LOREN VANDEGRIFT - Insights from BUSINESS EXITS broker on sales, values, and trends

Loren Vandegrift (00:00.334)

If you're not a nice person, I won't sell your business, right? If you're not a nice buyer, I won't even entertain it. Other than the occasional bad lawyer, I work with only good people.

Anne McGinty (00:16.91)

Welcome to the ninth episode of How I Built My Small Business, the show that is dedicated to sharing the insight that entrepreneurs have about how to start and grow small businesses. Join us as we unravel the stories behind their entrepreneurial journeys. I'm Anne McGinty, your host, and today is an extraordinary episode as we dive into a conversation about sales, values, and industry trends with seasoned business broker, Loren Vandegrift.

Loren is a partner at Business Exits and has sold over $300 million worth in businesses over the past six years. Prior to brokering business deals, Lauren was the founder CEO of a technology strategy consulting firm that he exited after 13 years. After his own terrible experience as a seller, Loren was motivated to create a better and more authentic process and entered the world of mergers and acquisitions.

He has worked with businesses of varying sizes and continues to expand his reach into the broader middle market, all while actively acquiring businesses and real estate along the way. You can find a link through to his business in this episode's description.

Anne McGinty (01:33.694)

Thank you to our listeners for being here today. Loren, I'm so excited to have you here.

Loren Vandegrift

Likewise. Yeah, it's lovely to be here. So let's get into it. Can you tell us the story of what led you to becoming a business broker in the first place? The story that got into it is that I'd always been since getting out of college because I kind of got out in that recession, you know, 2008 era. So I was

dealing with having to kind of make my own way and my own businesses always. And so I had a series of consulting businesses living in New York, just trying to kind of survive and hustle basically. And through doing that, I was working with many businesses that went through exits or dealt with M &A or buyers or investment. And I myself even had experience in selling a couple of different businesses and just realized that it was kind of a weird process. It was really hard to navigate the help you got.

It's a bit like buying a used car. It's like you have a used car salesman for a broker that treats you terribly and just lies to you just in their own best interest and says everything's going great when it's not. And it just, I always was really bothered by that whole process. And so then, then 2018, I met one of the other partners here and he had the same exact challenges I did and did something about it. Started a brokerage that really focused on sort of.

the human element of how to do this because it turns out that business brokering is actually kind of great because if done right, you're selling a company that's successful. People have a need to move on and you're finding buyers that then are going to take that company and thrive, right? So it should be a really easy, trusting, true relationship. And so that's sort of being inspired by him and my own experience. I just decided, hey, can I join? And I've been lucky in my business world so I didn't have to.

you know, make a salary or do anything. I could sort of have the flexibility to kind of dig my heels in and learn the process. And it's been a dream ever since.

Anne McGinty

How did your consultancy business prepare you for mergers and acquisitions?

Loren Vandegrift

I'd go into a company, I'd get on retainer with them and I'd sort of figure out how to fix their technology. Right. So imagine implementing Salesforce or different APIs as a technical term, like, you know, interoperability between employees. So I really would dive sometimes their financial stuff. So I'd dive into a company and I really knew how to kind of dissect the business.

pretty well. So I kind of had that experience. It was made through my personal companies. And so, but I'd been a part of so much of the being inside the company that it really had a natural fit. A lot of this business, it's not as simple as just, you know, putting up a for sale sign, right? You have to actually understand the business, know who would fit, how the finances work, the margins. I mean, I had a lot of sort of business experience, which honestly is the biggest thing for this.

because that's where the authenticity comes from, right? To know what you're selling truly, because if your business owner is listening to this, I mean, you know how complicated businesses are and the different and how everything is so unique. And you really have to be able to look into that and figure out the right path for the owner.

Anne McGinty

Right, yeah. So what type of businesses do you specialize in selling?

Loren Vandegrift

I specifically work on anything sort of over $5 million. So $5 million to about $100, $120 -ish, that was our biggest deal.

million, which that sounds like a huge spread, but there's this thing called an SBA loan, which makes it really easy to buy a smaller business, right? But then above that point, it's a lot harder because you have to have people that need to come up with a lot of money, but not like huge money. You're not talking billions of dollars, but in the kind of, you know, teens of millions, it's a really weird place to be. So that sort of call it six, seven million to a hundred million range is like a real no man's land. And it takes kind of a special set of

connections and networks to find those buyers. And so that's sort of our specialty. And then we have junior brokers that handle the smaller stuff, anything in million dollars and up basically. So what's an example of a success story then that you have had in your business sales? I had a really fun one where I had sold the largest, how do I say this, being India able.

They were a company that dealt in stained glass windows, which is like a really weird niche. And you think, well, what is that? And they were pretty huge business considering, and they were all across the country and kind of trying to find the right buyer for it. That was a really interesting one because you go visit them. And that guy was just like such an interesting character. And my big concept that I was so proud of on that deal was that I was thinking, okay, stained glass windows, who uses stained glass windows the most? And so my thought was like, oh, the Mormon church, they make tons of.

Loren Vandegrift (06:03.63)

tons and tons of churches. So I ended up finding Mormon Private Equity and they loved it because they could get into the churches. It's like a deal broker goes. I was like, of course. I felt like I really nailed it and really found great compatibility because they got to leverage that huge customer base that this group did. And I was literally skiing in Utah one day. I was like, huh, that's interesting. There's a lot of things last year. That was the one that I'm pretty proud of because it was just totally random how it all came together, but it worked really well.

never even thought about the fact that there are businesses that specialize in stained glass. Oh, there are so many weird businesses. I there's I it was one wasn't my deal. But one of our brokers had a deal where they imported dead mice from Ukraine and other countries and, you know, in the Soviet Bloc, because there's so many mice there that they'd import them here for snakes to eat. Right.

