0126: Building a Company You Can Sell (Even If You Don’t Want To) with Author, Speaker, Co-Founder and Managing Partner of Innovative Business Advisors Terry Lammers

Intro [0:00]

EA Interviews Episode 126. Inspiration, transformation, success stories, and the Imperfect Action Round seven days a week. Join Mario Fachini for today’s Expert Authority Effect Interview. 

Mario Fachini [0:13]

You already have a successful company. Have you ever thought about selling your company? Because I have Terry Lammers here today, certified valuation analyst. And he deals with mergers and acquisitions. It’s one thing to have a company, it’s another thing to have a profitable company. And it’s an entirely other thing to have a company that someone else wants to acquire. And how do you do this at a fair price? Is it even worth acquiring? I am super excited to learn myself as well as bring to you something that I don’t think people think about enough. And that’s their exit strategy. Because whether you’re going to sell your company or not, it’s good to be designing it now and building it now that maybe you keep it forever or maybe you don’t. But it should still be structured in a way that someone would want to. I’m going to bring him up right after we thank our sponsor, Mr. Terry Lammers. 

SPONSOR Rosh Tips [1:07]

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Mario Fachini [1:22]

Here he is ladies and gentlemen, Mr. Terry Lammers. Terry, how are you feeling today? 

Terry Lammers [1:26]

I’m fantastic. How are you doing? 

Mario Fachini [1:28]

I’m feeling great. And I’m excited to dive right in because what you’re going to be sharing with Expert Authority World here, it’s so valuable. So tell me how did you even get into it? 

Terry Lammers [1:41]

I grew up in a family, oil wholesale and fuel lubricants company. So we delivered fuel, lead, gasoline, diesel, fuel, lubricants, farmers, trucking, excavating stuff like that. I kind of took the company over in 1991. I had the opportunity to buy 11 or other companies and growing that. So I grew the company from about $750,000 in sales the first year. I came back to over 42 million before I sold it in 2010. So it’s really where I got my mergers and acquisitions experience. I’ve always been kind of a finance guy. I worked in banking a little bit before I came back to the company. And been ironically worked in banking again for a little bit after I sold the company. And then got my entrepreneurial spirit back and started Innovative Business Advisors and that’s what we do, we help people buy and sell companies, do valuations, and coaching to build their company up with our CEO to CEO platform. 

Mario Fachini [2:34]

What would you say is the biggest thing you’ve learned from not only doing this on your own but helping so many other people do it? 

Terry Lammers [2:43]

You know, I love the name of my book, You don’t know what you don’t know: Everything you need to know to buy and sell a business. And it really is all about you don’t know what you don’t know. And even when I end my company, you know, they’re really looking at net income or they’re looking at cash flow. Do I really add depreciation back? Yes. And those were interesting things that I learned working at the bank after I sold the company is kind of like the other side of the fence. What do they really look at? And then once we got into selling companies, even though I bought 11 other companies and sold my companies, there’s just a lot of aha moments. And there is as many nonfinancial things that can affect the value of your company as well as just the true cash flow of your company. 

Mario Fachini [3:32]

You got to tell us at least one or two. 

Terry Lammers [3:34]

Well, so nonfinancial things are huge. So I tell people all the time, you know, you can look at valuations of your company in a couple of different ways. One, there’s a financial value. So your company’s producing cash flow. What is the value of that cash flow coming from your company? You can look at it from strategic acquisition. When I was buying other oil companies – I talked about it in the book – me and my accountant would butt heads all the time on the value of the company because he would say, “You only pay for a company for the value of the cash flow that it’s generating.” “If I’m going to buy the company and eliminate 50 percent of the operating expenses, there’s going to be a lot more value coming to me than what the person that owns it now is generating.” So that’s a strategic acquisition. But there’s nonfinancial things that affect the value of the company. And say you have a company worth $1 million, these nonfinancial things, it might not be whether it lowers the value of it from $1,800,000. It might be that you have a completely unsellable company. So one of them is what we call the hub and spoke. Are you the hub of the company? And the spokes are the owners – I mean I’m sorry – the suppliers, employees, the customers. Are they all coming to you? Or do you have a company where if I take you out, so if I eliminate that hub, the wheel crashes? Or do you have a company that without you there, it runs along just fine? I mean, I have an issue with a company we’re trying to sell right now that that’s an issue. It’s an HVAC company. But I had, within the past year, trucking and logistics company that had a half-a-million dollars in cash flow, which is a good number, and that’s going to attract a lot of attention. But the owner was the absolute hub and spoke. You take him out of that picture, the company’s dead. And it was an unsellable company. So that’s a very important thing. Another thing that we call the Switzerland structure. You know, is your company dependent on any one employee, customer, or supplier? I look back at my oil company and we had a lubricants blending contract with mobile. Just because I was selling my company doesn’t mean that the buyer is going to get that contract. So if my buyer needed that contract, the lubricants blending contract for mobile, I don’t have any control over that. So now you have somebody else that’s controlling the sale of your company. You run into that a lot with franchises and different things. If you get a contract or a customer concentration – I love to talk about it and I think I talked about it in my book, and I always talk about it in my public speaking. I had a client on the fuel business where he delivered all the milk out of a dairy. And he had about 50 trucks and he used over 10,000 gallons of fuel a week. Great customer. Because how many customers he had? One. That makes it a very hard company – it’s not for sale. But if he was to go and sell that company, you have one customer. That’s a problem. So there’s just a lot of little things. And that’s what I like about the coaching, and I’m not selling that. I’m just saying, if you own a company, you’re eventually going to exit it, and you need to be asking questions about how do I meet my goals? I’m a strong advocate of building a team of people around you. So who’s your CPA? Who’s your banker? Who’s your attorney? Who’s getting you to where this thing that you built is going to get you to your retirement? Right? 

