The LeanScale Podcast · Episode 131

You Didn't Build a Business. You Built a Job.

Nitin Khanna on 100+ exits: the three things that must be ready before a business sells, why owner dependency makes a company untransferable, return on time, why every business sells twice, rolled equity, and the one-week test that shows where the owner is still the bottleneck

Nitin Khanna · Founder & President, N3 Business Advisors · N3 Business Advisors Hosted by Anthony Enrico
Published Updated 00:53:43 44 min read 8854 words
Mergers & Acquisitions GTM Strategy
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Executive Summary

The one-paragraph brief, extended

Why this conversation matters — and who should spend the hour.

Nitin Khanna is the founder and president of N3 Business Advisors, a Toronto M&A firm that does one thing: sell construction, trades and engineering companies. His team of 13 has completed more than 100 transactions and talks to roughly 100 owners a month, from HVAC and electrical to plumbing and general contracting, at enterprise values between $1M and $25M. Before N3 he held senior finance roles and managed more than $600 million in assets. His newsletter to about 20,000 owners runs under one line: every owner exits, few do it well.

His answer to why deals fall apart is that three things have to be true before a business sells. The business has to be ready, the market has to be ready, and, most important, the seller has to be ready. In his experience the seller is usually the one who isn't. Owners who say they will sell "if I get so much money" get cold feet once there is a letter of intent on the table, because money was never the deciding factor. Selling a business, he says, is a process, not an event, and owners need a plan for it. Every owner exits one way or another: to their kids, to employees, to a third party, by shutting down, or by going bankrupt.

Most companies he sees, in the $2M to $25M revenue range, are run as a job rather than a business. The owner fights the fires, does the estimating, and holds the sales, supplier and employee relationships. If the relationships sit with the owner, the business isn't transferable. His fixes are concrete: hire people who are not like you, make an administrative assistant the first hire, buy back time as soon as your hours are maxed out, and measure "return on time." An owner who wants to earn $1 million a year is aiming for $500 an hour and has no business mowing a lawn that a landscaper would do for $50. Anthony Enrico adds his own experience: LeanScale hired its first executive assistant only this year, five years in, and it changed how he works. Nitin calls waiting too long to delegate the mistake that still haunts him.

With an owner who is ready and a transferable business, the next priorities are clean financials, because every business sells twice (once to the buyer and once to the buyer's lender), and recurring or predictable revenue. A buyer is paying for what the business will do next, not for the last three years, so backlog and signed contracts matter more than past profit. Nitin wants buyers to explain how they will add value. A buyer who asks only for the financial statements is a red flag to him. Good deals are one plus one equals three, and rolled equity gives the seller a second bite: keep 30 percent, let the buyer grow the company from $10 million to $20 million, and sell again.

He walks through the process: client screening, a populated data room, a confidential information memorandum and a blind teaser, outreach to a pre-screened buyer pool, confidentiality agreements, buyer meetings, competing offers, then due diligence. A signed LOI is not the time to open champagne. Time kills deals. A $15M transaction slipped from September 1 to January 1 because the seller insisted on his annual sailing trip and holidays piled up behind it. He closes with the test he gives every owner: could the business run for 90 days without you, your phone and your laptop? Almost nobody can, so start with a week, see what stalled, and fix one thing every quarter.

Key Takeaways

15 things worth stealing

The load-bearing ideas, each with the business implication and who should care.

01

The business, the market and the seller must all be ready, and the seller usually isn't

Nitin tells every prospective seller that three things have to fall into place: the business has to be ready to be sold, the market has to be ready, and the seller has to be ready. N3 analyzes all three before it takes an assignment. The third is the most important and the one usually missing. Owners say they will sell at a certain price, and then, with buyers found and an LOI on the table, get cold feet because money was never the real deciding factor. Passion builds good companies, and the attachment and identity that come with it make letting go hard.

Why it matters: Valuation work and buyer outreach are wasted if the owner hasn't decided to let go. An owner who names a price but has no plan for the transition is not ready. Rational sellers with a plan for price and handover are the ones whose deals close.

FoundersRevenue Executives
02

Every owner exits; the only choice is which door

Nitin's tagline is that every owner exits, few do it well. There are five ways out: hand the business to your kids, give or sell it to employees, sell it to a third party, shut it down, or go bankrupt. Most owners in his market never consider a sale. Their plan is to run the business as long as they can and then close it, often after letting it shrink from $10 million to $3 million on the way.

Why it matters: Owners who plan a transfer keep the business, and its name, alive after them. Owners who don't often let a sellable company slide into what he calls a slow death.

Founders
03

If the relationships sit with you, the business isn't transferable

In the $2M to $25M revenue businesses N3 works with, the owner usually wears most of the hats: firefighting on Monday morning, estimating, sales, and every employee, supplier and customer relationship. Nitin's rule is that the relationships should belong to the business, which is a separate entity. Payment calls should go to a bookkeeper, appointment requests to an administrative assistant, and much of that can now be automated.

Why it matters: Removing owner dependency is the first step toward a sellable company, before cleaning up financials, management structure and revenue mix.

FoundersRevenue Executives
04

Still on the tools? You've got a glorified job

Nitin's first question to a construction client is whether they are still working on the tools. The answer usually comes with pride. He tells them there is nothing to be proud of if they want a business: a plumber who wants to build a business has to stop being the plumber and start hiring good plumbers. He cites Henry Ford's answer that he didn't know how to make things but knew how to find people who did.

Why it matters: The owner's real technical skill is finding the right person and putting them in the right job. Not wanting to build a business is fine, but then it shouldn't be called one.

Founders
05

The most expensive hire is someone just like you

A risk-averse owner who hires another risk-averse person goes nowhere, and two extreme risk takers are close to going under. Nitin's advice is to hire for the gap: a good accountant should hire a salesperson, a salesperson should hire an accountant, and a big-picture owner needs a detail-oriented administrative assistant.

Why it matters: Without someone covering the details, a visionary owner loses control of the business quickly.

FoundersRevenue Executives
06

Make an administrative assistant the first hire

For an owner starting from zero, Nitin says the first person to bring on is an administrative assistant. A past client with three unsellable businesses asked whether he should hire a general manager for each. Nitin's first question was whether he had a good admin assistant to manage him, who could then run the search for a general manager. It doesn't have to be full time: two hours a day is a start.

Why it matters: Hiring is slow and draining, and the posting, screening and scheduling shouldn't fall on the owner. An assistant buys back the time needed for the bigger hires.

Founders
07

Measure return on time: a $500-an-hour goal doesn't mow the lawn

N3 uses a phrase it coined, ROT, or return on time. Every January Nitin asks his team how much they want to earn. A million dollars works out to about $500 an hour. If you then spend the weekend mowing grass a landscaper would do for $50, you have dropped from $500 an hour to $50. Without a plan to spend time on higher-value work, he says, the target is only wishful thinking.

Why it matters: Once your hours are maxed out, buy time back with 20 or 30 hours of help and calculate the return. Anthony's version: you can't do the $50 task and expect to be paid for $500.

FoundersRevenue Executives
08

An EA is a responsibility, not a luxury

Anthony says LeanScale went five years before he hired his first executive assistant earlier this year, and it changed everything: time back, and fewer things slipping through the cracks across his inbox and LinkedIn. He says it feels like a luxury, but it isn't for kicking back; it is for taking on an even bigger job. Nitin says not delegating sooner is the mistake that still haunts him, and that his business would be bigger if he had.

Why it matters: Founders who are big-picture by temperament need someone catching details. Treat delegation as part of the leadership job, not a reward for reaching a certain size.

FoundersRevenue Executives
09

Every business sells twice: to the buyer, then to the buyer's lender

Clean financials are the first thing Nitin raises once the owner and business are ready. An owner can pay a spouse $200,000 for bookkeeping or book a bathtub as client entertainment. A buyer may accept the story, though it makes them nervous about what else the seller might do. The buyer's lender will want a clean set of books, and chances are it won't buy the story.

Why it matters: Clean books support a higher valuation, better terms and a better deal structure. They also signal to a nervous buyer, who is often putting their life savings in, that the seller is honest.

FoundersRevenue Executives
10

Buyers pay for the future, so show backlog and recurring revenue

Nitin's third value driver, after owner independence and clean financials, is recurring or predictable revenue. He compares his project-based firm with a peer's accounting firm that may keep a client for 20 or 30 years, and notes that software companies are valued on ARR rather than the bottom line. Sellers often point to three years of $1 million profit made in a booming market. His response: what does next year look like, and do you have backlog or signed contracts?

Why it matters: If the business won't make money after the handover, the buyer is buying a liability. A landscaper with $3 million of equipment earning $100,000 to $200,000 a year, about a 7 percent return, is in the wrong business.

FoundersRevenue Executives
11

Sell the synergy story: good deals are one plus one equals three

Anthony argues that sellers should go beyond revenue and forecast and pitch the cross-sell and competitive advantages a combination creates. Nitin agrees: an HVAC contractor and an electrical contractor chasing the same client with two salespeople, or each wasting 30 percent of an equipment yard, create efficiency by merging. Without that, he sees no value in a transaction, because a change of hands also brings friction, from a GM who leaves to a slow first six months.

Why it matters: Frame the sale around what the combination can do that neither company could do alone, and expect integration friction to eat into weak synergies.