Anne McGinty

Oh, my Gosh.

Loren Vandegrift

Not a business you think about, but a multimillion dollar business. Right. I mean, there's so many.

really cool, weird businesses out there. It's amazing how any idea you can really turn into a cool business if you think about it. I mean, I don't know how much you talk about your own business, but you're a great example.

Anne McGinty

We do in one of the episodes, but I mostly am focusing on the interviews. That's part of what I love about talking with you is just that you have this exposure to a segment of the world that the rest of us really don't. And the knowledge that you have from talking to these random niche businesses is just...

Loren Vandegrift

Oh, it's the best.

just pick anything. There's probably multiple businesses that are doing millions of EBITDA around the world of like ferrets. I mean, just pick anything and someone is doing something cool with them. It's phenomenal.

Anne McGinty

That's so interesting. So with all of these different businesses, can you tell us a little bit about the criteria that you use to determine the value?

Loren Vandegrift

Yeah. Valuing a business is both easy and also very complex at the same time, right? Especially, I mean, this is focused on the small business, the small business level, because you hear about how...

Instagram sells for a billion dollars when they had made no money. And there's sort of that weird high tech thing sell for crazy sums because there's that kind of bizarre landscape of venture capital and stuff. Those valuations are absolutely ridiculous. And they just, they don't tell the tale of most businesses, but the bulk of small businesses, unless you truly are like a SaaS business, meaning like a software as a service where you can make code once and have infinite scalability with amazing margins, like outside of

Loren Vandegrift (08:28.206)

that, the bulk of businesses sell anywhere between three times their kind of profit or their EBITDA to maybe seven, right? So 90 % of the time it's in that range, right? Of course, there are some exceptions here and there, various really hot sectors or markets, but, and it's EBITDA adjusted. So, you know, everybody does things with taxes and whatever, right?

Anne McGinty

Oh yeah. Fringe benefits.

Loren Vandegrift

Yeah. Fringe benefits are very important, obviously. And so we add that stuff back. So, you know, if you're a business owner and you're thinking, oh man, like,

We don't show as much profit as we intend to. That doesn't matter. It's what you truly like via your P &L, your business actual operations, like what that nets. That's really kind of what we base the multiple on. There are, like if you go to people that do bigger valuations, they have all these other methodologies that they use. But at the end of the day, that's the best way to think about it.

Anne McGinty

So what would you tell an owner if they contacted you today and said, hey, I want to sell my business in a couple of years? What would you tell them to do in preparation for that sale?

Loren Vandegrift

It's a tricky balancing act.

It's a little almost unfair, but the truth is that you have to find that your profit is going to determine your value almost all the time, right? But at the same time, you have to make a business that you're not squeezing too tight and trying to get margins so good that that business can't grow in the future. So it's this real balancing act, right? So I'd say the best advice I can give is to one, just if you want to tip, don't put things that you want to add back or that are personal into your cogs.

Like, just that's one straight up thing, right? Like, take out anything that's in your cogs because that is nearly impossible for a bank to ever qualify for a loan on the buy side. So that's a real, it may be in the weeds answer, but that's one really important one if you're looking to sell. The other is to find and empower people. It's a bit weird because you're stressed out, you're working all day. It's the thing that makes you want to leave. But if you have good people around you that are going to stay, so good second of commands, good people that could be elevated into a leadership position.

It's funny because so many people are selling because they don't have that. So again, it's a bit of a tricky thing. But if you have people around you that you know that could be empowered to grow, it's going to make buyers really, really want you way more because people don't want to buy headaches, right? If you're making a million dollars, but your life is miserable and it's taking all kinds of weird work arounds, like it's not going to be worth it for somebody because there's so many other businesses that aren't. So look at your headaches, look at your team and really try and.

Loren Vandegrift (10:51.118)

figure out a way to put yourself in a good position. Because if you're doing really well and you're thriving, that's what people want to buy you.

Anne McGinty

So in the sale process, what are some common challenges that arise?

Loren Vandegrift

Oh, man. Oh, my God. One is the perception around certain things. So one thing that you should definitely get familiar with is the concept of working capital. This is a big one because if someone's paying you $5 million for your business, that business needs to be able to keep running.

when you leave, right? So the concept of accounts receivable and accounts payable, right? So there's the money that is owed to you. So let's say that you are a construction company, that you're paid 30 days later or 60 days later or 90 days later. Well, you have to be able to pay everybody those 90 days until you get paid for the labor that you've already paid out or your other payables, the AP part. And so you might think you make all this money because you have this huge nest egg of money. But if you drain your account when you sell and then it takes 90 days for that person,

to get any money because you think as the seller, you're thinking, hey, I already did the work. I paid my guys for the work they did. I deserve that money, right? Right. The buyer's like, yeah, but that 90 days, like I have to pay all your employees until I start getting money. So I have to invest a bunch of capital into the business. And that's going to just reduce the price of the business automatically, right? So that's, they have this concept of working capital, which people say it's simple, but it ends up being such a nightmare in the sales process. It is the biggest challenge beyond just lawyers.

