The Dead Pixels Society podcast
News, information and interviews about the photo/imaging business. This is a weekly audio podcast hosted by Gary Pageau, editor of the Dead Pixels Society news site and community.
This podcast is for a business-to-business audience of entrepreneurs and companies in the photo/imaging retail, online, wholesale, mobile, and camera hardware/accessory industries.
If you are interested in being a guest on the podcast, email host Gary Pageau at gary@thedeadpixelssociety.com. For more information and to sign up for the free weekly newsletter, visit www.thedeadpixelssociety.com.
The Dead Pixels Society podcast
Boosting Business Value Before You Sell, with Peter Mohr
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Is your business prepared for a seamless transition when it's time to exit? In this Dead Pixel Society podcast episode, Gary Pageau brings back seasoned business coach and retailer Peter Mohr, who dishes out actionable insights on aligning the "five P's"—promise, product, process, people, and profit—to ensure a smoother exit strategy. Learn how common pitfalls like death, disability, divorce, distress, and disagreements among partners can disrupt your plans, and why proactive planning is essential to avoid these unwanted surprises.
Discover the alarming statistic that 70% of business owners regret their decision to exit within a year due to poor planning. Mohr emphasizes the importance of a comprehensive exit strategy encompassing personal and financial planning, vital for family-run businesses or those intending to sell. Get the inside scoop on the four critical components of business value—human, customer, structural, and social capital—and how engaging professionals like CPAs, lawyers, and financial planners can maximize your benefits.
Mohr also shares invaluable strategies to enhance your business's value, such as documenting and systematizing processes to entice potential buyers. Find out how modern tools can make these processes repeatable and understandable, and why involving a business broker can be a game-changer in the selling process. From setting up your business to attract the right buyers to the challenges of selling to competitors versus outsiders, this episode is packed with expert advice to ensure your business exit strategy is robust and effective.
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Hosted and produced by Gary Pageau
Edited by Olivia Pageau
Announcer: Erin Manning
Welcome to the Dead Pixel Society podcast, the photo imaging industry's leading news source. Here's your host, gary Pegeau. The Dead Pixel Society podcast is brought to you by MediaClip, A Printing and Independent Photo Imagers.
Gary Pageau:Hello again and welcome to the Dead Pixels Society podcast. I'm your host, Gary Pegeau, and today we're joined by Peter Moore, who's coming to us from Canada, and he's a business coach and retailer and, if you remember, he's also a past guest. He was on back in December of 2022, talking about all kinds of things about how to run your business, how to run your business successfully, but this time we're talking about how to get out of your business. Hi Pete, how are you doing today?
Peter Mohr:So great to be back with you, Gary. Thanks so much for having me. And you know what? It's so crazy how quickly time flies. Oh, absolutely, boy. I tell you, a year and a half goes and it's like ping. I thought it was yesterday.
Gary Pageau:There you go Now. For those who may not have been listeners back then, I highly encourage you to go back to that episode. But can you give us a little quick introduction of what you do and also mention, like your, your retail stores, which I think are relevant Sure.
Peter Mohr:Well, as you said, I'm a retailer. So we have shoe stores here in Canada. We've got two shoe stores called Shoe-topia and I guess you could call that as one of my day jobs. So we have shoe stores here in Canada. We've got two shoe stores called Shoe-topia and I guess you could call that as one of my day jobs. I spend about a day, day and a half a week with the shoe stores and then I spend the other time coaching owners, business owners, and that business is called Simplifying Entrepreneurship and that's my coaching business and I do a lot of coaching for retailers.
Peter Mohr:I do coaching for lawyers and all sorts of different coaching for different business owners, because business owners are a unique clan and they go through all sorts of different issues and their lives are tied together and there's just so much around entrepreneurship. Entrepreneurship but the reality of it is is whether you have a Photoshop, a shoe store, landscaping company I work with a fellow that makes musical instruments in India, so it really doesn't matter. A lot of times the issues that the business owner have are the same, no matter what sort of industry you're in, and that's what I coach. I coach the business owners themselves as a general rule and sometimes work with their teams, so long as they're involved as well, trying to say, I like to say helping them move from operators of their business to owners of their business. And you know I'm trying to release freedom for them because you know, gary, as we start our businesses and unless you're really heavily, you know, deep pocketed, let's call it as we start our businesses, and unless you're really heavily deep pocketed, let's call it as we start our businesses we have to make all the decisions, we have to be in the weeds, we have to be doing what we got to do and getting it going and all this kind of stuff.
