Founder Bottleneck: Plan Two Exits From Day One (Della Kirkman)

Simone Henry: Here is a question most founders never ask until it's too late. If you had to walk away from your business in 90 days because of your health, a family emergency, or plain burnout, what would it be worth without you? For most owners we talk to, the honest answer is a lot less than they think. And the reason has nothing to do with revenue. It has to do with how much of the business only lives in their head.

Nate Grossman: Today we're talking with Della Kirkman. Della is a CPA who works on both sides of the deal, helping people buy small businesses and helping owners get ready to sell them with a lot of financial due diligence in between. she also runs Shift in Gears, a newsletter for people who want to buy, grow, and sell a small business. And she's done it herself. Della, you went from waiting tables to buying a business, growing it and selling it. What made you decide that buying something that already existed was better was a better bet than starting from scratch?

Della Kirkman CPA: Hey Nate, hey Simone, thanks so much for having me on today. I appreciate you. This is gonna be so much

Nate Grossman: Yeah, welcome.

Della Kirkman CPA: fun. This is one of my favorite stories to tell because it is crazy to go from literally a waitress to cracker barrel. But hey, I had four stars and you have to work hard for those four stars. but basically I I wish I could say that I made some earth-shattering decision because I weighed the pros and cons and really did a deep analysis. But when it comes down to it, it's really just the situation that I was in. I had a lot of family members who were entrepreneurs and most of my jobs were entrepreneurial. even waiting tables, you get basically paid nothing per hour, and all of your pay truly comes from tips, which is commission. So having your own little mini business there. but it wasn't really an active decision I made. I knew I wanted to be an entrepreneurship, and somehow I knew that being a CPA was gonna get me a little bit closer because, like you said, I was a single mom with two little girls. I didn't have, a savings account. My savings account was last night's tips. So it's not like I could just quit my job and you know spend six months doing a startup, 12 months doing a startup because I still had to feed my kids. You know, they have to eat every single day because it just doesn't work that way. So buying a business that was already in place where it could already have a paycheck and profit beyond that just seemed like the best route. So I kind of fell into it. I mean, it's a long, fun story, but I kind of fell into it. I decided to become a CPA. I started working at a small tax practice. And I just mentioned to the owner, say, hey, if you're ever interested in selling, I would love to be your buyer. No clue how I was going to make that happen or what that looked like or where I would get the money to do it. But I definitely wanted to put that seed out there into the universe. And that's eventually what ended up happening.

Nate Grossman: Nice. Can you can you give us a little more, you know, the details on that, like terms that you agreed to? What was the process like?

Della Kirkman CPA: Sure. So what happened is I did start working at this small tax practice and I was originally hired to do drop offs. And if you're not familiar with tax returns, I was the person who sat back in the corner not speaking to clients but just looking through W-2s and entering them into the system. I really had not done any tax returns prior to that, except for a handful I did for my brother's friends in exchange for alcohol. so I was not a professional tax preparer by any means, but I got hired to do the drop-offs because somebody was always going to be checking my work. so it's not like I was the last call by any means. But I took this position and then the owner ended up falling the next day and shattering his hip into a million pieces. So he never came back that entire tax season. So my second or third day, I ended up taking appointments. And luckily, I'm a friendly kind of girl and I can kind of fake my way through it, but still I wasn't the final, you know, prepare on that return. I was still being checked. But I just fit in really well with the team. We pulled together and helped save his practice. At the same time, I was studying to become a CPA and had to go back and take a couple more accounting credits because even my double major in finance and economics didn't allow me to even take the CPA exams. So we worked through that. It just became a really great team. And eventually it got to the point where the gentleman that I ended up buying from was ready to sell, but he he'd actually had a deal with a larger regional firm and he just didn't think that was a great fit for his small town clients at the time. And now people that haven't experienced this may not believe me, but sellers truly care about what they've built over the years. that's usually their whole life's blood, sweat, and tears. And yes, they want to get

Nate Grossman: Mm.

Della Kirkman CPA: paid. Yes, they need the money, but they're really super interested in their legacy and what's going to happen to their clients, what's going to happen to their team members. And so even though I didn't have a ton of experience, he just felt like I was probably the better fit for his clients. So what actually happened is that another CPA and I ended up buying this particular tax practice together. So this other CPA was very experienced. he already had a separate tax practice and he kept that separate. But together we bought this it's Ralph's tax practice. We bought it from a gentleman named Ralph. And I was the forefront person, I was the face of the business, and Doug was very much behind the scenes. I certainly couldn't have done it without him. But was always, you know, not what would Jesus do, but what would Doug do. So no no recreating

Nate Grossman: Mm-hmm.

Della Kirkman CPA: the wheel, because that's the whole point of buying an existing profitable business, is you don't go in there to recreate everything. You continue on what's already there and what's already working and then make small Small tweaks over time. But the agreement that we came up with is that, at that point in time, CPA firms and tax practices were being valued at roughly one times annual earnings. So just to keep the numbers simple, if the was generating $100,000 a year in revenue from the tax clients, and it was probably worth about $100,000. So we did 100% earnout. There was no real-down payment except for the couple of dollars that we paid him for his computers and filing cabinets. And then every single month I would analyze the revenue from the previous month and write him a check for 20% of that revenue. Now we paid him on all the clients that we obviously purchased from him, but also on the ones that came from referrals from his existing clients. We did not pay him on anybody that I brought into the practice on my own. So I wrote him that 20% check every month for five years. And that last check was the end. And that was how our earnout worked. It wasn't a set payout amount, but it was a set formula and a set time frame.

Simone Henry: That's pretty awesome.

Della Kirkman CPA: every time I wrote Ralph a check, he was always a little bit surprised at how much it was. Because mean he's a great guy and a great accountant, but he had a lot of health issues. And so it was really hard for him to maintain the level needed for especially a deadline-based business like a tax practice. And so when we took over, we weren't missing deadlines, we were getting everything done, we weren't having a lot of extensions. And so the customers, were a little bit happier and a little bit more willing to provide referrals. And so we actually built his business up, but he got the benefit of that as well.

Simone Henry: That's wonderful. I like I like that it was you were able to to buy it from him and still keep it going and and to grow it. And he he was around to see that growth and he also saw that growth in the checks, which is awesome.

