1090: Punctuation: Plan for Business Exits at Maximum Value, Navigate Valuation Challenges, and Achieve Financial Goals with M&A Advisor Jonathan Baker

Robert Plank 0:04 Hey, welcome back. Jonathan Baker is on the podcast, Jonathan is from punctuation.com. And punctuation is a small advisory practice working exclusively with small to mid sized independent marketing services firms. Basically they eat if you're a marketing agency, they help you sell it. And there's so much going into that, as far as should you sell when to sell the factors that contribute to that both physical, logical, financial, emotional. And so Jonathan is going to help us figure this out, he is going to tell us what punctuation is all about how to know what the value of your marketing firm is, and just how to navigate this idea that it seems simple on the surface, right? Like I have this one to sell it. But there's so much that goes into it, as we will find out when we dig and dive in. So Jonathan, happy to be speaking with you.

Jonathan Baker 0:54 I'm glad to be here. Thanks for having me.

Robert Plank 0:57 Glad to have you. So did we do your bio justice? Do we accurately explain what you do? And if not, can you maybe add a little bit for us? Can you tell us just what's your current passion? Focus? What has you excited? What's newsworthy?

Jonathan Baker 1:10 Yeah, so you did my bio justice punctuation is a father son duo, I'm the son the better looking one. And I handled the m&a side of the business, which includes valuations, helping buyers, find sellers, and then helping sellers find buyers and then negotiating and kind of advising throughout the process. And then we also have an advisory side of the business where we help marketing firms essentially, focus and grow.

Robert Plank 1:41 Exciting. And so there's a lot I mean, all of these things that you're mentioning, they seem like huge tasks, right? Finding a buyer, finding a seller making sure everything is where it needs to be. And so what's even a good way to explain what it is that you do, like if someone's just jumping in and saying, okay, all this, like mergers and acquisitions and selling my business or buying a business, like how do we even begin to jump into it? What's the beginner five year old 62nd sales pitch.

Jonathan Baker 2:10 So in most cases, we're working for the seller, someone who was trying to find someone to buy their firm, and I would say, our role is to help them make the best decision possible about their baby, their firm. And that, you know, usually includes finding a buyer, but it might, it might mean, you know what, you've got a really good thing going, we think we can help you tweak some things, and then you can kind of keep rolling. So it's really about helping the owners of these agencies make the best decisions they can for the, for their businesses at kind of a macro level.

Robert Plank 2:50 And you think about when is it the right time? Or when is it a good idea to sell you imagine that like if the owner is bored or wants to do other things, or has kind of grown as big as they can. And then you think about it has a buyer wants, like a turnkey business to the wants something they can flip or they can grow where they can absorb or know what they're doing. And so what what does all that like? Like we usually when is it time to sell or keep going and what are buyers looking for?

Jonathan Baker 3:20 So the way that most of these deals work is in order to get the full asking price, you are going to have to commit to stay on with the buyer for an additional two to three years. And so what you have to do is try to anticipate, am I two to three years away from being bored of the business? Or am I two to three years away from retirement? Have I just hit some great financial milestones. And I'm a little wary about being able to hit those in the future and would benefit from kind of, you know, someone to help partner with me and help help me grow. So you're really trying to predict the future a little bit and that you're trying to figure out when you as a person will be ready.

Robert Plank 4:12 And that's it hurts my brain a little bit to think about that is will I be bored in two or three years? And does it seem counterintuitive? Or does it tie other people's brains into not saying like, well, maybe like, I want it now. I'm excited about my business now. But then in three years, I'll be this other age, or I'll be wanting to do something else. So but the people have trouble, like reconciling this board in three years from now idea. Yeah.

Jonathan Baker 4:41 And sometimes it's not about being bored in three years. It's about they want to hit a certain number with a sale, right? And so we can say, well, if you want to hit that number, here's where you are today. Here's the gap that you need to bridge that's going to take you four years that's going to take you two years And so sometimes we're planning around a financial question more than a time question. And it's really just depends.

