← Service Business Mastery for Skilled Trades: HVAC, Plumbing & Electrical Home Service
Service Business Mastery for Skilled Trades: HVAC, Plumbing & Electrical Home Service
The Truth About Selling Trades Businesses for Maximum Value with Gregg Schonhorn
00:45:46
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- [00:00]
Greg
We overpay C suite too much. Everybody should be salary plus a bonus. We shouldn't be salary without bonus. We all want everybody rowing the boat in the same direction. So once in a while we'll be like, oh, I had the chance to go grab this amazing general manager and I paid him a couple hundred grand. Where's the incentive based pay?
- [00:25]
Narrator
Are you looking for valuable business advice to reach that seven figure revenue mark? Do you want actionable tips to properly navigate through every business challenge you encounter along the way? Let Tersh Blissett and Josh Crouch be your guide in getting you to the top here at Service Business Mastery. Tune in as they sit down with world renowned authors in business leadership and personal growth who share valuable insights about management, marketing, pricing, human resources and so much more. Let their nuggets of wisdom gold guide you in owning a thriving, profitable and ever growing business. Here are your hosts, Tersh and Josh.
- [01:11]
Tersh
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- [01:56]
Narrator
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- [02:11]
Tersh
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- [02:17]
Narrator
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- [02:26]
Tersh
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Narrator
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- [02:39]
Tersh
To chat with a team about how they can help you grow your business, visit marketstorm AI hello everyone out there in podcast world. We're having A wonderful day. You're listening to or watching Service Business Mastery Podcast. I am one of your hosts, Tersh Plicit. And Josh, my co host, is not with us. He may be able to join his Internet's acting goofy today. But I'm honored to have Greg on the show today. Greg's been a longtime friend of mine and Josh's both. He's with S, F and P Advisors. Man, that was a tongue twister for me. And so for those of you who don't know what SFMP Advisors is, Craig, can you give us a background of that and a little background of yourself as well?
- [03:18]
Greg
Sure, absolutely. So mergers and acquisitions has been a pretty big deal for, I'd say, What, the last five, six years, right? 2021 was really the biggest of years. SF&P. Now you've got me tongue tongue tied and twisted as well. But SFMP itself has been around for 25 years. So Fred's M&A game since 2027. He started to price Waterhouse, Cooper wound up at Blue Dot, and then we know Ken Haynes was there, right? So we've done 427 transactions worth 3.5, almost $3.6 billion. We represent sellers when they're preparing to exit. Whether you're two years out, three years out, or you think you're ready to go. As I always say to people, Tersh, it's we're like a real estate broker and your business is a home. Right? Easiest way for me to describe what we do, but we're investment bankers. The end of the bed when it.
- [04:18]
Tersh
Comes to the conversation having with a business owner because I know that it's like our baby, you know, and you have to have some tough conversations with people sometimes because I know that people overvalue their stuff because it's theirs. And then whenever you're like, you're talking to them and it's time to sell, sometimes you're, you probably know, I mean, you know this way more than I do. But you're like, okay, that's not really worth that much. Or if you want it to be worth that much, this is what you need to do. How's that conversation go?
- [04:51]
Greg
There's always going to be nurturing, right? Everybody in the world thinks they've got the best brand and Dan Antonelli only has what, 500,000 of them or however many. There can only be so many amazing brands and everybody thinks that they've got the greatest brand. But at the end of the day, Tersh brand matters a lot. But culture matters. Your C suite Matters your profitability, matters your membership, matters your business mix, customer concentration. There's so much that goes into the pot when we're making a stew about how do we put multiples or multiplier on your business. You know, there's almost nobody that can call and be like, hey, I want to sell. Get me under engagement. We need to interview you. We really have a stringent process that we run where when we're first talking to people, my opening conversations always kind of, why now? You know, is it, I'm tired, I'm burnt out, right? Or man, that's so much money I can't pass up. You know, other times it's, I've hit a ceiling and I think I need a partner, right. A certain amount of money, depending on where you live to everybody's different.
- [05:58]
Tersh
You actually would bring in a partner for people like, or like how. Explain that.
- [06:03]
Greg
Yeah. So when we talk about private equity coming in or family office, whatever that looks like, or you become a, a platform, they are a partner, right? Whether they're buying 70%, 80%, you know, they're buying your business, you're rolling equity. But it some deals, there's no rolled equity, right. So they are a partner to a large degree. When they come in to take over.