FoundersRevenue Executives
12

Ask what the buyer brings, and treat a numbers-only buyer as a red flag

Nitin's first question to a buyer is their game plan. Will they bring systems, automation or pipeline to a seller still running on paper? A buyer who asks only for the financial statements and nothing about the qualitative side of the business worries him, because numbers are history. A buyer who already has relationships with property managers and wants an HVAC business is a positive sign, and the seller will be excited to sell to them.

Why it matters: Sellers care that their name survives, and they will ask the same question. A buyer who can show how they will grow the business wins the deal.

FoundersRevenue Executives
13

Rolled equity gives the seller a second bite

Many buyers now propose taking, for example, 70 percent of the business while the seller rolls the remaining 30 percent back in. If the buyer grows the company from $10 million to $20 million, the seller's 30 percent is worth far more on the next sale. That only works if the seller is convinced the buyer can grow it. Nitin says most owners in his market aren't aware this option exists.

Why it matters: Choose a buyer whose growth plan you believe in, because with rolled equity you are investing alongside them. Anthony notes that many owners treat the sale as one event and don't think about the second leg.

Founders
14

An LOI is not a reason to celebrate, and time kills deals

Sellers often open champagne when they accept an offer. Nitin tells them it is only a letter of intent and they should be more nervous now and run the business as well as they can through due diligence. Anthony recalls Emailage's LOI in February 2020, with COVID shutdowns hitting during the 30 days to close. Nitin's example is a $15M deal set to close September 1 that slipped to January 1 because the seller went sailing, then the banker, the lawyer and the buyer each had their own delays. Missing minute books can add a month on their own.

Why it matters: Prepare the data room before there is a buyer and protect the timeline once there is one. Every week of delay is another chance for the deal to die.

FoundersRevenue Executives
15

Run the 90-day test, start with one week, fix one thing a quarter

Nitin asks every owner whether the business would run if they took 90 days off without phone or laptop. He says 99.9 percent say no. So he asks them to take one week off without either, then come back and see where they were needed and what didn't move forward. That is the first thing to fix. Fixing everything at once is overwhelming; fix one thing every quarter and in three years you have fixed 12.

Why it matters: Build a good business for your own quality of life, not for a sale. A buyer can show up unannounced, and a company that runs without its owner is ready when one does.

FoundersRevenue Executives
Frameworks Discussed

12 named models

Every framework Jimmy names, defined and time-stamped.

Business Ready, Market Ready, Seller Ready

01:41

Three conditions that must all hold before a business can sell: the business is ready to be sold, the market is ready, and the seller is ready. The seller's readiness is the most important and the most often missing.

Nitin uses it both to answer owners who ask whether their business is sellable and to decide whether N3 will take an assignment. Deals most often fail on the third condition: sellers say they are ready, then get cold feet after an LOI because they were not ready emotionally.

Every Owner Exits: The Five Doors

03:36

Every owner leaves their business eventually, through one of five doors: pass it to their kids, give or sell it to employees, sell to a third party, shut it down, or go bankrupt.

It underpins N3's line that every owner exits and few do it well. Nitin's point is that letting go is inevitable, so owners should choose a door that lets the business and its legacy survive rather than drifting into a slow decline.

A Business You Can Run vs. One You Can Transfer

07:29

A business is transferable only when its relationships, decisions and daily work belong to the business rather than the owner. If the relationships sit with the owner, it is a job, not a business.

Nitin's order of work: eliminate owner dependency first by delegating relationships and routing payments, quotes and scheduling to a bookkeeper or administrative assistant (or automating them), then clean the financials, build the management structure and improve the revenue mix.

Don't Hire Someone Just Like You

13:32

The most expensive employee is one who shares the owner's strengths and blind spots. Hire for the gap instead.

Two risk-averse people stall the business and two risk takers push it toward bankruptcy. An accountant should hire a salesperson, a salesperson an accountant, and a big-picture owner a detail-oriented administrative assistant, so the owner doesn't lose control.

ROT: Return on Time

16:33

Translate an income goal into an hourly value and judge every task against it. N3 coined the phrase for its own team.

A goal of $1 million a year works out to about $500 an hour, so mowing a lawn a landscaper would do for $50 drops the owner to $50 an hour. Once your hours are maxed out, buy time back with part-time help and calculate the return. Without that plan, Nitin says, the income goal is wishful thinking.

Every Business Sells Twice

22:48

A business is sold once to the buyer and again to the buyer's lender, and the lender requires clean books.

A buyer may accept an owner's story about personal expenses run through the company, though it shakes their trust. A bank won't. Clean financials support a higher valuation, better terms and a better deal structure.

Buyers Buy the Future, Not the Past

27:01

A buyer pays for what the business will do after the handover, so past profit counts only as far as it predicts future profit.

Three years of $1 million profit in a booming market doesn't convince Nitin. Backlog, signed contracts and recurring revenue do. A business that won't be profitable after the handover is a liability, and assets that earn a poor return, such as $3 million of equipment earning around 7 percent, don't add value.

One Plus One Equals Three

30:10

A transaction creates value only if the combined company is worth more than the two apart, through shared customers, sales effort or assets.

Nitin's example: an HVAC contractor and an electrical contractor chasing the same client with two salespeople, each wasting 30 percent of an equipment yard. Merging captures those efficiencies. Every change of hands also brings friction, so a deal without real synergy isn't worth doing.

Rolled Equity and the Second Bite

34:01

The buyer acquires a majority stake and the seller rolls the remainder back into the business, sharing in the growth and in a later sale.

In Nitin's example the buyer takes 70 percent, the seller keeps 30 percent, and the buyer grows the company from $10 million to $20 million, so the seller's 30 percent is worth much more on the next exit. Sellers need to be convinced of the buyer's growth plan, since they are investing alongside it.

The Sell-Side M&A Process

39:43

N3's sequence for selling a company: screen the client, populate the data room, write the confidential information memorandum and a blind teaser, approach a pre-screened buyer pool, sign confidentiality agreements, run buyer meetings, collect and compare offers, then complete due diligence.

The CIM is a resume of the business: history, profits, prospects and management. The blind teaser is a one-page summary without the company's name. Nitin calls the confidentiality stage the nerve-wracking part, especially when the buyer is a competitor, and warns that an accepted LOI starts the deepest scrutiny.

Time Kills Deals

45:33

Every delay between LOI and close raises the chance that a deal falls apart, so sellers should prepare documents in advance and protect the timeline.

Nitin's example is a $15M deal planned to close September 1 that slipped to January 1 after the seller left for his annual sailing trip and the banker, lawyer and buyer then had their own delays. Sellers who won't prepare until a buyer appears end up scrambling for documents such as minute books, which can take a lawyer a month.

The 90-Day Test (and the One-Week Version)

51:34

Ask whether the business would run for 90 days with the owner away and without a phone or laptop. Since almost nobody can, take one week off under the same conditions and fix whatever stalled.

Nitin says 99.9 percent of owners answer no to the 90-day question. The one-week version shows exactly where the owner is still needed. Fix one item per quarter rather than everything at once, and in three years you have fixed 12.

Best Quotes

20 lines worth clipping

Pulled verbatim. Copy or share any of them.

“For a business to sell, there has to be three things which have to fall in right place. One is the business has to be ready to be sold. The market has to be ready. And the third, which is the most important thing, you as a seller of a company have to be ready to sell the business.”
Nitin Khanna 01:41
“As much as these sellers tell me that we are ready, they are the ones who are not ready. It's not about the number. It's not about the headline number. It's about being ready emotionally.”
Nitin Khanna 02:03
“Selling a business, Anthony, it's not an event. It's a process. You have to prepare yourself for the process.”
Nitin Khanna 06:26
“If the relationships lie with you as a seller, you don't have a transferable business.”
Nitin Khanna 08:27
“The most important technical skill every business owner should have is how to find the right person and put them in the right job.”
Nitin Khanna 12:18
“If you don't want to build a business, don't build it. But don't call it a business. You've got a glorified job.”
Nitin Khanna 13:11
“The most expensive employee you can ever hire in your company is somebody who's just like you.”
Nitin Khanna 13:32
“How much you could have paid a landscaper to mow the grass? 50 bucks? All of a sudden, you move from $500 an hour to 50 bucks an hour.”
Nitin Khanna 17:27
“I wish somebody told me, 'Do it. Bring somebody on.' I bet you my business would have been way bigger today than it is. I waited too long.”
Nitin Khanna 18:15
“I think psychologically it feels like a luxury. Like, 'Oh, do I really need one? Do I need this?' I think you have to convince yourself, this isn't for you to kick back and relax. You have an even bigger job to go to.”
Anthony Enrico 19:45
“They say every business sells twice. Once you sell it to a buyer, then you sell it to the buyer's lender.”
Nitin Khanna 22:52
“I'm not buying what you did in the past. I am buying what this business is going to do for me in the future.”
Nitin Khanna 27:06
“If your business is not going to make profit when I take over, I'm actually not buying an asset, I'm buying a liability.”
Nitin Khanna 27:59
“The biggest red flag is when a buyer comes in and they say, oh, show me the financial statements.”
Nitin Khanna 33:03
“It's only a letter of intent. It's only as good as a piece of paper it is written on. This is not the time to celebrate.”
Nitin Khanna 43:51
“You don't celebrate until the wire hits. That's when you can pop the champagne.”
Anthony Enrico 44:31
“In my world, we always tell people time kills the deals.”
Nitin Khanna 45:33
“You should be running a good business because that improves your quality of life. That's your journey. You want to enjoy the journey, not the exit.”
Nitin Khanna 48:09
“Come back and see what is it where you were needed, what did not move forward because you were not there. That's the thing you've got to fix first.”
Nitin Khanna 52:11
“Start with one thing. Only fix one thing every quarter. In three years from now, you would have fixed 12 things.”
Nitin Khanna 52:29
Practical Advice

What should you actually do?

