Attention small business owners, how does your business end for you? If you don't know the answer to this question, then you need to join us on this edition of the Inside VS Show. Hey now, I'm Nikki G. This is the Inside VS Show. I am here this morning with Dave Lorenzo, the godfather of growth.

Dave, how are you? Hey now, Nikki G. I'm doing fantastic. How are you today? I'm doing great, thanks. Wonderful.

I have a question that I like to ask small business owners is, what happens at the end of your business? In other words, what are you going to do? A common answer that I receive in response to that question is, I'll hire a business broker. I'll just sell my business. I've thought about it before.

I know a guy, call him up. I know he'll take a percentage fee, but it'll be easy. You can just take care of this for me and then I can ride off into retirement.

But that's not the only way. So let me first hear your thoughts on using a business broker as a strategy to get out of your business. Yeah, I think a business broker is an option and for some people, it's a good option.

Let's say you own a dry cleaners and you have a business broker who works almost exclusively with dry cleaning businesses. He's got an in in the industry. He knows who's buying dry cleaning businesses.

You call that business broker up, he'll check your books. He'll look at your systems and processes. He'll see how many customers you have.

Dry cleaning has a great recurring revenue model. He can decide for you who the right people to reach out to would be because he knows everybody in the dry cleaning industry because he's a business broker to the dry cleaning industry. Based on your recurring revenue, he can tell you pretty certainly what the multiple will be.

If you like the multiple, he thinks he can get for you and he knows who to connect you with. You could have a pretty quick exit under that scenario. So let's say you're a dry cleaning shop owner.

You own a chain of dry cleaners in a specific geographic area. You have some health issues or you just decide you want to get an RV and travel the country with your spouse. That guy, he'll make it happen for you and he'll make it happen relatively quickly.

It's a good option for you for sure. I think a business broker is a great option when time is of the essence and the business broker has a particular specialty. Great option for an exit strategy.

If you have more time and you've set your business up correctly, you can build in more options for your exit. Yeah, I think that's right, Dave. I met some business brokers that have a very deep knowledge in particular spaces, which can be really great for your business.

Especially if someone is already tuned into that type of market, they know your business really well, like the dry cleaning business. Maybe you find somebody who they really have an in on the type of dry cleaning businesses that have been sold in what markets for what prices. So yeah, they can be a very valuable resource to you in considering exiting your business.

What about creating a market strategy for selling your business, Dave? So I came up with this idea in helping law firm partners exit, right? So law firm partners have limited options. In professional services, you really have limited options because you don't have a lot of hard assets. If a law firm owns the building that they're in, there's a pretty good chance that only a couple of people who are partners in the law firm actually are the owners of the building.

That's the only real asset. The rest of your business is valued based on goodwill, which is your work with your clients. So one of the things I've done with professional firms is we've created a second tier of ownership.

And you know, think of them as not in the SEC sense, but think of them as limited partners. So these are people who have a small portion of equity in the firm, but they don't have like voting rights or anything, but they just get distributions when the firm makes money. If you're a named partner who has a significant portion of equity in your firm, you could take those shares and sell them to these other people who are the limited partners.

That's creating your own market because that firm is more valuable to those people who are putting their sweat equity and their emotional equity into the firm. In fact, it may only be valuable to those people. So if you're in a non-professional service business, let's go back to the dry cleaner.

You and I, Nikki G, are partners in a dry cleaning chain, and I want out. I'm going to get more money from you than I would get if I tried to sell the business to a business broker because I probably need your consent to sell the business to a business broker anyway. If I just wanted to sell my shares of the business, I could give those shares to a business broker as long as our buy-sell agreement permitted me to do that, and I wouldn't get as much from the street as I would from you.

So your partners are an internal market, and that's an internal market that you can create if you think far enough down the road. So if you're in a business now and you have a really strong number two or you have people who are the heads of departments, consider giving them a little piece of the action so that they're emotionally invested in your business, and then work out a long-term buyout arrangement, and that could be your exit strategy down the road. Another way to create a market for your business is with a strategic alliance.

Now strategic alliances can look like many different things. You can create a strategic alliance with a supplier, and the supplier could be interested in buying your business so they have a captive market to keep supplying their goods and services to. So the example that I gave in a show we did recently was an actual business that I was working with later earlier this week, and that was a telescope manufacturing company.