With a bullet, the biggest problem is lawyers. Sorry, any lawyers listening, but I think you understand. But no, what we do is we kind of, I try and address it earlier, like before going under LOI. And I've learned that lesson over time because I used to want to hurry, hurry, hurry the process. You really got to be clear because it can be a lot. Like if you're paid 90 days after you do the service and you don't have a huge business, I mean, it could be a third of the value of your company that is like expected for you to leave in the business.

It's a huge sum of money. It can be if you look at it. So I make sure the buyer is only wanting enough to make sure that they just kind of survive. So as the weeks go by, that it dips down to a really low bank account balance and then starts to come up. Like we want to make sure that it works for everybody and that someone doesn't have to leave like way more than they need to. Because some buyers, especially like private equity types, like they want tons of working capital. And so we try and like fight for my sellers, but try and make sure that they understand that it's a real thing that needs to be figured out.

Anne McGinty (13:14.99)

It's like a happy medium.

Loren Vandegrift

Yeah, because as a seller, you're just like, oh, I have $3 million sitting in my bank account. Like it just kind of rolls through and it's like, yeah, but if you take that $3 million and you want all the money that's owed to you at the time of close, it won't work. So that's something to really think about as you're selling and to look at how your AP and your AR work together because sellers do not think about that. And they also, they think it's ridiculous and it felt ridiculous to me for years, but it's only in the past three or four years that I've really started to understand.

ramifications of not addressing that really well.

Anne McGinty

It's really interesting because it's even making me think about our business sale process because I shared that sentiment which was we earned that money. It's ours. It's so interesting for me to hear you say this now because I'm like, oh, okay, I get it now.

Loren Vandegrift

Yeah, no, me too. And I've now, you know, I also kind of buy businesses now. I've been more involved in the other side of it and I'm actually buying a business right now. And

It's really tricky. You got to think about it. And that's the best thing as a seller and as a buyer is to really look at it together holistically and try and separate yourself a little bit from your feelings and your understanding and kind of look at it at that level because it's shocking.

Anne McGinty

Let's say somebody who's 25 comes up to you and it's like, hey, you're a business broker. What types of businesses would you talk to them about with exiting in mind?

Loren Vandegrift

I mean, the big one is like kind of the unsexy stuff is the answer, you know.

It depends on what your goal is. If you just want to start a business and you want to make a lot of money and you want to sell it in a few years, I mean, right now, this tale I can tell you actually, this is a pretty good one, is that it's like HVAC, right? I don't know if you guys have tried to get a mini split or anything put into your house right now, but it costs so much money. It is insanely overpriced, right? These guys come in and one day they run the ducks, they get it out of the house, it takes one or two days and it's 20, 30, $40 ,000. It is so much money.

The margins are so high, you always, again, for the ARAP thing, you always get paid right when the work is done, or you finance it using an outside company so you still get your money day one. So your work capital is near zero to that point. And because people need it so bad, you can Google. This is a great piece of advice. You don't want to make a business where people don't know that you are around or that you're not solving a problem for them. I once did this. I had a business, and I was like, how do I advertise to these people? Because...

Loren Vandegrift (15:35.854)

I'm making a solution for something they don't know they have a problem to solve. Do you know what everybody knows they need to fix or install their HVAC? My furnace broke. I'm hot. I'm cold. It's such a simple base need. I don't care how young or old you are. You Google HVAC system fixer. My AC is broken or whatever. And so there's really easy ways to then market and advertise. So I had a guy here in LA. He was a car mechanic who then in the course of three years,

started an HVAC company, got it to a couple million EBITDA, sold it with me, right? Ended up getting out of his non -compete, which both sides are fine with, in a course of a year, started another company, whole new brand, whole different people, whole new everything, has 12 trucks, and is back to making a couple million a year, right? So he's made two $2 million EBITDA businesses in the course of, since COVID.

Anne McGinty

Oh my gosh.

Loren Vandegrift

It is crazy. And he was a mechanic before that, because you don't need the skill sets. It's a very easy thing. And the certifications are very easy to get.

So these kind of things, these unsexy businesses, they're the ones that really do well. And especially if you're solving a problem that people are willing to pay money for because it's an expertise they don't understand, you can get paid really quickly, right? And you have a path to advertise and get customers that doesn't take going viral for some crazy thing. I'm so curious, what other unsexy businesses pop into your mind? Service stuff. I mean, anything that is a niche that isn't...

General construction is not a good business, right? Being a developer of houses is not a good business, but being the guys that put the ACs into those developments or the plumbers or the anyone who is serving people. You guys know this. I mean, it's like, again, I love service businesses. Yes. And they're so expensive. It's so expensive. And I hate being on the receiving end of it, but it's just that's what it costs, especially if you're in a decently sized metropolitan area. It's just you're going to do really well. I mean, there's the unsexy or the better.

Anything, staffing, everyone's getting older here. So nurse assistants, I love nurse assistants because it's only like a few week training course. You're taking people that, let's say they're working at McDonald's, right? They have kids, they need flexibility in their schedule. They can take a course. If you're in Northern California, you can make 40, $45 an hour as a nurse assistant. That was making 15 before, right? They take care of elder people in their home, home care, all that kind of stuff is really good businesses and there's so much of a need for it.