- [06:26]
Tersh
Your business, there are times where they're not selling the entire company, they're only selling a portion of it.
- [06:32]
Greg
You're rolling equity, right? Essentially, you're selling the business and you're rolling equity into whatever that platform looks like. Yes.
- [06:40]
Tersh
They haven't been in the business for very long and they're not ready to sell yet. Just to educate them on what that means.
- [06:48]
Greg
So most deals might have a rolled equity component. So let's just use easy math, right? You're selling your business for an enterprise value of $10 million. They want you to roll 20%. So your taxable will be 8 million and the 2 million will be rolled to the platform at a cap table level. So then when whoever buys you, when they have their exit, that's you're getting a multiple upon your earned capital of on the $2 million.
- [07:22]
Tersh
Hopefully get more than 2 million.
- [07:24]
Greg
Yeah, a lot more. Hopefully.
- [07:26]
Tersh
Yeah.
- [07:26]
Greg
Concept. But really the way the PE game kind of works, as far as I understand it, you, you know, they buy a business for $10 million, they're going to fund it with 5 million of debt. They might use 5 million of cash. They're essentially paying off. They're using the cash flow to pay off the debt. They don't really make their money till the Exit, right. That's their game is how fast can we get everybody up and running, how large can we get our EBITDA and when's the time to sell. Whether it's Cella Redwood who have already acted on that. And then, you know, there's the monsters out there, there's the wrench groups, the apex that haven't yet. Will somebody go, you know, to the public markets, who knows? Right. But the real massive payday for them is their event that triggers when they sell.
- [08:13]
Tersh
Yeah. Now correct me if I'm wrong, but isn't it like seven years, the average, whenever, or is it so part of.
- [08:21]
Greg
The interview process, Right. So we run really what I'll call a three phase process because that's what it is. During process number two, when we're introducing you to, I don't care whether it's lawn care, roofing, H vac, plumbing, any of the verticals, you're going to meet somewhere between six to 12 buyers. We do what we call fireside chats. It's speed dating. Right. So you get the opportunity. They tell you why they're the prettiest gal in school. We, you know, you tell them why you're the most handsome guy and then you share some real high level stuff. Part of the questions you should be asking, you know, how many acquisitions have you made? Where do you guys think you are in the process? You know, from your exit? So some may tell you they're three to five, because that's what most will say. Some may be seven, some maybe three, some maybe five. Everybody's different for where they are. They're probably not going to tell you exactly where you are.
- [09:14]
Tersh
So you're talking about the business owner. Like, like if I was selling my company, you're talking about how long before I exit. Right. Whenever you're actually doing, like whenever the PE firms are buying up things at some point, like they want to bundle them together and sell them, is that like a five or seven year turn or is that completely different?
- [09:33]
Greg
Tell you it's a three to five year goal. It's probably more five to seven year goal. Yes, we're talking about the same thing.
- [09:40]
Tersh
Okay, okay. Okay, gotcha. I was just curious if that's, if that is the actual case there.
- [09:46]
Greg
So what, Horizon and Sun was what, two and a half years before it turned around? I mean, that was wild. Super, super fast.
- [09:56]
Tersh
Yeah, that was wild. I mean, I don't know how you could even get things under control in that amount of time. Like that's. But that's not for me to determine there what's one of the biggest things that you look at that have to be fixed in company? Like what's the most common thing that you, when you look at these businesses, you're like, this is the, the thing that needs to be worked on more often than not.