They bought the company that sells the telescope mounts. So the guy who has the business that made the telescope mounts, he wanted to exit. They bought that business from him.

They needed the mounts to mount their telescopes on anyway. They now mark up the mounts and sell them as a standalone business. They also mark up the mounts and bolt them on to their telescopes and sell them together.

So that telescope mount business, that guy's exit strategy was to have a strategic alliance with one of his customers. If the opposite was true, if the telescope manufacturer wanted to exit, he could have sold his business to the telescope mount business, and he would have been selling to a supplier. Your business is more valuable to those people along the lines of that supply chain because the mount guys need the telescope, and the telescope needs the mount guy.

So you could potentially get a premium going either way, but you have to plan in advance. You have to create those strategic alliances where you're doing business together in advance. Think about this.

If you're going to sell a business in 10 years, why not have a half dozen to a dozen strategic alliances, giving yourself multiple options when you're ready to exit? Because if there are multiple people who want your business, then you have multiple ways to jack up the price. You can, you know, pit one against the other. You can take the best option when it comes to price and terms.

The other thing I want you to think about, when you're selling your business, there are two levers to push and pull. There's price and there's term. So if you're selling your business, you can sell for cash, you can sell a portion of your business, or you can sell your entire business and do some sort of seller financing as an annuity.

So if you're selling to a group of partners and they don't have the money to buy you out, you could get half of the money from them up front. Maybe they get an SBA loan or they have a rich uncle or something they borrow the money from. They buy that half, they give you that half, which allows you to put your retirement nest egg aside.

And then you do seller financing for the other half over 10 years at like prime plus two, let's say, and let's say prime is 4%. So you get 6% for your money. That gives you an increased multiple compared to going to the street, because you're not going to get prime plus two over 10 years from the street.

That guy's just going to get you a deal and get out because the broker wants to get paid his commission and move on. So creating your own market is that's what we specialize in you and I together. That's what we're working on right now to help business owners do is create their own market.

So you have the broker, you have create your own market. It's giving you additional options. Hey, Nikki G, did you know you can also get our show as an audio podcast? Of course I know you can get the show as an audio podcast.

I'm on it. But does our audience? I don't know. So those of you who are watching on YouTube, you can find us wherever you get your podcast with just search up the inside BS show with the Godfather and Nikki G and you'll find us right there.

Click the follow button so that you never miss a show. Now there's a couple of reasons why you're going to want to do that. Nikki G, tell them what the first reason is.

You get to ask us questions that is exclusive to our podcast listeners. Yeah, we only answer listener questions on the audio version of the podcast. We don't do it on video.

So if you want to hear what everyone's thinking or if you want to ask us a question, you got to download the audio podcast. The second reason and my favorite reason is because you can take us with you. You can have a little Nikki G in your pocket while you're working out in the gym, washing the dishes or walking the dog.

I love me some Nikki G in my pocket when I'm walking the dogs. I don't know about you, Nicola, but that's one of my favorite things to do. Absolutely.

Take us with you. After you watch this episode here on YouTube, go to wherever you get your podcast, click the follow button so we can go with you on your journey and you can ask us questions. We will see you or more like hear you there.

Now there's a third one and the third one is one that we haven't touched on yet. What do you think that third one is, Nikki G? Your third option is going to be sell your business to a competitor. You know, one that we see often, it's, you know, and oftentimes as business owners, you'll be approached by a competitor.

You start doing well, your phone will start to ring because there is someone who's a little bit more big, who's a little bit bigger than you, maybe a little bit more sophisticated at what you're already doing and will identify your company as one that's complimentary to theirs and want to acquire you. So that's also a great option. Well, and the competitor option is going to give you a premium for two reasons.

Number one, they immediately knock out somebody who they're worried is going to eat their lunch day in and day out. So they take away a competitor immediately and that's valuable to them because it helps them increase market share. And that's point number two, that increase in market share will allow them most likely to command a fee premium because they've eliminated one of their big competitors in the industry.

Now, look, we don't want to get into antitrust issues. We don't want to create a monopoly, but if there are five big players in an industry and we've just acquired, we're the biggest one and we've just acquired number two, we can command a fee premium now because we've got captive market share. And, you know, if we've got the best product in the marketplace, we deserve to command that free premium.