The playbook, split by the seat you sit in.

Founders

  • Take the one-week test: a week off without phone or laptop. Write down what stalled while you were gone and fix the first item this quarter.
  • Fix one source of owner dependency per quarter rather than trying to fix everything at once.
  • Move customer, supplier and employee relationships from yourself to named people in the business. Route payment calls to a bookkeeper and scheduling to an assistant.
  • Make an administrative assistant your first hire, even at two hours a day, and let them run the search for later hires such as a general manager.
  • Hire for your gaps, not your strengths: the most expensive hire is someone just like you.
  • Convert your income goal into an hourly rate and stop doing tasks you could pay someone far less to do.
  • Keep personal expenses out of the books. Your buyer's lender will read them.
  • Write a sale plan covering price, timing and how you will hand over to new owners, and check whether money is really the deciding factor for you.
  • Prepare the data room, including minute books, leases, vehicle and bonding agreements, before there is a buyer, not after the LOI.
  • Once an LOI is signed, protect the timeline and keep running the business at full effort until the wire hits.

Revenue Executives

  • Build recurring or contracted revenue and a visible backlog. Buyers value predictable revenue over past profit.
  • Systemize quoting so a quote can go out in minutes from known labor rates, hours and overheads rather than being rebuilt each time.
  • When positioning a sale or merger, show the cross-sell and shared-cost synergies, not just your standalone forecast.
  • Evaluate a buyer's growth plan as carefully as their price, especially if you will roll equity into the combined company.
  • Treat a buyer who asks only for financial statements, with no questions about customers, team or operations, as a warning sign.
AI Takeaways

How AI actually changes GTM

LeanScale's signature read on the AI-in-GTM question this episode wrestles with.

The thesis

This is not an AI episode, but Nitin makes two AI-adjacent points: much of the administrative work that ties an owner to the business can now be automated, and demand for data centers is driving demand for electrical contractors and activity in construction M&A.

Agent & automation ideas

  • A quoting assistant that takes job hours and applies the company's known labor rates and overheads to produce a quote in minutes.
  • An owner-dependency audit that reviews a week of inbound calls and emails and flags which ones only the owner could answer.
Operations Takeaways

By function

The same conversation, filtered for RevOps, pipeline/marketing ops, and customer ops.

Revenue Operations

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Metrics Mentioned

The numbers, with context

100+
Transactions completed by N3

Nitin's team has completed more than 100 sales of construction, trades and engineering companies.

About 100 per month
Owners N3 speaks with

Owners across HVAC, electrical, plumbing and general contracting, per the show notes.

$2M–$25M revenue; $1M–$25M enterprise value
Size of businesses N3 sells

Nitin gives the revenue range in the conversation. The show notes give the enterprise-value range.

$600M+
Assets Nitin managed before N3

From his earlier senior finance roles, per the show notes.

About $500 per hour
Return on time for a $1M income goal

Nitin's ROT calculation for a team member who wants to earn $1 million a year, set against a $50 lawn-mowing job.

About 7%
Return on idle equipment

A landscaping owner with $3 million of equipment earning $100,000 to $200,000 a year. Nitin says that owner is in the wrong business.

70% sold, 30% rolled; $10M grown to $20M
Rolled-equity example

Nitin's illustration of a seller keeping 30 percent and getting a second bite after the buyer doubles the company.

$10M to $3M over three years
Owner who let revenue shrink before selling

An owner who lost passion and let the business decline instead of exiting at its peak.

$15M, slipped from September 1 to January 1
Delayed deal

Closing slipped about four months after the seller took his annual sailing trip during due diligence and further holidays and delays followed.

Almost none (99.9% say no)
Owners who could take 90 days off

Nitin's estimate of how owners answer the 90-day test.

About 95%
Small-business owners who don't know how to turn a job into a business

Nitin's estimate for the small-business owners he meets.

12 in three years
Fixes from one-a-quarter

The result of fixing one owner-dependency problem each quarter.

After five years in business
LeanScale's first EA

Anthony hired his first executive assistant earlier this year.

30 days, from February 2020
Emailage LOI to expected close

The window in which COVID shutdowns began during Anthony's experience of a sale process.

Entities

Companies, people & tools mentioned

Auto-extracted and linked into the knowledge graph.

Companies

N3 Business AdvisorsM&A Advisory

Nitin's Toronto M&A advisory firm, which sells construction, trades and engineering companies, mostly with $2M to $25M in revenue. It has completed more than 100 transactions, screens the seller, business and market before taking an assignment, maintains a pre-screened buyer pool, and coined "return on time" (ROT) as an internal phrase. Nitin describes it as a project-based business rather than a recurring-revenue one.

00:00 · 05:20 · 16:33 · 25:55 · 39:43Company →
LeanScaleGTM Operations

Anthony's company. He says LeanScale has been in business for five years and hired its first executive assistant earlier this year, which changed how he spends his time.

18:36Company →
EmailageRisk & Fraud

Where Anthony worked during a sale process. The company received its letter of intent in February 2020, and COVID shutdowns began during the 30 days before the expected close. The deal went through.

44:09Company →
Radian CapitalGrowth Equity

The growth-equity firm Anthony says LeanScale works with. He quotes its managing director: "Run your business as if you're going to keep it forever or else you will."

49:36Company →

People

Nitin Khannaguest

Founder & President, N3 Business AdvisorsProfile →
Anthony Enricohost

Co-founder of LeanScale and host of The LeanScale Podcast.

Co-FounderProfile →

Tools & software

Methodologies referenced Seller, business and market screeningData room firstCIM and blind teaserPre-screened buyer poolBuyer game-plan interviewSimple quoting process
Related LeanScale Services

Where this shows up in the work

Fractional RevOps

Embedded, field-facing RevOps leadership and execution — the operator model Jimmy describes, delivered as a service.

Nitin's list of what makes a company transferable is operations work: moving relationships and approvals off the owner, systemizing quoting, cleaning up reporting and making recurring revenue and backlog visible to a buyer.

Frequently Asked Questions

Straight answers

Generated from the conversation, marked up for search and AI extraction.

Why do most small-business sales fall apart?

According to Nitin Khanna, founder of N3 Business Advisors and adviser on more than 100 construction-company sales, the seller is usually the reason. Three things must be ready for a sale: the business, the market and the seller. Sellers often say they will sell at a certain price, then get cold feet after a letter of intent because money was never the deciding factor and they were not ready emotionally. He recommends treating a sale as a process rather than an event, with a plan for price, timing and how the business will transition to new owners.

What makes a business transferable rather than owner-dependent?

A business is transferable when its relationships and daily work belong to the business, not the owner. Nitin Khanna says many companies with $2M to $25M in revenue are run as a job: the owner fights fires, does the estimating and sales, and holds every customer, supplier and employee relationship. To fix it, delegate those relationships, route payment calls to a bookkeeper and scheduling to an administrative assistant, and automate what you can. Then clean up the financials, build a management team and improve the revenue mix.

What is the 90-day owner-dependency test?

Nitin Khanna asks business owners whether their company would keep running if they took 90 days off without their phone or laptop. He says 99.9 percent say no. The practical version is to take one week off under the same conditions, then note where you were needed and what didn't move forward while you were gone. Fix that first, and fix only one thing per quarter so it doesn't become overwhelming. Over three years that removes 12 sources of owner dependency.

What does "every business sells twice" mean?

It is an M&A saying Nitin Khanna uses to explain why clean financial statements matter. A business is sold once to the buyer and then again to the buyer's lender. A buyer may accept an owner's explanation for personal expenses run through the company, such as an inflated salary for a family member, but the bank financing the deal will want a clean set of books. Clean financials support a higher valuation, better terms and a better deal structure, and show a nervous buyer that the seller is honest.

What is return on time (ROT)?

Return on time is a phrase Nitin Khanna's firm, N3 Business Advisors, coined to judge how people spend their hours. Start with an income goal and convert it into an hourly value: $1 million a year is about $500 an hour. Then compare tasks against that rate. Mowing a lawn you could pay a landscaper $50 to do drops you to $50 an hour. Once your hours are maxed out, buy time back by hiring help, often an administrative assistant first, and spend the time on higher-value work.

What is rolled equity in a business sale?

Rolled equity is when a buyer acquires a majority of a business and the seller reinvests, or rolls, the remainder into the company. Nitin Khanna's example: the buyer takes 70 percent and the seller keeps 30 percent. If the buyer grows the business from $10 million to $20 million, the seller's 30 percent is worth much more on a later sale, which is the second bite of the apple. Because the seller is investing alongside the buyer, they need to believe in the buyer's growth plan.

What are the steps in selling a small or mid-sized company?