Robert Plank 5:09 Okay, well, fair enough. And you know, you're tapping into something that you sometimes you, you have like an experience, or you talk to a certain type of person and you get like a magic feeling. And then you work to get the magic feeling back. And sometimes I think, like, what is that magic feeling. And I think we just landed on it. It's this idea that, well, in the future, I want to accomplish this. And then you write work backwards and reverse engineer and you say, well, here's if I can hit this number, then this will unlock this opportunity, I can sell this business. And so that means I, in order to bridge the gap, as you said, now in the time between now and then I have to do this other work or take these actions to kind of bump pump the business up. And then that way, I'll know if I'm kind of on the path, or if I'm not on the path. And so that's just that's a very interesting and cool idea, right, as far as planning for the future, and setting some of these sorts of stretch goals with a huge, huge reward at the end, which is selling the business and to kind of have those those two years of staying on, and giving it to someone else and having them go with it. But then you get your nice payday. And now you can have even more freedom to do other things, right? Retire, start a new business, build a new business, or buy something else. And so it's kind of a fun place to be in and to help us understand your process and some of these exciting possibilities. Do you have a fun story to share with us? Do you have a fun case study where you went in and worked your magic? Hey, dude, you got a couple of get you got the dog and the baby? And so do you have a fun story to share with us that kind of like explain some of this.

Jonathan Baker 6:46 Some of the better stories I have, I think are more around deals that actually did not go through. So you know, what are the reasons why a deal did not go through. And we, we were working with a seller once had a great offer on the table. Things were going really well. And then, after during the due diligence process, we started kind of questioning Wait, how are these guys going to pay for this? And so we asked to see the buyers balance sheet. And that's when our antennas started to go up. And so it's funny because you think of due diligence, only going in one direction, right? But you actually need to be doing due diligence on each other as, as someone you're effectively tying your financial future to?

Robert Plank 7:38 That's a good insight that sometimes there's those blind spots, sellers that are doing the due diligence on the other sides. And is this kind of a common for deals to sometimes fall through. Because sometimes like me, and the wife will drive past some house, we'll see a for sale sign and we're like, oh, wouldn't it be so great to get that house? And I think, you know, you sometimes you see six or seven houses, and everything's working out but there's other offers other other bidders or things fall apart? So does this happen a lot in your business of like, the deal makes some progress, but then it ends up not working out?

Jonathan Baker 8:10 You know, the house analogy is a really good one. It's one I use a lot. Because yes, these deals can fall through you think about yourself, if you're walking through a house touring it. You're trying to imagine yourself in this house living in this house, and you're doing the same when you're kind of talking to a potential buyer for the first time. What will it be like working with these books? Will they be able to give me the resources I need? will my life be miserable? And you just never know yes, you know, you have multiple offers. Sometimes Sometimes you get through due diligence and things fall apart. Sometimes someone's financing doesn't work out sometimes there's a global pandemic. And so you really have to kind of hope for the best but plan for the worst. And that's why it's helpful to have I think someone in your corner to help you coach you so that you can focus on running your business throughout this whole process. So that you kind of don't get waylaid by these huge emotional ups and downs.

Robert Plank 9:15 Right and I could kind of imagine like the the extra stress that is added on top of this right there's that emotional factor. And there's also like you're kind of adding on a second job in your every day, right? Because you're saying well now I have to run this business that I've been running but also grow it because I eventually want to sell it but then also work to find a buyer and work on all the finances and so I can see how it can help quite a bit for someone to have you in their corner. And so what is the timeline like with this like we're inching we're talking about like a period of like years sometimes to like, when do you start and how long do you stay on?

Jonathan Baker 9:56 Usually we will start as basically as soon as is the the sellers made up their mind that they want to go to market, but the process can take, you know, I would say six months is a minimum 12 months is more often the case. And sometimes it can stretch further than that. And it's not necessarily all active work, a lot of it's waiting for one side to absorb information and respond, then you're waiting for a lawyer to draft up an agreement. And so it's just, it just the time can drag on even if there's not a ton to do at times.

Robert Plank 10:32 Okay, and that's a good insight that so basically, we we can't be in a rush or in a hurry, I can't say I want to sell my business next month, it even when things are accelerated, there's still this time factor, even for PayPal, the legal work or for people to absorb different things. And so now that we're starting to get our heads around this idea, like you mentioned about things such as, like due diligence, and so like, are is there like a logical like, like, 30,000 foot view, step by step process to explain as far as like this, this procedure that you go through? Like, what are the phases are the steps?