So when you go out and you are acquired by a competitor, you, when you're, when you're, when a competitor acquires you, they get instant market share and they can potentially command a fee premium. So your business is more valuable to them. Here's the thing.

You got to cultivate that relationship well in advance in order to get the fee premium. So when you're at these industry trade association events and you're beating the hell out of your competitors, do it with a smile on your face. Make sure you play nice with your competitors because your competitors could one day be your exit strategy.

I want you to win. I want you to go beat the hell out of them in the marketplace, but I want you to do it in a way that is friendly and collegial so that when it's time to exit, either they come to you or you can go to them and you can say, listen, I've been beating your brains in. What if we join forces and you take over my business? And again, you can negotiate terms, you can do whatever you want to do, but your business is going to be more valuable to a competitor than it's ever going to be to somebody off the street who just wants to jump into your business.

These are, these are the three really good options as a small business. Now, there's one thing we didn't talk about, Nicola, and let's call it a bonus option, even though it really isn't a bonus option. You could just die, right? That's the option.

That's the option that people in the practice of law take most frequently. They die and the business goes away. I don't think that's the best option, but what should our friends do so that they're covered in case of the death of a partner? I mean, we might as well talk about this now.

What should they have in place, Nikki G? Sure. Make sure that what you have in place is an agreement in writing that's going to allow you to buy out that partner's interest in the event the partner dies. If you don't have that in place now, that's going to be a struggle for you down the road.

And really, that's with all of our options. So maybe setting aside just the business broker option, but with the other ones, put that in writing. Because if you have that agreement, whether you're working with a strategic partner or strategic alliance you're building, put into your agreement the ability to purchase them later on.

So you have that into your buy-sell agreement and you'll have kind of that long-term option. Don't just think about the short-term and forming those alliances. Think about, is there a longer-term option here that maybe later on, I might want to access that? And you can build that into the written deal and you should.

It's a great way to think about your exit strategy early on while you're still building your business. You're creating value now and later on you can tap into that when maybe things change a little bit and you're ready to consider that. Goes hand in hand with your business operating agreement, your buy-sell agreement.

And that buy-sell agreement, my strongest advice to you is should be funded, should be underwritten by a key person insurance policy. So Nikki G and I are in business together. I get hit by a bus.

My key person insurance policy pays a million dollars to my spouse because my spouse is going to get that. That's what our buy-sell agreement is in our business. And immediately my spouse then turns her shares over to Nikki G in exchange for that million dollars.

Nikki G was the beneficiary of the insurance policy specifically to buy out my shares in the business. My spouse walks away with a windfall. She doesn't have shares in a business that she knows nothing about.

Nikki G doesn't have to worry about dealing with a partner she never intended to be partners with. Everything is clean. Everything is done.

If you're in a partnership or you're a part of a business with other people, that buy-sell agreement has to be the very first thing you do after you sign your operating agreement because you don't want to be partners with your partner's spouse. You may love them. You may think they're the greatest people in the world to go out and have drinks with.

It's a very different thing to run a business with somebody you never had any intention of being in business with. Yeah, absolutely. And make sure don't just pull a form agreement off the internet.

Folks, I've seen it in the practice of law. This is why I have to mention it. Don't just use something because it's quick.

You want to get it done. You want to be able to get started with the business. No, you need to be thoughtful.

You could end up having a great business. That's why you're setting out to do and forming it. And later on, you don't want to be relying on a form agreement that doesn't contemplate any of this.

That's a bigger problem. Now you're spending legal fees. It's headaches.

You don't even know that you can get to the objective that you're trying to achieve when you've used some kind of form agreement. So take the time to put something better in place that really contemplates what you're thinking about for your business now and in the long term. That's right, folks.

These are the three small business exit strategies that we shared with you today. Down in the comments, let us know what you're thinking about when it comes to the exit of your business. Maybe you haven't given it any thought at all.

And if you haven't given it any thought, you need to join us for each and every episode of The Inside BS Show because we talk about this a lot because this is what we do with our clients. We help them think about the long term health of their business. That'll do it for this episode of The Inside BS Show.

My name is Dave Lorenzo. I'm the godfather of growth. And I'm here with my partner, who I hope to be with until death do us part, Nikki G. Actually, that was your part.

Why don't you say? Who are you? Nikki G. There you go, folks. We'll see you here tomorrow. Until then, here's hoping you make a great living and live a great life.