In N3 Business Advisors' process, as described by founder Nitin Khanna, the firm first confirms that the seller, business and market are ready. It then fills a data room with historical documents such as lawsuits, leases, property and vehicle agreements and bonding, and writes a confidential information memorandum (a resume of the business) plus a one-page blind teaser that doesn't name the company. It approaches a pre-screened pool of buyers, signs confidentiality agreements, arranges meetings, collects and compares offers, and then the accepted buyer completes due diligence. Nitin warns that an accepted letter of intent is not a reason to celebrate, because delays during diligence kill deals.

Why do buyers care more about the future than past profits?

Because the buyer is paying for what the business will earn after the handover. Nitin Khanna says sellers often point to several years of strong profit earned in a booming market, but buyers want evidence of future revenue such as backlog, signed contracts and recurring revenue. If the business won't be profitable after the sale, the buyer is taking on liabilities like bills, working capital and equipment replacement rather than buying an asset.

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00:00Cold open + intro 01:15Three things have to be true before a business sells 03:23Every owner exits: the five doors out 07:09A business you can run vs. one you can transfer 13:21The most expensive employee is someone just like you 16:01ROT: return on time, and the $500 hour 22:09Clean financials: every business sells twice 27:01"I'm not buying your past. I'm buying your future." 34:01Rolling equity and the second bite at the apple 37:26What the M&A process actually looks like 45:33Time kills deals: the seller who went sailing 51:07The 90-day test, and how to actually start
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00:00Cold open + intro

0:00 Neaton Kana is the founder of N3 Business Advisors, a Toronto-based M&A firm that specializes in one specific corner of the market, selling construction companies, and by his count, the leading construction-focused M&A firm in Canada.

0:14 As much as these sellers tell me that we are ready, they are the ones who are not ready, right? It's not about the number, it's not about the headline number, it's about being ready emotionally.

0:26 I find it very challenging to know when I need to be in founder mode, leaning in, grabbing the bull by the horns, doing the thing that we need to do to make it happen and make the business grow, versus taking a step back and delegating.

0:46 You know, the most expensive employee you can ever hire in your company is somebody who's just like you. I think psychologically, it feels like a luxury, like, "Oh, do I really, do I need one, do I need this?"

1:00 But I think you have to convince yourself, like, this isn't, this isn't for you to kick back and relax. You have an even bigger job to go through.

01:15Three things have to be true before a business sells

1:15 You've done over a hundred transactions. When a deal falls apart, what's usually the thing that killed it?

1:24 First of all, Anthony, thank you for the wonderful introduction. I really appreciate it. You know, what makes a deal fall apart? Every time we speak with a seller, they ask us what can we do with my business and is it sellable or not?

1:41 I tell them three things. I say for a business to sell, there has to be three things which have to fall in right place. One is the business has to be ready to be sold.

1:54 The market has to be ready. And the third, which is the most important thing, you as a seller of a company have to be ready to sell the business, right?

2:03 And when you ask me what makes the deals fall apart, I will tell you as much as these sellers tell me that we are ready, they are the ones who are not ready, right?

2:14 It's not about the number. It's not about the headline number. It's about being ready emotionally. And that's where we see deals fall apart most of the time, right?

2:25 Do you see people, are they just in love with the business that they built and it's difficult for them to step away? Is it an identity issue or do they feel like maybe they haven't completed the mission?

2:37 What are some of those emotional triggers that you feel are keeping the owners tied into their business?

2:43 You know, for a good business to be built, you as a business owner have to be very passionate about it, right? You can't build a good company without being passionate about something, right?

2:58 When you're so passionate about it, you do get very attached about it, right? And I think that's where the emotional thing comes in and it's the identity issue comes in.

3:08 But, you know, most people don't realize if you're going to come in your own way of transferability of your business, at some point what you're going to do, you're going to just, you know, lead the business into a slow death.

03:23Every owner exits: the five doors out

3:23 You're going to let business go in any event. You know, you mentioned that in my tagline, in my email, we always say every owner exits if you do it well.

3:36 And I'll explain that a little bit more in depth. What I mean by that is, you know, every business owner has to exit their business at some point.

3:44 I'm not talking about they have to sell it. I'm saying every owner is going to exit their business at some point. Think of scenarios.

3:52 Either somebody is going to give their business to their kids. They're going to give it to their employees or sell it to their employees.

4:00 They're going to sell it to a third party. They are going to shut it down. Or the worst scenario, they're going to go belly up. They're going to go bankrupt.

4:12 Right. But it's just the law of nature. We have to exit the business means I don't see there is any other way around it.

4:20 So most people when you say why do you fall apart? Many people do get emotionally attached to their business and they find it very difficult to part ways with it.

4:30 But then they don't realize they have to part ways at some point. We'd rather part ways so that the business survives so that the legacy they have built over time that transfers over to somebody else.

4:42 So that those people, the new ownership can run over the business and you as a seller, maybe hopefully one day your grandkids pass by that same street and say yes, my grandfather started this business.

4:56 Isn't that a better option?

4:59 Absolutely. And I think a lot of people don't frame it that way that they think it's either going to keep on going forever with them or yes, maybe there's an exit.

5:08 Are there any key signals that tell you a owner of a business is potentially ready to sell? Are there any key things that you're looking for?

5:20 They're rational about things. If I have to assimilate all my experience and say, okay, what are the factors we see when we take over an assignment because it's also important for us to make sure that when I say the business is ready, the market is ready,

5:37 and the seller is ready, we do analyze all those things before we agree to taking over an assignment, too.

5:43 So we do see when the sellers are rational about it. They think logically about things. You know, we get calls all the time. Oh, if I get so much money, I'll exit.

5:53 Believe me, you're not going to happen. I've been burnt multiple times. You know, I want so much. If I get so much money, we'll sell it.

5:59 We brought a business. We bought a buyer. We brought a couple of buyers. We put a LOI together, offer together what we see in the end, the seller has a cold feet because money was not the key factor in the decision making.

6:13 You know, you have to be emotional. You have to be ready. You've got to put a plan together. You know, anything in life, we always have to plan.

6:20 You go to a kitchen, you want to cook food, you plan around it, right? It's the business. It's about plan.

6:26 Selling a business, Anthony, it's not an event. It's a process. You have to prepare yourself for the process.

6:36 You have to be emotionally ready for the process, right? And you have to prepare your business to be ready. You have to prepare yourself to be ready.

6:44 And we have seen some good sellers who have come along and they say, yeah, this is my plan. This is how much I would sell my business for.

6:52 And this is how I would transition the business to the new ownership, right?

7:00 So if some people follow a structured approach, yes, of course, that's the right way to exit.

07:09A business you can run vs. one you can transfer

7:09 Let's maybe reverse engineer from that moment. If you're thinking, okay, you know it's going to be a process, you have to build up into that point.

7:18 What are the key milestones a business owner needs to go through before they can have a positive exit?

7:29 I say to have a positive exit, right? If I was really to build a business to be sold properly, it has to be transferable. The space we work around, we belong to, it's like a small business enterprises. Typically, businesses with $2 million revenue all the way up to $25 million revenue.

7:52 Most of the time what we see is those businesses, they are run as a job, not as a business itself. You know, the owner wears most of the hats, owner is literally, you know,

8:03 dealing with all the firefighting on a Monday morning, owner is dealing with all the estimating, all the sales, all the relationships, they own everything.

8:11 They are the relations, relationship holders of the business, employee relationships, seller relationships, supplier relationships. If somebody has to do it properly, I would say you got to start delegating.

8:27 You got to start passing those relationships to the right people in the team. If the relationships lie with you as a seller, you don't have a transferable business.

8:38 The relationship should belong to the business itself. A business by definition is a separate entity. Why we are colluding those two things, they should be run separately.

8:49 If every person is going to call you directly for a code or for a payment, you got a problem. You should have a bookkeeper. If somebody's payment has not been made or somebody's payment has not been received, who should be picking up the phone and calling should be the bookkeeper.

9:08 If somebody has to book an appointment with you, they shouldn't be coming to you directly. It should be going through your administrative assistant and they are the ones who should be booking rescheduling appointments and so on.

9:19 And especially today with the way technology is, a lot of those things can even be automated as well.

9:27 In order to have a good sellable transferable business, the first thing first is start eliminating the owner dependency as much as possible.

9:42 After that, cleaning up the financials, building a right structure in the business, right management, the right sort of revenue mix and so on, all those things is going to start to play a big role as well in that.

9:57 Can we double click on that a little bit because I'll share as a business owner myself. I find it very challenging to know when I need to be in founder mode, leaning in, grabbing the bull by the horns doing the thing that we need to do to make it happen and make the business grow,

10:20 versus taking a step back and delegating and knowing when that moment should be like am I delegating too early and starting to play business when really, I'm too small to be doing something like that.

10:34 Or did I wait way too long to delegate something down.

10:38 Do you have, I know it's probably a little different for different types of businesses, but do you have maybe like an order of operations and some guidance of, hey, likely you're going to want to start taking these things off your plate first.

10:53 And then these are probably the last things that you would hand off.

10:58 And when that moment might happen.

11:02 I think every business owner should always be working on the business, not in the business.

11:08 Even you don't have the resources, even you, but you should be thinking of how to work on the business, even if you don't have the resources or money as we talk today.

11:18 But you should have a plan. What has to happen for you to start working on the business. So it's never too soon, I would say.