Peter Mohr:But the reality of it is is that once you get to a certain point, we get habitualized to making all the decisions and we don't know how to release them because we've been doing it for so long. Right, and you know some of the stuff. A lot of the work that I did and what we talked about in that first sort of episode was all around the five p's and quickly capping that. The five p's are understanding your promise, aligning your product or service, offering your process, your people, and so that you can make the right amount of profit. And once you get to the right amount of profit, you can get more freedom. So if you like that sort of idea and concept, go back and listen to the one from a couple of Decembers ago now, but it's still every bit as relevant as it was back then.
Gary Pageau:Yeah, exactly. Well, and that's really why I thought it was interesting to have you back on, because there's certain parts of the photo business that are very, very specific to the photo business. Right, yeah, there's equipment, there's software, there's, you know, there's marketing. There's a lot of things that are just evergreen true for every business, and that was a lot of people in the photo industry are struggling with today in a lot of different levels is what do I do with my business? How am I going to get out of this thing in a way that makes sense for me?
Gary Pageau:I have friends who have run camera stores for a lot of years and then they reach a certain age and they realize they have no plan and they just have to have a blowout sale and close the door. And again, that may be great if that's your plan, but if it's not planned that way, it's maybe going to be a disappointment. And so when should someone start thinking about their exit? Let's say they've got all their peas lined up and they're making the right amount of profit, and so when should they start thinking about it? Certainly not. You know, if I want to retire next year, not this year. Right Now it's gotta be, there's gotta be a timeline.
Peter Mohr:It should be. When you open your business, you start thinking about the end right then. And I'm not saying you focused all your energies on it, but ultimately you've got to start thinking about that stuff because you know, Gary, there's one thing that's going to happen. That's a guarantee you will exit your business someday. Right, and here's why people exit businesses. Number one they die.
Gary Pageau:Right.
Peter Mohr:Number two they become disabled in some way.
Gary Pageau:Sure.
Peter Mohr:Number three divorce. With over 50% of marriages, especially if there's a partnership there. Divorce causes a lot of business exit, distress. If the business is in, you know we're shape and disagreement amongst partners. So the five D's death, disability, divorce, distress and disagreement will cause you to exit your business someday. So if you know with certainty that you will exit your business someday, why wouldn't you start planning now?
Gary Pageau:Right? Well, because I think some people it's almost like you know, not having life insurance for yourself, right I? Don't want to think about that right, because when I think about that it's uncomfortable for yourself right, I don't want to think about that, right?
Peter Mohr:Because when I think about that it's uncomfortable.
Peter Mohr:Well, you know, I think the reality of it is is, if you have any future plan past the day of exiting your business, you need to start thinking about this, because there's not only the future plans of what you will do, because a lot of small business owners, especially if they've been at it for a long time and maybe it's a family business, couple of generations you know, gary, I work with a lot of next generation people and some business transition and a lot of that sort of stuff and you know, do you really want to leave your business or not set it up for a proper transfer to your kids? And if you're not transferring it to your kids, do you really want to leave it where there's money on the table for the new owner and you're not going to get that so that you can live the life that you want to live after your business? You know, one of the interesting stats around the business transfer is that 70% 7-0% of people that sell or exit their business regret that decision one year later.
Gary Pageau:Right. And why is that? Is that because they feel that they didn't get enough, or they wanted to keep working, or they didn't feel Because they didn't have a plan for after exit. Okay, they didn't have just a plan at all. They didn't have a plan.
Peter Mohr:We plan for business, we plan for budget, we plan for marketing, we plan for business, we plan for budget, we plan for marketing, we plan for all this stuff, but nobody. Everybody just says, oh, I'm going to turn 55 or 60 or 65, whatever your magic age is for you, and you say that's when I'm going to retire. But what does retirement mean? Right, and what's your what's? What's after retirement for you?
