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Excellent Executive Coaching: Growing Your Business and Enhancing Your Craft.
EEC 367: Successful Studio Exit Without Losing Your Legacy, with Mitch McGinley
00:20:35
Mitch McGinley isn’t just a business broker—he’s the go-to for fitness, health, & wellness owners who want an honest evaluation of their business. He’s helped over 60 studio cash outs, driving more than $10M in deals in 2024 alone. How to...
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- [00:05]
A
Do you want to sell your business, and are you thinking of it sometime in the future? How does one prepare for selling one's business and selling it at the best price? Let's ask Mitch McKinley, a business broker who has sold his own fitness, health and wellness business and now helps others do the same at the best prices. Listen up. Welcome to the excellent executive coaching podcast. I'm your host, Dr. Katrina Buruis, and today I have the pleasure of interviewing Mitch McGinley. Mitch, now you're an expert in exiting businesses. So tell us, how do you plan a business exit so you can retire confidently without losing control?
- [01:04]
B
Oh, what a great question to start with. And thank you so much for having me.
- [01:07]
A
Thank you.
- [01:08]
B
You know, it's such a personal transition, and each deal that I've ever done is unique. Each entrepreneur is different and has their own goals and timelines. And so what I would say the most important thing to planning your ideal exit is thinking about it well in advance. It's not something that you usually have to spend a lot of time working on, but it's something that should always be sort of simmering in the back of your mind as, oh, well, when that day comes or if I get surprised with an offer or if something changes and I don't want to do this anymore, then you've kind of got a plan in place so that you can just execute.
- [01:52]
A
So tell us about the plan you need in place.
- [01:55]
B
So the plan for me usually revolves around a couple of different things. Number one is a timeline. When do you want to exit? Is it based on a lease that you have for a physical space? Is it based on a personal goal? A lot of times it revolves around family members, children growing up, parents getting older. What's the timeline? Motivation. The second is a dollar amount. A lot of times, people really want to maximize their value in an exit. And how can we help do that? And so one very specific example is showing your profit on your tax returns. A lot of times entrepreneurs, you know, we all own businesses. It's part of playing the game. Owning a business is a great way to minimize your tax liability. But when you go to sell your business, it's really important to be showing all of your profit on your tax returns, because that's what lenders are going to look at to give a loan to a buyer. So that financial goal that you might have for your exit, if it's a dollar amount, how much money do you need to be showing on your tax returns before you try to sell? And then the third thing, and the Final thing that I always spend a decent amount talking with my clients is what's your goal after you've sold? Have you really explored what it is that you want to do next? And it's not that you need to have a very clear cut plan, but you also don't want to be caught off guard by the fact that now you've sold your business, your baby, and you've lost your identity in some way and you feel completely lost. So exploring the personal side of what you're moving on to and why, I.
- [03:44]
A
Think that's a very important point too. Because some people don't want to sell because they fear that they'll have a void afterwards too. So it's true.
- [03:56]
B
When I sold my first business, it was a yoga studio. That's how I got into this. I first worked in hotels, and then I was working with someone who was buying and selling boutique hotels. And then my wife and I bought our favorite local neighborhood yoga studio. And my wife is a phenomenal teacher, among many other things. But when we sold our studio, it was our complete identity. It was our neighborhood, it was our friends. And all of the sudden our relationships changed. When you're not someone's boss anymore, or when you're not the owner of the business where they're trying to get perks in some way, you know, people just treat you a little bit differently. And there's a lot I recall from that time period right after we sold where we felt like we lost our identity. Fortunately, we were able to jump right into what was next. And for me, it was this. It was helping other people buy and sell businesses. And then Covid happened. But that's.
- [04:59]
A
Yeah, but tell us before we go to Covid, what helped you do that transition from. From selling, feeling that you lost your identity to finding a way where you can help other people through the same thing. What was it? Did it take a long time? How did it feel?
- [05:17]
B
It took two weeks and unfortunately I really wanted to take longer than that. It fell into my lap. And this is a great story. It's the company that I've been working with for the last six years wanted to sell my yoga studio for me. And I had experience with that and luckily was able to do it on my own. And when I told them that, they asked me to come work with them and to help other people buy and sell businesses. And so that invitation came two weeks after I sold my studio. And so I had wanted, you know, it was the happiest time of our life. We had just gotten the Biggest check that we had ever gotten in our lives. We wanted to travel and take vacation. And it was literally two weeks later. And I'm sitting there talking to my wife and she was like, yeah, this sounds amazing. I think you should do it. And so I did, and now I've spent the last six years doing this.
- [06:10]
A
And what is your wife doing now that she's not a yoga teacher and involved?
- [06:14]
B
Well, she's continued teaching and she's also very involved in theater. She's a phenomenal actress, singer, dancer. And so those are the two things that she's continued to do a more private basis. She'd have her favorite 10 clients that she'd go to their houses and do private classes with.