- [10:18]
Greg
A lot of times. You know, I always love the guys that have the conversations around gross profit cogs. Right. Inverse of one another. Where are you at? Our average is 50 50. Right. Your target should be 60% gross profit. I get it. The reality of the bulk of the companies that sell are typically more 5050. The biggest loss leader that we see when we look at financials is typically in the total expense area. 30% is ideal for total expenses. The amount of businesses that are 35 to 40 that if you focused on cost savings throughout your business, whether it's dinners, meals, travels. I mean, granted there's add backs and some stuff, right? But typically total expenses are something that gets a little out of control. And then gross profit is another area that sometimes guys just need another year of marinating to kind of get to where they need to get to. The mistakes made that I typically see, we overpay C suite too much. Everybody should be salary plus a bonus. We shouldn't be salary without bonus. We all want everybody rowing the boat in the same direction. So once in a while we'll be like, oh, I had the chance to go grab this amazing general manager and I paid him a couple of hundred grand. Where's the incentive based pay? And then we've got to give you a negative adjustment because that jobs of whether it's 125 or even 85,000 plus incentives to get them to where they need to be. Those are typical things that we see that become problems early on that are red flags when we're doing the evaluation and we'll be the first one to say to you, hey, there's some clear red flags in your business. We think if you focus on these things over the next year you can add 2, 300 neat into your business, multiply it 6, 7, 8, 9, 10. It's a lot of money.
- [12:17]
Tersh
That is a lot of money. Yeah. Have you ever had anybody come to you and say, I'm good, I'll take less, just sell it right now.
- [12:26]
Greg
You. Yeah, no, there, listen, there are certainly guys that have come to us that are burnt out, that are tired, that aren't worried about the last half a million or a million dollars kind of where they wanted to be. They've hit their target Then there's other guys that are like, I'm 65 years old, I've done this forever. If you can get me 2, $3 million for the business, that would be amazing. You've seen our website. You know who we are. You know, we have our billboard names, obviously, but it's not what we do on a daily basis, right? If we complete 40 transactions this year, TSH, 510 are going to be billboards. The other 30, you know, 500, 600 to a couple of million in EBITDA.
- [13:10]
Tersh
Really?
- [13:10]
Greg
Okay, normal size. Think about most businesses, right? You get to 12 million is where most businesses are like, you know, I say this on every call, right? The journey zero to a million is like, how hard can I grind this out? 1 to 5 million to me is more. You really have to start learning your numbers, understanding your KPIs. Where you are today processes 4 to 6 million. Now we're layering in all of our C suite. Warehouse managers, general managers, op managers, field managers, maybe ahead in the office. So all of these mass expenses come in and we watch that 18, 20% net go to 17, 16, 15. And then that massive wall typically gets hit around 10 to 12 million. And if you're down at 12% or 15%, math easy, it's 1.2 of EBITDA or 1.5 of EBITDA. That tends to be the bulk of what we see and what we do.
- [14:11]
Tersh
At any point, does it. Do you think that because, because you and I, we met each other when you were, you were coaching also, do you find that at some point, right, as somebody's coming to a wall where it's, it's like, maybe I should shrink back down a little bit more because my ebitda, I mean, at that point, my net profit was at, you know, 15, 20% or 25%. And then as soon as I climbing up on this wall, now it's at 10%. And granted, it might be similar, like amount of cash on the net net profit, but it's a lot more headaches, you know, involved and a lot more risk involved. Is there ever a point in time where you're like, hey, you should shrink back down a little bit more to increase that net.
- [14:54]
Greg
And we see it often, right? You have businesses that are their nets, great. And it's typically because they're running very lean, right? And then there's the guys that are at 17 million revenue. But man, my EBIT is below a million. You've got way too many people on the org chart. You've got redundancy throughout your business. I'd rather see you spend the next two years getting leaner, growing. Add another 500,000, 600,000 in EBITDA and get yourself to where you need to be. Yeah. There are businesses we run into and I talk to guys all the time that, you know, you need to get leaner. The other businesses that become a challenge to sell because they're overly too lean and.
- [15:41]
Tersh
Yeah, that's a good point.
- [15:42]
Greg
It really, it's. There's that crux.
- [15:45]
Tersh
Yeah.
- [15:46]
Greg
What to do. My advice to everybody is always the same. Continue to grow your business like you're not selling. Even when you come to me and are ready to sell, man, it's a seven month process.
- [15:59]
Tersh
Yeah.
- [16:00]
Greg
Day you call me that you're ready to sell. By the time you get a check, it's seven months. And the worst thing you could do is take your foot off the gas during those seven months.
- [16:08]
Tersh
Oh, yeah. And it happens. Like I, I've done it myself. Like, it's like, all right, I'm gonna sell this thing next month, so take my foot off the gas. And then next thing you know, six months later, now your numbers look like.
- [16:20]
Greg
Complete and it becomes almost impossible to sell because you can't sell it.