Della Kirkman CPA: I know it was super fun for me and it was fun for him. And he actually stayed on as my employee for the first couple of years. And so I had that expertise right there helping me. And so it was great for him to still have a place to be and good work to do in the community. And also fun for him to see the business grow and get to reap part of those rewards.

Nate Grossman: Mm.

Simone Henry: Yeah. And so he was there to to help you with the the transition I meant.

Della Kirkman CPA: Yep, absolutely. Transition is one of the key points that hardly anybody talks about. And I'm so happy, Simone, that you brought it up in the first what five minutes that we've been on the air here. Because transition planning is one of the key details in buying and selling the business that most people just pass over, and that can really make or break a deal.

Simone Henry: Absolutely, absolutely. So we have a framework called the V3 system, visible, viable, and valuable. And this sits in what we call the valuable layer. Is the business worth more than the founder's time in it? Most owners assume they'll deal with that question later. But your argument is that later is already too late, right? So

Della Kirkman CPA: Absolutely.

Simone Henry: so you say every owner needs two exits from day one. So walk us through that. Why two? And why from the very start?

Della Kirkman CPA: Sure. So I forget what the phrase is, but what gets managed profits or whatever. I know I'm not saying that properly, but if you want a good, successful exit, you can't leave it to a whim. You can't leave it till the future. You need to be planning it from day one. So that's what I always tell people. They need to be planning two exits. And the first exit is to work their way out of the day-to-day operations of the business. Because in a nutshell, the less the business depends on you, the more valuable it's going to be down the line. And then that second exit is to actually be working toward a tr towards a true exit where you do leave the business. I'm hopefully to sell that on to somebody else that can take it to the next level and keep your your legacy intact. But you need to always be working towards those two exits. And for one thing, that first exit when you work your way out of the day-to-day business, it not only makes your business more profitable, but surprise, surprise, it's probably gonna make your business more fun to run also because it's not dependent on you. A lot of owners, if they look in the mirror, they'll probably admit that they're one of the biggest bottlenecks in their business because they have their hands in too many things, they have too much control. over too many aspects of the business and they're not delegating appropriately. Well

Simone Henry: Absolutely. I don't know. Yeah.

Nate Grossman: That about covers all the bases there.

Della Kirkman CPA: it's a good star. I mean there's a lot to talk to with talk about within that.

Simone Henry: So when you're when you're talking about talking to founders and to owners about the worth of their business, what do they think that their businesses are worth? And you know, what what do they see when they actually look?

Della Kirkman CPA: Well, there's a joke in the business MA community where sellers always think their business is worth at least a million dollars. And if so, if there's two sellers that are partners in a business, surely their business must be worth two million dollars because they each want a million dollars. I call it the pie in the sky business valuation method that most sellers use. What they do is they add up the yacht that they want to buy and the golf membership that they want in retirement and the whirlwind vacation that they've been promising their spouses all these years and maybe the sports car that they want. And they add up all those things and whatever that comes to, surely that's the amount that their business is worth, right?

Simone Henry: Right, of course.

Nate Grossman: Yeah. Right. Well and it's also pr part you know, how much effort did I put into it? You know, how difficult was this up to this point? Like nobody unfortunately the

Simone Henry: Yeah. Yeah, it's like my blood, sweat, and tears are worth at least a million dollars, right?

Della Kirkman CPA: Exactly. Yeah,

Nate Grossman: Yeah, well unfortunately that isn't figured into the valuation. yeah. Sadly.

Simone Henry: All

Nate Grossman: Yeah.

Della Kirkman CPA: not all. But that's what a lot of people

Simone Henry: right.

Della Kirkman CPA: think. they don't take time necessarily, as least at that beginning stage, to think about what their business is really worth and what someone else is going to get out of that business and what it's gonna take to continue on fill their shoes.

Nate Grossman: Nice.

Simone Henry: Right.

Nate Grossman: okay, so you you mentioned something about an an off market deal where seller didn't have the data room together and it ended up slowing everything down. so so in that case then what does what does a seller who hasn't prepared actually cost themselves in terms of time and price?

Della Kirkman CPA: Well, a lot, frankly. selling a business is not like putting your yard sale items on Facebook and somebody's probably gonna click on it, within the first half an hour or whatever and they're gonna offer you a couple bucks and come get it and the transactions all over in a weekend. selling your business is a long, drawn out process, even if everybody is extremely prepared. you talk about not being ready with this day to room. I'm doing a financial due diligence project now and I checked my notes this morning. So I started my notes on this particular deal July 14th of this year. So we're a little over three months in and quite frankly, I haven't seen who who as in which entity even owns the assets that are supposed to be included with this business. This is a manufacturing business, so it's not like an office business where there's a couple of computers and, you know, a couple of desks, like when I bought my tax practice. I mean, this is some high dollar equipment and I don't see it on so there's a couple different entities involved, which is a whole nother scenario. So owners sometimes they really like to complicate things and they feel extra special when they have multiple entities. Now, sometimes multiple entities is great for tax strategy and there are a lot of legal reasons to do that also. But sometimes they just think it's more exciting. I have two LLCs. But when it comes down to due diligence,

Nate Grossman: Yeah.

Della Kirkman CPA: things get super messy. And the entity that we, my buyer is buying, does not have this equipment on their books. It's not on their balance sheet. I can't see it on their tax returns. I can't see where they've taken depreciation for these assets. I still have no idea after three months who actually owns these assets. Or another interesting one, another multiple entity situation is where the seller was trying to say that their salary was an add back, meaning They could add it into their profit, relatively speaking, to make the business more valuable, which is fair totally legit, not you know, out of the ordinary whatsoever. But I looked and looked and looked for that payroll and I could not find it inside that particular entity. And honestly, that particular entity wasn't even allowed to pay the owner's true payroll. And as it turned out, those owners were receiving payroll, but it was from one of their other entities that was not affiliated with the sale at all. They were trying to add back something that didn't even exist within this particular company. So, all kinds of terrible things can happen. So, that one was the the mysterious payroll. That deal fell apart because the valuation in that business, because of that missing payroll, changed by close to $200,000 and the sellers weren't willing to renegotiate. And this current deal I'm working on, I don't know if it's going to close or not because I don't know who owns this equipment. And it's just it's so basic. And I've asked so many times. And I'm still not getting the answer. And then even trickier part is that in one of their tax returns, that I've been reviewing, there was a form that indicated that they had sold all that equipment at some point in the recent past. But the form wasn't filled out all the way. So I couldn't tell, who it went to. Maybe it just went to another one of their entities. That would have maybe been okay. but then the their response was that that was That form wasn't filed. It was like a draft copy, but it ended up being in what they shared with me as part of their official tax return. So I don't know. Was it a draft copy? Was it real? Where the hell did the equipment go? Where is it now? Who owns it? Who has the right to sell it? So I mean there's all kinds of that might have been more detailed than what you wanted, but all kinds of messes can happen when you don't have your data room organized.