Loren Vandegrift (17:57.39)

And again, unsexy, but also you're helping people, all that kind of stuff. Another thing is you should play on what you know as a young person. Figure out what it is that you're good at and really try and play to that. If you're an introvert and you don't like people, then don't make a job where you got to go on the road before you hire them, be the salesperson for it. Don't do that kind of job because it's not going to work out in the long run. You got to play to your strengths. Don't be like, oh, Lauren said I should make an HVAC company. And then,

You go to do it and you're like, oh crap, I gotta talk to people and sell them a product. Like, you know what I mean? Like it's like, it's like, it's like, you're really got to think through kind of where and what, like, but what you should not stop yourself is if you say, oh, I don't know how to install HVACs. Don't let that stop you. Cause that's easy. Right. But if you're like, Hey, I don't, I don't like to interact with people face to face, then don't do that business. That's another piece of advice is no business is actually that hard. I liked this at a young age and I had a great mom and great mentors growing up that nothing is hard to do.

Right? Everyone's expertise is only through learning and practice. Right? And if you locked yourself in a room for a year, you could learn how to be a micro brain surgeon or a rocket scientist. Right? There's no skill that is that hard to learn. Right? And the same is true for a company. That'd be my advice is don't let yourself be fearful of what you don't know, but make sure that you trust your instincts about what it is that you like and what you want to do, because there's going to be a path to make money with that. Right? No matter what it is.

Because you've got to know yourself to be successful.

Anne McGinty

So going back to the transactional side of buying and selling businesses, can you lead us through your observations on the differences between selling a business to private people versus private equity groups versus bigger companies?

Loren Vandegrift

Yeah, for sure. There's sort of different tiers of that. And I've seen and done all of them. You know, one.

One cool thing about selling a company that's anywhere, call it seven million and less, is that there's this concept of, everyone's heard of the SBA, the Small Business Administration. Everyone talks about how America is so good for small business, but if you actually own a small business, you do not feel that way because you're taxed horribly. It gets really hard to be a small business owner in this country. One thing that America does really well is they have this SBA 7A loan where they'll give anyone with 10 % down the ability to buy a business that they back.

Loren Vandegrift (20:17.742)

by 80%. So the banks have a lot less risk. And so someone with just a couple hundred grand in their pocket can buy a business that's worth two, three million dollars, you know, that's netting 600 ,000 in income. It is the coolest thing on the planet because you can take what would be a down payment for a house, which is this really stupid move right now, given how expensive houses are. And you can take that down payment and you can buy yourself a business where even after paying the bank debt, even at today's interest rates, you could still give yourself a couple hundred grand a year in profit that could be yours to take home, right?

It is such an amazing thing to do. So the lower level, that's what's cool about it is getting back to your question is that anyone can buy a business. If you sell your business for $5 million, you can have a couple that's trying to move across the country or start something, or, you know, maybe one had some success doing some job and they want to start more of like a lifestyle business. They can buy you like, that's a really nice interaction because the buyer and the seller and the broker are all aligned against the bank to like, how do we like it?

get through the bank's obstacles to get this sold. So I like that kind of a transaction because it's, you're all on the same team against the bank, right? Like I love aligning incentives, you know, it's like my, it's my, my thing. So when you're selling at that level, like that's what's nice about it is that you're all kind of together in it, right? Private equity or like a lot of cases, like rollups, people that are buying, like I just sold a metal roofing manufacturing company that had many locations and the private equity group is actually really, really nice deal. But the private equity group.

they're buying multiple locations and so they have to hit certain metrics and it's a bunch of associates that are working for the greater fund and they have a lot of limitations. So the real dance is like pushing these groups to the limits of what they can do without having them just move on, right? And so that can be really tricky because you know, you want to get the most you can for the business and you want to do well or maybe you want to roll some equity and have a good relationship. So you have to learn when it's private equity.

they will put up with a lot until they will walk because they don't need you either. It's this weird dance of pushing and giving. It's transactional. It's very transactional, right? There's a lot less heart in it, but there always is for the seller and me, I'm super emotional as a person. So I'm very invested in my clients. So it becomes a really weird thing because you really have to kind of step out of yourself and really know when to push and know when to give. But sometimes private equity pays really well because they really need you. Right. And so you got to know when you have that.

Loren Vandegrift (22:38.446)

power too. It's a lot more about like power dynamics, I'd say in the kind of private equity type deal, right? And then there are other people, like there's people called independent sponsors that they think of them almost like wholesalers with real estate. Like they find you, they put you under a letter of intent to buy, and then they go find the money. Oh, it's just like an unfunded sponsor. Kind of, yeah. And there's this thing called search funds, which is another thing. That's when they take recent MBA type graduates and they...

They meet them at a conference and they say, hey, we'll give you money. Just go find a good business and grow it for us. And then you'll get a bunch of money. Search funders are interesting. I have a love hate relationship with them because sometimes it's a 24 year old kid who grew up with a lot of money and never had any sacrifice or learned anything. He went and goes to Wharton to get his MBA. And then he thinks he can run a $12 million like window install company. And it's like,

I will run to the hills if I get those guys now because it's like you have no idea what this business is. And they all think that they're better than the service thing, right? Like people that have that kind of background, they want to be so high level, they don't want to get their feet wet. That's another people group to sell to. And that is interesting.

Anne McGinty

So interesting.

Loren Vandegrift

Yeah.

Anne McGinty

So and then what about selling to bigger companies that are just going to swallow you up and yeah, consolidate you.