- [16:25]
Tersh
You're giving it away. Almost. Yeah. No.
- [16:27]
Greg
Yeah. Falling knife.
- [16:30]
Tersh
So explain to me the companies that are too lean, like for those who have heard that, and they're afraid of becoming too lean. Because Josh and I talk, I mean, we preach automation and AI and like let anything you do three times in a week, like, let's learn to automate it or optimize it, automate it or. And then delegate it if you can't do that. What it means to be too lean.
- [16:54]
Greg
They'Re kind of two different subjects. Right. So a lot of the businesses that are taking on a ton of the tech and doing automations and adding that stuff, a lot of them haven't quite come to market just yet. Right. From that sophistication standpoint where, hey, we're lean for a reason, we've automated this or we're using, you know, the virtual call centers or whatever that looks like, you know, the ones that are too lean. Remember, when you sell a business, you own a business, you run a business, it's not you that they're buying your C suite, it's your technicians, it's your installers, it's your group of CSRs. If it's, you know, we don't have enough bodies and we're running our guys for 70, 80 hours.
- [17:38]
Tersh
Oh, yeah.
- [17:38]
Greg
Every time. And, you know, wear them out. You know, you've got a general manager and you're doing 15 million and you don't have, you know, a solid marketing base. You don't have a chief financial officer or at least somebody a fractional CFO working for you. You know, it's really interesting because we've been doing a lot of deals in the roofing space.
- [18:00]
Tersh
Okay.
- [18:01]
Greg
And you no longer run into H vac plumbing electric is pretty mature.
- [18:06]
Tersh
Yeah.
- [18:06]
Greg
It's almost impossible to find a 15, $20 million business that doesn't have a CMO, you know, CFO, all that stuff. Roofing. I run into 20, $30 million business that are like website marketing, CFO. I just use my accountant. It is really interesting because they are four or five years behind.
- [18:25]
Tersh
Why is that? They have very large tickets.
- [18:27]
Greg
I think it's. It's almost impossible to go to 0 to 10 million a year in H Vac Plumbing Electric. It can be done in roofing. A business could literally go from 0 to 5 million, 5 to 15 and 15 to 30 in roofing.
- [18:43]
Tersh
Wow. I. I see a lot of guys that are selling H vac companies and are getting into roofing. I thought that it was more of a challenge because of the lack of licenses. Does that. You know what I mean?
- [18:54]
Greg
The challenge in roofing is more residential replacement versus residential insurance and how most of the platforms are probably 70, 80% insurance. We would love to reverse that if at all possible. But the question on Lean is like, when you look at your org chart and you take a typical org chart for a $10 million business and you're at 8 million, you're missing half the spots. Like, because when private equity buys you, they've got to put people in those seats. So those are negative adjustments that work against you, and it brings the value of your business down. Hey, we've got to replace. We've got to put this person in a seat. Not only do we have to add potentially a CEO, but we've got to add an ops manager. We've got to do another general manager. There's other seats that you're just not staffed for and replaced that we need to. To add.
- [19:47]
Tersh
Is it not beneficial to some of the firms that you didn't already have that C suite because they may want to bring in their own people anyways, or is that not really.
- [20:00]
Greg
Every business is different. Right. But at the end of the day, it's really the C suite that they're buying.
- [20:06]
Tersh
Okay.
- [20:07]
Greg
It's the maturity. You know, buying a business Turf that did 2 million, 8 million and 30 million. They're never going to pay you off your third year doing 30 million. You grew too fast.
- [20:19]
Tersh
Gotcha.
- [20:20]
Greg
You can't have provable systems and processes. The businesses that are 10 years old that grew 15, 20, 25% a year, those are the easiest to sell. And when they've layered in the right people, there's maturity. How long is your average employee been there? All of this stuff is part of what goes into our siem. And how old are your trucks? How old you know are is your team? How many years have they all been with you serving? You know, I've got a roofing business that two plus years ago basically didn't like how things were going. They fired every single solitary salesman. And while the business is 15 years old, the whole entire sales force is 2 years old. So there's been some challenges around how to position that. And does the market think that the massive growth over the last couple of years is sustainable?