Peter Mohr:And so many business owners that have been so involved in their business for so long don't have a plan for after retirement. And that plan's not only the personal plan, it's also a financial plan. And so you know, although I'm not a financial planner and all that sort of stuff but I have I'm a strong believer in getting all your ducks in a row before you exit. And that includes insurance and that includes wills and that includes all of the other things that go along with it, because it's all part of the exit planning process for you, the business owner, to make sure that you take as much with you through the process as you possibly can, including tax planning and all that other stuff, right, so consult a professional for those things.
Gary Pageau:You won't find it here.
Peter Mohr:Yeah, but that's part of your exit planning team and I think that's what I'm getting back to.
Peter Mohr:You need to have a proper CPA, a proper lawyer or an attorney, a proper financial planner to help you through. I'm in the midst of getting my certified exit planning. So a proper CPA that's going to help take you through some of these things and help you organize your exit properly and all of these different things so that you can enjoy your retirement and exit with the maximum amount of money. You had mentioned. You know liquidation and, as a former business broker, I used to be a licensed business broker back about 15 years ago helping people buy and sell businesses.
Peter Mohr:And as a former business broker, you know you always knew the businesses that were running properly and the ones that weren't, because the ones that were running properly before the exit went for multiples and the ones that weren't went for a discount Right. And so what I? You know the whole 5P process that we talked about a year and a half ago is really setting your business up so that it's running on rails without you. And when the business is running on rails without you and earning that type of profit, you're going to start looking at getting a maximum exit for your business. It's part of the exit process.
Gary Pageau:Because I think one of the expectations that I encounter sometimes when I talk to people who are looking to exit, they kind of look at someone buying their business as a reward. Like I'm going to make I don't know, a million dollars. Somebody's going to buy my camera store for a million dollars because I put all this into it and I deserve it, and I'm like they're buying the future. They're not buying what you did and it's a very typical, unfortunate perception.
Peter Mohr:You know, it's really, really interesting. One of the first steps in preparing your business plan is to get evaluation done on your business. Currently, like today, and so you use a professional to get a business evaluation because your thoughts of what your business is worth and the business evaluation are usually quite different and you have to get over this gap. That's there, right, that's part of the gap. If you don't like that gap, then you have work to do, right, and that work usually revolves around the four c's of of of capital, essentially, and those four c's really are human capital, right, which means you know your team how good is your team?
Gary Pageau:Yeah, exactly Can't it run without you if the team is no, exactly.
Peter Mohr:No, right. So you got human capital. You got customer capital. How good's your client list? You got structural capital, which we talked about a lot in the last episode, which is all around process. Are your processes documented, you know? Are they searchable, are they understandable, are they reliable, are they efficient? Are they sure you know? And so you have a human customer, structural. And the last one is social capital. And when you look at social capital, how much you know, depending on if you're a small town or in big city, whatever the case is. But you know what's your social capital? Do your clients, like you do? Does your community rally around your store? Are you the key person there? What are you giving back to your community? All of the things around community involvement are your social capital. And people don't often put much look, you know, take a whole lot of look at that, until it's time to sell their business and the person's going well, like, how does anybody even know you? You're not involved in anything?
Gary Pageau:and how much does that factor into the valuation, right? I mean? I mean I know these folks, yeah, and probably put a number on it, but yeah, they do put numbers on it, but it's like what's the weight on those four Cs right?
Peter Mohr:I mean what's?
Gary Pageau:the percent each, or which one's the.
Peter Mohr:Yeah, I mean, I do think social capital is a little bit less than the other three, sure, sure, but I think it's valuable and so human capital is obviously monstrous. Right, who your team is? Customer capital is very big because the customer, they're buying a customer list. Right, are you taking emails? So many retailers that I know don't take people's emails. I mean, like, if I'm selling, if I'm buying your business, I'm going to ask you how many customers are going to say, oh well, we put through 30,000 tickets last year. How many emails do you have? 50. It's like come on, email is the number one thing. Still today is the number one thing to directly contact your clients. It's vitally important Structural capital.