Loren Vandegrift

Oh strategics? They're real and they are real in certain in certain places. Like, for instance, if you're an obstetrician and you have like people come in to buy glasses and whatever, Lenscrafters will buy you for huge multiple instantly because they're just trying to buy the market out, right? Like there are certain segments where a strategic really works. But a lot of the time, that's the thing, you here and off you Google this, everyone will say, oh, strategic, they're the ones to buy you. But strategic often just think that they can just like enter your market and.

they don't need you to be successful. So unless you really offer something they need, they don't really need you. That's a real misconception that I used to think too. And now I've learned a lot, which is that it's much better to sell to the people that are trying to buy five of you to compete against the strategic than it is to sell to the strategic because the strategic, A, they know how your business runs. They know how it works. They know your secrets without you revealing it to them. And so they don't often pay as much or need you as much as you think they do. There are totally exceptions, but.

Loren Vandegrift (24:54.464)

Strategics are really interesting. And that's one of the biggest things I've learned is that they are not as great as you think they are to sell to. But sometimes it can be great. Again, everything has two sides to it.

Anne McGinty

I get what you're saying. So you mentioned that SBA 7A loan. And I know you're not a lender, but do you know what happens if you can't pay that loan because the business suffers after the transaction closes for one reason or another? Are you personally liable?

Loren Vandegrift

Yeah, so there is that. Again, though, it's still the best thing going. It still absolutely is, right? You need to be smart. You shouldn't buy a business that's going to fail because you do personal guarantee your assets, right? So let's say you have a house. Maybe you want to put it in your spouse's name, or there's things you can do to protect your house. But for the most part, though, you definitely can lead to bankruptcy if you really, really screw it up, right? They work with you. The government isn't out to bankrupt people, right? But you are taking a risk, for sure. But

It also lets you achieve so much, right?

Anne McGinty

Risk but pay off, yeah.

Loren Vandegrift

There's payoff for sure, but you got to be smart. We've only had, I think, one or two in our whole history where we've heard that it failed. But one of them was this before my time, really early on, but it was one that, and we were better about this now too, where if it seems too good to be true, it just might be. Yeah. Even if it's working for that person, it might just be because that person is particularly awesome at that thing. And so you got to get that.

what's called key man risk, you got to make sure that the person isn't the business, you know, that's a really important thing to learn because yeah, there is risk for sure. But at the same time, risk can really be worth the reward, right? Because the opportunity that that affords you to be able to basically put 10 % down on something that then can pay you back that 10 % in a year or two, there's nothing like it.

Anne McGinty

Right.

It's like 100 % return on your money invested.

Loren Vandegrift

It's the best. It's absolutely the best. And a lot of companies, especially now, is like, people are getting older. A lot of people are in their 60s to 80s, and they're calling me now, especially after COVID. And they're just like, ah, it's just time. And I actually, it makes me sad. I got a call last week on Friday. I had two calls that day. One was a 43 -year -old who was like, yep, it's time. I'm making the money. I want to go hang out with my kids and travel the world.

Loren Vandegrift (27:10.478)

And I much prefer that call versus the other guy who called that day and said, oh, I'm 86. I have some health issues. My contracts have a three -year life cycle, so I'm not sure if I'm going to be alive by the time my current work ends. Oh my gosh. And I hate that. It makes me so sad, right? But at the same time, to find those sellers and to know that someone who's 60 years old, they've done things a certain way, right? They haven't likely made the right

website upgrades or the right funnels. They don't understand how social media works. There's all these opportunities that you can find in businesses that you can change and apply your own skillset to. So there's a huge opportunity right now as you find a really good core solid business and whether it's updating the accounting, the marketing, the logo and the branding, the way they do things, the methodology with which your crews report to you. Like there's just so much stuff that if you're young and hungry, you can find.

include solid businesses and then apply your, it doesn't even have to be special sauce, it can just be like your basic one -on -one stuff and really see a lot of success. Right, increase the value with just a few minor changes. Yeah, and also, but on the flip of it, don't think that you know too much. Don't think you know better than a 65 -year -old. That's the other thing I tell every buyer is do not change a thing for a year. Unless the seller thinks it's a good idea, do not think that you know. I had a deal.

the person came in and they just thought that they knew best. It's okay now, but they just totally didn't see why it was special. I had another one, I went in Texas where the person thought by taking the business and moving it from the upstairs above the check cashing store into the big high rise, they thought that they were up marketing it and that it would be more compelling for customers. It wasn't. Customers liked that they were connecting to you because it didn't feel like this owner was so wealthy and above them. And so they...

They absolutely tanked that because they thought, oh, the fancier the better. People want to come in and feel fancy. It's like, no, people don't a lot. So that's the other thing too, is to know that changes can really be an amazing thing on a business, but know that you really, really don't know until you spend some time with the business why it's successful and don't rock the boat. You don't assume that you know until you really, really, really take the time to learn and know that it's the right move.

Anne McGinty (29:26)

That's great advice.

How long does the typical business sale process take?

Loren Vandegrift

That's changed since COVID. I used to tell people six months was what it felt like. First, it takes a month to kind of interview you, get your financials together, build the prospectus or the SIM, which is the secure document that people get when they sign the NDA. And then it takes about two months usually to find the buyer. And then diligence takes three months typically. So I used to say six months.

So that's the ideal world. I've done a deal in three or four months, but it's really rare. It takes a while because people have to vet you, right? It just takes time. So the reality is six months is ideal, but usually it's nine months because maybe you'll fall through under the first LOI or things get delayed or the banks or the lawyers or the accountants or whoever throws a wrench in it. You know, a holiday hits end of the year, right? Between Thanksgiving and the end of the year, it's like nearly impossible to close anything. So that sometimes just takes two months.

There's a lot of humans involved in these transactions. So it's in your head. Nine months to a year is what I think you should plan and hope that it's less. But it's a process.

