Preparing Your Business for a Successful Exit, with Tom Gledhill

Tom Gledhill brings a powerful wake-up call to business owners with his revelation that a staggering 80% of small businesses that go to market never actually sell. Drawing from his unique perspective as both a former business owner who successfully sold his multi-million dollar company and a certified business broker, Gledhill shares invaluable insights into why so many businesses fail to transition successfully.

The key culprits behind failed business sales? Unrealistic owner expectations about valuation and the "owner is the business" syndrome where all systems and knowledge remain locked in the entrepreneur's head. This latter problem is particularly prevalent among what Gledhill calls "lifestyle entrepreneurs" - those who excel at their craft but haven't built the business infrastructure necessary for successful transition.

For business owners looking to position themselves in the successful 20%, Gledhill recommends focusing on two critical value drivers: developing well-trained, loyal employees and creating well-documented, efficient systems. These elements address the fundamental transition problem by ensuring the business can function without the original owner. Importantly, this preparation should begin at least two to three years before an intended sale, not in the final months when retirement looms.

The podcast explores fascinating alternatives to traditional business sales, including employee ownership transitions. Gledhill's XITpro program has pioneered an innovative approach where they purchase small businesses, implement AI to improve efficiency, train key employees for leadership, and eventually sell to those employees once the company has sufficient cash flow and trained leadership.

Beyond the individual business owner's concerns, Gledhill highlights the broader impact of failed business transitions - from owners losing their net worth to employees losing jobs and communities losing economic vitality. This ripple effect underscores why proper exit planning mat

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Chapters

• 0:02 Introduction to Tom Gladwell
• 1:27 Why 80% of Businesses Don't Sell
• 4:42 Key Business Value Drivers
• 8:41 Employee Ownership and Transition Strategy
• 13:56 Preserving Small Business Value
• 21:25 Resources and Contact Information

Transcript

Erin Manning: 0:02

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, advertag Printing and Independent Photo Imagers.

Gary Pageau: 0:18

Hello again, and welcome to the Dead Pixel Society podcast. I'm your host, Gary Pageau, and today we're joined by Tom , who's a business sales expert I guess is what we call it, right, Tom, and the name of your company XITPlus, and you're coming to us from Cape Cod today. How are you, Tom?

Tom Gledhill: 0:35

I'm great. I'm great, Gary, thanks for having me.

Gary Pageau: 0:39

So, Tom, tell us a little bit about your background that makes you an expert in business sales and preparing businesses to be sold. Wow.

Tom Gledhill: 0:49

Okay, I think my advantage is that I was a business owner for several years, right. And I started the company on my dining room table and built it to a multimillion dollar company. We had clients all over the northeast and when I sold that, I sold it to a large public company. Okay, after that I didn't know what I was going to do and a friend approached me and he said why don't you get involved in mergers and acquisitions? Sure, I think you'd be good at it. So I did.

Tom Gledhill: 1:22

I got involved in really business brokerage. You know mergers and acquisitions, they're all brokers, right? So I was a business broker and so I have two views. I have the view of a business owner being inside, looking out, and from a business broker's perspective, from the outside looking in, broker's perspective, from the outside looking in, right.

Tom Gledhill: 1:45

So I learned a lot when I got into business brokerage, because then I learned about valuation and I still do a lot of valuations, and so I learned about valuations. I learned about the whole buying and selling of companies. One thing I learned that was shocking really and I didn't believe it when I heard it, but when I was in one of the courses that I took in preparing for my certification, I learned that only 80, only 20% of business small businesses that go to market actually sell Really. Yeah, I thought they've got it mixed up. Right, it's got to be flipped. It's got to be the other way. Right, got to be flipped. But when I first started in business brokerage, it was my brokerage. I didn't go with somebody that was established, so I was really started out with the low hanging fruit as it was and I talked to literally hundreds of small business people over the first couple of years and I learned that it was true 80% don't sell for a variety of reasons.

Gary Pageau: 2:54

What would be probably the number one reason, you think. Is it because the business wasn't ready or it wasn't in the condition that was able to be passed on? What would be, you know, if you can say one or two things that were the reason. Like you said, there's a lot of reasons, but the one or two reasons.

Tom Gledhill: 3:14

I think, to talk. Two reasons really, and they're kind of tied for the first position, number one, expectations. Okay, they, most of them, think they're. Well, you, you said it to begin with. When somebody had a $4 million company and they're going to sell it for $5 million, you got to realize what the valuation is based on. It's only based on revenues for the really hot industries, and that changes. You know that can change. So I would say high expectations and the owner is the business, right, okay, he hasn't delegated anything. It's all in his head, all of the systems are in his head, right, oh, that those are the two top reasons.