Peter Mohr:So if I don't know anything about running a photography business and but I like your, everything else about your business and I I can tell you I didn't know anything about running I. I'd run many businesses in the past, but I've never, never, owned a shoe store before. I bought my shoe store right and so I came in as a you know, a green shoe store owner and the business I've been going for 12 years. It had some process. It was pretty poor, to be honest with you, but I structured it in the deal that the owner stayed around and while he stayed around for a couple of months I hammered out process with them because I needed it. But if that was given to me upfront, I would have paid more for that upfront not to have to worry about, because I know that the process is running. I can come in, sit at my desk, see how things go for the first few months and then start making my changes.
Gary Pageau:And actually the social capital side is actually the one it's going to take some time, but you can actually build that fairly quickly.
Peter Mohr:For sure, yeah, for sure. I mean we do like as a small town retailer. We are both of our stores are in small town. We're involved all over the place. We're helping out hockey kids teams. We're, you know, heavily involved in the local food bank. We do all sorts of different things that are supporting our community all the time, and it's just part of being a good partner in your community. And so you know if somebody is coming in saying how deep are you within your community? We go deep in our communities and you know, I think our social capital is fairly strong.
Peter Mohr:Structural capital is really strong, because we talked about this in the last one too the four A's of accountability. When you start releasing some accountability, the four A's are assess it, address it, align it and assign it. So when you think of a process, you assess that process that you're looking to hand off to somebody, assess it, address it. So if it needs to change, you address it, align it. Who do I see on my accountability chart that may this may go to, and then assign it, which means I'm actually handing over authority. I'm not, I'm not just giving them the title. I'm saying you can now own this and they're saying, yes, I will like, I would like to own this, and that's that's sort of this idea behind structural capital and human capital. So if you get your business running on rails without you, it's worth way more in most cases than if you were the key foundation, because the buyer is looking at it saying, hey, if I buy this guy out and he's making all the decisions.
Gary Pageau:Right.
Peter Mohr:That's not great.
Gary Pageau:Yeah, yeah, I mean, you're basically got, you know, four walls and some furniture, basically.
Peter Mohr:Yeah, and some cameras, and you know, whatever the case is, right, it's like you know, I'm now a little bit worried about this deal where, if I went in and it's like, hey, man, I work a day, day and a half, in my store, my managers tell me what to do when I go to the store. I don't tell them what to do.
Gary Pageau:Right, I'm going to buy your shoe stores. Then it's basically what you're doing You're pitching me your shoe stores.
Peter Mohr:Yeah Well, you know that's an interesting piece too, Gary, when we look at the exit side of things. People want to exit a a lot of times because they're just tired of working it, but if you get your business humming on rails like this, then why not keep it as a good investment?
Gary Pageau:Yeah, yeah, I mean, there's no incentive for you to say, you know, hopefully your four D's aren't, aren't coming back to bite you or your five D's Well, and yeah, I mean, if they are, it's ready. Yeah, and then you're ready. Right, exactly.
Peter Mohr:But on the other side of things, it's like, as I assess my business every quarter, I'm kind of like, okay, well, how am I doing? And what you know, is this still a worthy investment, like any other investment that you have in your portfolio? It's like, hey, I've spent this amount of money on this business and it has to turn a certain amount of profit for me and if it isn't, then I'm going to look at it and I either have to clean it up and sell it or you know whatever the case is. Or in my case, it's like, hey, for the amount of work that I put into my store, it spits off good stores, it spits off good revenues and it's running fairly well without me most of the time.
Peter Mohr:Like I said, they tell me what to do. They said to me last week can you go in on Sunday morning before the store opens and do 40 or 50 videos for all the new product launches, as we're recording this in early spring. It's like we've got a lot of new stuff in. So one of my jobs in our store is to be front stage. So I set up my camera and my mics and my lights and I start doing all those social videos that are going to be posted over the next couple of months of new entries. And that's one of my jobs as one of the people on the team and they tell me when they need it. I don't tell them when I'm doing it.
Gary Pageau:Right, and you better be there Sunday morning.