- [06:32]
A
I see. Okay, so you shifted into a new space, put it that way. So that's a good point, because you've gone through it personally. So you can help others shift their identity from one to the other. So when you sell, how can you avoid hidden costs and still sell your business for maximum profit?
- [06:53]
B
Well, the number one thing to do is to trust experts who know what they're doing. And for me, the prime example here is understanding your business's value going into a sale and being clear on what the costs are going to be to get out. The normal costs included in exit are attorney fees, broker fees, and escrow fees. Those are really the three. Escrow fees are minimal, maybe a couple thousand dollars. Attorneys fees can range from a couple thousand dollars to tens of thousands of dollars, depending on the size of the business and the structure of the deal. And then brokers fees are usually somewhere around 10%. And so depending on how big of a deal it is, or the broker that you're working with could be anywhere, maybe from 6 to 12, depending on the size of the deal.
- [07:49]
A
I see. And so from what you're saying, it sounds like people underestimate these costs. Is that true?
- [07:56]
B
Yes. And it's always disappointing too, I think, when the tax burden of a sale is realized. If you sell a business for $1 million, obviously you don't get to keep the whole million dollars, no matter what country you live in. The government is going to take a pretty big chunk of that. And so planning with your tax professional to make sure that you're really clear on how much you're going to walk away with after taxes is also very important.
- [08:23]
A
Is there tax strategies to have to pay less?
- [08:27]
B
There are, but they're usually contradictory to the buyer's tax strategy. To give you a specific example, usually when we're selling a business you have to break it down into taxable categories. So if you sell a business for a million dollars, maybe there's $100,000 of furniture, fixtures and equipment and $900,000 of Goodwill, which is, you know, the brand, the clients, all of the intangible stuff. It's really great as a seller to minimize the furniture, fixtures and equipment because you have to pay sales tax on it. But for the buyer, they want to maximize the furniture, fixtures and equipment because they can then depreciate it going forward. And so those strategies contradict each other. And my goal as the broker is to have it be an accurate representation of what the real value of that equipment is and just have it not be something that people are playing games with their tax strategy, but rather have it be an accurate reflection of the business.
- [09:28]
A
Very good point. Are there other hidden costs that to be aware of?
- [09:34]
B
Renegotiating is a hidden cost that I would want every business owner to be aware of. It's such a long process. When you sell it, it usually takes upwards of six months at least, oftentimes upwards of a year to successfully navigate and exit. And over the course of that time period, buyers find out more information. A lot of times they're doing due diligence and digging further into your financial records. And, you know, it may be something with the landlord where the landlord raises the rent for the buyer and that's going to change the cash flow projection, and so the buyer then changes their offer. And that can happen a lot in deals where you end up renegotiating something that you had already agreed to. And it hurts a lot when you're selling your business, especially when it's something that you're not going to be able to get around with a different buyer, like the landlord example, because the landlord's going to do it to whoever the buyer is. It doesn't matter. And so there is an element sometimes of renegotiating where sellers get faced with really difficult challenges at the last minute and have to decide whether or not it's worth it to wrap up the deal and be done, or to take a stand and start over with a different buyer. It's a daunting proposition.
- [10:54]
A
What makes it, would you say, are the biggest challenges of making the deal go through making the difference between selling in six months in one year?
- [11:05]
B
For me personally, the biggest difference by far is the needs of the buyer versus the needs of the seller. Buyers are paranoid. They think they're getting duped. They always are looking for something that's not being shown to Them, and they're generally very distrustful. And then sellers are very defensive and protective, and a lot of times a bit standoffish. It's a really gross feeling having someone dig around through all of your financial records for your business and ask you pointed questions about it. We make the joke a lot. It's like having someone dig around in your underwear drawer. It's just. You don't want questions about that. It's very private. And so my role as a broker is to be there for both parties. I've been a buyer, I've been a seller. It's easy for me to relate to those feelings. And a lot of times people just need to be heard. They need their concerns to be heard and spoken to on some level. And so what I do a lot of is taking the emotion out of these transactions, being something of a therapist for everyone involved in the deal, and then communicating what needs to be communicated to get the deal moving forward, which is what everybody wants.
- [12:21]
A
So what do you do to get the emotions out? Is there any tip that you can give our listeners?
- [12:27]
B
It's a lot of therapy. I think I'm a good listener. I think listening to people is the best way in asking questions. You know, caring about how they feel gives them the opportunity and the space to say what they're worried about. And I think when you name the thing that you're worried about, it always becomes a lot less scary.
- [12:50]
A
Very good point. Excellent. Okay, so here. How do you sell your studio for top dollars so you can start your next chapter in life? Well, we sort of answered that question, but anything else? You want to comment on that?