Gary Pageau: 4:01

Yeah, and and and. In our industry I've seen that a lot right, I've seen the people who have been, you know, they've been running the family camera store, maybe they've inherited from their parents and now they're a boomer and they're looking to retire and it's all in their head, right, and they don't have a system in place and, you know, maybe they haven't cleaned out the inventory or something and they've got, you know, way too much inventory and they're carrying too much, so it's, you know, dragging the profits and all that. So if someone wants to rectify those problems, right, you know, let's tackle expectations first. What would be a typical expectation for someone who is, let's say, they're, you know, they're generating, you know, maybe 6% profit a year net profit. What would you think they would expect for that? Something like that.

Tom Gledhill: 4:45

Yeah, that's on the low end, right, yeah, so what I would say is that you want to focus on two things. If you're going to increase the value of your company, there are two things that you should focus on. Number one your employees. Okay, you want well-trained, loyal employees. Number one your employees Okay, you want well-trained, loyal employees Number one. Number two your systems. Your systems are critical well-documented, effective and efficient systems. You focus on those two things and you focus on a huge chunk of the value drivers that are going to really increase the value of your company. Okay, so that's where you'd start.

Tom Gledhill: 5:32

In my book, XIT Pro System, I delineate 16 value drivers and how to improve each one of them. But some of those value drivers are much more important than others, and the two that I mentioned, employees, personnel and systems are the two most important, because cash flow and growth you know most most a lot of these small business owners. They grow the company to a certain level. It in their lifestyle, what I call them as lifestyle entrepreneurs. To a certain level they stop and they're making good money. They don't want the aggravation of hiring new people and opening new locations, so they stop at that level. So that's what I. But things like lease Lease is very important, right, but a lot of people own the building, okay, so that's not a that's not an issue. So those are the things I would do, and if you're going to prepare for that, you should really do it a couple of years before you're going to sell.

Gary Pageau: 6:38

Well, that was. My next question was what kind of timetable are we looking at? You know, because, like one of the things that most of my listeners know, I teach an entrepreneurship class for incarcerated people and we talk about that and I said, you know, you should set up your business with the intention of knowing how you're going to get out of it. Right Kind of position for that, because a lot of people don't. But you're saying, let's say, someone should be taking at least two or three years to prep their business for sale.

Tom Gledhill: 7:08

You know, what you just said start your business with the end in mind is really important, but they're the growth people typically, because a lot of the people, Gary, that start businesses, they either start them because they have to Right or they're very good at something Right, and they get. But they don't understand business and they don't care about business Right, they go oh, I've got an accountant, I've got a lawyer, you know, I don't worry about business, right. So they're the, they're the lifestyle buyers, right, and so they they have. They don't have any idea what the end, they don't even think about the end. Right, right, until it's too late, right?

Gary Pageau: 7:49

I mean, as we see it. On the other side of the business, like you know, my audience are primarily, you know, people who serve photographers, but they see it among their clients, right, who are professional photographers person got in the business, they like taking pictures, they like being with people and they like creating moments and using the technology, but they haven't really thought about the business side of it. Like, just like you said, when you talk about having your processes in place, what does that really mean? Because you know, I've worked in different companies where they have what they call like every department has a procedures manual, right, where you know this is how we do something like that. Is that the kind of thing you're talking about? Documenting all the steps, so if something does happen, someone else could step in? And what would be a platform to do that? Because I remember doing that in like well, you know a three ring binder, right? I don't think that's what people use anymore. Could people do it with, like, videos, or what do you suggest?

Tom Gledhill: 8:41

You could do it any way you want, as long as you do it Right. You can do videos, text it, have it digitally and put it on the cloud for safekeeping. But, yeah, you should, you really should do it. And, quite frankly, that's the last thing people think about, because when you start a business, what your first issue is survival, right, right, you're not thinking about, gee, I've got to do this and I've got to do that. You're just thinking about surviving, right, okay, and that last might last for a couple of two, three years. Right, you know, do this and I've got to do that. You're just thinking about surviving, right, okay, and that last might last for a couple, two, three years, right, you know you start thinking about your infrastructure, all right, but you what you're saying? Before you sell a company, you know, certainly way back several years before that you know it's always a good idea to all have your company ready for sale, because it might be something from that you can't control. It might be a divorce, it might be disability, somebody might be deaf.

Gary Pageau: 9:39

You can't tell yeah, I mean you might have a business partner pass or that kind of stuff happens Sure.