Mario Fachini [7:30]

Would you say that there’s too many companies out there that they are the company and they don’t have a company? 

Terry Lammers [7:39]

Absolutely. And they don’t know to ask the right questions until they get to where – the worst thing that people coming to me is they want to sell their company in six months. And so what we always like to term in our company is, you’re ready to retire, but your business isn’t. You’re ready to get out, but you don’t have a company that’s ready to sell. And it may take a couple years to get there. You can get it there easy enough. And I can tell plenty of success stories. But you know, when somebody comes to you and they say, “I’m just tired. I’m burnt out.” It’s a tough sell. And again, you could have a company that financially is worth a fair amount of money but nonfinancial reasons create a situation where it’s just completely not sellable. 

Mario Fachini [8:40]

that’s a very good Expert Authority insight. Because I’ve heard of people that, you know, they’re thinking about selling this, that, the other thing. And I mean, I’m no certified valuation analyst but it’s pretty easy to see there’s no company. It’s them. And I look at that more as their self-employed versus you’re using business systems. 

Terry Lammers [9:02]

You’re selling a job. 

Mario Fachini [9:04]

Yeah. And there’s nothing – I don’t want to say there’s anything wrong with that. I’d say it’s better than working a job. You started a company, good for you. Sincerely. You know, my first company was like that. When I sold that one to start this one, I looked at things differently going, “I don’t want it dependent on me. I want to have a team of people.” I mean, I don’t plan on exiting life anytime soon. But even if you want to disappear on a vacation or retreat or something, can you still go two, three, four weeks? That’s a good test. Can you take a month off and still have a company? 

Terry Lammers [9:40]

Yeah. Or even a week? That’s a great start. No, and you’re exactly right. It’s a tough thing to – they’re tough hurdles. I mean, when I came back to work for the family business, I jokingly said – it was me, my mom, and dad, we had two trucks, and it was a good day if they both started. So he was out making deliveries every single day. And then you bought a company and you had another driver. And then you bought a company and now you’re sitting back and kind of directing things. And then, eventually, you buy a couple more companies and you got somebody that can direct the drivers. Now you’re able to step back further. So it doesn’t happen overnight. And if you’re in that situation where you are the company, and maybe you’re making great money – you’re right – don’t be overly critical of yourself. But if your retirement goals – so here’s the key – I mean, here’s really something that’s important and I fell right into this. Eighty percent – 80 or 85 percent of my retirement income was going to come from the sale of my company. I mean, when I sold my company in 2010, I probably didn’t have more than $80,000 of investable assets. Everything I needed had to come from that company. So if you’re in that situation that your retirement income is going to come from the sale of that company, are you building a company that’s actually sellable? And do you know the value of it? That’s another thing that I would highly encourage people to do. And it’s just another sad thing that we see all the time. Do you know the true value of your company? And not what your uncle’s brother Bob’s friend said. Have you got a true valuation of the company that you know where you’re at? Because we know where the tragedy comes is when a person, a business owner, has it in their head that their company is worth, say, $10 million. And then they’re 65 years old and they come to us and we value it at $5 million. And oh, by the way, that’s before you pay taxes. It’s just horrible to see somebody at that stage in her life and they’re ready to retire in three months. And somebody is going to write him this magical check for $10 million. And they figure out that the company’s really worth five, less, maybe, 40 percent in taxes. 

Mario Fachini [12:04]

What do you think – what’s a question someone should be asking right now so they don’t get to 65 and run into that scenario? 

Terry Lammers [12:12]

Who’s on my team? Who’s my banker? Who’s my attorney? Who’s my CPA? Who’s my financial advisor? Those are all very important people to have on your team. And, you know, is my financial advisor when I have $80,000 investable income, the guy that I really want when I get handed a seven plus figure check? Is he a fiduciary? Has he dealt with mergers and acquisitions? Does he understand tax consequences of helping you through an M&A transaction? So here’s another thing with attorneys, is your attorney your estate planning attorney? Or is he a business transaction attorney that does M&A? I mean, again, when you have a whole another show on people that come to me that they’re using their estate planning attorney who’s never been through an M&A transaction to do a sales or business. It’s horrible. I mean, it creates a ton more expenses in attorney’s fees for the client because their attorney, as much as they like to think they know what they’re doing, they don’t. So you have to build your team. And really – again, I’m not trying to sell something – but you need to know the value of your company. What’s your number? What do I need to retire? If you need to sell your company for $5 million to sell your company because that’s what your financial advisor told you. And you have a valuation and it’s only worth $2 million. We had some work to do. We got to build it up. If you need $5 million to retire and the value of your company is $10 million, let’s make it more sellable and can we get 15 out of it. 