Anne McGinty

I remember when we were selling ours and you had said nine to 12 months. And at the time, honestly, that was just like, wow. As a seller, sometimes you don't even realize what your potential is.

Loren Vandegrift

What did you think that was short or long? What did you think?

Anne McGinty

I think I just didn't understand the process of selling enough.

to know that a transaction could go from starting to closing within nine to 12 months. It sounded fine to me.

Loren Vandegrift

Oh, good. That's good. People are shocked. People think that at some level, too, that you're as a broker, you're putting it up on Zillow and waiting for the offers to come in. But it's not. I tell people that it's not finding the buyer is the easy part. It's getting the money in the bank that's hard because I become this project manager slash therapist slash deal maker.

I have a deal recently where there were three owners and I'm basically being the therapist between the three owners about what they all want. You know, it's not even to do with the buyer, right? So there's a lot to it because it's also, because it's the biggest thing you've ever done. It's usually and often the person's life work. It's the biggest single event in their life. And on the same token as the buyer, it's taking a huge amount of risk and they really, really need to know that what they're buying is good. And so...

Loren Vandegrift (31:46.638)

It could be really painful, right?

Anne McGinty

It's an emotional process.

Loren Vandegrift

Oh my God, it's so emotional, which is like, often I think part of what I'm good at is that I'm good at the emotional part, right? So that is, I think, what gives me a pretty good advantage is that I understand that part of it. But it's some work. Like, just don't fool yourself in either direction. It's a real process to do it. And it can be really fun too. I mean, you experienced it. I mean, it's got a lot of highs and lows, right?

Anne McGinty

Yeah. I learned a lot in the process, so much. During that multi -month due diligence process,

What do you recommend for both sides to minimize risk all the way through?

Loren Vandegrift

Transparent is the number one thing. You know, I think on both sides, I try and tell everyone to be really, really honest with each other so that nothing is hidden. You know, if there's fears, really, really try and be clear with each other when there are problems that come up and really work together to solve it.

When I said that aligned incentive thing, I meant it, right? It's that you don't want to sell to somebody you don't like, and you don't want to buy from somebody that you don't trust, right? I mean, you really need to have those things in place. If you don't trust the person you're buying a business from, don't buy it. And as a seller, if you don't like the buyer, they're buying your baby, right? You know, your employees are going to report to them, like, you need to like and trust the person buying your business. You know, life's too short to put up with.

jerks, to say it nicely. And that's the biggest one. And then more specifically, it's just making sure that you can look at a problem and don't get too fired up and defensive, right? When you look at the purchase and sale agreement, you know, the big document comes through and there are these reps and warrants, which is not to get too in the weeds, but you have to look at it and say, okay, what are they really trying to protect themselves against? How do I reassure them and make them feel good, but also don't make it so that if...

when they buy the business and they screw it up, that somehow I'm liable. How do you just find that middle ground? And you have to be able to give, because the biggest struggles I have are when it's often fueled by lawyers. In fact, it's almost always lawyers, where they try and push things so one -sided that it just doesn't make any sense. You've got to be able to look at what people's intentions are and find that truth in the middle. There's got to be a way to step back and reflect on. Don't just be like, oh, F this person, because they

Loren Vandegrift (34:00.622)

They said this and that and they promised me this. It's like, well, what are they trying to do? Are they really trying to screw you or is it that they're scared of this or that? And how do we solve for that? You know, and just always being open to that because otherwise things can get really heated when it's near the end. That's what I said when it's the finding the buyers easy, but getting to close is the hard part. I mean, that's almost every one of my deals, even with the best buyers and sellers all nearly blow up at least 10 times. And so it's just really important to breathe.

Anne McGinty

Yeah.

So do you have a list of buyers that you can go to at any one time?

Loren Vandegrift

Yeah, we do. So we've built 20 -some thousand different buyers and different equity groups that we use as our kind of base pool. The way we sell is a little different. There are places to list it and whatnot, but it costs us quite a lot to sell a business because we spend a lot of time and money getting in front of people that have the money to buy businesses, especially at the larger level. But the way we usually do it is like, let's say we have a business we're trying to sell.

I'll go out to 200 people and I'll say, Hey, we have this business. If you could sign the NDA, I'd love you to check it out. And people do, they're curious. And of those 200 people, rarely is one of them the buyer. But what will happen is 50 of those people will say, Oh, go talk to this person and this person, this person. And then someone comes to you, you want to give them a good referral. So you say, Hey, these people are great. They'd love your business. It's that second or third tier out from my initial.

request that that's where we end up finding our buyers because it's all a big network, right? It's a big spider web. That's my way, at least in our way for the most part is that we have a great network that then also has a great network that then also has a great network, right? Even you. And if I had a business that was up in your area, right? And I wanted to find a really cool buyer, you bet you I text you and be like, Hey, I have this great thing. Relationships are everything in business. And it's the same is true for, for M &A.

Anne McGinty

So when you list a business,

It's my understanding that you are fielding potential buyers. What are you doing to vet them before presenting them to your seller?

Loren Vandegrift

It's a tricky thing because we don't want to be too secure because some of my best buyers have been people that I didn't think should qualify and they end up being like either super wealthy or super interesting and great. So it's a really tricky thing. So we sort of have a two layer system where I have people on my team that initially talk to and verify the people that are

Loren Vandegrift (36:22.03)

potentially buying. And then from there, I then talk with them. And again, it depends on who, right? It's different kind of buyers. If it's a private equity group that's got a $5 billion fund, I pretty quickly, between LinkedIn and we have the software we use, can see that they're real associates there and that they're real. That's easy. That's five minutes. Sometimes if it's a buyer who is just like person or a couple and they have some money, it's a little harder. Then it's when people sort of are not.

online or available or present. That's when we have to do a deeper dive because this may or may not shock you, but there's a lot of people that have been involved in hundreds of deals and have a ton of money that you cannot Google at all. They love being in the background. There's a lot of people that try and stay as away from the limelight as possible that are great buyers, right? But you got to really research them because it makes it harder.