11:28 Never ever too soon. You cannot afford it. I understand.

11:32 But when would you be able to afford it? Do you have a plan about it? At what level?

11:39 There is a saying in a court case, Henry Ford, the founder of Ford Company was asked, how do you make so and so product?

11:53 And his answer was, don't ask me the foolish questions. I don't know how to do these things, but what I know is how to find people who can do those things.

12:03 Right. That actually should be the job of a business owner.

12:09 If you as a business owner are doing things, that's not really the technical trade or technical skill you need to develop as a business owner.

12:18 The most important technical skill every business owner should have is how to find the right person and put them in the right job.

12:27 That's what they need to develop. If we deal with construction companies all the time, if somebody has started a business as a plumber, I totally respect that.

12:39 But if they want to build it as a business, they have to stop wearing that hat of a plumber. They have to start thinking like a business owner.

12:48 Start hiring good plumbers so that the work can be delegated to them.

12:53 If you are, we always say my first question when I speak interview a client, I'm like, are you still working on the tools?

13:00 And the answer is yes. And that answer comes with a lot of pride.

13:05 I'm like, there is nothing to be proud about because if that's what you're doing, you're not building a business.

13:11 And there is nothing wrong about it. If you don't want to build a business, don't build it.

13:15 But don't call it a business. You've got a glorified job. It's just not a business.

13:21The most expensive employee is someone just like you

13:21 In what order, as you have asked me, in what order should somebody start bringing people on?

13:28 I'll share another thought that comes to my mind here.

13:32 The most expensive employee you can ever hire in your company is somebody who's just like you.

13:41 If you are a risk averse person and you're hiring another risk averse person, I don't think that business is going anywhere.

13:49 Or you are an extreme risk taker and you're taking another risk taker, that business is just very close to going belly up.

13:58 If you're a good accountant, hire a salesperson. If you're a good salesperson, hire a good accountant.

14:05 If you're not detail-oriented, hire a good administrative assistant.

14:09 You're a big picture person. You like to talk big things. You have big vision. There is nothing wrong about it.

14:16 But you need to have somebody who's going to look after the nitty-gritties of it as well.

14:21 Because otherwise you lose control over your business very quickly.

14:25 If somebody has bigger aspirations, bigger dreams, and they're just starting from zero,

14:31 I would say the first person somebody should bring on is an administrative assistant.

14:36 That is one suggestion I always tell people.

14:39 I just had a discussion with one of our past clients and he said, "I've got three businesses. What should I do?"

14:47 None of them are sellable. Should I bring a general manager for each business?

14:53 My first, without knowing much in detail, my first question to him is,

14:56 "Do you have a good admin assistant, first of all, to manage you?"

15:01 If you don't have that, don't bring a general manager right now.

15:05 Get that person in place.

15:08 Perhaps that admin assistant is going to help you find a good general manager.

15:12 You and me, we both know as business owners, it's very difficult to hire people too.

15:18 It's a lengthy process. It takes a lot of energy out of you to find the right people.

15:23 Should I be going out, finding that person, posting an ad, interviewing everybody,

15:28 scheduling the interviews between you and me? No, that should be the job of your admin assistant.

15:33 Some people will say, "I just started a company. I don't have enough money." I get it.

15:38 Look, I started hustling myself with nothing. I built an enterprise from nothing.

15:44 I'm sure you did. Most business owners, they share the same story.

15:50 But hire as soon as you can.

15:54 Hire somebody to give you two hours a day help.

15:57 You don't have to hire even a full-time virtual assistant or an admin assistant.

16:01ROT: return on time, and the $500 hour

16:01 Hire somebody. As soon as you see you're maxed out on your hours,

16:06 because that's one thing which is finite. We don't have more than 24 hours.

16:10 We don't want to work 24 hours. But the moment you get to that point

16:15 that you're putting in your 40, 50 hours a week or whatever time you are comfortable with,

16:22 buy some time back. Bring somebody on for 20 hours, 30 hours, whatever,

16:29 and just calculate your return on time.

16:33 In my company, we often talk about, we've coined a phrase called ROT.

16:37 What's your return on time? When I train my team, I ask them the same question.

16:41 I'm like, "What are you selling here? We are a service company.

16:44 What are you selling? You're selling your time.

16:46 What's the return on time you have?"

16:50 If your return on you tell me, I ask my folks, I say,

16:53 "You tell me how much you want to make this year."

16:57 First of January, we have our meeting. I said, "How much do you want to earn this year?"

17:01 Somebody says, "I want to make a million dollars."

17:04 What does that mean? What's your return on time?

17:07 If you do the math, it works out to be $500 an hour.

17:11 Good. Absolutely.

17:14 Half of your problem is solved. You know what you want to do.

17:17 Now, the rest half, how are you going to do it?

17:20 You want to make $500 an hour. What did you do on the weekend?

17:24 I mowed my grass.

17:27 How much you could have paid a landscaper to mow the grass? 50 bucks?

17:32 All of a sudden, you move from $500 an hour to 50 bucks an hour.

17:37 There is no shame in doing housework. I'm not saying that,

17:42 but I'm asking you what you want to do and what's your plan.

17:46 Are you executing it or not?

17:49 Or is it just a wishful thinking, "I want to make a million dollars."

17:52 If you don't have a plan, I'll tell you, you just have a wishful thinking.

17:57 It's not going to be executed.

18:00 Work backwards, start with somewhere, bring on an administrative assistant.

18:05 I think if I was, and that's one mistake you and me spoke about in the past as well,

18:10 that's one of the mistakes I made, and I wish somebody told me that was a mistake I was making.

18:15 I made that mistake for many, many years, and in hindsight, I wish somebody told me,

18:20 "Do it. Bring somebody on.

18:23 I bet you my business would have been way bigger today than it is."

18:29 I waited too long.

18:31 I'm with you. It's one that I waited a very long time for as well.

18:36 Delene Scale, we've been in business for five years,

18:39 and earlier this year is the first time I brought on an EA.

18:44 How did that change your life?

18:46 Completely changed. One, so definitely time savings, which was fantastic.

18:54 I think to your point, you have to point your time towards things that are higher leverage.

18:58 You can't do the $50 task and expect to get paid for $500.

19:03 You have to think, "Okay, what can I do with my day that would create that type of value?"

19:09 Yes, you have to get those things off your plate.

19:12 The other thing too, I think most people who go into entrepreneurship in general

19:19 are more big picture people. They're less detailed people.

19:23 I was letting a lot of things slip through the cracks.

19:26 I had business all over my inbox, all over my LinkedIn,

19:30 that I just had too much where I was working on something

19:33 and I didn't get back to somebody timely enough.

19:36 Then I would stack up and I'd forget something.

19:39 I think also making sure you're catching everything too.

19:45 I think psychologically it feels like a luxury.

19:49 Like, "Oh, do I really need one? Do I need this?"

19:52 I think you have to convince yourself, "This isn't for you to kick back and relax.

19:58 You have an even bigger job to go to." That's your responsibility.

20:02 I think owning that is important.

20:05 You hit it right on the nail. It's your responsibility.

20:09 When you sign on that leadership role, we as owners, we need to take responsibility.

20:15 We do feel responsible. Sometimes we just don't have a roadmap.

20:18 Sometimes we just need the GPS to tell us, "You've got to go right or you've got to go left."

20:24 You just need that guardrails out there.

20:28 But yes, absolutely. It's the responsibility we should take.

20:35 Are there any other non-obvious ones if you go back saying,

20:40 "Hey, I wish I would have done this with my time differently,

20:43 brought this type of person on"? Any other broad themes,

20:48 like that one that you feel like owners should hear?

20:53 I should have delegated it sooner.

20:57 Somebody wise told me once, "A definition of business is leverage."

21:06 Leverage other people's time. Leverage other people's money.

21:11 It doesn't sound as right, but if you think about it, that's actually what business is about.

21:17 It's not just about you taking advantage of someone.

21:21 You leverage other people's time and you also teach them to leverage on their time as well.

21:26 Because you are only as good as your team.

21:29 If your team doesn't grow, you don't grow either.

21:32 Again, it comes down to the same point of taking responsibility

21:35 because you as a leader sign up to be responsible for the success of your team.

21:41 So you filter that culture in the business and you show it to them

21:45 and teach them and make sure that they are also leveraging

21:49 and making the best use of their time while operating the business as well.

21:54 I should have definitely, in hindsight,

21:57 I should have started delegating sooner.

22:02 Because that is one of the mistakes that haunts me even today.

22:09Clean financials: every business sells twice

22:09 Let's get into a little bit around the business that is in a position to sell.

22:16 Let's lead with the assumption the owner is in an emotional state to make that transaction happen.

22:24 They've built a transferable asset.

22:28 During that time, what are some of the key things that a business has to do to maximize the exit potential?

22:37 Clean financials, for sure.

22:40 That's the very first thing I would tell you.

22:42 If you don't have clean financial statements, that's going to be a big problem.

22:48 There is a saying in the M&A world.

22:52 They say every business sells twice.

22:55 Once you sell it to a buyer, then you sell it to the buyer's lender.

23:04 You, as a seller, might be running a good business, good profitable business,

23:08 and you say, "Okay, the puck stops here. I own the business.