Peter Mohr:And I was and then I hand them a Google drive here's your videos and then they they edit them and crop them and post them and do all the things that they need to do. But, as a good team player, I'm doing what I'm told and you know that that's one of the positions that I have within the store. So you know, all of these things are how we craft a successful exit and how we craft our business to run on rails. But it all works like the five P's, all of these things, the four C's we talked about, that are going to enhance the value of your business those human capital, customer capital, structural capital, social capital. If you're working on one of those things every quarter, your business is going to be more valuable when you are ready to exit Because, remember, one day you will exit.
Gary Pageau:Let's talk about types of exits, because I've always kind of been telling people there's basically three Sell your business, pass on your business, whether it's to employees or family members, or just close it down, and those are all equally valid if that's your plan. Now the challenge is you may be forced into doing one of those and it's not your plan.
Peter Mohr:It's true, like those five D's can hit when you don't expect. Yeah, exactly, and so I mean, if you have the things that we've talked about, so and you're working on those through the next one, two, five years, whatever the case is, you're going to be so much more prepared and feel so much more at ease when it does happen. But, at the same time, how can you exit? Well, I mean, as a former business broker, you can call a business broker and you can list your business for sale right, and or you can do an employee stock buyout right. That's an option that a lot of people don't look at.
Gary Pageau:Well, I mean and to walk us through that piece of it, because, like you said, a lot of people don't look at it what are some of the pros and cons? I mean, obviously, if your human capital is really good, if you built that piece up, that's who you're going to be selling to. So talk a little bit about that, yeah.
Peter Mohr:Well, it depends on how deep their pockets are and what kind of arrangement you need as well, you know. So it all sort of flows into that equation. It's kind of like there's taxable depending on where you're living, what state and all that kind of stuff, or province here in Canada. You know, as we look at you, you really have to look into the taxable ways of doing that and you know you can allocate shares out over a course of a series of years, retain certain amount of ownership so you can receive dividends over a certain amount of years. So it depends on your timeline, it depends on your team, depends on a lot of different things. So it can be a complicated model, but it can be pretty simple too, depending on what the situation is.
Gary Pageau:And if you don't, I mean I guess that eventually becomes like an ESOP right An employee stock partnership and what's interesting is that I've noticed like over in England, for some reason there's been a couple of very large camera store chains that have gone ESOP.
Peter Mohr:Yeah.
Gary Pageau:So it is something, but but why don't more people do it, Do you think?
Peter Mohr:I think because they find it's too hard, like it's too hard to navigate through, which is why I talked about having the proper team for your exit strategy having the right attorney, having the right CPA, you know your certified professional accountant, having the right you know team together to knock off this sort of stuff. And then there's always the other parts too. Not every business owner is forthwith and sort of open with their team all the time, and I think, for, like, I share everything with my management team. They see it down to the penny, and so, including what I take from my business and all like, they see it all because I'm asking them to make the decisions. So if I'm truly asking them to run the business, they need to have full clarity on what the business looks like. And so, from that kind of thing, a lot of times the business owner doesn't necessarily want to divulge everything. Well, how can anybody buy into something they don't have full information on?
Gary Pageau:Sure, yeah, that's tough. That is tough and I think that's. You know, that's kind of an older school perception, right, but you're right, I mean it's almost like doing due diligence when you're buying a company, right, you got to do due diligence and the employees have to have due diligence on the whole thing as well.
Peter Mohr:Yeah, so I mean there's that avenue If you have kids in the business. There's the next generation type work and you know a lot of do a lot of that work and you and I, before we hopped on, we were talking about how many next generation failures there are and it's a it's a really interesting thing. But from a lot of retail perspective and just business in general perspective and just business in general, there's about 50% of the people that would like to pass their business on to the next generation, but only about 30% of them actually transfer.
Peter Mohr:So 30% of all family owned businesses survive into the second generation. Guess how many survive into the third?
Gary Pageau:Well, probably less than five, right 12. Yeah, I'm a little pessimistic.
Peter Mohr:I guess yeah, but 12% is not a very high number when you think of it, considering a generation is only 20 or so years. So you know, when you see these businesses out there celebrating their 75th anniversary and these different things, it's like wow, that really has stood the test of time. So it's really quite an interesting thing when we look at that, the test of time. So it's really quite an interesting thing when we look at that. And then you had mentioned liquidation, which is my least favorite option, but one that a lot of retailers pick because they don't know that either one, they haven't got their business set up so that it would actually sell properly, because they haven't spent the time that we on the things we've talked about today in this episode, and or maybe they just need a quick out and they want to be done and the lease is lease is coming due and they don't know we're going to do for exactly?