Tom Gledhill: 9:44

You should always be ready, okay, but very few people are Right. But getting back to your question about the process and the procedures, that, yeah, they should have it Now. It's becoming critical now because I'm very involved in AI now and actually we're installing AI in small businesses, sure, and one thing we say to them look, you need to define all of your systems, because you don't define your systems, you can't define your workflows. Right, and AI is based on workflows. So, yeah, it's a critical process. And how they do it, it doesn't matter as long as they do it. And I would do it really system by system. And you know, go from there. If you need to break it down further from the system, then you can do that, but you've got to have that documentation. It increases the business value tremendously.

Gary Pageau: 10:46

So one of the other key value drivers of the business, as you've said, is the employees themselves. Right, the staff, the long-term people. One of the things you like to talk about is looking at the employees as potential buyers. Can you talk about that process? How early do you bring them in? How long do you think the transition should be, or something like that.

Tom Gledhill: 11:07

I'm glad you mentioned that because I'm just finishing a book on employee ownership, because it's really a worldwide movement right now and we have kind of flipped what we did. We had a program in place that we would train the employees to take over and we would help the business owner do that, but we were doing it in too short a period of time for the whole thing and we also getting funding for the employees is difficult. Why is that? Well, number one, they don't have any money. Well, yeah, there's that small, they don't have a and they don't have a rich uncle Right.

Gary Pageau: 11:49

But you think. I mean, if I was a lender, right, If I was the bank for the business, that would be an attractive component for helping finance that transition. Because just because of the continuity, right, if you had a good cut, you would, you would just think that would be factored in.

Tom Gledhill: 12:08

That's a pro, but the the cons are how are they going to fund it? The banks want to get paid back. Oh, absolutely, yeah, you know. So that that's a problem, and we've we have experienced that as a problem. So what we've done, Gary, is now these are a lot of these companies. There are about five million companies just in the united states that have revenues between one and 5 million. All right, 5 million is kind of an inflection point for entrepreneurs as they grow. Right, because at that point they really need to hire professional people. Right, okay, I hired a manager, a marketing director and a controller when I reached that point. Most small business people never get to that point anyway. Right, that's a real problem.

Tom Gledhill: 12:56

What we do now is we buy these small companies. We buy them. Now, we're in control. We employ AI to make the companies effective and efficient and to scale the company. Okay, right, it might be two or three or four years before we've scaled that company three or four times. Right, now, initially, too, we take the key employees and we make one of them the president. The others have key management positions and we train them and monitor them over that period of time. Okay, when we get to a point and we train them and monitor them over that period of time. When we get to a point where they have sufficient cash flow, the key employees are trained and can take the company forward. We sell it to the key employees. All right. So that's how it works now. That's our program as it is now and it's the XIT plus program.

Gary Pageau: 13:54

But in general, I mean, that is sort of an idea that I think people will like, because I think in terms of because we've seen it a few times and I've just seen the last couple of years in the photo industry, where we've had employees step up and buy the business and it's attractive for a lot of reasons one, for continuity purposes by the business, and it's attractive for a lot of reasons one for continuity purposes and two, it's, you know, the people within the business. You know the other employees are, you know, happy because you know one of their own is involved still, and the vendors are happy because their continuity. So it can be a win-win all around. Why is it then that most business owners don't do that? Right, they look outside first. Why do you think that is?

Tom Gledhill: 14:34

Well, that's a classic way of doing it, right? There are three kinds of buyer types. They got your strategic buyers, you've got your financial buyers and you've got your lifestyle buyers, and they're all the classical buyers, and they're all on the outside, all right, but right now, there are so many people selling, all of these baby boomer business owners they call it the silver tsunami, right, right, that's what all of these and so there were only 80% sold before the silver tsunami. Right Now, you've got that 80% that don't sell, that historically didn't sell, in addition to all of these baby boomers that now increase the number of sellers, right, they're going to be more of these small companies that don't sell.

Gary Pageau: 15:24

So if you're a younger person looking for an opportunity, you might be able to get a decent business at a I wouldn't say a discount, but a more affordable price, just because the market's flooded.

Tom Gledhill: 15:34

Yeah, if you have the experience to do it, you know and you have the funding to do it one of the areas that we're looking at. If they don't want to sell to the employees or if there are no employees that want to buy it, the VA has several programs for people that were in Iraq and Afghanistan and whatever around and they're interested in buying and getting involved in business right and they have grants so they have access to money.

Gary Pageau: 16:04

And didn't know that. So now I mean you mentioned earlier you're a veteran, so are there decent programs in addition to that that, uh, veterans can look at?

