02 I'm not gonna come in day one and just fire the most important people. Whereas your strategic or private equity buyer, they might clean house and start fresh with whatever their perspective is from a search fund buyer. I need those people. What I'm going to do is, hey, can we have those folks, those key two to three or four people sign one-year employment agreements just to make sure we all stay in place? Maybe I'll give them a pay raise. Maybe if they're really crucial, we could talk about equity incentives to have them incentivized over the long term.

Justin 00:25:34 But I want those three or four people to stay. Now, the rest of the organization, let's say you've got 20 employees, and you as the seller, you have some sort of agreement in place with the buyer. Your top two to three folks management team have agreements, one-year agreements in place. What about the rest of the 15 of your employees? Well, again, if it's a strategic or private equity buyer, if they're not necessarily needed for the day to day, they're going to clean house. They're going to clean house.

Justin 00:26:03 For a search fund buyer, when I come in on day one, I'm not going to fire anybody as a result of the transaction. I think what's really crucial is as I learn how to be CEO from you, as I learn how to be CEO, we're going to, first of all, make sure everybody is on the bus, headed to the right place. But there's not going to be mass firings on day one or mass firings on month three. But we need to evaluate what's the future of this business look like.

Justin 00:26:35 So hopefully that can give you as much comfort as possible. I'm trying to not make a promise that no one's gonna be fired or make a promise that everybody's gonna be fired. We need to evaluate what the business looks like. But the important thing here to keep in mind is again, what is the intentions of the buyer? If it's a competitor or private equity, they're probably gonna clean house. That's just historically what happens. Search fund buyer, they need your team. They need your team more than ever.

Ethan 00:27:03 That's, I think, well said and that notion of, it just depends on who the buyer is, right? Especially, I would even say some of the strategics similarly wanna have sort of the right people in place to kind of absorb, keep business as usual going without that kind of top down, hey, we're gonna optimize the financial health by like squeezing some people that we can put our own people in place, which is something that I would see happen more common on the kind of pure play private equity side.

Justin 00:28:14 Yep, absolutely. And I'll let the audience to let them just watch all this information, watch over them just for a second because it is a lot. And I also ask the audience too, to try to put yourself in the shoes of either you're ready to sell and you're talking to a buyer or in the shoes of the buyer, trying to buy a business and grow that business. That is what this slide is speaking to. And I actually used this slide in particular, I guess sharing a little bit of the secret sauce, but the use of this slide in particular, when I'm talking with potential sellers about, hey, why should they sell the Cinnamon Hill?

Justin 00:28:48 So this is like\... this is what we would present to somebody when we're trying to acquire a business. And what this shows is our value creation plan. And this is something that, especially if you are rolling over equity into the business, let's say you keep 10, 15, 20, 30% of the equity in the business, you want to make sure that whoever is buying the business is going to do a great job at growing the business and increasing the value of your equity.

Justin 00:29:18 And so that's what it really comes down to when you get to the finish line of, okay, what are the top one or two buyers? Maybe you really like both of them. But one of them has a really succinct and clear plan for how to grow your business. And the other is not so sure. Well, you're going to go with the guy or gal that's going to really increase the size of your equity. Right. And so this slide is visualizing how to grow your business. So the five things on the left here.

Justin 00:29:47 These are the five pillars of value creation. Each of these levers, as we can call them, using some of the private equity style, lingo, search fund style lingo here. But these are all levers to increase the value of your business. You can do things like pay down your own debt. You can do things like increase your margin or in other words, cut costs and you can do several strategies to increase the multiple, essentially increase the relative valuation of your business.

Justin 00:30:19 Strategic acquisitions, you can acquire other practices or other similar businesses, or you can just straight up grow revenue, kind of the traditional way to grow your business. I will say from a strategic buyer perspective, like a local hospital or a private equity buyer, I think one of the most common value creation levers is that margin expansion column which is essentially cut costs.

Justin 00:30:47 So when I said earlier, they might just clean slate with your team, they're gonna cut folks that don't need to be there and they're gonna cut costs as much as possible. Cause if you keep the business exactly the same and cut the costs, the value of that business is going to go up, right? In theory, on a spreadsheet at least.

Justin 00:31:07 From a search fund perspective, our thesis, and I'm speaking for all sorts of funds, but really for Cinnamon Hill Partners at least, but what we're really focused on is revenue growth and all of the levers included within revenue growth. And if it makes sense, not for every business, but typically that's why it says our focus is strategic acquisitions and acquiring smaller businesses that we can bring to the larger business and grow in that capacity.

Justin 00:31:37 From a revenue growth perspective, several ways to do that. And you said, Ethan, you like to be tactical, the audience is up the learning curve on that. So I don't mind being a little tactical here. There are several ways to grow revenue that depend on the type of business, but is almost universal across business language, which is essentially minimize customer churn. Nice way of saying, take good care of your existing customers or patients in this case would probably be a better word. Expand WalletShare.