Gary Pageau:I've seen this story dozens of times. The lease is out, they're going to raise the lease.
Peter Mohr:They don't want to move, they're yeah, you got too much, but you know what this is. This is poor planning. Yeah, because they knew the lease was coming up three years ago. So if they would have started planning three years ago and started setting all this stuff up number one their business probably would have been running a whole lot better. And number two, they may have been confident enough to sign the lease if they've already removed themselves from the business and let their team run it. And number three, if they really didn't want it, it would have been actually valuable to sell.
Gary Pageau:So it is. Yeah, I think liquidation is like the option of last resort for a lot of people, sadly.
Peter Mohr:But it's the way that a lot of them happen and I find it sad yeah because there's a lot of lost value there right.
Gary Pageau:Oh my gosh endless.
Peter Mohr:When you think of the customer, that customer list we talked about, when you think of like you think about all that stuff, all the process management where somebody could come in, take your process and sort of build upon that. That's how I opened another store. It's like, hey, once I built the process, now I have the process and I can implant it on the next door, like those kind of things. You know, people will pay for that kind of stuff if it's done properly and they'll give you the multiples that we're talking about. But they won't if it's all in your head, if all of the process is in your head. I'm talking to you, the owner, not Gary.
Peter Mohr:But if all the process is in your head, how can anybody extract that after you're gone? They can't. So you have to start extracting, processing with all of the great tools we've had, even since our last episode, gary, chatgpt and all of these different AIs and Otter and all. I mean Loom, video, all the different things that you can set up the process that go, all of the processes that go on in your business so easy. Keep them in a secure environment. We use Google Drive, but it doesn't matter Dropbox, wherever the case, so that they're searchable, understandable, repeatable and executable. Then you've got all this process, not only for the team that's using it right now, but for any team that comes down the road, and people will pay for that on an exit.
Gary Pageau:So you mentioned the phrase multiple a couple of times. What do you mean by that, in case someone doesn't know, because I've heard it applied in different ways? What do you mean by that, in case someone doesn't know, because I've heard it applied in?
Peter Mohr:different ways. What do you mean by that and what would be considered an average multiple? Or if we were going to set a business up for sale, we would start looking through your income statement and your balance sheet.
Gary Pageau:How many years do you go?
Peter Mohr:back Five, typically, yeah, heavily weighted on the last past year, right, and then it kind of goes down in weighting years two to five the last past year, right, and then it kind of goes down in waiting years two to five. But from that perspective, we want to go into the income statement and we want to what we call recast earnings, because your goal with your accountant has been to lower your earnings for however many years so that you don't pay as much tax. Right, that's a very common thing for most business owners. But if you have basically no income in your business and people are looking at your business and saying, hmm, this business doesn't make any money, then how valuable is that? So what we want to do is we want to start recasting your business earnings.
Peter Mohr:And I'll use one example. When we recast one person's business earnings, they had a motor home that was worth about $200,000 on the books of their landscaping business. And it's like, hey, the new owner probably doesn't need your motor home to run the landscaping business. And they're like, yeah, yeah, you know I, I go to a trade show once a year and I write it off, and that's kind of how I do it, so that I can have my motor home. It's like, yeah, but we need to recast all of that back into the books to show the true value of your business.
Gary Pageau:Right, and you can do that. I mean, that's a thing you can do.
Peter Mohr:You have to.
Gary Pageau:Okay, well, I'm just curious, because it's almost like you know going back in time and you know cooking your books a little. That's what it sounds a little bit like, but you're, it's not.
Peter Mohr:Well, people travel there. They like go to Italy for a trade show and they they're at the trade show for one day, but they write off a two week vacation.
Gary Pageau:Oh, I see how you're so serious saying there's certain expenses you can take out that are yeah.