Tom Gledhill: 16:14

there are yeah, there are for veterans, yeah for them, and they're you know, they're free for the veterans. And there were also grants to help the veteran. You know, get involved in a going business. You know why would you want to start a business from scratch? There's a business out there that has all this infrastructure right, it has customers, it's got staff, it's got channels of distribution, it's got systems, it's got all this infrastructure sitting there and all of a sudden they close the doors, right yeah, it's, it's a.

Gary Pageau: 16:49

It's a sad thing. I mean, sadly, we're seeing a lot of that just sort of in big retail right now. We're seeing that. I think that's a whole other issue. Yeah, especially in the restaurant space, there seems to be a lot of mom and pop restaurants really struggling right now. Are there certain types of businesses, just as a category, that are selling well now, that are selling well now? I mean, like I said, there's all kinds of businesses, but in terms of, are small manufacturers more appealing than, say, a restaurant or a grocery store?

Tom Gledhill: 17:19

Well, I think what we're doing, gary, is we're looking to niche down to an industry, sure, and we're kind of looking at small manufacturing. Okay, that's what I was getting at.

Gary Pageau: 17:30

Okay, and why is that? Why is that appealing to you?

Tom Gledhill: 17:34

Well, one of the reasons it's appealing to me is that it's easy to switch industries. I had a client at one time years ago that had a job shop and he had these big machines and he was going bankrupt. We got him to switch to making medical devices for orthopedic surgeons Sure, and his company just took off. So what he did was he switched from job shopping to medical device. He switched industries. Right, and it's not difficult to do if you're a small manufacturer, to switch your products or you switch industries.

Gary Pageau: 18:16

Right, because I mean you have the equipment, you have the processes, you've got everything there?

Tom Gledhill: 18:20

Yeah, right. One of the points I would like to make, too, is the number of people and organizations that are hurt when these businesses close. Right, number one most of the net worth of a small business owner is in the company, right, so he loses most of his net worth. Okay, the employees are out of a job? Right, all right. The community, the money that flowed through that company has now gone somewhere else right, all right.

Tom Gledhill: 18:49

And who likes to see a boarded up business for sale? Right, you know, yeah, so it hurts the morale of the community. Hurts, you know. And there were also people that supported that company, like trusted advisors, accountants, lawyers you know people that came in at night and cleaned it. You know the food truck down the street, vendors, suppliers yeah, you know, they were all hurt. Vendors, suppliers you know, they're all hurt, that happened. So we would like to see a company, you know, not only survive but thrive in that community, so it becomes more of an asset to that community. A couple of things we're thinking of is having a, you know, with a company that we buy over that period of time. We have it. We want to have a scholarship for a needy student. We want to sponsor a little league baseball team or some other recreation team, maybe feed the homeless during holiday periods. Be a real asset to the community Right.

Gary Pageau: 19:47

Yeah, there's a lot of appetite, I think, for that among businesses, these, especially with younger people right the millennials or what who do want companies to serve their communities and I think you know if you are an older person prepping your business for sale, you know, maybe that's something you need to look at is make that part of your business process, if you will, as sort of the charitable or philanthropic or service aspect of it one of the things that we're concerned with, myself and my colleagues, is that the small business owners aren't aware of the problem, and so I I feel like I've got to stand on a rooftop and just yell yeah right, there is a problem here.

Tom Gledhill: 20:31

you, you know, you, you can take care of it. You've got a, a business that has value, sure, you know, and so that's a. That's a real problem.

Gary Pageau: 20:42

So to sum up, you know some of the things is a business owner shouldn't wait to say you know, I'm I'm 66. I need to retire and put the business up. This process should have been started a few years earlier.

Tom Gledhill: 20:55

You know, the problem is that if you're a business owner, you can't wake up one morning and say gee, I think I'll sell my company today, Right?

Gary Pageau: 21:01

But it happens.

Tom Gledhill: 21:03

It happens. I did that in a piece of real estate I owned. I woke up one morning and I said I think I'll sell this place. Well, it was during a hot period the next week. Next week I sold it. That doesn't happen in the business world. You've got to plan for it, but they don't think about it until it's too late.

Gary Pageau: 21:24

Yeah, so where can people go for more information to learn about the XITp lus plan and some of the advice that you offer?

Tom Gledhill: 21:40

Well, the simple thing, Gary, is to send me an email at Tom at XITp lus, and that's X-I-T-P-L-U-S dot com, and we will schedule a conversation and see what your situation is and how we can help you Well that sounds great, tom, listen, it was great to meet you, and best wishes out there on Cape Cod and hope to catch up with you again soon. Oh, thank you, Gary. It's been a pleasure talking with you.

Erin Manning: 22:02

Thank you for listening to the Dead Pixels Society podcast. Read more great stories and sign up for the newsletter at wwwthedeadpixelssocietycom.