Mario Fachini [13:59]

Have you been able to turn any of those – so obviously you mentioned the scenario where they thought they’re getting 10, it’s closer to five less taxes. Have you been able to turn any one around that thinks they need five, it’s worth two or three, and you’re able to bring it up to seven or eight, maybe 10? 

Terry Lammers [14:18]

So I’m being honest, I can’t tell you a situation like that. But I can definitely – I literally had a situation last week where I delivered – so delivering a valuation is a very interesting thing. You’re giving somebody this piece of paper that says what their company is worth. And there’s 40 pages there. And they really only care about that first page, right? So I gave her the valuation. And to say she was unhappy with the valuation was an understatement. So this is really interesting because the data of that valuation was November 11th of 2018. And I met with her November 8th, like last week. And she had called me a couple of weeks ago and said, “You know, would you mind stopping by my office and talking again?” I was like, “This got to be interesting. Because she was not happy with me the last time I left.” So I went back, she fired her CPA, she got a new CPA. She withdrew herself from the business because I told her that the hub and spoke was bad. And she made a couple of other changes there because her financials were a disaster. But in one year, she literally increased the value of her business by three to four times, what I told her before. And she is well on her way to achieving her goals of what she wants for retirement. It’s so humbling to see something like that. So she told me, she’s like, “I wasn’t happy with you at all.” I was like, “Yeah. Really. I had that figured out. Trust me.” But she said, “I took some things you said to heart and I implemented them.” And that was really cool. 

Mario Fachini [16:02]

Well, congratulations to you and her. That’s pretty exciting. I know there’s a lot of people who would love to get three to four times what their company is worth? 

Terry Lammers [16:11]

Well, it’s not really three to four times what it was worth. I mean, when you look at the valuation, we’re still using the same principles to value the company. But she made a lot of changes to make her company more profitable, so more cash flow. And eliminate some of the nonfinancial things that would have been a huge issue in trying to sell her company. 

Mario Fachini [16:37]

I want to touch on that real quick because you’ve said it a couple of times. And there’s things that stop a company from being sold that are nonfinancial. And I think a lot of people think that a lot of it comes down to the finances. Where I’ve told even my own clients, “You know, you want to publish your book, you want to do your video, or whatever, who do you have to be to be able to show up like that or put on a show like this?” What can you take responsibility for that maybe isn’t your client, maybe it isn’t, financial, like you’re saying, getting the different people in place. And it sounds like more than 50 percent comes from nonfinancial things. 

Terry Lammers [17:21]

Every deal is different. But nonfinancial things can really affect the salability of the company. After I sold my oil company, I had the opportunity to buy a property management company. So we made these properties, right? There’s no collateral to the thing. It’s just a cash flow monster. It’s great recurring revenue. But the contracts to manage the properties for the property owners, there was no clause in the contract that it was transferable. So that meant if we bought the company as an asset purchase, we would have had to rewrite over 400 contracts. So it forced us to do a stock purchase, which is a little bit less desirable. It doesn’t make us unsellable. But it would have been nice if somebody would talk to her a while back. That’s almost kind of a Switzerland structure type of deal, where there’s one thing that could really impede the sale of that company. So just a little thing like that. When you have 400 contracts, can you imagine what are the costs to renegotiate all 400 of them contracts? Yikes. 

Mario Fachini [18:38]

And do you think all 400 would have re-upped on it? 

Terry Lammers [18:44]

No. Well, anytime you get to renegotiated contract, what’s the word I just said? Negotiate. “Well, let’s talk about this, right? Well, now I’m going  to let my attorney look at it. Well, we want to take this out. That’s a Pandora’s box of worms.” 

Mario Fachini [19:03]

So what would it have taken a year to five, ten, whatever – I don’t know how old the company is – but what would it have taken to put that simple thing in there that said they are transferable back earlier on and it would have been a no brainer for you? 

Terry Lammers [19:20]

If they were – so I’m not an attorney. So I don’t want an attorney listening to this show going, “That’s not right”. But what it would have been is it puts something in there that the license is transferrable. 

Mario Fachini [19:32]

Like literally a sentence or a paragraph into the contract? 

Terry Lammers [19:35]

Yeah. 

Mario Fachini [19:35]

Allegedly? 

Terry Lammers [19:36]

Whatever the legal lease is to it. But that the contract is transferable. 

Mario Fachini [19:43]

So obviously, we’re not attorneys, but we could play one on TV. But it literally would come down to just a little bit of paperwork, maybe an extra page? 