Nate Grossman: Well that that sounds like a headache for you. the buyer and the seller who presumably wants to offload the the entity or entities, whatever that may the case

Della Kirkman CPA: Right.

Nate Grossman: may be. yeah.

Simone Henry: account for everything and where everything is and which entity belongs, or which which equipment, which assets belong to which entity. That kind of reminds me of of real estate investors. there is it I'm not like super deep into it, but from what I've been learning is that, you know, they tend to create lots of L L Cs for for their assets, and they may have a group of of properties in one LLC, another group and another LLC. And I'm I'm always wondering like, how do you keep track of all of that? That's that sounds like a logistical nightmare, to be honest.

Della Kirkman CPA: Very carefully is the answer, and probably a good old-fashioned spreadsheet would do the trick.

Simone Henry: Mm.

Nate Grossman: Yeah. Different tabs for different entities, is that how it goes?

Della Kirkman CPA: Right. but it's totally legit

Simone Henry: Ha ha ha.

Della Kirkman CPA: to keep your equipment. I had a farm client at one point in time and they had a bunch of large semis, to haul grain, and they kept those in a separate entity, especially separate from their farm ground, because you know, if one of the guys got into an accident, heaven forbid, and something were to happen, they want those semis isolated so that any lawsuit, maybe they can get the trucks, but they can't come back and attach anything to the farmland. So there's totally fantastic reasons to keep things separate. But when it comes time to sell, you need to know that story. You need to remember where you put all those different assets. Like you said, Simone, you need to know which tab those are on. and make sure that those things are being included in the sale if that's what your buyers think that they're getting.

Simone Henry: And now that you said a simple spreadsheet will do it, you know what came up in my head, like, okay, I can see. So you have a tab for this entity and then these are the properties that are in that particular tab, and then move over to the next one. Those are the properties that are in that tab, and that makes so much sense.

Della Kirkman CPA: Well, a lot of times people want

Nate Grossman: Yeah.

Della Kirkman CPA: to overcomplicate it and they think they need fancy software to keep track of things, but I don't know. There's still very little that beats a good old-fashioned spreadsheet in a lot of cases.

Simone Henry: Ha ha ha.

Nate Grossman: Spoken like a true CPA.

Della Kirkman CPA: Exactly.

Simone Henry: Ha ha ha.

Nate Grossman: So, Della, is there anything s fancy about a data room? 'Cause that sounds that sounds software ish.

Della Kirkman CPA: Yeah, there can be there are softwares that you can purchase just for the data room, but a Google Drive works well. And that's actually what most most of the sellers that I work with end up using. That or you know, something simple. What came out before Google Drive where you could have the different folders on desktop and share it with people? Yeah, Dropbox and those kind of things. I mean, those work well too.

Nate Grossman: There's box and there's yeah, draw box, yeah.

Simone Henry: Yeah, yeah. Okay.

Della Kirkman CPA: Of course, you want to make sure that you're not sharing social security numbers, over email and things like that, because there's a lot of information, those tax returns that need to be redacted before it gets spread around too far.

Nate Grossman: Mm-hmm.

Simone Henry: Yeah, that makes sense. That makes sense. So, when an owner hasn't worked their way out of that day to day, that day to day grind, how does that show up in a due diligence file? What's it look like on paper?

Della Kirkman CPA: Yeah, that's the scary part because on paper it doesn't really show up. You're not gonna really know unless you dive in and get to know exactly what that seller is doing on a day-to-day basis. And you know, you need to ask the right questions, you need to visit the facility when you get to that point, and just have those honest conversations with them because it doesn't it doesn't show up in a tax return. Necessarily it's not going to show up in their bookkeeping either. so you're just gonna have to to work through, but if there's no other manager, if there's no sales department, if there's no managerial team, then probably the seller is gonna be doing the majority of that. And this one case I'm working on right now, it's the opposite because the seller, they usually, if you read any listing, it almost always says, semi-absentee owner or you know, part-time owner, like, yeah, right, whatever, wait till we see the proof of that. This was the reverse. This guy's like, yeah, there's only I don't know what he said, five or ten people in the whole country that can do the tool and die work that I do on these particular machines. I was like, yikes, if that's true, then that's a really high he's bragging about it, which I understand because he's probably very skilled. But when it comes to selling your business, you don't want it to be something that like only you can do. You want kind of almost anybody to be able to do it with the right training. Now, my buyer's not convinced. He thinks that there's lots of people. He doesn't have those particular skills, he thinks there's lots of people that can do that particular thing that he's referring to, but it's just kind of kind of interesting perspective. So, I mean, it is a skilled position, and I'm sure he is very proud of the work that he's put into it. But when you're at the negotiation table, you don't want it to appear as though you're the only one that can do the thing.

Nate Grossman: Yeah, that's at first it's like you think that is the thing that sets you apart, right? And and sort of like that's your moat, you know. But right until the time you need to offload it or or sell it, yeah, and then it becomes a liability.

Della Kirkman CPA: Right, exactly. I guess one specific another specific thing that you could look for, Simone, is you could look at their marketing budget. And if there's not much of a marketing budget, then it's probably all their business is coming in through referral, which then is probably heavily dependent on the owner again. So there's a couple little things you can look for, some clues, but it's best just to have those honest conversations with the seller and take good notes and build that rapport and figure out what's really going on inside that business.