- [21:08]
Tersh
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- [23:10]
Narrator
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- [23:31]
Tersh
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- [23:51]
Narrator
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- [24:01]
Tersh
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- [24:09]
Narrator
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- [24:15]
Tersh
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- [24:20]
Narrator
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- [24:29]
Tersh
Get a tech upgrade for your business at Get Sarah Mastery. That's a good point. How long if they, if you, if you're growing like this, how, how long should you have a. A C suite intact before you're ready to go to market?
- [24:51]
Greg
Yeah, I don't think there's a set number. Right. I mean but it does help. You know my GM has been with me five to seven years. Like you think of the four or five most critical positions. My office manager, my top csr, you know, my top two or three sales have all been three, four, five years with us. That's awesome. Positively towards you. Turnover is terrible.
- [25:13]
Tersh
Like you mentioned, a three year old company that has grown tremendously. Unless you were a business owner before and you're moving into like you probably don't know that you need these other positions there. So you wouldn't have them for three years. Like you might have them for a year. Would you tell that person, would you tell that company, hey, do 30 million for three years straight and then we'll talk.
- [25:36]
Greg
Or at least give it to me back to back years. Okay, Right. If we did, you know, because you've got to sit in front of private equity and explain why it's repeatable. They're just, it's math. Well, you went from 15, you went from 5 to 10, now you did 30. Explain to me how that happened. Where that. Well, we made a massive push on marketing. We hired a ton of installers. Okay. Now proof does it's sustainable.
- [26:03]
Tersh
Yeah. Like that wasn't just a. You had one magic major project go on and now that project's over.
- [26:10]
Greg
Well, that would go into customer mix and business concentration as well. Right. So certainly would be something that if you did have a large commercial project or a house project or something that you did, we would get way ahead of that. But again, when we give you your valuation upfront, we may say 80% of your business is worth 10x, 20% worth 4x. So we're going to blend out your business at about seven point something. Right. Is probably where you end up. So we're really getting ahead of all of that stuff before we even take engagements. To have a clear understanding of where your business is and then what portions of your business. Because a commercial portion is going to be worth different than a residential portion.
- [26:56]
Tersh
More or less.
- [26:57]
Greg
Residential is going to be king and okay. In everything that we do, maintenance agreements. Right. But Resi is always going to be king because, you know, it's interesting, you know, there's a pool company I've been talking to, very, very large pool company and they sell massive commercial projects. And they were out with somebody recently that I'd introduced them to and the guy said, well, why aren't you selling the commercial clients? Maintenance agreements. He's like, wait, what? And now they're doing it and they could obviously do it.
- [27:28]
Tersh
Yeah.
- [27:28]
Greg
So. And it's just, it's three years ago, four years ago for most commercial guys. It was probably a far off concept of why would I get maintenance agreements, commercial clients. Now it's become a lot more sophisticated. I always talk about this Turch, how many businesses are left in the United States that are residential? Only to 100 million plus.
- [27:52]
Tersh
Oh, right. Not a ton.
- [27:54]
Greg
Hoffman and Peterman. Yeah, the two kings of the jungle right after. I mean you could make Hiller an argument certainly there. Eco plumbers, Right. Aaron Gaynor's probably doing 70, 80, 90 million, but 100 million plus, you really only have two left that are out there. And then you go down to the 50 million to 100 million. It's not like there's that many out there, but I can go into any major city and find a 50 or $100 million commercial business. So private equities kind of run its way through so many. If they want ebitda, where do they have to go now? They've got to go to commercial, commercial verticals to get massive amounts of EBITDA or they're buying a million and change or 2 million at a clip and they got to make a ton of purchases. This is one big business. Five to 10 million of EBITDA.
- [28:44]
Tersh
Yeah, that turns into major risk. All right, so Josh has a couple questions here. I ignored them as long as I could, but he keeps commenting. Do you see any potential changes in multiples with AI coming into the fray as hard as it is lately?
- [29:00]
Greg
Yeah, it's as I said earlier, Josh, we haven't seen that effect just yet. I think most of the businesses that are now really layering in tons of. And you would know better than me, right, who your avatar is and what the size of the clients that you're working with. But my guess is a lot of them are growing in sophistication, knowing that they need to add it. Probably. We're still a couple of years away from seeing the first businesses that really are AI dependent in their businesses, and it's layered throughout every portion of their business. Right. When you talk to Sebastian and Rilla, he'll tell you that a lot of the stuff that we're just seeing now, we're still two, three years away from it being practical, like the AI answering your phones. And it's really good, but it's not quite where it will be probably two or three years. Again, I should be asking you these questions, right?