Justin 00:32:08 This is not true for all your customers, but essentially that's like creating more value for your customers so they start spending more money on your products or services because you're adding more value to them. They're spending more money. Market penetration. This is a nice way of saying taking care of more customers in your existing markets or existing services. So doing more of the same, essentially. Doing more of the same and reaching more customers by doing more of the same.

Justin 00:32:40 Next one is market expansion. It's doing more of the same, but to a different market or maybe it's an adjacent market. That could mean geographically, like maybe you are pretty geographically centered in the state of North Carolina, and you want to do more of the same and expand your services into South Carolina or into Virginia. That's an easy example of market expansion.

Justin 00:33:08 Product expansion. This one would be not necessarily doing more of the same, would be launching a new product or a new service. This could be really adjacent to something you're already doing. Something that's near and dear to my heart, like in the pain management space, for example, I mentioned my brother is a pain management doctor. This would be maybe launching new ways to manage someone's pain. And seeing what's on the cutting edge of the pain management space and you launching into that type of product or service for your patients or customers.

Justin 00:33:42 And the last one, and this is tricky in the healthcare space because pricing is really dependent on reimbursements in a lot of cases. If you do have a cash pay service, you can change prices. But I would say pricing optimization for a healthcare practice is negotiating better reimbursement rates. And oftentimes, that is true at scale. If you have a larger group, you have multiple practices, you have a lot of data for multiple practices that you can come to the negotiating table with an insurance payer, that will give you that pricing optimization. So those are all the ways to increase your revenue.

Justin 00:34:20 As a buyer, maybe just a full circle here, Ethan, this is how I am thinking about increasing the value of your business. As a seller, these are all things that you could be thinking about right now in order to position yourself to sell to a potential buyer, increase the value of your business that you're running today.

Ethan 00:34:40 Yeah. I love that, Justin. It's interesting across our customer base, a lot of those value creation things are actually a lot of the things that we were trying to bring into our platform like Contractor Made Analysis. What better way to improve the profitability? Same costs, you're getting compensated more for that revenue. Making sure you have a good pulse of what your referral sources are. Okay, great, like let's double down on what's working. So everything you're saying, I think there's a lot of value and it's kind of this hybrid approach, right?

Ethan 00:35:08 We can use tech and data to uncover these things, but also it does often require human power to execute upon those findings, if that makes sense. I know we spent a lot of time talking about the actual buying and selling process. One thing that we actually were chatting a little bit before we recorded this was around like, deals get kind of close to the finish line.

Ethan 00:35:32 And unlike the last topic here, what are some of the lessons learned from your experience? Working with business owners today, looking to sell or entertaining the sale, what are things that maybe some success stories, what went well in that process? But also for those that kind of get to the finish line, what are the deal killers that you would see? Because that to us is, we don't want our customers maybe preparing for a sale in one, two, three years from time to do things and get right to that final moment.

Ethan 00:36:04 And all of a sudden, the expectations have not been managed. And all of a sudden, the things that they've been doing, they're not going to get that valuation because there was a skeleton in the closet or a stone that's been unturned or overturned. Maybe walk us through some pros and cons of things like what can a business owner do to help them have the highest chance of getting acquired or sell at the highest possible valuation versus what are some things that kill a deal?

Justin 00:36:32 Yeah. Well, Ethan, let me be transparent, which is if I have been super successful at this, I would be running my business right now and wouldn't have time to join this lovely webinar because everything I'm doing is to acquire existing business and grow it. So I'll have a success story someday that I can maybe join a future episode and say, okay, this is the business that I acquired. This is how it happened.

Justin 00:36:58 But in the meantime, I can opine on success stories that I'm really familiar with that the investor group has. And I can certainly share a lot of deals that I've had that have been close, almost span to the finish line and fell apart for whatever reason, which is what I just mentioned to you when I joined, excuse me, which is, I'll just had a deal that didn't work out for whatever reason. But I would say, maybe to frame this conversation, from the perspective of a seller, how can you prepare for this?

Justin 00:37:28 First of all, start early, start thinking about it now. So if you're viewing this, it probably means you're at least thinking about selling. You should think about at least a year, if you have the luxury of two years, three years beforehand to prepare for a sale. So think about it early is a good one.

Justin 00:37:49 Next one I would say is surround yourself with really strong advisors who know how to sell businesses. So obviously, like Flychain, Ethan, you can plug Flychain, but they're going to have your books and the financials in order to help you get ready for the sale. So when I as a buyer come in and request some financials, request some basic data, it's going to be ready and there for you, Ethan, to set you up for a future Flychain discussion there and hit you.