- [13:05]
B
I do. I want to encourage people to normalize buying and selling businesses. It's very common that someone says to me, well, why would somebody sell a successful business? And it's the same reasons that anyone would leave their job. They're tired of it. They're tired of having the same headaches. They're ready for a new challenge. They might want to move. They might have something going on in their family. It could be a health issue. There's a million different, very normal reasons why people sell their businesses. And what I found is that by talking about it, especially with the community around the seller, usually sellers don't want anyone to know that they're thinking about selling their business. And I understand that on a human level, you just don't want anything to mess it up. The common misperception is that clients will quit or staff will quit. I generally find that to not be true at all. And the Best buyers for businesses are people who know your business. They have a personal connection to it, they have a fondness for it. They might see a way that they can add value to the business, which every buyer should be looking at. How can I add value? And maybe they hate their corporate job and they're ready to be an entrepreneur for the first time. All of those things kind of tie into this idea that being open and honest about your intention to sell at some point in the somewhat near future is very helpful. And I don't want people to be so afraid of it.
- [14:42]
A
I see. Yeah. Because in fact, you're doing some marketing at the same time by expressing your, you know, your desire to sell. And sometimes I would imagine, though, they want to sell it and then they see interest and what they can do differently to get even more revenue. And they might say, do I really want to sell?
- [15:04]
B
A lot of second guessing happens. You know, none of this happens quickly. And so over the course of 6, 9, 12 months, everyone's going to have highs and lows, everyone's going to have cold feet on some level. And so it's just recognizing that for what it is. You know, hopefully it doesn't make the deal fall apart. Sometimes it does, but then you pick up the pieces and move on however you're supposed to move on.
- [15:29]
A
Okay, so our last question is, how do you accurately value your studio for a profitable sale without guesswork or expensive appraisals? So you. Yes, tell us how like someone that even in a coaching, because a lot of people that are listening are coaches. How do you evaluate the value?
- [15:49]
B
It's usually fully a function of profit. And I think a lot of times people are surprised or disappointed to hear that. They think about what a great brand they have or how big their customer list is, and they want more value in that. But the truth is, is that no one needs to buy your business. There's a big difference between buying a home, for example, where everyone needs a home to live in, but no one needs to buy your business. And so buyers really are a needle in a haystack. It's finding someone else at the perfect time who wants to do exactly what you're doing. And I'll speak to the coaches specifically because I've worked with lots of them. They wonderful referral source for me. Coaches, you can sell your business, too. What matters is that the whole business doesn't revolve around you. That's the hardest part. And so creating those systems and processes and elevating staff members to a place where they can take on more roles. And responsibility is the key for you as the founder and the owner of the business, to step away from the day to day a little bit more so that you're not coaching 24, 7. And that's how you make all of your money. But you have all of these different programs and people who can help elevate the whole brand where somebody else could come in and take it over and take it to the next level.
- [17:12]
A
Okay, having processes, people, and not depending on the person or the coach, senior coach. What's the big difference between selling a company at 1.5% of the profits and 2%? And both companies have the processes that is in place. So it doesn't depend on any one person. The brand is known.
- [17:37]
B
There's probably five or six different variables. And I keep going. I'm trying to keep this tight for you. But the number one answer I have for that is leverage. How much leverage do you have in your negotiation with the buyer? If you're only working with one prospective buyer, you're going to have very little leverage. And if you have multiple buyers, all of the talk about valuations and multiples and what are the add backs, what's legit, what's not, that kind of goes out the window when somebody just digs in their heels and says, I need a million dollars. I don't care about X, Y or Z. Are you willing to pay it or not? And it's hard to have that confidence in a negotiation unless you have a fallback plan, which is maybe another offer, or maybe you want to pit these couple of buyers against each other and have something of a bidding war. You know, whatever it is, it's. It's using leverage to get what you want. And the best way to have leverage is to have multiple offers. And the best way to have multiple offers is to be vocal about the opportunity so that people know the opportunity exists.
- [18:51]
A
Excellent. So we're coming at the end of our podcast. So I want to know how can people get a hold of you?
- [18:57]
B
Well, everyone can find me at Boutique Fitness Broker. That is my brand. That's my name. My email is Mitch. Boutique Fitness Broker. All of our social media is outiquefitnessbroker. But I want to offer something special. I really appreciate you having me here. And so anyone who does go to my website and reach out and references this, I'm happy to give you a free valuation. We can spend an hour talking about your business, take a look at some of your financial statements, and I can give you a real idea of if you wanted to exit right now what that might look like in terms of an asking price or a range of, you know, something reasonable and then you can set goals from there. Maybe that number sounds great and you say okay, great, let's go. Or maybe you look at it and you say I want five times that much and we can sit down and plan for how you can reach that goal. And and that to me is always.
- [19:55]
A
The most rewarding, good, wonderful offer. Thank you so much. I encourage the listeners to reach out and thank you so much, Mitch, thank you so much.
- [20:04]
B
I appreciate you.
- [20:06]
C
Thank you for listening to the Excellent Executive Coaching podcast. You can subscribe to all Future podcasts@excellent executivecoaching.com join us each Wednesday to learn more about the latest trends in leadership techniques and bring your coaching to the next level. To learn more about Dr. Burris CEO mastermind, use the contact form@excellentexecutivecoaching.com.