- [30:02]
Tersh
It's honestly, it blows my mind how much it has improved over a short period of time and it's continuing to improve. Like, Free to Grow is a sponsor of the podcast and they do an amazing job with inbound calls. And it's crazy, the difference in the sound from, you know, six months ago to now. I can't wait for six months from now. There's times where some of the introductions on, like even this episode, whenever it's edited and goes and goes to the podcast catchers, I challenge you to tell me which one of the, the, the ad reads are read by me and Josh versus Read by 11 Labs, which is an AI synthesizer, voice synthesizer. There's one that's a kind of dead giveaway, but I think we fixed it pretty well. But I'm not going to say which one it is because I want to see if you can figure it out.
- [30:56]
Greg
But you know, as I stand here and listen to you and think about it, you know, the platform's going to have to be using that technology.
- [31:03]
Tersh
Yeah, that's another good point. Like what happens if the platform sees a company and they, they're like, oh, their tech stack is really good. Maybe we should implement that tech stack across all of our, our platforms.
- [31:16]
Greg
So I, I, I think we're really at the beginning of that now. I'm the wrong person to ask, right? If I knew the answer, I'd have an answer for you, and I really don't about how that's going to impact in the future. I would think the more sophisticated, the more easier your business is. I would assume there will be, you know, whether It's a half a turn or a turn, meaning difference between 8x and 8 and a half x or 8 and a half to 9. I have to think that there will be some impact. Yeah, just there's no proof of that as of yet.
- [31:47]
Tersh
His second question here, it kind of rolls into that same one and I didn't read it before. Are buyers asking about the AI softwares that sellers are using or do they ask questions about the tech stack in general?
- [32:01]
Greg
Yeah, so it's all part of the normal conversation. Right. So when we look at the funnel and we talk about a business, we start with, you know, what does the C suite look like? Then they really want to understand your marketing funnel. Where does, what channels are you using, what's successful, how do you move from one channel to the other? Then typically the third will be about their tech stock stack. You know, where, where are we with Rilla or Chirp or, you know, Lace or any of the other stuff? What automations are we using to respond to clients and how quickly are we getting to them? It's typically probably the third conversation that a buyer will have with the seller around technology within the business.
- [32:43]
Narrator
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- [32:45]
Tersh
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Narrator
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- [32:54]
Tersh
Try that for free for 14 days and get 25% off of your first two months@companycam.com do you think that in the near future people are going to be looking, buyers are going to be looking for a well established CTO as part of the C suite. Cto, sorry, yeah, the chief technical officer, like because of automations and AI involved in the new businesses.
- [33:23]
Greg
Again, haven't seen it yet. So you know, it, it's, I'm starting to see some businesses that I talk to just starting that. But you're talking about businesses that aren't anywhere near. They're two, three years out from selling. Okay. Starting to get their ducks in a row. They're adding a lot of more companies are adding the marketing portion in house, doing their own. So now we need a tech guy in, in house. I think, you know, videographers are becoming bigger and bigger for everybody, for culture, putting out a lot of stuff. Right. So I think that adds to the, all of the tech stack as you said. But I haven't seen too many that we've, I haven't seen any that we've taken a market that I know of. Again, that's the other side of the business that has a chief technology officer.
- [34:10]
Tersh
Yeah, yeah. Josh and I, we, we, we're getting into that whole, the, the fractional CTO almost world because of people wanting to implement some automation, some AI and wanting to know what sort of technology they can use to become more efficient. And like I was just on an on site for two days at the beginning of this week where I was just going through all their products. They're like just observing everybody in the company and saying, hey look, we can do, we can implement this, this and this and you're going to, it'll get rid of 80% of your redundant work. That is just duplicate work. And I would never say, like, let's downsize office staff as we grow. We don't need to hire more office staff because we can do it all with the people that we have now because we can build out some automations to.