Anne McGinty

I guess they just really like privacy.

Loren Vandegrift

Yeah, or more, it's just like it gives them power. You know, like in a culture that prides itself so much on attention and clicks and likes, there's a whole power to the opposite as well, especially when you want other people to be doing the work for you.

Anne McGinty

Interesting. So without giving away any proprietary information, what has been your favorite transaction to date? I mean, yours, obviously.

Loren Vandegrift

Actually, yours was great. It was a great transaction.

Anne McGinty

It was pretty smooth.

Loren Vandegrift

I did use yours for a long time because of what you guys did. It's just the most ridiculous thing in your lifestyle. You lead, like you guys are like a great example of a freaking cool business to sell. Truly. I mean, I do, I still use your business a lot because it's just so fun. But I sold a business that was a lifestyle e -commerce business. So I sold it, right? This lovely couple owned it and they sold it to this great, great young guy. He then grew it more than doubled it, like tripled it in the course of a year. Then I resold it for him, right? In the course of like,

two and a half years I sold the company twice, which was really fun. And then I sold a lot of interesting stuff around like education, HVAC. I sold a company that they make bread, they're a big bakery. I actually have a deal too right now, actually, it's gonna come back if you want to buy it. They make French macarons, you know, and they make all these cool tarts, but they make them by like, the huge scale, you know, millions, millions, millions of dollars a year, which is again, that you wouldn't think that making some pastries would be a hugely profitable business, but it really can be.

Anne McGinty (38:42.31)

Especially in this country, Mark, my husband, is from New Zealand and the population of New Zealand is maybe only five million. You know, so anytime you look at a business opportunity and you see the scale of America, it just feels like, wow.

Loren Vandegrift

It's so true. I mean, I'm actually don't let the accent or the non -accent fool you. I actually grew up in Australia and it is. We're really lucky. This country, America, will sell businesses in Canada. We'll do some stuff overseas, but it is.

uniquely special place to grow and have a business. Access to capital, it's so much harder in other countries.

Anne McGinty

I think the positive to that, at least the way that I've seen it in New Zealand, is that anytime you see a small business starting up, they are really hustling and their branding is on point. Their customer service is fantastic. They just, they have to. Whereas here in America, you don't necessarily.

Loren Vandegrift

You can sort of stumble your way into success here if it's a need big enough. Like, yeah, again.

You see my comment about HVAC and plumbing, right?

Anne McGinty

Oh, plumbing. I had a plumber turn up the other day and he spent 15 minutes snaking a drain and he slapped me with a $385 bill for 15 minutes.

Loren Vandegrift

It's unreal.

Anne McGinty

I saw a flaw in it.

Loren Vandegrift

One of the conflicts I have is that I love my sellers that have plumbing businesses that do that, but I also think it's absurd.

Anne McGinty

There's definitely room for improvement because I feel like there's a win -win there somewhere if somebody wanted to come in and run a more ethical business.

Loren Vandegrift

You want a good one? I think would work really well is make a plumbing business, right or an HVAC business. But instead of charging people a ton of money, because what you want is recurring revenue, right? 100%. There's aren't. Well, don't gouge people, but make a true kind of membership service where people give you a couple hundred bucks a year. And 90 % whenever have any problems, right? Give yourself protection so that you're not like having to go out 100 times.

But make a system where you make people know that they're protected if something goes wrong and that you're there to help them, right? And actually help them. Don't be a jerk about it. Like truly service that person. That would be a great business. And those multiples, you'd get more money because recurring revenue, by the way, is a way higher multiple. If you can get recurring revenue, that's like the name of the game. Look at your credit card bills. It's all recurring revenue, right? If there's a problem like that, like my $400, you snake draining thing, well, what could you do to both make money but make that better for people?

Anne McGinty (40:58.478)

Yeah.

I think we're aligned on that. I couldn't agree more. So you're in an interesting position because you both help people buy and sell businesses, but you also are kind of growing the business brokerage. Given your experience in using technology in business consultancy, how are you using technology to scale?

Loren Vandegrift

Oh my God, it's so much. I mean, this business is a combination of it's a hugely human thing at one level, like I'm on the phone.

day every day, right? Because there's that level. But at the same time, we have all of these leads coming in and out, and we have to be sending emails and using like CRMs to track it all. You know, I'm staring at a list of 300 little boxes in the grid right now, my kind of plate, right? And you need to use technology hugely to be able to track all that, you know, all our databases of our buyers, our sellers, what they're interested in, right? Like, if we list 100 and some deals a year,

I want to make sure that if a buyer was looking at an HVAC deal that someone listed in Missouri, well, I want to be able to reach out to them for my HVAC deal in Texas, and figure out if they're interested in that, and be able to say, hey, what 300 people do we know that might buy this? We use data and technology all the time, basically, just to be our brains, because there's just no...

ability for any human to be able to track that stuff. I'm full, like my brain is full. I need to be able to have it be elsewhere and automate stuff too. You know, things like Zapier, which lets you sort of without code have it. So like, okay, an email comes in, lets you sort of do an if this then that, but without code. It's brilliant because we can deal with a lot of inbound inquiries and wrap things around to the right people.