Terry Lammers [19:53]

Yes. That would have helped her. As it is, it worked out for her. But it might have made the company worth a little bit more. So where I seen the problem is, we just acquired that property management company. But if we wouldn’t want to acquire another property management company, I wouldn’t have merged that company into my existing company. So I don’t want to create – have two entities that just eliminates a lot of deficiencies. So that’s where it would have been a real – a bigger issue for us. But it wasn’t because this was the first company we bought in that line. But another thing I would tell your viewers and the people that are listening, I have two mantras that I preach all the time. Your company is not about sales and net income. And that’s what people look at, my sales are up. Who cares? What’s your net? And I don’t even care what your net income is. What’s your gross profit? And what’s your cash flow? Because depreciation is a noncash expense. It gets added in to the cash flow. And I see it all the time. And I even wanted it myself as a business owner. It’s like, “Man, if I didn’t have the depreciation expense, I’d really be profitable.” It gets added back. The bank adds it back. I mean, trust me, it gets added back. So it’s not about sales and net income. It’s about gross profit and cash flow. And the other thing I would tell you about selling your company is, it’s not about what you sell the company for, what number you get for selling the company. It’s about what you get to keep net of taxes after you sold the company. Because I will write you plenty of scenarios where I can sell your company. Yu know, obviously it depends on the size. But let’s just say I could sell your company for a half million dollars less on purchase price and get you more money net of taxes. 

And that takes a team of people to help you do that. 

Mario Fachini [21:52]

But that’s good. You have the owners best interest at heart. Because, again, another – I don’t want to say little metric because it’s a big metric – but it’s a matter of some commas, paragraphs, and you know, percentages. And you switch one line on the deal and it goes from you’re making less on the sale but you’re keeping more on the back end. That’s a big difference. 

Terry Lammers [22:16]

It is. It’s a huge difference. And it’s really interesting even coming down to our company. We’re starting to focus more on our coaching program, just because we haven’t talked about it. But another nonfinancial thing that really affects the value of the company is recurring revenue. So in hindsight, starting a brokerage companies, it’s like, “Why would you do that?” Because every time you sell a company, guess what? You got to go find another company to sell. So on a coaching program, it’s recurring revenue. But it’s a good funnel for selling companies. So that’s just another thing that we can coach people on is how do you build recurring revenue into your business. So a perfect example, I think, is looking at an HVAC company. If you’re an HVAC company, heating and air conditioning, the primary part of your business is new construction. Let’s just say, it’s housing. What happens if the housing industry crashes? No business. If you’re an HVAC company and the primary part of your businesses service and the housing market crashes, people are still going to need their heating and air conditioning unit service, right? So that is great recurring revenue. And we’ve sold a lot of HVAC companies. And another big thing that goes along one step further is, do you have service contracts with your employees? Think of a subscription model. Am I going to buy that Starbucks card? You know, what is it, the Keurig now? Do I have a subscription to get so much coffee a month from Keurig? My cable, it’s just a renew thing. That’s a subscription service. That’s recurring revenue. Versus a construction company, you know, I build a house, I build a building then I have to go find another one to build. So those are things when you start asking questions, in five years out that you can start building that into the model of your company. And you will have a much more sellable company at the end of the day. 

Mario Fachini [24:29]

And that’s a great Expert Authority insight. Because so many people don’t think about that. To the point of the self-employed, they have the skill set, they’re great at what they do, and they just sell that service. But there’s nothing else beyond that. And one of the things they can do and I want to ask you about, how come you wanted to do publish your book? 

Terry Lammers [24:50]

So – excuse me. Writing a book has always been a bucket list item for me. So doing the book, you got a copy, you don’t – where are we at here? You don’t know what you don’t know: Everything you need to know to buy or sell a business. So for one, I was a volunteer firefighter for 22 years. So I wanted to write a book about firefighting and I was going to call it, I was there. Because people always ask you, “Did you hear about that accident?” Like, “Yeah, I was there.” So the book, like, it kind of takes you through the process. So the beginning of the book is about buying and selling – buying businesses. And why you would want to buy an existing business versus a startup. And then there’s a simple way to value a business. You know, just the basics of valuing a business. Then the process of buying a business. The middle of the book is about building your team. Who’s your attorney? Who’s your CPA? Who’s your financial advisor or banker? We talked about this. What’s your bankability? That’s another huge thing that we haven’t talked too much about. But are you a bankable person? What’s your ability to go out and borrow money? So there’s a chapter on that. Then it gets into building value in your company. And we talked about those nonfinancial things that really will show you how to build value in that company. And then it gets into selling the company and the steps. How do I deal with employees? And just a lot of little things. It’s all my experiences. It’s not a very big book but it’s packed with information. It’s very conversational. And I just talk about things that I did right and things I should have done different. Because I didn’t do everything perfect because I didn’t know what I didn’t know. 

Mario Fachini [26:32]

Well, I’m glad you did it because I’m excited to read it. And you also were talking about your coaching program. Why did you want to start a coaching program? 