23:12 I can pay my wife $200,000 salary for a bookkeeping job."

23:18 I get it. It's your business. You call the shots. You can do it.

23:23 Or you can say, "I bought a bathtub for client entertainment purposes."

23:31 But it's literally not for that, as we know.

23:36 You're in front of a buyer. The buyer understands your story.

23:39 The buyer feels you are authentic.

23:41 "Yeah, you know what? I understand he had some luxury,

23:44 and he was able to do whatever he decided to do with his business."

23:49 The buyer buys into that story.

23:51 First of all, the buyer is also feeling a bit shaky about the whole thing,

23:55 because he's like, "Okay, if you're doing things like those,

23:57 I don't know what else are you going to do to me once you hand over the keys to me."

24:00 It just shows the quality of the person you are, your morals, your ethics.

24:07 Me, as a buyer, buying your business, I am nervous to begin with,

24:10 because I'm putting my life savings to it. I'm taking a huge risk.

24:15 I want to shake hands with somebody who is honest, professional, and authentic.

24:21 Clean financials go a long way.

24:24 Now, let's say I look into your eyes and I say, "Yeah, I like you.

24:28 I trust you. I know what you're doing. I can live with it."

24:32 Now I have to go to my lender to get the money from them.

24:36 Are the banks going to buy into that? Chances are no.

24:40 They want to go buy the books. They want to see clean set of books.

24:45 110% I can endorse that. If you have a clean set of books,

24:49 it will help you sell your business for a higher valuation on your terms

24:56 with a better deal structure. It goes a long way.

25:01 That's number one. The first thing we spoke about is the owner dependency.

25:07 Second is clean financials. Third is recurring revenue,

25:12 depending on the nature of your business.

25:14 Now, some businesses don't have that luxury, some people do,

25:17 but if you have a luxury or if you can adjust your business

25:22 depending on what kind of clients you want to bring in,

25:24 depending on what kind of business you're chasing,

25:26 if you have a business which has some predictable cash flows,

25:30 predictable revenues, that is way more valuable than a business

25:36 which is you find a contract, you close that job,

25:41 next morning you wake up and you realize I don't have any more work

25:44 and I'm unemployed again, I have to find another job.

25:50 And I think we spoke about that in the past as well.

25:55 Look at my business. We are project-based at this point.

25:58 We have a client who comes to us.

26:01 Look, I need my help with my transition planning.

26:04 We help them find the buyer.

26:06 We assist them with the sale of their business.

26:09 Now, compare that to my peer group who runs an accounting firm.

26:14 He goes out, he finds a client.

26:16 They sign a client once the client is signed,

26:18 as long they keep doing the tax returns correctly,

26:21 as long they keep doing their financial statements correctly,

26:23 they perhaps have client for next 20, 30 years.

26:26 So they have a much more predictable cash flow business

26:30 versus what a company like mine has,

26:34 which is more of a project-based business.

26:36 Now, that comes back to the field of IT which you are in.

26:40 That's where most of the people are going after,

26:42 they are looking after the recurring revenues,

26:45 that the terminology you guys use is ARR,

26:48 what's the annual recurring revenue all the time.

26:50 So in most cases, those businesses also get valued

26:54 based on what is the recurring revenue,

26:56 not based on what is the bottom line.

26:59 So that's where the difference comes in.

27:01"I'm not buying your past. I'm buying your future."

27:01 But with a buyer's psychology,

27:03 if I have to look at something at a buy with a buyer's lens,

27:06 what I'm buying, I'm not buying what you did in the past.

27:10 I am buying what this business is going to do for me in the future.

27:14 And that's where I see there is a huge disconnect,

27:17 where sellers come to me and say,

27:19 "Oh, my business has made a million dollars profit

27:22 every year for the last three years."

27:24 I get it.

27:26 You were lucky, you were in a good market,

27:28 the real estate was booming,

27:30 the construction was going on everywhere,

27:32 so you were making a million dollars every year.

27:34 But now we are in the recession.

27:36 What is the future look like?

27:39 What do you anticipate is going to happen next year?

27:41 Are you going to make the same million dollars next year?

27:44 Yeah, I've been doing it for so many years.

27:47 Convince me.

27:49 Do you have any backlog?

27:51 Do you have any signed contracts?

27:53 If you don't, I'm not getting convinced about this.

27:59 If your business is not going to make profit when I take over,

28:03 I'm actually not buying an asset, I'm buying a liability.

28:07 I got to pay those bills,

28:09 I got to invest money in the working capital,

28:12 I got to replenish the equipment and so on,

28:14 and I'm not making any money.

28:16 What am I buying? I'm buying liabilities.

28:19 Very often it happens to us, people come to me and they say,

28:22 I got $3 million worth of equipment sitting in my landscaping yard.

28:29 Good.

28:30 How much profit does that $3 million equipment is making for you?

28:34 $100,000, $200,000.

28:37 You're in the wrong business, man.

28:40 If you're making $200,000,

28:42 by investing $3 million in the business,

28:44 your return rate of return is around 78%.

28:49 Why would I want to manage a crew of 30 people or whatever,

28:55 chase my receivables,

28:58 fix the equipment when it breaks down to make 7% return?

29:03 It's a wrong business to be in.

29:06 Well, I think one of the things you mentioned,

29:10 I don't know if everybody has it framed this way,

29:12 but selling the future rather than selling the past,

29:16 because if you're selling your business,

29:20 ideally, I'm assuming this is happening because

29:24 there's also synergies to be had between the two companies.

29:28 So, hey, is your offering a really good cross sell

29:32 in their main book of business,

29:34 which would be much more valuable than you just,

29:37 hey, this is what our revenue is, our profit,

29:40 our sales forecast, what we think we can get to on our own.

29:43 If you take that plus stack it on, hey, also,

29:46 we're going to give you these competitive advantages,

29:48 we can cross sell into your book,

29:50 you can cross sell your services into our book,

29:52 we'll have a lot of synergies with our customer base.

29:55 I think a lot of people are missing that part

29:59 when they're framing or thinking about the story

30:03 they're telling to a potential buyer.

30:06 Yeah, and you're absolutely right, Anthony,

30:08 and that's what happens, right?

30:10 Actually, if you think about it, that's what a merger is all about.

30:13 When two companies are merging with each other,

30:16 what they're trying to look for

30:17 is they're looking for one plus one three, right?

30:21 Where are the efficiencies coming from, right?

30:24 Maybe think of a scenario, you are a HVAC contractor,

30:28 and I am an electrical contractor.

30:31 We're both going after the same client.

30:33 We've got two salespeople trying to build same relationship.

30:37 We merge together, we have efficiencies right there.

30:41 Maybe you are parking equipment in the same yard

30:43 and I'm parking equipment in my yard

30:45 and we both have 30% space being wasted.

30:50 Merging together, that's where the efficiency becomes.

30:53 Typically, I would say that's where a good transaction happens

30:58 if there is an efficiency, if there is one plus one three.

31:02 In my mind, if that's not happening,

31:05 I don't see a value in that transaction,

31:09 the sale of a business or a merger or whatever,

31:11 because let's not forget, when a business changes hands,

31:15 efficiency kicks in, also the friction kicks in.

31:21 I've seen a lot of tough integrations.

31:23 Yeah, a buyer may come in and they say,

31:25 "I'm buying this business with so much crew and all,"

31:27 and now all of a sudden the GM doesn't like you anymore, right?

31:31 Or something else happens.

31:34 So there would be, or you have a steep learning curve

31:37 and it slows down the business for the first six months

31:39 or something could have happened,

31:41 so there could be that friction too.

31:43 And that's where I tell the buyers when they come to me,

31:45 I tell them all the time, my first question to them is,

31:48 what is your game plan?

31:49 You want to buy this business, what's your game plan?

31:51 It's making so much money, I can make so much money.

31:53 No, no, I understand, but are you adding any value to it?

31:57 Are you bringing in some systems?

31:59 Maybe the seller has not built a good transferable business

32:03 they're still using old way of doing things.

32:07 Everything is on paper.

32:08 Are you going to come in and you're going to automate something?

32:10 Are you going to put some paper, some automation in there

32:13 or some sort of pipelines or whatever it is?

32:17 But tell me, give me something.

32:19 Tell me why you should be buying business because I don't care.

32:23 You buy and you blow it up and I'll take it back.

32:26 I do care because it does bother me, right?

32:29 It's my name on the line too, right?

32:32 But somebody buys the business, I want to understand from them.

32:35 I want to hear out from them, like what is it that you are bringing to the table?

32:39 And it's not just me because I know when I'm going to present that buyer

32:43 to my client, they're going to ask the same thing.

32:47 We just spoke about that a good business is built with a lot of passion

32:50 and a lot of hard work.

32:52 And for many good sellers, it is important that that name survives.

32:57 That's why they're selling the business, right?

32:59 So they want to hear from this buyer as well, what are they bringing to the table?

33:03 You know, to me, the biggest red flag is when a buyer comes in and they say,

33:06 oh, show me the financial statements.

33:08 I know you have to see the financial statements,

33:10 but when I don't hear any question about the qualitative aspects of the business,

33:16 to me, that's a red flag because they're not thinking out.

33:18 They're just looking at the numbers and that's it.

33:20 And look, numbers are as good as piece of paper they're written on, right?

33:25 They happen.