Anne McGinty

Yeah. If you were to start another business, what would you choose besides HVAC?

Loren Vandegrift

Yeah, right, I mean it's the combo. It's like, what would I choose versus what would I think would be the right one for money, right? One of my goals in life is to be able to do the pet project. I'm an entrepreneur. I have a list of 50 businesses I'd like to make. A lot of them are technology or apps. So, you know, I'd love to be able to get myself in a position where I can self -fund without the stress of VC capital, you know, all these ideas I've had since I was 15 years old, right? But...

Loren Vandegrift (43:13.102)

If I were going to build a small business in sort of like the more traditional sense, I'd try and look at a problem that I think that you can make work better for you while helping people solve something that they need. And also what I would do is I'd empower people. Make it so everybody in your organization is empowered to succeed. Not because of their own success, but the whole business. Like everybody should have a rev of share or a profit share or an equity share. Because everyone wants to be aligned.

in growth and success of a business. I think that I want to buy a business that both helps people, but also empowers my employees to help the business succeed so everybody's doing well. Everybody wins. Yeah, and you can do it. It sounds like I'm saying to do all things. If you push so hard for profits that you break the system, how do you find that balance between being successful but also leading to the better outcome of the people around you in the community?

Anne McGinty

Those are the best.

Loren Vandegrift

There's plenty of money in that.

That would be what I would look for is something around that, even if it's unsexy, even if it's gutter cleaning or whatever, you know? Yeah, yeah, totally.

Anne McGinty

What motivates you? So what is your ultimate goal? What are you working towards?

Loren Vandegrift

I just became a dad six months ago now, which has been kind of a huge shift for me in that. I always wanted to be able to be a present father and to be able to be successful also. I'm trying to find that balance and then.

Ultimately, my friend and I, we call it building the machine. I want to buy and have a stake in enough businesses to be able to have and live a great life, but making it so that that's all coming from revenue that is just from things that don't involve my daily work. I want to be able to help others, help my family and help my family while also not having to work very hard. That's I guess the answer. And I want to still do deals. I love, love, love being a business broker because I love...

what it could do for people. It's about trying to find that financial place where you can choose. And I already have that, so I'm already in a pretty blessed position. If you're not a nice person, I won't sell your business, right? If you're not a nice buyer, I won't even entertain it. Other than the occasional bad lawyer, I work with only good people.

Anne McGinty (45:33.518)

That's awesome. OK, so last question for you. What advice would you give to your younger self? So imagine yourself at 22, 24, something like that.

Loren Vandegrift

I think the biggest thing would be to kind of get over fear of what other people think of you. And nothing is that scary or hard. Always continue to take risks because that is the real key to everything in life is like you're taking risks, especially when you're young and have less to lose. That's the other thing. You don't have anything to lose when you're young. And I always was so scared of the small things that I had. Now I have something to lose, but then I didn't. Just go for it. Don't be scared. Don't let people's judgment, whether it's a partner, family, friends, derail you. And also,

People are filled with fear and I spent a lot of time listening to my friends that were so filled with fear that I didn't trust my own instincts to just do what I wanted and what my instincts were and ended up doing it later in life. But had I done it then, I think it would have been faster.

Anne McGinty

I think it's great advice and it reminds me a bit of what my parents used to say to me when I was in my twenties. What have you got to lose?

Loren Vandegrift

And you think you do, you think whatever you have is so important. I had a geo -prism living in New York City in a lovely but crappy apartment. I mean, you could do so much with that.

Anne McGinty

Totally. Well, Loren, thank you so much for coming on the show. I really appreciate it. It was good to have you.

Loren Vandegrift

Yeah, this is great.

Anne McGinty

If you've made it this far, thanks for being here. Today's key takeaways.

The SBA's, the Small Business Administration's 7A loan program may provide you with the opportunity you need to finance the purchase of an existing successful small business. If you have a 10 % down payment and the business owner seller finances 10%, then you may be able to borrow 80%. So look into this option. It can take nine to 12 months to go from listing a business to closing on the sale.

If you're hoping to sell your business in the foreseeable future, take out fringe benefits from your cogs and work on building a sustainable team to make the transition seamless for the new owner. Most businesses sell for between three times to seven times their net profit. And if yours is running more smoothly, that will likely benefit you in your valuation. Remember that your company needs working capital when it changes hands. So don't get caught off guard.

Anne McGinty (47:48.206)

As a seller or buyer, try to look at the business deal together so that it works well for everyone. If you're thinking about starting a business, consider your ultimate motivation. If it's just to make as much money as possible as quickly as possible, then it doesn't need to be a sexy business. In fact, it could be that the unsexier, the better. And remember, recurring revenue gets much higher multiples. Consider a niche business.

One that is serving people and that solves a problem. And best if you can operate near a metropolitan area. Know your personal strengths, then learn skills. Don't shy away from skills you don't have because anyone can learn new skills. There are older business owners that are looking at retiring from their businesses and there can be a lot of success in upgrading those businesses for modern times, whether online or operationally. But,

Don't discredit the existing owner's knowledge and experience. It takes risk to achieve goals, so be smart, but also get comfortable with the concept of taking risk. Lastly, if you're new to business terminology, look up these terms and know what they mean: EBITA, P &L, COGS, AP, AR, LOI, PSA, and Key Man Risk.

Thanks for being here. Have a great day!