Terry Lammers [26:43]

You know, really, because it is sad when everybody’s coming to you and they say, “I want to sell my company in the next six months. I’m ready to sell it right now.” So they’re ready to sell but the business isn’t ready to sell. So the coaching program is really for people on both sides of the fence that they want to sell company in the near future or maybe they got ten years ago. But we’re going to – we call it CEO to CEO, chief everything officer to chief executive officer. And we will help them – teach them about nonfinancial things that affect the value of the company. And really take a deep dive into their financial statements and make sure they’re readable, understandable, and it helps them make them more of a bankable person. And whether you’re the most nonfinancial person in the world, I can teach you eight or ten financial ratios and give you kind of a dashboard that you will understand the heartbeat of your company and what’s going on. It’s just happened time and time again as we go through this process. And then when you go to – whether you need to build your company and you got to borrow money, when you bring the financial statements in after we have them set up for you and you know your bankability, you’re not going into your banker rolling the dice going, “I wonder if I can borrow this much money or not.” You’re going to know exactly how much money you can borrow and what your collateral is, what the debt service coverage ratio is. And then go find yourself a deal instead of begging for money. 

Mario Fachini [28:12]

How do you feel when you hear the stories about people going in with confidence versus they would have tried it on their own and not had a desirable result? 

Terry Lammers [28:24]

So I have one coaching client – it’s always funny – so I’m obviously not going to say his name. But if he watches the video he might go, “Huh”. But in about I think he would totally agree with it. He was your typical business owner. It’s like, “You know, I had a banker. I don’t more need it. That son of a gun. That’s just crazy. He don’t know what the heck he’s doing.” And after we got into the coaching after about four or five months, all sudden it dawned on and it’s like, “Oh, I’m not a very bankable person. We have some things we need to change. It’s not the banker. It’s me. And those are some of the aha moments. People, they don’t understand the banking process. And it’s like anything else. You know, I used to compare it with the fuel company. I hated going to a customer for the first time, especially out in the middle of the country in the middle of nowhere. It’s like, “I don’t know how to get there. I haven’t been down these roads.” But once you know the path, it’s no big deal, right? You’ve done it. Well, we’re about teaching you the path. And it’s no big deal. You’re going to learn it. And maybe a little painful at first but you’ll understand it. And after that, you’ll know how to get there. 

Mario Fachini [29:33]

See, and it’s so great that you get to share that. And that’s one of the funnest things, I think, from my coaching, from the books, from speaking, from recording stuff on video. These are all assets and all you have to do is share your expertise. Because while someone can hire you for your services as they should, they can also get the book, they can also get the coaching, they can also get these other things just like we both have. And now, the business isn’t just about you because the more these you create, the more you have their business assets. 

Terry Lammers [30:09]

Yeah, It is. It really is. The other thing that’s neat about the valuation piece – and I had this happen for the first time – the very first company I valued was a large animal veterinary clinic. So emanated cows, mainly dairy cows, out in the middle of the country. And I valued the company so that the partner could buy in. Fast forward five years, the wife who is a CPA, the primary owner called me and says, “Hey, I just want to let you know that it was really neat. We used your valuation from five years ago to re-determine the value of the company today. And now, the guy that bought 10 percent of our company five years ago is buying my husband out and we’re going to retire happily.” So that was an asset that they paid for only on paper. But they used the same process to value the company five years later and it worked perfect. 

Mario Fachini [31:06]

And that’s the thing about having systems and processes, it’s the same. Like you said with the banker, it’s not that he doesn’t want you to grow your business or get approved or whatever, because I think most of them want to help. But when you go through the threshold, you know, do you meet the criteria? There’s ten steps. It’s not him saying you’re you don’t qualify. It’s the ten steps, it doesn’t match up. 

Terry Lammers [31:30]

No. You’re right. And one thing that I’d be critical of bankers – and I feel comfortable saying it because I did plenty of baking myself and I was a banker – but one thing where I think bankers or banks are guilty of is you get a yes or no answer. You don’t ever get a well, “This is why the loan got declined.” It’s just, “No. We’re not comfortable with this.” “Well, why? Tell me why.” And I talked about it a lot in the book. I mean, are you even at the right bank? I mean, the bank I worked at would finance a construction company. They wouldn’t finance non-owner occupied real estate. So if that’s what you’re after and the bank doesn’t do that, you’re at the wrong bank. 

Mario Fachini [32:20]

How would you find that out ahead of time? 

Terry Lammers [32:23]

I’m sorry? 

Mario Fachini [32:25]

How would you find that out ahead of time? 

Terry Lammers [32:27]

Ask questions. But you don’t know what you don’t know. If you don’t know to ask the question and you think a bank is a bank. I tell a quick story in the book, my mom and dad came to me when I worked at the bank I was at. And it was a big bank. It’s one of the top ten banks in the United States. And they wanted to sell their house and buy a duplex, you know, their retirement age. And they wanted me to help them. Then I’m like, “You don’t want to go through this big bank. This will take forever.” So I sent him to the small community bank. So now they’re just really confused. It’s like, “My own son doesn’t even want to deal with me.” But I sent them to the small community bank where I called the president of the bank while they was on their way over there. And I mean, little did they know. But their loan was approved before they even got there. And they literally signed two, three pieces of paper and it was a done deal. But they go through a big bank, it just would have been a process. So there’s nothing wrong with big banks. There’s definitely purpose for them. But you just have to match up what you’re trying to do. 