Jonathan Baker 11:07 Yes, absolutely. So first we do evaluation, make sure everyone is on the same page as to the value of the business, then we develop marketing materials, which includes, you know, kind of an asking price, basic information about the business, then we go to market. And that, you know, is us kind of working our networks using databases to find potential buyers. And then at that point, you're kind of parallel pathing multiple suitors. And there's an initial conversation, which is more but get to know you, you know, it's a lot like dating, right? They get you get deeper and deeper into it, they start asking for more and more information. Once someone knows they want to buy you, they give you a letter of intent, once you sign a letter of intent. You basically are saying I will not be pursuing any other offers. And so then you're kind of locked in, you know, that's, that's the equivalent of getting engaged. You're locked in for, you know, a certain amount of time. And it's that at that point that the due diligence starts and people start drafting these purchase agreements, which culminates in a closing, which is similar to house closing.

Robert Plank 12:27 Wonderful, very logical and helpful for us to think about and in the back of our mind have the dating analogy so that way, if we say, oh, there's all these these fancy words, like due diligence and letter of intent, I say, okay, like, it's just the map of dating you slowly kind of move along there. And so you've jumped in and helped all these different sorts of businesses. And it's always fun to hear about the shocks, the surprises, the unexpectedness. So, do you have a fun story to share as far as either like a deal gone wrong, or a deal may be gone wrong? I mean, it went, right?

Jonathan Baker 13:04 Look, I'm probably gonna disappoint you. Because these, these are rarely fun. You're dealing with people's livelihoods, the thing that they've poured all their, their heart and soul into. We, you know, we deal sometimes with folks who don't understand the impact that their salary has on evaluation. So sometimes, you know, people are paying themselves only on drawers and not actually withdrawing money from the business that hits expenses. And in that case, your value is actually much lower than you might think it is. But the inverse is also true. So I will say it has been fun to talk to sellers, who are worth more than they thought, because, you know, maybe they were drawing a higher than market salary, for example. Okay.

Robert Plank 13:57 And that's the sort of insight that we can get by having an outside of someone from outside the business looking in and working your magic because maybe they've been just so close to it and doing things for a while and you can say hey, well, if we reconfigure this and we look at it in this way, then you can have the unexpectedness in one way or another right the the lower value and then they maybe do something different leading up to the sale or higher value which is just a wonderful place to be and so what do you wish your future prospects customers clients would know about you? Because like, you know, everyone's on a path right? Someone right, find this podcast or do a Google search or whatever. And that is a path that leads someone to use so speaking of like, the kind of dating analogy, this is someone who hasn't met you yet. So what do you wish that your future successful client would know? Either about you and punctuation or just this process in general? We

Jonathan Baker 14:55 will always shoot you straight. We are known for being brutally honest, we will never force you into a deal that we don't think is right for you. And so in some cases, you're really paying for, you know, more of a therapist than you are a an m&a broker. And it's funny seeing like the Venn diagram of those two jobs, kind of, really, there's the intersection that that's where you get the most value.

Robert Plank 15:27 That's funny to think about this, the whole therapist aspect and there is for sure, this value in like a coach or even like journaling, or even like what you do here with like podcasting or like writing, just getting the words out, right, because your mind your subconscious, your emotions, it's a chaotic, swirled mess, and who knows how real or solid it is, and it changes so much. But by making the statements by telling someone about what your goals are, and what your business are, and how you want to sell it, and what the timeline is, and what the sub pieces are, that really has value, but it's kind of understated, isn't it in just stating what you think the facts are?

Jonathan Baker 16:11 Yeah, I think, you know, that's exactly right. There's a lot of value in looking into the future, and imagining what you want your life to be like. And I think there's this misconception, particularly in America, that in order to be successful, you have to continue to grow, grow, grow, grow your business, that is not the case, right? Think about why you started the business. First, are you achieving those reasons. And if not, let's continue to work towards them that might involve growth, it might not. In some cases, selling is the right move. In some cases, it's not some cases, you know, it's better to just kind of shut the firm down and go on your way. So it's really about helping people make the right decisions for their business, which is a really fun thing to kind of help them think through,

Robert Plank 17:03 right to make these big, life changing decisions, but life changing doesn't have to be scary. It can be, hey, this whole time, I just wasn't considering the big picture. And I was stuck on that American mindset of thinking I had to grow, when I went, Hey, I could shut it down, sell it and move on to the next chapter of my life. And speaking of the exciting future, what is up ahead for you, Jonathan, and for punctuation, and just what's on the horizon? What's upcoming for you?