Justin 00:38:20 But I would just say\... Last thing is surround yourself with advisors as well that know how to sell businesses that include lawyers and not just like your family lawyer or something like lawyers have specialties to specialize with a lawyer who really knows how to transact and prepare you for a business. They can speak the same language as my lawyer who all they do is know how to help buy businesses and not just the lawyer, but also I would say a strategic advisor, if you'd like to work with an investment bank or a broker as well.

Justin 00:38:54 A broker would be more of someone, I don't know, a car salesman who sells cars and they know how to sell cars very well, they know how to sell businesses very well. An investment banker, if you have a large enough business, an investment banker is more of a partner that would come alongside you and help, certainly they help transact businesses as well, but they would be more a partner in that process rather than like a car salesman. They would be someone who's with you throughout the whole process.

Justin 00:39:20 I would say that's how you should prepare. So that's the frame of the conversation, Ethan. Let me tell you, no naming names, of course, but some deals that have died before we got to the finish line for whatever reasons. One deal that comes to mind specifically for me was the motivations of the seller. So in our initial conversation, the seller was saying, Hey, I'm ready to move on to the next stage of my career. I've built this great business for the last 10 years.

Justin 00:39:50 I'm ready to start a nonprofit foundation and ready to move fully into my nonprofit. I'm ready to select the successor of my business. I wanna give my business to someone who's gonna take great care of it. So naturally we got along very well because hey, I'm dedicating my career to your business. I wanna honor your legacy. I would love and be honored to be your chosen successor to take your business to the next level.

Justin 00:40:20 But ultimately, the seller decided, I'm actually, I think I'm going to stay on board and bring on a group of investors that helped me grow the business, but I'm going to keep running my business. So, ultimately, that wasn't a fit for me as a search fund because I'm looking to come in and take over as CEO and dedicate my career to that. And this seller in particular, I wasn't really sure if they wanted to give their business to somebody else or if they just wanted to bring in some investors to help him grow the business.

Justin 00:40:56 There's other deals that I've had where it didn't seem like there was a lot of trust being built, where some of the financial data that I was requesting or some of the data regarding the products and services of the business, it was coming back in a form that just not all the details were being shared. The requests I had that are pretty basic requests about the financial history or the products and services seemed like not the full story was being told. And ultimately, if we can't build that trust and it seems like from the buyer's perspective, the seller has something to hide, then I'm dedicating my career to this. I'm not going to dedicate my career to a business that I can't really trust. I can't really trust the seller or the financials of the business.

Justin 00:41:49 And then there's other deals that end up not working out because of other things entirely, like industry tailwinds or healthcare space in particular, there's always some regulations coming out or there's something to keep in mind. And if industry is changed in the healthcare space because of incoming regulations or whatnot, and then it's just not a great fit for us at the time.

Justin 00:42:13 Of course, there's a lot of examples of like, oh, the legal terms that you could come to an agreement on, but that's hopefully not something that I'll have to deal with because I'm trying to build a great relationship with the seller. By the time we get to the negotiating table with our two lawyers talking, the lawyers can figure it out. You and I, we're in agreement. Let's let the lawyers discuss the nitty-gritty details here and come to a fair transaction for the full value of your business. We don't want to pay too much.

Justin 00:42:43 We want you to get paid the full value and let's just come to terms on the agreement. That's why I have a lawyer. That's why you have a lawyer so they can discuss that. But hopefully we've really built a lot of trust along the way already.

Ethan 00:42:56 I love that, Justin. And almost to summarize, it feels like when you're thinking about this part of your journey, it's equal parts like qualitative and quantitative, right? You're talking about the diligence, looking at the numbers. Does this make sense in those spreadsheets, as you've kind of said a few times? But there are people behind those spreadsheets and that's where that dating process, building that trust, having both sides, you know, incentives aligned, carrying on legacy, treating employees, treating the actual owners the right way.

Ethan 00:43:27 There's a lot to unpack here and we always say it kind of takes a village, right, to build one of these things and it certainly also takes a village to ultimately transition in whatever capacity that is staying on retiring outright. So Justin, I really appreciate the time, man. I learned a lot here and hopefully our customers did as well. We'll have those little documents and stuff available for our customers, should they ever want. And we'll also follow up with our contact info.

Ethan 00:43:57 But thanks again, Justin, for joining and telling us a little bit about yourself, the type of company you're building. And once again, we like these because we share same mission here. And with that, I'll let you go, but appreciate you joining me.

Justin 00:44:11 Thank you, Ethan. Love what you guys are doing. And you and I are really aligned in this journey together. So thanks for the opportunity.

Ethan 00:44:18 Yeah, thanks, Justin. Well, take care, man, and have a great rest of your week.

Justin 00:44:22 Great. Thanks.

Ethan 00:44:24 Take care.

Simone 00:44:25 Thanks for tuning in to the Flychain Reaction. If you'd like to keep the conversation going, feel free to contact us at info@flychain.us or schedule a demo through our website at www.flychain.us. See you next time!