Mario Fachini [33:33]

What would you say are a couple of things to make someone more bankable? 

Terry Lammers [33:40]

Well, the biggest thing is that – so the number one thing would be to fill out what’s called a debt schedule. In a debt schedule, it’s very simple. Say you got six loans. Write it on an Excel spreadsheet what each loan is for, what the original balance was, what the current balance is, what’s your monthly payment, what’s the interest rate, and what’s the collateral of that loan in the maturity of that loan. So then you can add up what your total payments are. That is the biggest – I mean, as being a banker, that’s the hardest thing to figure out. Where did these people got all these loans at? From buying a four wheeler or buying the truck, and borrowing money on this business asset and that business asset. Get it all lined out. You know what all your monthly payments are and you know what your debt service coverage ratio is. And then later on, whether it’s real estate or whatever, maybe it makes sense. You know, especially with me as I was buying different companies. Maybe it makes sense to combine a couple loans and lower your payments. One of my coaching clients, he borrowed $150,000 but we was able to combine some loans and his collateral situation allowed that we – even though we added $150,000 in debt, we reduced his payments by close to $4,000. It’s huge. But that’s what you got to start with, you got to have a debt schedule and you got to know what your payments are, where everything’s at, where’s the collateral going to come from. I mean, you got to remember, any loan there’s two basic sides to it, collateral and cash flow. And beyond that, it’s really pretty simple. 

Mario Fachini [35:34]

Well, that was a great tip. Thank you for sharing that. A question for you before we go to the Imperfect Action Round. Which one of the sharks from Shark Tank would you love to have dinner with? 

Terry Lammers [35:47]

Oh my god. You know what? I know all about Shark Tank but I’ve never watched it. 

Mario Fachini [35:52]

Really? 

Terry Lammers [35:54]

People ask me all the time, “Do you watch Shark Tank?” It’s like, “No, I do this crap all day long. Why would I want to watch that?” And I don’t mean crap. It’s fun stuff. 

Mario Fachini [36:06]

All right then. 

Terry Lammers [36:09]

So much for that, right? 

Mario Fachini [36:11]

It’s a great show. I love it. You should really check it out. It’s entertaining. 

Terry Lammers [36:16]

I know. I don’t know. I’m not a big TV guy. 

Mario Fachini [36:16]

When you were talking about the valuation, one of the things that always happens is someone’s like, “I want $15 million for the company.” They evaluate it at 15 million and it’s closer to three or five. 

Terry Lammers [36:27]

Well, that’s what – you know, so the little bit that I know about Shark Tank is, what’s tough about that is they are selling ideas. There’s no existing cash flow to their ideas. And that’s really tough to put a value on something like that. So again, go back to remember the beginning of the show, we talked about a financial valuation versus a strategic valuation. They’re talking bigger stuff where, I’m introducing this widget and somebody on Shark Tank saying, “You know what? I can take that widget and sell half-a-million of them.” But there’s no cash flow behind it. So if I’m going to buy it and I’m depending on the cash flow of the existing product to pay for it, it’s not there. So it doesn’t work from a financial valuation. That’s tough – you know, it’s a tough nut to crack. And I get hit with that a lot. And when I give valuations, I explain to people, “I’m giving you a financial valuation.” When the company that bought me was a $6 billion company. I was their largest competitor in Southern Illinois. By eliminating me, eliminated a lot of their problems. And they needed the lubricants blending – a packaging facility which I had. And I didn’t know they needed at the time, to be honest with you. But I look at the multiple that I got from my company, it didn’t make financial sense. It was a strategic acquisition. Big, big difference. And it’s very hard to value a company from a strategic standpoint. 

Mario Fachini [38:12]

Because it’s arbitrary and only the board knows. And it could be a gamble to begin with. 

Terry Lammers [38:17]

Yeah. I mean, so I say, it’s hard for me to value company from a strategic standpoint. I should say – I should actually retract that a little bit and say, it’s hard for me to value the company from a strategic standpoint when I don’t know who the buyer is. I mean, if I’m the buyer, I got to tell a great story in the book where there was a company – I had two offices, two boil plants 30 miles apart. And there was a guy right in the middle. From a financial standpoint, he wanted over $100,000 too much for that company. But from a strategic standpoint, I didn’t have to add a truck. I didn’t need him as a driver. I mean, I was literally going to eliminate 80 percent of his operating expenses. So did I pay him $100,000 more from a financial standpoint than what it was worth? Heck, yeah. Because from a strategic standpoint, it made complete sense. And the one thing that would have been horrible for me – this is an area of high customer concentration. I sure as heck didn’t want a competitor buying him and opening up shop right in the middle of an area where it’s huge customer base for me. I mean, it would have made no sense to let that happen. So would I pay more for it? Heck, yeah. 