33:26 It's history. How are you going to make sure it happens all over again?

33:30 And if you're not thinking about the qualitative aspects,

33:33 you're not thinking about, okay, look, I know somebody who would buy this product.

33:40 I already have some new client relationships.

33:43 To me, that's a very positive sign, right?

33:47 Somebody wants to buy a HVAC business.

33:49 They already have relationships with the property managers in the country.

33:53 Bingo, right?

33:55 I know you're bringing some relation.

33:56 You're bringing something to the table.

33:57 I know you're going to grow this business.

33:58 Now, the seller is going to be excited to sell that to you.

34:01Rolling equity and the second bite at the apple

34:01 Very times what happens in this day and age, we call it a role of equity.

34:06 Now, what sellers are doing or what many buyers are proposing is they're buying

34:10 the businesses and they're saying, okay, I'll take 70% of your business,

34:15 for example, I'm just throwing a number.

34:17 I'll take 70% of your business.

34:19 You still keep 30% of the business and you roll that equity back into the business.

34:24 Let me grow this business.

34:26 I am buying your business when you're at 10 million revenue.

34:29 I'll grow it to 20 million.

34:31 You still own 30% of the company.

34:33 Think about it.

34:34 You own 30% of the company.

34:35 Now, 30% of 20 million, you get a second bite at it, right?

34:40 So a seller wants to know and have that conviction that,

34:44 are you going to make a $20 million company?

34:47 Because if they're not convinced about it, they're not selling it to you, right?

34:51 Because they're not rolling into that equity either.

34:54 Right.

34:55 And I think that's an important dynamic for people who are on the business

34:59 speaking to the sellers saying, hey,

35:03 make sure you sell it to a company that gives you that second bite opportunity.

35:08 Because sure, you could sell it to anyone and have this potential exit right now,

35:14 but it's a much better story if you can build those energies,

35:17 roll your equity into a bigger story, be bigger together,

35:20 and then have an additional exit after that.

35:24 That's true.

35:25 I think a lot of companies are thinking about it as, okay,

35:28 it's probably going to be one event and then that's going to be it.

35:31 Who cares who buys us potentially?

35:34 I'm going to be out anyway.

35:37 Or no, hey, I have an opportunity to have a second leg of this and go even

35:42 further than we could have gone on our own.

35:44 I don't know if a lot of owners are thinking about that strategy as much.

35:49 I think the problem is they're not aware of it.

35:52 So they're not thinking about it.

35:53 They're not aware of it.

35:54 How many people you think are aware of that there is a roll-up strategy?

35:59 There's that one option there.

36:02 In my world, I will tell you most people don't even actually think that at some

36:07 point they can sell a business.

36:10 Their exit plan in their mind is I'll run it as long as I can,

36:14 and then I will shut it down.

36:16 Until they hear out from us, no, no, you're sitting on a good chunk of equity.

36:22 Don't shut it down.

36:23 Don't let it go through slow death.

36:25 Sometimes we're just too late in reaching out to them.

36:28 And by the time they say, oh, I was doing 10 million three years ago.

36:31 Now I shrunk it down to 3 million.

36:33 Why would you do that?

36:35 You were doing 10 million if you lost the passion,

36:38 which means you were now on the trajectory of a slow death.

36:42 Might as well have exited at that point, right?

36:46 Had three good years of quality of life cashed out at that point, right?

36:51 So there is a tremendous amount of knowledge that has to be shared with folks

37:01 out there in the small business space.

37:03 They are not aware of it.

37:05 Most people, I would say 95% of the people, small business owners,

37:08 they don't know what to do to make it a business from a job.

37:14 Forget about the role of equity, which is now the strategy is how to transfer.

37:18 That's altogether a different layer of what needs to be done out there.

37:26What the M&A process actually looks like

37:26 Maybe one thing that would be helpful too.

37:29 You've gone through over 100 of these processes.

37:34 Most owners will go through this one time.

37:38 Maybe two.

37:40 What does it actually look like in the process?

37:44 How long does it take?

37:45 What are the steps?

37:47 What are the critical moments?

37:49 If somebody gets to that point, they built a business, it's transferable,

37:52 they delegated, they built something that has real value.

37:56 What do they do?

37:59 It's very nerve-wracking.

38:01 It is very nerve-wracking.

38:03 I can tell you that.

38:05 I don't blame them.

38:07 It's funny you brought that up because just two weeks ago,

38:12 I got a call from someone, and it's an anonymous email actually,

38:17 saying we run an electrical business and we have received two offers

38:27 and we've been negotiating with them for two offers,

38:31 but we are tired and we're nervous.

38:34 We don't know what to do.

38:37 To somebody, actually, they're locked out.

38:39 Somebody's knocked on the doors to say--

38:41 I was going to say, that's pretty rare, right?

38:43 To just be sitting alone.

38:45 Yes and no.

38:46 Things are changing.

38:47 Somebody comes after you?

38:48 No, yes and no, because there is a lot of activity happening

38:51 in the construction trade sector.

38:55 Means there is also saying with AI, construction sector is quite insulated

39:03 with AI happening.

39:04 And what's also happening is with the AI revolution,

39:07 there's a huge demand for data centers.

39:10 And because of huge demand for data centers,

39:12 there is a huge demand for electrical companies

39:14 because how do you build a data center?

39:16 You need electricians.

39:17 So it's actually become a blessing for the trade sector,

39:21 construction sector right now for certain construction companies.

39:25 I'm not talking about a general residential elevator and so on

39:29 and all that stuff.

39:31 So it's very nerve-wracking when you get that

39:35 because you don't know if you're making the right call or not.

39:38 There is a lot of unknowns.

39:40 It's a lot of hard work.

39:42 A lot of things go in.

39:43 But the way a process typically works,

39:45 or the way we manage the process typically,

39:48 is we first of all have our conversations,

39:51 the client interviews, the discussions with the client

39:53 just to make sure that we are identifying the right client.

39:56 They are ready.

39:57 The business is ready.

39:58 The market is ready.

39:59 And we've done all that work.

40:00 The next step from that point is we start gathering all the information.

40:04 We populate the data room.

40:06 We collect the historical information if there is any lawsuits,

40:10 any lease agreements, any property agreements,

40:13 any vehicle agreements or bonding in place or whatever it is needed.

40:18 We try to gather as much information possible from the get-go

40:22 and populate our data rooms with those information.

40:26 Then we start preparing something called as the SIM,

40:31 Confidential Information Memorandum,

40:34 which basically in plain English,

40:37 that is a document which is like a resume of the business.

40:40 It talks about the history of the business,

40:42 what kind of business it is, what kind of profits they have made,

40:45 what are the future prospects,

40:47 what kind of management is in place and so on and all that stuff.

40:50 It's a storybook about the business, the resume.

40:54 And then we also prepare a blind teaser.

40:56 It's just something to say, okay, I got electrical business for sale

41:00 in Canada or in New Jersey or wherever,

41:04 just blind without disclosing any name of the client and so on.

41:08 So we simply prepare a one-page teaser and it says ten employees,

41:14 a million dollars in AVID, five million in revenue or whatever the numbers are.

41:19 We prepare that.

41:20 Then we reach out to our buyer pool.

41:23 In most cases, we already know what kind of buyers

41:26 are looking for that kind of business and so on

41:28 because on the go, we keep screening the buyers.

41:32 We talk to the buyers.

41:33 We say, okay, this is the new business.

41:35 Are you interested and so on, and if they say they're interested,

41:38 then the next most important step is signing the confidentiality agreements

41:41 because a lot of confidential information is going to change hands

41:45 once that happens.

41:47 And that's where the nerve-wracking portion comes in.

41:50 That's the scary part.

41:53 You'll be surprised how many times when we are working with the client,

41:58 they say an ideal buyer for me is another HVAC company

42:02 because they understand my business.

42:05 That's a wishful thinking everybody has.

42:07 I'm sitting in front of an HVAC client.

42:09 The first thing I'm like, who do you think is the right buyer?

42:12 A right buyer for me is somebody who owns an HVAC company.

42:15 Okay, good.

42:17 Your wishes are a command.

42:21 So we'll go find one.

42:23 We bring that buyer.

42:24 Now, as soon as that buyer comes and we are having a meeting,

42:27 the first thing, they are poking into my personal information.

42:31 I'm so nervous.

42:32 I don't want to share my information.

42:34 Yeah, I get it.

42:36 It's scary.

42:37 You're talking to a competitor.

42:38 You're just now going naked.

42:40 You're telling everything what's going on in the business to your competitor.

42:46 Right?

42:47 It's not easy.

42:49 And I understand.

42:50 I would be feeling the same thing.

42:54 But anyways, we go through those motions.

42:56 We go through confidentiality agreements following which we arrange the

43:03 meetings between the buyers and the sellers.

43:07 We get the lawyers involved, the accountants involved.

43:10 The plan is to get as many offers accepted, presented for the business.

43:17 And once the offers are presented, we sit with our clients.

43:20 We analyze which offer would be better.

43:22 We give our opinion to them.

43:24 Let them decide who you think is the right fit.

43:26 The offer comes in.

43:27 Then we start the due diligence.

43:29 And that's when the deep dive starts to happen with the buyer.

43:34 Right?

43:35 And that's where one of the things sellers need to be really worried about

43:38 because I tell them all the time, you know, they receive an offer,

43:41 they accept an offer, and they open a bottle of champagne.