- [35:05]
Greg
You do recognize you're at the forefront. Right. And that's sort of to go to your question. Right. I mean you created what you've created to do AI to help automations to do, do that. Name somebody else that's doing it. Yeah, right, yeah, you guys really are at the forefront. You know, when you started developing this years ago. Right, right. You know, playing around at both businesses and commingling technology priors, as we know. Right. You were really one of the first to be like, I want to play with Zapier, I want to play with all These things that not a lot of guys were, and they're specialists. You're now bringing what you're doing to a much broader market other than like the super sharp business owners. You're bringing it to every single solitary business owner that's out there. And everybody now knows, hey, this is something. If I'm going to own a business for the next five years, I better have all this. That goes to your question of, you know, have we sold businesses? You guys are really at the forefront. I still think we're a couple of years away from seeing that first seller that has all of this in place. I'm sure some of the big ones that are listening that do 40, 50, 60 million have a ton of this stuff already in place. But the average that we do that, 10 million, 15, 20 million, you know, a lot of them have a little bit, but they're nowhere near where they should be and it'll grow. What are we laughing at? What's Josh.
- [36:35]
Tersh
Josh is an idiot, man. He said even a blind squirrel finds a nut once in a while. And tertiary, definitely a blonde squirrel.
- [36:41]
Greg
What you're creating and what you guys are offering is, yeah, credible and really valuable. Right. For where it's headed. And it does. It is very thought provoking to me, even in the moment about what will. Org charts look like in the future, what will Finn look like? How much net will we be saving to the bottom line by doing all this? It'll be really interesting to see where.
- [37:06]
Tersh
We head to explain because. Because fractional CFOs, I mean that's been a thing for a while. How does that play into the valuation of the company or does it play in at all? Like do you typically remove the fractional CFO whenever that, like when they get purchased by.
- [37:27]
Greg
It's up to the, it's up to the buyer if they want to keep them on or not. I would say 50. 50, right. Kind of guessing a little bit. But I think it's an incredibly. Whether you have an in house CFO or you're using an outsourced fractional, it's probably the biggest missing piece in our industry.
- [37:47]
Tersh
What do you mean by that?
- [37:48]
Greg
Many businesses use a local CPA and they're lazy, they're cash based. Every single business needs to be at a bare minimum accrual based. Right. Everybody I talk to, you take money in on a monthly basis for maintenance agreements, for memberships. When are you accounting for it? And you know, if we do commercial work or we're doing some larger projects, we might get paid one Month versus when the work's done on another now it's like well why'd you have a million dollar plus month and the next month you lost 900 grand?
- [38:20]
Tersh
Yeah, yeah, yeah.
- [38:22]
Greg
The evolution of being really good with P Ls and balance sheets. It's my single largest complaint about the bulk of the coaching organizations that exist. You know I'm a big fan of nextar. I've been pretty, I've talked about it primarily because they're bottom up. I don't know next door, I've never been there. You know we're huge fans of them. But the concept of starting from bottom up with clients, that's why I always tell people when you're at a million what you do, go take a class to learn about how to really read and understand a balance sheet and P and L right the place. I'll skip that part. But it really is a challenge within businesses that they don't really understand their dollars and cents. And when they start working with an amazing fractional CFO and you have your trailing 12 months and you're budgeting and forecasting and you're building proper KPIs. You know I started on this earlier. What are the industry standard KPIs? It's yeah because it's built business. KPI should be built upon where you are today and then look for 2 to 3% improvement across all of your KPIs. Yeah. Industry standards for really matters. But you've got the guru saying well when I was doing 60 million this was yeah, okay, great. But that's not reality for necessarily a 2 or 3 million dollar business that may be at a certain point. So I believe when you get to that 4 million, 5 million, you better reach out to a really good fractional and terse. They should have buy side experience as well. They should have done deals. They should understand what it means to build a trailing 12 months, what add backs look like. You know, we're not for hire to do that. That's not our role. And if anybody needs an amazing one, hit me up and I'll certainly refer you to somebody that I use and.
- [40:16]
Tersh
Refer people to correct me if I'm wrong. You're saying whenever it comes time to hire that fractional cfo, part of the interview process, you want to make sure that they've experienced a sell, been through the transaction process like where they've had to get the trail in 12 months and they're really factoring in like all your add backs and all that stuff.
- [40:35]
Greg
And they'll do the Budgeting and forecasting for you as well. And they truly understand. And I'm not talking about like, oh, I worked with one company and we sold. Right. Give me somebody that's done 15, 20, 30, 50 transactions right under their belt so they really understand how to pass Q of quality of earnings. Right.