Simone Henry: So It reminds me of this this bakery or it was a it's a little yeah, kind of a market slash slash cafe I walked into once and the owner was telling me that you know, she's she's pretty much ready to retire. She'll be selling the business in a couple of years. You know, and it made me think that well, I mean, if you're here, that means you're you're actually here doing the work. How is how is that gonna work when you sell it? So the person who buys it is gonna need to be here doing the s the same work that you do? Like what if they don't wanna do that? You know, you end up buying yourself a job, not

Della Kirkman CPA: That's true. So I use a a silly example, but Simone, say I offer you, I'm gonna pay you $100,000 a year, and you have two choices. You can sit at your laptop at the coffee shop all day and do this work I have for you, or you can go out and dig ditches all day in northern Indiana where the weather is sometimes really crappy hot and sometimes really crappy cold. But either way, they're both gonna pay you $100,000. Well, which one are you gonna take? Obviously, you're gonna take

Simone Henry: Yeah, not

Della Kirkman CPA: the The laptop job because it's so much easier to make that same amount of money. So you have to look at your business that way too. How easy is it gonna be for somebody to make that amount of money when they take over your business? True, but the it's a more valuable is what you mean, Nate. But

Nate Grossman: The easier it is, the more expensive it is, right? In that case. That's what I meant. That's what I meant. Yeah.

Simone Henry: But the more valuable, yeah.

Della Kirkman CPA: wouldn't you be willing to pay more?

Nate Grossman: yeah, definitely, absolutely, yeah. Yeah.

Simone Henry: Yeah. Yeah.

Della Kirkman CPA: Yeah, exactly. I'd be willing to pay more if I knew I could make, X amount of money just by clicking away on my laptop as opposed to going out and digging ditches. Yeah. I want to make a million dollars too, but I don't wanna, I don't wanna be out ditch digging all day to do it. I'd rather find something an easier way to make the money. So that's what it comes

Simone Henry: Yeah.

Della Kirkman CPA: down to when you're selling your business is how easy is it gonna be for somebody else to make money from your business?

Nate Grossman: So let's get let's get a little into your frameworker approach here, Della. So let's take let's take the first exit, which is like getting out of the day-to-day, since we're talking about it, right? So where

Della Kirkman CPA: Sure.

Nate Grossman: where do you tell an owner to start in that case?

Della Kirkman CPA: Well, there's a couple different trains of thought. probably they at least have a secretary or receptionist in place. So that maybe they're doing some of the admin work are is already being outsourced. But what I'd really say is what are the things that you either don't like to do in your business or that you're not really that great at? So in my tax practice, I mean, initially, of course, I did everything, but I found that payroll and bookkeeping were not really my favorite things. I love to do tax returns. And so I, you know, I had all of my staff do the bookkeepers. keeping in the payroll and that doesn't mean I didn't check anything or take a look at it but payroll for one is very regimented and very periodic and you know for some reason people want to get paid on a set schedule which means their payroll has to be done on a set schedule and that just doesn't fit my lifestyle necessarily so you know I delegated that stuff out to my team members and the same way with bookkeeping that's probably one of my least favorite parts of you know business in general is doing the day-to-day bookkeeping and so I made sure that all of my team was trained on the bookkeeping and we had procedures in place and every every client was documented. So theoretically, you know, we used QuickBooks, of course, but so theoretically anybody that knows how to do QuickBooks should be able to walk in, should have been able to walk into my office, open this particular client's file and their QuickBooks, and just read down the SOPs, read down the procedure and know exactly what to do. It shouldn't take a rocket scientist to come in and everyone, every client is so different and We have, so many different things. And you'll know it's so hard to get to know, how to do all of our clients. Well, that's not setting yourself up for success on a day-to-day basis, and it's definitely not going to be setting your buyer up for success either. So, I would say start with the things that you don't necessarily like to do or that you're not that great at. I love the tax return, so I'm more than happy to do lots of tax returns. So that was, you know, one of the later things that would be delegated in my practice.

Nate Grossman: Tax returns. Wow, that's okay. Takes all kinds.

Della Kirkman CPA: And I have a sickness. Please don't cure me though.

Nate Grossman: okay, how about for the the the second exit and when you're preparing for the sale, if someone is three to five years from selling, which is, you know, in a in a magical world everyone would think that far ahead, right?

Della Kirkman CPA: Exactly.

Nate Grossman: What what should they be working on this year?

Della Kirkman CPA: Well, there's two sides. I think a lot of people forget about the personal side of business sometimes. That goes for the both the buying and the selling. So one of the first things I would tell you to do is to get a business valuation. I mean, it doesn't have to be a fancy high dollar one. I've got a really great formula. It's a five-year weighted average. It's not that big of a deal. But find out some realistic value for your business, not that pie in the sky valuation method that we talked about earlier, but a real value. And then you need to do a lot of self-analysis. You know, let's say Maybe your business, you of course you're hoping it's worth a million dollars, but when somebody runs a couple of calculations for you, maybe it's only worth $500,000. So you need to have a real conversation with yourself, $500, can I live on that? What other retirement do you have? What am I gonna do after retirement? Because if you think you're going to play golf all day, you're gonna be sadly mistaken after probably a season

Nate Grossman: Mm.

Della Kirkman CPA: or two of that. Because you've put your, like we said, your blood, sweat, and tears into this. So what meaningful work are you gonna do afterwards? Do you really wanna be home? are you really gonna be home all day and you and your spouse are gonna be under feet now for the first time in your 30-year relationship or whatever? there's just those are silly things, but you really need to evaluate your own personal life and what is really gonna happen after you sell this business. Or maybe you wanna stay involved in some fashion and and what would that be and what would that look like and how's that gonna work for a buyer? So you really need to figure out all of those different things in a from a personal perspective as well as the financial value of your business. And if you come up with a number that you don't like, that's okay. You've got time to work on it because, like you said, in this magical world you've created, you didn't wait till the last second, and you've got three

Nate Grossman: Yeah.

Della Kirkman CPA: to five years to work on it. And if you really get to work on things, you can make a a pretty big difference in that amount of time.

Nate Grossman: Yeah, we've had we've had guests on here that talk about the the psychology of the business owner, you know, like how much of the their identity is wrapped up in it, you know, and it it's can be hard to kind of Yeah.

Della Kirkman CPA: Hmm. Yeah. ninety-eight percent, probably. if I had to put a number on it, it's a lot.