43:45 I'm like, that's the wrong time.

43:48 You know, you've got to be more nervous now than just celebrating because

43:51 it's only a letter of intent.

43:53 It's only as good as a piece of paper it is written on.

43:57 This is not the time to celebrate.

43:59 This is the time to make sure you are running the business to the best

44:04 possible you can.

44:06 I was in a similar situation.

44:09 I was working at a company called Emailage.

44:11 And we were in the middle of running a process.

44:16 And it was February of 2020 when we got the letter of intent.

44:24 And everybody's very excited but also very, very nervous too because I'm

44:30 the same way.

44:31 You don't celebrate until the wire hits.

44:33 That's when you can pop the champagne.

44:36 And during the 30-day period from the letter of intent and when it was

44:40 expected to close, it was when all of the COVID shutdowns started to happen.

44:45 And everybody was freaking out.

44:47 Oh, my gosh.

44:48 Are they worried about us?

44:49 Are they worried about making a big investment when the world is

44:53 shutting down all around us?

44:55 And we were all just like white knuckling, holding on, hoping it happened.

45:01 And then luckily I still have the deal trophy from that one back here.

45:06 But luckily it went through.

45:08 They didn't even bat an eye.

45:09 They were like, yeah, we're so excited.

45:11 But I didn't think COVID would impact this, but we were all freaking out.

45:15 And I think to your point, yes, you get the LOI, but then there's still

45:20 some work to do.

45:21 Yeah.

45:22 And you were right in freaking out because a lot of deals fell apart.

45:25 A lot of them fell apart for obvious reasons.

45:29 People had no idea where the world was heading.

45:33Time kills deals: the seller who went sailing

45:33 In my world, we always tell people time kills the deals.

45:39 Time kills the deals.

45:40 Some people listen, some don't.

45:42 We had -- I'm trying to recollect my memories here.

45:46 We were working on, I think, $15 million transaction two years ago.

45:50 And it was supposed to close in the month of summer.

45:53 The plan was, first of September, the buyer would take over the business.

45:58 The holidays finish in Canada.

46:00 First of September, buyer would take over the business.

46:02 And we're going through the due diligence.

46:04 And the seller turns around in the month of August.

46:06 He goes, I have a ritual.

46:10 I go for sailing every year.

46:12 And I'm going.

46:16 You can sail more if you make this deal happen.

46:19 No.

46:20 And he went.

46:22 And he went.

46:24 And he went -- he's like, that's my ritual.

46:27 I go with my friends every year overseas to Europe.

46:31 I'm going sailing.

46:32 I'm not changing that.

46:35 Luckily, the buyer was motivated enough.

46:37 But that deal did not close on first of September for obvious reasons.

46:40 He went sailing.

46:41 You know, the banker then went on a holiday.

46:43 Then somebody else -- then the lawyer went on a holiday.

46:45 And we came back.

46:46 And now the buyer had some thing in the family.

46:50 The buyer had to go overseas.

46:52 And now then the deal kept on pushing and pushing and pushing.

46:54 And it closed in the first of January.

46:57 Right?

46:58 Because December, nobody wants to close the deal either.

47:00 So -- and time -- but everybody was lucky enough that it did end up closing.

47:05 But I have seen multiple cases for those reasons.

47:09 They don't close.

47:11 Sometimes sellers come to me and say, look, oh, I don't care about you.

47:14 I'll produce everything when I have a tangible buyer.

47:17 Trust me, I know my business.

47:19 I'll bring you a tangible buyer.

47:21 I would not be signing you up if I don't have a tangible buyer.

47:24 I will bring one.

47:25 Be prepared with this stuff.

47:27 You know, sometimes they listen, sometimes they don't.

47:30 Sometimes -- and we have a buyer.

47:32 We have an LOI.

47:33 And now all of a sudden they're struggling.

47:35 We have to find the pieces of paper.

47:37 Minute books.

47:38 Sometimes they miss a minute book.

47:39 I'm like, how can you run a business without a minute book?

47:42 Now the lawyer needs one month to prepare the minute book.

47:46 Okay.

47:47 Well, we can guide you.

47:49 That's our role.

47:50 We can guide you.

47:51 And that's what I'm trying to do here.

47:52 I'm trying to educate people.

47:54 Do the right thing.

47:55 Prepare.

47:56 It's a process.

47:57 It's not an event.

47:58 And one thing I always tell people is, you know, you do not have to run a good

48:05 business to sell a business.

48:07 That's not the right mindset.

48:09 You should be running a good business because that improves your quality of

48:14 life.

48:15 That's your journey.

48:16 You want to enjoy the journey, not the exit.

48:19 Exit is going to happen.

48:20 We spoke about that.

48:22 But you want to enjoy the journey.

48:23 You buy a home, you keep it neat and clean, not because you want to sell the

48:28 home because you want to enjoy your home.

48:31 Why don't you do the same thing with your business?

48:34 If on Monday morning, a client calls, I need a quote and you're scrambling.

48:40 I don't know what my hourly rate is, what my estimator rate is or what my

48:44 overheads are or what my rent charges and so on and all that stuff.

48:47 That's not a business you want to operate.

48:50 Can you imagine the amount of stress going through that?

48:52 Client needs a quote in the next three hours and you don't have a process.

48:57 Have a straightforward, simple process.

48:59 You plug in a number, you know, my foreman rate is so much.

49:04 I don't have to think about it.

49:06 Plug in how many hours are needed.

49:09 Put the number of hours and here you go.

49:11 In five minutes, the quote is out.

49:14 Automate it.

49:16 Systemize it.

49:18 You don't have to do those things to sell the business.

49:21 You should just do it to have a better business, right?

49:25 And two things are going to happen out of it.

49:27 Either you're going to have a way better quality of life

49:30 or you're going to have a way bigger business because it runs by itself.

49:36 We work with the growth equity group, Radian Capital,

49:42 and their managing director, Jordan Bettman, he always says,

49:47 "Run your business as if you're going to keep it forever or else you will."

49:54 Yeah. Yeah. Good one. Good one.

49:57 You know, I come from a business family.

50:00 My dad told me one thing.

50:02 You know, my holidays, my summer holidays used to be for two months.

50:05 I used to go to my dad's shop.

50:07 That's all I could. That was my treat.

50:10 So I grew up with those tidbits of a business.

50:14 Nobody taught me those things.

50:16 I just observed. I just learned around me.

50:20 And I heard my dad saying to somebody,

50:24 and I still remember it, he said,

50:26 "Death and client can show up without telling you," right?

50:31 A business buyer can show up anytime.

50:34 You don't have to sell a business.

50:36 I have seen people having windfalls

50:39 because a buyer for a business was so hungry for whatever reason,

50:44 they paid a premium.

50:47 And the seller was not even thinking about it.

50:50 But the offer was too good to be true that they could not say no.

50:53 But it happened because they had a good sellable company.

50:56 You don't have to.

50:57 It means people sometimes think,

50:58 "Oh, I'm reaching out to somebody. I'm asking them to sell the business."

51:01 No. Just do it for yourself. Have a good business.

51:05 Incredible advice.

51:07The 90-day test, and how to actually start

51:07 One thing I'm wondering, and I'm sure a lot of owners are wondering as well,

51:11 how do you know if your business is set up

51:15 to where the owner dependency isn't so apparent

51:20 and the whole business isn't completely dependent on the owner?

51:24 Is there anything you'd recommend to understand that aspect of the business?

51:31 Anthony, I think that's an easy one.

51:34 When somebody I meet, my first question to them is,

51:38 "Can you take 90 days off without your phone and your laptop

51:43 and your business will still run?"

51:45 And I will tell you, 99.9% of people will say no.

51:50 And I get it. I get it.

51:53 But then it means there is something which is going to break.

51:59 And then my next thing is, "Okay, I know you cannot take 90 days off.

52:02 Why don't you start with one week?

52:05 Take a week off."

52:07 The only condition is you're not going to take your phone

52:09 and you're not going to take your laptop.

52:11 And you come back and see what is it where you were needed,

52:16 what did not move forward because you were not there.

52:19 That's the thing you've got to fix first.

52:22 Don't try to fix everything together because it's very overwhelming.

52:25 Chances are if you've got 10 things, you're not going to do anything.

52:29 Start with one thing. Only fix one thing every quarter.

52:33 In three years from now, you would have fixed 12 things.

52:37 You'll have a much better business.

52:43 Dean, I appreciate all of the words of wisdom.

52:47 And I think anyone who's sitting in the owner's seat,

52:50 in the founder's seat, can learn something from what you talked about.

52:53 I really appreciate you sharing the journey through a transaction,

52:57 what that looks like, where the nerve-wracking parts are,

53:00 how somebody can prepare themselves to optimize for the best outcome possible.

53:05 I also will not get this out of my head where you said

53:09 every single business will exit, but not all exit will.

53:14 And I love the 90-day test.

53:18 Can you fully step away and let your business run itself?

53:22 If you can't, ask yourself why and go back and fix those things.

53:26 Thank you so much for sharing everything you did in the podcast today.

53:29 Absolute pleasure, and can't wait to see what you do next

53:34 and follow all of the content that you're producing as well.

53:37 Thank you, Anthony. I really enjoyed your conversation.