Mario Fachini [39:32]

Well, that makes total sense what you’re saying now because I’m thinking of other things that it’s the same thing. For example, when you’re starting your business and you have a dream and you know you can do it. And everyone thinks you’re nuts. It doesn’t make sense like a financial would. But strategically you go, “You know, give me two years, three years, five years, ten years, and that’s a whole different story.” But again, it’s so arbitrary. It’s like unless it’s you or someone you trust or your partner or wife or spouse or husband or whatever, it doesn’t make sense to the rest of the world. 

Terry Lammers [40:05]

And then where does the money come from to get that going, right? 

Mario Fachini [40:08]

Yeah. It’s like the whole adage, entrepreneurs are the only ones who jump off the cliff and build the plane on the way down. It’s like, from what? I don’t know. We figure it out. 

Terry Lammers [40:16]

I like that. I like that. It’s funny. The older you get, at least for me, the more conservative you get. But that’s why – so you know, we kind of coined another term, I call it the glider path. And I talked about it in the book. What’s really sad is, you see companies that were here, turning it on your screen here, and then it took their foot off the gas. And the thing just went, you know, think of a glider. It’s just coming down. So five years later after they took their foot off the gas, they want to sell it. Well, if they would have sold it back here, the company might have been worth three times as much than what it was five years later. Think of them multiples, you know, three to five is a good multiple. Five, probably a little on the high side. You know, three or four is a good number for most average small businesses. But gosh, I did a value to a dental company about two years ago. And he was a total glider path. If he just sold it four years earlier, it would had a financial valuation of about $2 million. And four years later, it had a financial valuation of about $800,000. And I asked him, I said, “What happened?” He’s like, “I’m tired. I’m tired of working all these hours.” You know, it’s tough. 

Mario Fachini [41:40]

Have you ever seen multiples for eight, ten — let me rephrase that. Do people pay for multiples of 8, 10, 15, 20 outside of a strategic, maybe Disney buying every other media company in the world? 

Terry Lammers [41:53]

So the more cash flow the company has, the higher multiples are going to be. It’s flat. That simple. Other than – no. I don’t see it other than it’s a strategic acquisition. But, you know, once you start getting cash flows or EBITDA, earnings before interest, taxes, amortization, once you start getting above $1 million dollars a year, that’s where your multiples are definitely going to start increasing. 

Mario Fachini [42:24]

Excellent. Again, thank you for the Expert Authority insights. We’re going to thank our sponsor and come back to the Imperfect Action Round. 

SPONSOR Rosh Tips [42:31]

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Mario Fachini [43:06]

And we are back with the Imperfect Action Round. Terry, are you ready to take imperfect action? 

Terry Lammers [43:13]

Absolutely. I’m curious what this is about. 

Mario Fachini [43:16]

You’re going to love this. I think out of everyone I’ve interviewed so far you’re going to love this especially the third one. Number one – these are 60 second answers, rapid fire. What is the fastest path to the cash? 

Terry Lammers [43:33]

Have a sellable company. So have a sellable company. Have your ducks in a row. Make sure what’s your financial – do you have financial statements? The largest part of the value of your company is going to come from the cash flow. You have to have readable financial statements. And they have to be up to date. And then, do you have your ducks in a row? Do you know where your assets are at? Do you know where the titles are at? Just get your ducks in a row. It’s not as easy as it can be. The fastest company I bought was in three days. But you can drag it out to over a year if you don’t have your ducks in a row. 

Mario Fachini [44:12]

Wow, that’s a big difference. Number two, what is the biggest problem you see your prospects making and the fastest way for them to fix it? 

Terry Lammers [44:23]

Prospects as far as selling a company? 

Mario Fachini [44:24]

Yes. 

Terry Lammers [44:26]

The biggest problem I see, especially when I say smaller companies, I would say under 10 million in sales is, the owner is overly involved in the company. That is a huge – I got a company right now that should sell for 8 million. And the owner is very involved in a company and it’s an issue. You have to step back from that company. And if it can’t run on its own, it will severely affect the value of that company. When you’re proud – so this is a shocker to me. I was proud to say, my timing didn’t work out. So when I think about this, I would say, I would be proud to say that all my owners know me and they want to talk to me. That is completely wrong. You need to have people in place that can run the company without you being there. And I know a slick way to do it. 

Mario Fachini [45:26]

Oh, I’d love to know that. Is that in the book? 

Terry Lammers [45:29]

It is in the book. 

Mario Fachini [45:30]

Nice. 

Terry Lammers [45:33]

I did it. 

Mario Fachini [45:34]

What’s that? 

Terry Lammers [45:34] 

I did it. 

Mario Fachini [45:37]

Let’s tie at number two. You said it should be selling for eight mil. How much is it – not going to cost them because you’re going to help them. But where would it be if he doesn’t fix it? 