Peter Mohr:It's like does the person need to go to the Italy shoe show? No, I just wanted to go to Italy and we went there so I could. You know, right off the right off the travel and some of this stuff, and it's like, okay, well, that was $14,000. So that $14,000 trip goes back in to the recasted earnings because if that person doesn't need to do it, they actually have a $14,000 benefit for next year when they don't go to Italy on their books, right? So a lot of this kind of stuff between the balance sheet and the income statement have to be recast. If you have family in the business and your family, potentially you're paying I don't know your son $50,000 when you're paying everybody else who's doing the same job $40,000. So you're giving your son a premium of $10,000 for the same job as everybody else, well, that has to be recast because chances are the new owner isn't going to hire your son for 10,000 more than he's hiring everybody else.
Peter Mohr:So all of these things happen every day in business. So we need to spend some time, go back through all of those things, recast the earnings, recast the balance sheet to get a more clear picture. And once we have a clear picture of the true let's call it a balance sheet for the new owner and the true income and expense report for the new owner, then we look at the multiples of that and we recast that income and we start looking at those four C's that we talked about, right, and we want to see how strong those are, how strong is your customer list? Because if this new person takes over, let's just say you had five major accounts and all of those five major accounts are actually fishing buddies of the existing owners and your other 20 accounts are, you know, just everybody else, but the five ones, or even four of the five, that are personal friends with the owner.
Peter Mohr:Well, when the owner leaves, is there still that connection to do the business with you, all of these things? That's where you start talking about multiples. Is that going to take it from a one times to a two times or is it going to take it from a one times to a half, because it's not as strong as some of the other ones. So if we have really strong customer capital and not very strong process capital, it'll take down that multiple and you know it's not just going to be hey, you earned a hundred thousand dollars, then I'll pay you a hundred thousand dollars plus for inventory next year. There's going to be some multiple, either down or up, depending on how strong those four C's are.
Gary Pageau:Yeah, yeah, I can certainly see that where you would have maybe someone like you said in a community and maybe they're. Maybe they're serving on some boards and they're on either in the chamber of commerce and they're doing all these things and they've got that personal capital built in that they're getting business from. That's why they're doing it, and a new person comes in and they don't have that.
Peter Mohr:Especially if we're talking about professional like lawyers and accountants and realtors and all that sort of stuff, right Cause a lot of times it's their name above the door, like at Shoe-topia. It's not Moore's shoes, it's Shoe-topia. So if somebody else came in although they see me on video and I've been around for a while and all that stuff but ultimately it's not, it's not my name out there and it's not my whole business isn't revolving around me.
Gary Pageau:Right, yeah, yeah, but why not? You're a nice looking guy.
Peter Mohr:Well that's. I'd still do all the video, cause I'm the one that's that talks a lot.
Gary Pageau:So again I'm I'm not sure if we really got to the thing Like what, what is a multiple Like when? You say it's a times so when you look at the net earnings or yeah.
Peter Mohr:Okay, once you recast your earnings, like we just talked about, you're going to take a re. It's basically an EBITDA right Earnings before incomes, taxes, you know, depreciation, all of all of that and then you're going to recast that. And once you've recast that, then you're going to look at these other factors that we had talked about, the four C's, and you're going to multiply that by either, if you, if you're rating really high on all those, you're going to get a higher multiple so of your earnings right as far as what the business would projected sell, the projected selling number for that, or most probable selling price, as some people like to use.
Gary Pageau:So when you're working with a broker let's say, for example, I'm running Gary's camera store here and I've been doing all the right things and I'm getting ready to get out and I'm going to have a three-year exit.
Gary Pageau:But I go to a broker and say I'm listening to sell, or how does that even work? I guess I'm trying to curious how that process works from their side of it, right? I mean they're looking at. Hey, I'm going to actually like start a competition between two or three people who might be interested in this, because they want to get the price as high as possible, right Cause they're working for the seller.