Nate Grossman: Yeah, I mean, like you said, you know, this it's their baby, they've been working out blood, sweat, and tears, put a whole lot of effort, you know. how do you extract your identity from that, you know, if that's what you've been doing for fifty years or whatever. You know, that's it's there's some really deep questions in there. that, you know,

Della Kirkman CPA: But it's not just the old dudes

Simone Henry: Yeah.

Della Kirkman CPA: that are selling. you could sell for pivot. And that's a that's a great

Nate Grossman: True, yeah.

Della Kirkman CPA: opportunity as well. But you have to be honest with yourself. You know, is this really r full retirement, full stop, or is this a pivot for me? And if it's a pivot, you know, are you gonna be doing something different enough that you can get by with it with, you know, a non-compete that you're probably gonna have to sign? and how much are you gonna need for maybe startup cost or capital for this new thing? And is that Whatever your business is worth right now, is that really gonna be enough? So it really takes a lot of a personal deep dive.

Simone Henry: Yeah, and I think the

Nate Grossman: You I think you would

Simone Henry: well, the I think that the topic about having your having your spouse home. I don't think that's a silly thing. I think that's a consideration. I've I've heard of div of sp people divorcing because e it's like okay, either we can't live together or you need to go find something else to do because just the person being home after after working every day for, you know, 30 years and and now they're home all the time and and their spouse has gotten used to to them not being home. It's like, okay, now we now we have a strain on the relationship. We have something new to argue about and you know, and they're that could be that could be pretty serious.

Della Kirkman CPA: It's true because your everybody's routine is gonna be upended by this transition.

Nate Grossman: Mm-hmm. Yeah. Interesting.

Simone Henry: That could be a deal.

Nate Grossman: It seem it would seem like you all almost had need to, you know, be a business owner whisperer to some degree there, Delez. Not the case.

Della Kirkman CPA: True. Yeah. I mean, you just have to be realistic

Simone Henry: For us to stay married. You need to be out of the house for several hours a day.

Della Kirkman CPA: about things and you just have to guide them in the right direction. And they need to do a lot of self-analysis.

Nate Grossman: I think you had said, Della, that there are five things that you look at. Did I did I hear that correctly? When it comes to getting getting ready to sell.

Della Kirkman CPA: I have a talk I give about the five potholes that people need to

Nate Grossman: okay.

Della Kirkman CPA: pay attention to when they prepare to sell. I don't know that I have like a five step I mean, I have a nine step system to preparing to sell your business. And that would be something to use whether you're gonna be using a broker or not. And we haven't really even gotten into the whole process of how to sell your business. but yeah, but Finding that business valuation and analyzing, what role that's going to play in your retirement or pivot are the first couple of steps.

Nate Grossman: Okay. Well, so if I mean let's let's keep going down this rabbit hole a little bit here. if you can make it real for the our listeners out there, let's say hypothetically speaking, we have a service business doing two to three million, and they have a team of twelve. I don't know if you've encountered a similar situation in reality or not, but you know, the let's say that the founder still closes most of the sales, what would you tell that owner? to fix first so that a buyer takes them seriously.

Della Kirkman CPA: Yeah, so that's a a pretty common aspect is when the seller is the rainmaker, the The owner is the Rainmaker, he's really, he or she's really bringing in all the sales. But the first thing I would tell them to do, and I think you're this is your specialty, Simone, but you know, to document. I mean, my answer to almost everything is begin in the beginning is to document, document, document, document. You can't document enough, but truly document your sales process if that's one of the key things that you you know you're involved in. So that you know exactly what it is that you're doing. You know, when are you sending that follow-up email? What does that email say? when does the quote go out? Whenever all is involved. But if you document every single one of those steps, I would say would be the first process, the first step in that. And then the second thing I would do is what parts of those can you maybe delegate out to someone else? So yeah, maybe you're the closer, but somebody else is handling everything or the majority of things up to that point. but so document. delegate out some of the parts of that that you can, but also train somebody else on your team. if you don't have anybody that's already doing at least some of the sales and you probably need to get some sales people in there, at least a salesperson. But I certainly wouldn't hire somebody and say, yeah, help me do sales. And they're like, okay, what are we selling? How, you know, how are we doing it? What's

Nate Grossman: Hm. Yeah.

Della Kirkman CPA: your process? Is this a hard sell, a soft sell? Is this real, you know, relationship based?

Nate Grossman: What are you talking about? You know how to do sales, right?

Della Kirkman CPA: Yeah, exactly. that's a pretty broad category. So I'd say document what's working for you, delegate what you can, and train somebody to at least, you know, lead them down that right path. And I think, you know, maybe it's a long process and be willing also for that person to make mistakes because they're not gonna do it as perfectly as you. And that has to be okay. And I mean, that's probably a big lesson in business. Overall, is you have to be able to delegate things and it has to be okay for those people to make mistakes. They're not the owner, they're not you. It's gonna happen. But if you create the environment that that's okay and learn from that and use those as you know stepping stones, I think overall your business will be a lot more profitable and your team will be happier, which leads to more profitability. and a higher valuation when it comes to the negotiation table.

Nate Grossman: It sounds like there's no downside in that case.

Della Kirkman CPA: Well it's a lot of work. I mean I'm not a documentation or SOP specialist when it comes to this. Maybe Simone can talk about that a little bit. But I mean there's lots of tools that can help us with that. I'm sure ChatGPT and other you know AI can help. But you know first just outline what do you do first? Where do these people even come from to begin with? Where do your clients or your customers even come from? How do they get to you? What do you say to them? all of those steps. And it may not be an easy process. It might be kind of painful and tedious, especially if that's not your thing, but it'll be well worth the investment.

Simone Henry: Absolutely. I agree. I agree. and and one of the things that I always think about is yeah, the automation as part of that as well. So when it comes to comes to documentation, where do the systems and automation take some of the load off of say a smaller team so that getting sales ready doesn't become a second full-time job?

Della Kirkman CPA: Well, to be honest with you, Simone, selling your business is a full-time job. I mean, I'm not gonna make it sound too easy or too simple because it is a lot of work, but it's more work if you just say, I'm gonna sell my business today and now I'm starting from scratch. That's part of getting things ready from day one. So it becomes a habit that even if you're not heading towards the detail deal table, you still have your data room set up. So when the tax return comes at the end of the year, you just plop it right into that data room, no big deal. In the next payroll tax, every quarter, plop that into the payroll folder. Your lease renews at the your office facility, plop that in To the folder. It's all already right there. So that that's gonna be part of it, is just maintaining it up on an ongoing basis. but yeah, it's a lot of work to sell a business.