- [40:54]
Tersh
That's a large number though, isn't it?
- [40:56]
Greg
Right. It could be 15, 20 deals, but somebody that's had decent experience from that perspective I think makes a huge difference. Worst case, if you can't afford it, just make sure you're on accrual based accounting at the most basic level. Every business should be accrual based accounting platform you're on.
- [41:18]
Tersh
Like are there some, some firms that really want it? They want you on QuickBooks or they want you on.
- [41:24]
Greg
Everybody should be on QuickBooks and okay, have QuickBooks online. It's really important, you know, the same way, you know, if you're preparing to sell, you should all be on service titan.
- [41:34]
Tersh
Right?
- [41:34]
Greg
You think you're big enough, you should be there because whoever is buying you will be using service Titan.
- [41:40]
Tersh
Do you foresee anyone ever coming in and taking over service titans role in our, in our trades?
- [41:50]
Greg
How do I answer that? I mean could a technology come in, like, could a Google come in and go buy certain. Yeah, I guess, right. Hypothetically. Right. I don't have that. Would I be standing here with my, my coffee cup jiggling my coins to you? Heck no. But yeah, there, I mean I could see a tech company coming in for that. Right. If we're investing in the trades and the trades continue to grow as they are. Right. Home Pros Today 27 growth last month of people into trade schools, maybe more outside. That's like we want service titan. We think there's more that we could do with it. There's things that we could. I don't know. I really don't. But there's always a bigger bear if.
- [42:39]
Tersh
Somebody wants to get in touch with you. I got it scrolling across the ticker at the bottom of the screen. But if you're listening to this podcast, you feel free to give. Give Greg a call. 973-919-5509. That's a cell number. Or send him an email. Greg, what's your email?
- [42:54]
Greg
It's my name, Greg. So it's g r e g g. And then it's at sfp advisors.com cool.
- [43:03]
Tersh
Is there anything I forgot to ask you?
- [43:05]
Greg
I think you really covered a lot. I think part of what people need to know is, you know, a common question. I get is our multiples going to dip? Are they going to go down? Is the run over? And my answer is, you know, 2021, we did 46 deals. 2022, we did 40. We dipped into the low 30s to high 20s the last couple of years. We're going to do over 40 this year. Again, I still see for the right businesses. You don't quote me on all this. Right. But we do still see 9x10x for solid million dollar plus EBITDA businesses. Now, that doesn't mean you come in and go, well, we do 50% new construction and you said we're business matters, customer concentration. But I think the next massive boon probably will be whenever somebody goes public. That'll be the next real big gold rush to potentially seeing multiples that we saw in 2020, 2021.
- [44:05]
Tersh
I think the PE firms you're talking about, one of the PE firms goes public.
- [44:09]
Greg
Yeah. When that happens, I think you'll see the next sort of big gold rush where you'll see multiples go up. Listen, as far Boy Donald continues to beat up the Fed and get them to lower interest rates, that doesn't hurt either.
- [44:22]
Tersh
It's always great chatting with you, man. I appreciate it. I always like hanging out with you. And if anybody needs to get in touch with Greg, I gave you his information. We'll put it in the show notes as well. If you have a question, don't hesitate to ask Greg. He is an open book and he's an extremely helpful guy. I've known him for years. Josh and I both have known him for years, a long time and he's always been extremely helpful for us. And with that being said, I hope you have a wonderful and safe week. Greg, is there anything else you want to add before we wrap things up?
- [44:49]
Greg
I appreciate that you're here, unlike your partner who often just took the day off because Greg was on. So, hey, I don't take it personally, Josh. Don't worry about it at all.
- [45:01]
Tersh
I do. I take it personal.
- [45:03]
Greg
Thanks for having me on, brother. I really appreciate it.
- [45:06]
Tersh
Yeah. But absolutely. My pleasure. We'll see you.
- [45:18]
Narrator
Thank you for listening to this episode of Service Business Mastery. Now that you are equipped with essential business advice from this impactful conversation, you are one step closer to becoming the successful owner of your dreams. If this episode has been helpful to your business journey, don't forget, forget to subscribe to the show, leave a rating and share it with other owners as well. Visit servicebusinessmastery.com to learn more.