Peter Mohr:I'm a little bit biased on this one, gary, cause I used to be a business broker. I was a licensed realtor, right. So as part here in Canada, part of being a business broker a licensed business broker is that you were also a licensed realtor so I could actually sell houses and stuff. I didn't choose to do that, but I went through all the training for all of that before I took my business brokerage license. And then, from that perspective, when I look at you know if you're a little pizza place, you'll see little pizza places selling for $20,000 that your local realtor will put up there. But when you start looking at real businesses and I'm not saying that isn't a real business, but when you look at businesses that have higher volume and are worth more, I think that's when the use of a business broker is useful, because the business broker has been trained in actually just like we just have just talked about going through all of these different issues, going setting everything up. They're trained in negotiation. They're trained through all of the financial details that back this, to come up with a proper valuation of your business so that you can maximize your exit of your business, so that you can maximize your exit. And when you do that, most business brokers aren't selling houses. Their connections and all of their knowledge base is within the business community. Well, most likely it's going to be another business person that buys your business. So, from that perspective, do you want your business on MLS or do you want your business to go up into the right network of business brokers? Because within that network of business brokers those guys are that's what they do they sell businesses. So they're always talking to different people looking for different businesses.
Peter Mohr:As a realtor would be saying, hey, listen, I'm looking for a three bedroom, two bathroom home, backing on the water. Well, a business owner may say I'm looking for a business that's in retail, that generates at least a million dollars, that's within 50 miles or kilometers of my house, and you know they have parameters around that. Well, now we can go into the database of all the businesses and really fire that down and dig into it and we can look at, through the business brokers association comparables, which is really hard to do for businesses. It's not as easy as just saying, hey, the house, three doors down the road, that's exactly the same model as mine, went for a million bucks last day or last week, right, and there's not. The comparables are harder on the business side. So by using a business broker to help you with that facility, they can really start to nail that stuff down. As good as it's going to be.
Gary Pageau:Well, that's interesting Cause, like I said, I'm kind of I'm that area of kind of business is kind of a mystery. I was wondering how that worked. But it makes a lot of sense right, that you know their job is to. You know, find the people who are. You know, hey, they may not have a love of shoes or a love of photography, but they're looking for a business. And if you've got the process and the people and the customers and the social capital lined up, Shazam, you've got a sellable product.
Peter Mohr:I wasn't specifically looking for. I mean, my previous businesses before this were bathroom renovation company I owned a cleaning franchise that we built from 30 customers to 300. Renovation company I owned a cleaning franchise that we built from 30 customers to 300. So we 10 times a cleaning franchise. And I started the other business in 1994. It's still going today, almost 30 years later, and I sold it back in 2009. And the guy who took it over is doing really well. So I came from I came from a service business and I went into a retail business and the reason I felt comfortable in doing that is because it aligned with all of that stuff. Right, right, yeah. And so, from your perspective, you know you can sell to a competitor and that's fine and dandy, but the reality of it is is, if you could sell to someone outside of competition, you will probably end up getting more for your business.
Gary Pageau:Yeah, that happens very typically in the photographic industry is competitors tend to buy each other. It's kind of a yeah, yeah and it happens.
Peter Mohr:But you've got to set your business up through the right process, have the right people, have the right accountability, all this sort of stuff, so that somebody from outside of the industry is going to feel comfortable in coming in and buying you out.
Gary Pageau:Right, well, that is a big challenge. Well, listen, pete, where can people go to get more information about simplifying entrepreneurship and your coaching? Because this has been a great conversation. I think you might've got a couple of people interested, wanting to follow up with you.
Peter Mohr:Well, awesome, best way is really just go to my website. Like you said it already, simplifying entrepreneurship is.
Peter Mohr:I know it's a long one, but simplifyingentrepreneurshipcom.
Peter Mohr:You need to simplify that. Yeah, exactly, and then yeah, com. And if you want, I've got a download which is going from operator to owner and it's just really a small e-book kind of going through some of the stuff we've talked a little bit about today. It's getting your mindset around, you know, not making every decision in your business, and that's at simplifyingentrepreneurship. com, forward slash laws, so it's the 10 laws of moving from operator to owner. So just L-A-W-S. And you know I hang out most of the time on LinkedIn. So, Pete Mohr.
Gary Pageau:Awesome, well, great to see you again, pete, and who knows, maybe in 18 months we'll connect on another topic.
Peter Mohr:I'd love to Gary Thanks so much for having me All right, Thanks.
Erin Manning:Thank you for listening to the Dead Pixel Society podcast. Read more great stories and sign up for the newsletter at wwwthedeadpixelssocietycom.