Nate Grossman: So it sounded

Simone Henry: So it sounds like you're advocating for basically kind of keeping the documentation going, keeping the the files straight as you go along rather than trying to, you know, put it all together at the last minute. Like, okay, well, we have a new owner, people, and let's get it all together. It's like, yeah, no, let's as you're

Della Kirkman CPA: Yeah.

Simone Henry: as you're running the business. it's good to have to have all of these pieces in place so that it actually works out great for you and your team as you're running the business now,

Della Kirkman CPA: Yes. Yes.

Simone Henry: way before you're you're thinking about selling it.

Della Kirkman CPA: Exactly. Because then everybody knows where everything is, everything is systemized. Anybody can step into that role, that has some common knowledge and can fulfill that. Now, here's here's one that I find interesting as well. Especially if you you mentioned a team of 12 in your earlier example, Nate. But I would go to each one of those 12 people and ask them. What are those spreadsheets? What are those side spreadsheets that maybe aren't official company documentation, but they've created it because it makes their job easier? Maybe there's loads of information

Nate Grossman: Yeah.

Della Kirkman CPA: in there that another department could actually utilize as well and make them more efficient. But you know, if you give somebody a particular job without a lot of structure, they're probably gonna create something themselves. They don't they don't almost have to. But maybe there's some side spreadsheet where they they've got all these extra notes or procedures or things about clients that make their job much easier. It's like, my gosh, I didn't know you had all that. We could sure use that over in XYZ department. And so I think that's another thing that you should do when you're doing this documentation and systemizing is ask people, what how exactly are you doing this? And what extra, you know, spreadsheets maybe have you developed. And then of course. use film because it's so much easier, to watch something. Well, I guess for some people they learn better by watching as opposed to reading. So I d have everything, written out, but also videos to click on to watch as well. And I think that can help a lot too. Yeah.

Simone Henry: Yeah, that makes sense. We all have different learning styles, don't we?

Nate Grossman: Della, if someone is is working from you, can did did they get lots of phone calls from you saying, Did you did you do this in your did you create your data room? Is it in your data room? d are you are you all always on them about that or?

Della Kirkman CPA: no, I I'm not a babysitter. I don't want to be a babysitter. you're grown. If you want to sell your business, do the work. If you don't, that's just

Nate Grossman: Okay, okay. Yeah.

Simone Henry: Ha ha ha

Della Kirkman CPA: that's how that's how I roll. I mean, I mean, I send reminders.

Simone Henry: Yeah.

Nate Grossman: Yeah, yeah. It's it's more about

Della Kirkman CPA: Obviously, I'm professional, but I'm like I said, I don't want to be anybody's babysitter. And you're grown. If you want to do this, do it. And if you don't, we can. Right.

Nate Grossman: It's more about encouraging a a a good habits in that case, right? all right. and those I was gonna say too, the those side spreadsheets, that's job security. I think you know some people. Yeah. all right, so

Della Kirkman CPA: Well you don't tell them that. But you know, you could also offer

Simone Henry: Yeah.

Della Kirkman CPA: always offer a bonus if they've got something really great. I mean, why not incentivize? Yeah.

Nate Grossman: Yeah. Yeah. Contribute to to the the collective. so what what would you say needs to be true in the rest of the business for what you do to actually stick? where where does what you do end and the next layer begin, would you say?

Della Kirkman CPA: Yeah, well, I think we're back to the identity question that we brought up earlier. And are are the sellers really ready to leave? I talked to an attorney on a call earlier today, and he he's an MA attorney, and he was giving me a couple of examples. So he had just purchased a business brokerage business, and the dude was 83 years old that sold this business, and he still had no plan. to exit. He didn't have he don't he didn't have his data room d I don't know. he's a business broker so he probably had s a lot of stuff. But I mean at eighty three he had no specific plan on how to sell his business or who his buyer was gonna be or when he was gonna do that. I'm like eighty three come on man what are you? Immortal? And then he has

Simone Henry: Mm.

Nate Grossman: Ha ha ha.

Della Kirkman CPA: he, he has another client, a lady that's says she wants to sell her business. and she's 73, but she still hasn't done much about it. And he says her books are a mess, and he really wants her to hire somebody. And he this is what he just threw out there. He's like, you know, pay somebody five thousand dollars, get your books cleaned up, get ready for the sale. And she's like, I I don't really want to spend five thousand dollars. She's obviously not ready to sell then or and and yet

Nate Grossman: Mm.

Della Kirkman CPA: at 73 at 83, I mean. Yes, we're living longer, fuller lives and I'm all for that. I love when older people are still active and contributing and doing exactly what they want. But on the other hand, I mean they're cutting themselves short on this other aspect of the business that could, if it doesn't help them, maybe it could help their family or their church if they, don't wanna don't want their family to, you know, do the Bill Gates thing where they give it all away. I mean, but otherwise it's just they're just gonna go to nothing. And I that's just sad. I mean, love entrepreneurs, I love business, but I I'm so sad when they just close the doors.

Nate Grossman: Yeah. Yeah.

Simone Henry: team on that one. Especially if they've built something great. Yeah.

Della Kirkman CPA: and a lot of businesses are more of a one man or one woman show. And those are pretty challenging, if not nearly impossible, to sell. And yet I always tell people, you know, find somebody that you could mentor that you can bring up in the business and share revenue in some, you know, way, shape, or form. I mean, there's lots of things that, you know, if you you and another person can agree on something, it can happen. So, if you find a young college kid or an apprentice or something and then let them work alongside you and share revenues and profits, I mean, even that's way better than closing the doors down, at least in my opinion.

Nate Grossman: Mm. Nice. All right. So let's talk a little bit about the the multiplier effect. So when an owner actually does the work on both exits, right, what else starts working that they maybe didn't expect, even if they never sell?

Della Kirkman CPA: Yeah, I think well we've touched on a lot of the business becomes more efficient, it becomes more fun, it becomes more profitable. and who doesn't want fun and money? aren't those the two? Not funny money, but we want fun and money. I mean, your business just becomes

Nate Grossman: Fun. Yeah. Yeah.