Terry Lammers [45:49]

It’s totally a thing where it doesn’t mean that it could sell for 8 million or 6 million. It means that it could sell for 8 million. Or the potential buyer completely walks away because he’s like, “I’m not going there to run that business every day. That’s not. No. There has to be a management team in place.” So again, just to repeat – 

Mario Fachini [46:08]

So it’s not costing 2or 3 million. Its costing potentially eight. 

Terry Lammers [46:12]

Yes. It makes the company completely unsellable. And I can tell you story after story. 

Mario Fachini [46:20]

Wow. All right.  So don’t do that. That’s significant.

Terry Lammers [46:25]

You got to separate yourself from the business. 

Mario Fachini [46:27]

And here it is, number three, what is the best way to maximize customer lifetime value? 

Terry Lammers [46:37]

Recurring revenue. Build a recurring revenue into your company. You will get – I mean, anything is a transactional business. You’ll be lucky to get one or two times a cash flow in that company. You take in – so we used other examples but think of an insurance company. Good times or bad, you have to have insurance, right? That’s recurring revenue. You know, even with my company. The oil company back in the day, farmers are going to farm. They’re going to use fuel good times or bad. Municipalities are going to run ambulances, fire trucks, police cars. That’s recurring revenue. Do everything and don’t – the other thing I would tell people is like, don’t tell me you have a business that you can’t build recurring revenue into. Because I’ll show you a model no matter what you got. But recurring revenue is the longest way to keep value to a customer in selling your business. 

Mario Fachini [47:40]

That’s great advice. Thank you. Books, what are a couple that have made the biggest – that’s a good one right there for sure. What are a couple of books that have made the biggest impact for your business or in life? 

Terry Lammers [47:59]

So another good book to read is a book by Tom Dean, Thomas Dean, Every Family’s Business. It really tells a cool story about they have a list of ten questions that they asked themselves every year. About whether, you know, do I want to stay in the business? Do I want to transition to business? Who am I transitioning it to? John Warrillow has the Value Builder System. And he has a book called Built to Sell. It’s another great book. 

Mario Fachini [48:32]

Can I ask you if you heard of that one? That’s a great one. 

Terry Lammers [48:35]

Yeah. John is a great guy. I’m on the advisory board for the value building system. I’m cheating. I’m looking over here to my library. So you know, the other thing, maybe it’s not a book. But here’s another idea that we haven’t talked about and it’s the last chapter of my book. The last chapter of my book is named, Don’t be like a dog that caught a car. So in other words, know what the heck you’re going to do with your life once you sell your company. I was only 40 years old when I sold the company. And after three months of sitting at home, it was like, “Oh my god. This is nuts. I have no -” you can only hunt, fish, and golf so much. Trust me. So know what you’re going to do with your life once you sell your business. And it will make the difference between you being happy and not being happy. I don’t have an exact book for that. 

Mario Fachini [49:25]

That’s a great final thought to put the cherry on top. Thank you for all the insight, all of the – everything you’ve shared. I’ve gotten a lot out of it. Where can people find more about you? 

Terry Lammers [49:39]

Go to our website, www.InnovativeBA.com. Innovative got two Ns. And BA, Boy-Appl. Click on the Media tab. There’s tons of great information on the website. If you click on the Media tab, there’s a lot of articles that I’ve written, other podcasts, videos. I’m on LinkedIn, Facebook, all the usual stuff. The book is available on Amazon. And what’s the other one? Kindle? You can get it on Kindle. And I would love to do more public speaking. So if you’re in need of a speaker, I would love to do it. We got a couple great topics to talk about with cash flow and your bankability and stuff like that. And there’s a couple videos on the website that give you an inkling of what we could do. The CEO to CEO coaching platform is awesome. We’ve been doing coaching for a long time. We’re finally putting a brand on it. So that’s really exciting. So yeah, those are great places to find me. 

Mario Fachini [50:41]

Excellent. Well, I appreciate you for sharing. And you are a great speaker with great knowledge. And even before we got started, I was excited to hear what you have to share because it’s such a value add for everyone listening, for everyone watching. I would love to see you in person and even have a half day event. When you were talking about some of the stuff I’m like, “It’s not another show. It’s a half day to full day training. If not, you know, two day event.” There’s so many people I’m just thinking of. It’s exciting. So thank you again. 

Terry Lammers [51:15]

Well, thank you very much. I appreciate it. It’s a fun subject. And you know what I like about it more than anything is, I didn’t learn this out of a book. This is real stuff. I’ve done it. I’ve lived it. 

Mario Fachini [51:27]

Absolutely. Well, Expert Authority World, we got another great episode here for you. I’ll see you on tomorrow’s Have a great day and God bless. 

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www.EAInterviews.com [51:51]

Hey, thanks for listening to today’s episode. I hope you got a lot out of it. I know I sure did. If you haven’t done so already, I invite you to subscribe to the show. And also be sure to check out EAInterviews.com for complete show notes, the full interview video experience, links to the resources we mentioned, and more. Have a blessed day and I’ll see you tomorrow.