Simone Henry: Mm-hmm.

Della Kirkman CPA: so much more. when you when you've done these things to prepare. And you know, we're talking about selling and exiting the business, but it's a long road and there's so much there's so much life to be lived prior to that point. So why not enjoy that and make money from it? And not only are you going to be making more money, but your team is going to be happier. You're going to be one of the favorite places to work in town. It's you know, we had a physician client who came into our office fairly frequently, but especially during tax season. And one of the biggest compliments he ever gave us is like he guys, he goes, I come in here every single month, and even during tax season, everybody is still smiling and laughing and having a good time. Now not to say that we didn't have, you know, stressful days in tax season it was challenging, but it was just to me it was such a compliment to have somebody come in and notice that, hey, it's really hard work that they're doing, especially right now, and everybody still seems to be enjoying themselves.

Nate Grossman: Talk about a magical world, huh?

Simone Henry: Yeah.

Della Kirkman CPA: Yeah.

Nate Grossman: okay, so it has been said elsewhere that buyers pay for what they can predict. how much would you say predictable revenue? you know, customers who stay, sales process, this processes that are documented and actually work, and runs without without the founder, how much would you say that those are you know change the conversation when it comes to sitting at the table ready to to sell.

Della Kirkman CPA: Yeah, it really changes it a lot. And and some of those things, especially lack of dependence on the founder is an important one. But Simone, you brought up a comparison to real estate earlier. And some of those things that you listed off, Nate, I refer to those as kind of the curb appeal, which is a phrase that we're used to in real estate. so you know,

Nate Grossman: Yeah. Real estate.

Della Kirkman CPA: you have two houses on the same block, you know, maybe they're exactly the same. Or actually I use I in the last talk I did about selling the business, I used a classic Corvette example because we all want to buy, that classic car with part of our retirement savings. But if you've got two exact same Corvettes, same year, same make, same color, same everything, and one just had a bath and it's pristine and it's on the showroom floor and it's just looking fantastic. And you can fire it up and you can hear the purr of the engine, and then you have that exact same car, but it's been kept out in the barn with no tarp on it, and it's covered in mud and straw and probably pigeon crap and all kinds of other things. And, you know, the seller of the barn car, he's like, yeah, I promise there's no dings. You know, the engine runs great. There's no scratches. There's no bondo. I'm like, yeah, but I can't really tell because it's in the barn and it's covered in dirt and it's dark in there. And but this one over here on the showroom floor, I I can see that one. I can see that crystal clear. I can hear it. You know I'll take your word for it, they're the exact same car, but I'm willing to pay a couple more dollars for this one over here that's sparkly clean. it's the same thing. you always think that your business is a race car, but if you've dressed it up like a clown car, you're only gonna attract clowns.

Nate Grossman: Ha ha ha.

Simone Henry: Sure. It becomes that a visibil visibility problem, who are you expecting?

Della Kirkman CPA: Mm-hmm. And if there's any doubt, we had lots

Nate Grossman: Mm-hmm. Yeah. Yeah.

Della Kirkman CPA: of doubt on that barn car that I just described. Is there a bunch of Bondo? is it dirt or is it scratched up? Is the paint faded? Or is it really fine under there? The more doubt you give your buyer, the less value they're going to place on your business.

Nate Grossman: Hm. It's it's gonna start looking like more of a of a job to get things to where they where they want them to be, you know, and they g then they have to weigh, well, do I really wanna work that hard to get to where I want it to be or do I wanna buy my way in, right? So yeah.

Della Kirkman CPA: and that's really a great point. And I'm glad you brought that up. And I'll just take that for a second if you don't care.

Nate Grossman: Okay.

Della Kirkman CPA: but from the buyer's perspective, and we can twist that around for the seller, but as a buyer's perspective, I always tell them you never want to buy potential because you're gonna end up paying for that potential twice. You wanna buy what's actually

Nate Grossman: Well

Della Kirkman CPA: there. And then you create

Nate Grossman: yeah.

Della Kirkman CPA: the potential through your hard work, cleaning up the car and getting it out of the barn, giving it the tune-up, whatever. But if you pay for that potential, then you're gonna dish out the cash for it. Plus you have to invest the hard work to actually make that come to fruition. So when you buy potential, you end up paying twice. So you have to, you know, turn that around for the seller. Why would somebody want to pay you cash? for something that they actually have to do themselves. I mean if there's work to be

Nate Grossman: Yeah.

Della Kirkman CPA: done, do it and bring the value up yourself and then sell it for cash. But you can't expect a buyer to give you cash for something that they have to create within your business.

Nate Grossman: Yeah. It's like you know, we pay for things at the local market for you know you're you're they say you're paying for the convenience, right? But

Della Kirkman CPA: Mm, sure.

Nate Grossman: in this case, you're paying for the effort and the work that went into making it a great business that to buy, you know. Yeah. I mean that that just makes sense. all right. okay. Let's get into the rapid clarity round and get her get a wrap. Up here.

Simone Henry: All right, so answer in as short shorter answers than you can possibly do. All right, so question number one. No, no, no. We're just trying to make it rapid. That's all.

Della Kirkman CPA: Are you saying I talk too much? Sure.

Nate Grossman: Rapid fire. Yeah.

Simone Henry: Okay, one question every owner should ask their CPA this month.

Della Kirkman CPA: What is my current tax liability, and how can I improve that?

Nate Grossman: Boom.

Simone Henry: The first document they should have in order, if you've ever if you've n never thought about selling, what's that first document they should have?

Della Kirkman CPA: Tax returns.

Simone Henry: Yeah, okay. what's the biggest red f red flag you see in due diligence?

Della Kirkman CPA: When an owner can't explain things like

Nate Grossman: Yeah, yeah.

Della Kirkman CPA: who owns the freaking

Simone Henry: No, no.

Della Kirkman CPA: equipment.

Nate Grossman: Ha ha ha.

Simone Henry: All right. this so this will be an easy one. Buy a business or start one.

Della Kirkman CPA: Bye, of course.

Simone Henry: I love that answer. As an entrepreneur, it it would be interesting to j to just buy a business and then just start running it from day one. And there's customers, there's everything is already set up and you're ready to go. You just run it.

Della Kirkman CPA: Yeah, exactly. when I bought my tax practice and I had been waiting tables at Cracker Barrel. I immediately got a paycheck from the business that was much larger than what I was making in tips. I had insurance, health insurance from the business, and I had never had health insurance before. I had a retirement plan at the business that I bought and I'd never had a retirement plan before. Plus, we still had profits at the end of the year that we got to distribute. I mean it was and that was all Just from day one. and I was, I mean, I've had other jobs prior to that and I had a degree, but I literally went from, you know, waiting tables and wondering how much money I was gonna walk out with every day to study paycheck, retirement, health insurance, and profit distributions. Because I bought a business. I bet on myself and bought a small business. And

Simone Henry: Yeah.

Della Kirkman CPA: I don't know if this is up your audience's alley, but I always say, you know, startups suck.

Nate Grossman: But but Delhi No, that's great.

Della Kirkman CPA: They suck your time, they suck your money, they suck your energy, and rarely do

Simone Henry: Yeah.

Della Kirkman CPA: they ever pay you back. And, startups

Nate Grossman: Hm, yeah.

Della Kirkman CPA: are, I don't this is gonna sound maybe bad, but startups are for little boys or young men at least. But, you know, as a single

Nate Grossman: Ha ha.

Della Kirkman CPA: mom with two little girls depending on me, I didn't have that luxury. I needed something that could pay me right now, and that's what buying a business does. And of course I'm not talking about buying somebody else's startup troubles. I'm stuck talking about buying an established

Simone Henry: Yeah.

Della Kirkman CPA: Profitable, semi well organized business.

Simone Henry: Mm-hmm.

Nate Grossman: So but Della, you you had never run a business, correct? Up to that

Della Kirkman CPA: Correct.

Nate Grossman: point. But you just stepped right on in and started running the business.

Della Kirkman CPA: Well, I had I didn't change anything. That's one of the keys. We talked earlier tra about transition planning, Simone. But that's one of the keys is you don't change anything. You get in there and no matter how much due diligence you do in the beginning, you cannot know exactly how that business runs on a day-to-day basis until you get in there. So I always tell people, please don't change a single thing, at least for the six t first six months, but preferably more like twelve months. So just learn the business, see how it operates. It's already profitable. Why in the heck would you change anything? You know Keep everything in place. Just learn the business and don't change anything at all. And then later, year two, year three, whatever, you can add your little tweaks in things and add your own flavor and your own personality, maybe another product line or whatever. But you're buying an established business for a reason, not so you can go in there and change every damn thing right off the bat. And that's a huge mistake buyers make.

Nate Grossman: I so I yeah, I know we're we're we're off off the off the the outline here, but going along with that, then I mean there's just so many questions I have about this, but you know, how it presumably if you're not changing anything, then they that means that one, the business is it has things set up well that so that you can just kind of step in and It just continues functioning. But then there's also like how well do you fit in with the people who are already there as well, right? How do you how do you go about gauging that before you kinda step into it? You know what mean?

Della Kirkman CPA: Well, part of it is just being kind and being human. I mean, so you want to go in there with kindness and with an open mind because these people are have already been doing the jobs. They know exactly how to do them. I mean, they're presumably doing them relatively well because the business is doing well and profitable. But you also have to remember that they've probably been with this particular owner who's now the seller. for probably several years, maybe even decades, maybe they've even been there longer than that. So the last thing you want to do is,

Nate Grossman: Yeah, yeah.

Della Kirkman CPA: well, I don't know why, Susie did it this way. We're doing it this way now. So not only are you

Nate Grossman: Right. Right.

Della Kirkman CPA: changing things, you're introducing fear, you're bad talking, maybe their friend, their mentor, from the past. So just be human and go in there and be kind, learn what's going on, ask them what they need to improve their jobs. if you could have one or two things to help make your job easier, what would that be? Don't make promises you can't keep and don't go in there threatening to fire everybody unless you really intend to do that. But just really just be human about it.

Nate Grossman: Mm. All right. I yeah

Simone Henry: I'm saying they didn't need to come in with a with a heart of learning. because

Della Kirkman CPA: Yes.

Simone Henry: yeah, this isn't this wasn't this hasn't been your job for the last however many years. Un well, unless of course, you know, you you've been working in the business, but But yeah, you you have to learn how, even if you've been working in it, you you haven't been working every single job, so you don't know everything, you know, so you have to you have to learn like what it's like really on the ground,

Della Kirkman CPA: Yep, exactly. And you bought a profitable business. There's no reason to make any major changes. if you bought a sinking ship and you're doing a turnaround, that's a whole different conversation. I do not recommend that for first time, probably even second time buyers. you need to stick with something that's solid and spitting out the money. Can pay you what you need to support your lifestyle, can service the debt payments, without any problems. Of course, there's gonna be surprises along the way, but you don't wanna suddenly find out, I'm only making, you know, $20,000 a year doing this. Well, you should have gotten that figured out a long time ago.

Nate Grossman: Mm-hmm.

Simone Henry: Absolutely.

Nate Grossman: So what what I've taken from what Della has said today is that the value of a business gets built long before the owner or anyone puts it up for sale. And the work that ends up freeing the founder from the day to day is the same work that that buyers pay for, right? so get it done for the exit and you get the benefit. maybe even years before you leave. So it's g gold

Della Kirkman CPA: summary, Nate. Thank you.

Nate Grossman: stuff. Gold. all right.

Simone Henry: Interesting. So if what Della shared resonated, here's how to connect with her. Della has a free download called Nine Steps to Selling Your Business. If you're thinking about selling, start there. You'll find it at shiftinggears.com slash nine steps to selling your business. there's a lot of dashes and slashes in there. So we're gonna put the link in the show notes. And if you want to see your business the way a buyer sees it, Watch our YouTube show. You can find her, and you can also find her on LinkedIn as Della Kirkman's CPA. And if this conversation made you realize you're not sure where your biggest growth constraint actually is, that's what we dig into every week. Subscribe to the newsletter at thegrowthceiling.com.. Each week we go through one real growth constraint and how to spot it in your own business. Whether that's getting ready for an exit or something else entirely. And of course, subscribe to the Growth Ceiling wherever you listen. And if this episode helped you see something differently, send it to two or three founders who need to hear it. Thanks for watching.