Jonathan Baker 17:35 More of the same really, it was it's been a slower m&a market last year, because of the rising interest rates, but it's starting to bounce back. And so we're actually seeing a really bright future in terms of deal activity coming up. We're also working on an online benchmarking tool, that businesses will be able to go and use to be able to kind of see operationally financially if they are in line with industry standards. So we're pretty excited about that. That is exciting.

Robert Plank 18:07 And you hear that a lot. Right? Like, like, compare like looking at your industry and looking at what the number for this or that factor is right? Like, am I paying the right amount for the cost of my leads? Is my my paint, like you mentioned earlier about paying myself as the owner enough? So that's a kind of a cool tool to have available, just knowing what the typical average number is? And then how do I compare with that, and then that informs my kind of data driven decisions after this. And so it's been wonderful just to think about all these possibilities that we don't have to just continue on the path that we're going, we have options, right? We can grow, we can sell, we can buy, we can kind of do all these different things to have this exciting, unexpected future. And so how does somebody know if they are a right fit for you for Mr. Jonathan Baker, and dad, Mr. industry veteran David C. Baker from punctuation? How does somebody know if they're kind of the right size company? And how do they know if they are are in the right place? Like do they need to be someone that says, I want to sell I'm not sure if I want to sell How do they know if they fit the right criteria for you? Oftentimes,

Jonathan Baker 19:24 you won't until you have a conversation with us. But you know, generally we work with companies between one and 20 million in revenue. The low that and it's tough to find buyers. And you know, we love helping people think through this stuff. So, you know, every every circumstance is different. We encourage you to get in touch if you want to chat.

Robert Plank 19:49 Fantastic and how do they get in touch so they go to punctuation.com? Or is there a more logical approach? Yeah, we

Jonathan Baker 19:57 actually set up a little web page for Europe. podcast listeners. So go to punctuation.com/marketer. Wonderful

Robert Plank 20:05 punctuation.com/marketer. And what will they find on that landing page, your beautiful

Jonathan Baker 20:10 face for one. And you'll be able to either subscribe to our weekly insights newsletter, just a bunch of great content kind of art, thinking about the space, you can book some time to talk with me, or you can look at, you know what evaluation package might entail. Wonderful.

Robert Plank 20:30 And so this is such an important thing for us to be thinking about. It's, it would be a real shame if someone spent many years on their business and then said, Oh, I'm tired of my meal, just let it die. I, at the very least, like make an informed logical decision. So that way, you can say, well, you know, if I don't like the way it's going, maybe I can change something and keep the business around, or I can sell it. It's just good to think these things through as far as the future so that way, you're in control. And the future doesn't just happen to you. And so that next logical step is to go to punctuation.com/marketer. That way you can get that information, you can join Jonathan's newsletter, and just make or even have that conversation, because like John said, maybe he'll give you how the conversation and you'll completely change what you want, right? Maybe you think he wanted to sell but you won't sell or vice versa. And so you won't know unless you talk to that therapist, like we mentioned punctuation.com/marketer. And as we wrap up, wind down our conversation here, Jonathan, I like to put my guests on the spot for just a second, just really scarily, and ask for a helpful lesson or quote, that maybe applies either to what you do or just like, make us feel good or get us motivated. So what comes to mind as far as a quote or lesson surely get us excited, pumped up and send us on our way.

Jonathan Baker 21:53 Retirement is not an age, retirement is a number. It's a financial number that you need to hit in order to do the things you want to do with your time. So think about retirement, not as Oh, I have to wait till I'm 65. Think about retirement as what do I want to do with my time? And then how much money do I need to get there?

Robert Plank 22:13 I love it that is very motivating and inspiring. Let's think about that as we go to punctuation.com/marketer. And thank you very much, Jonathan for opening our eyes to these opportunities and giving us a peek into your thought process. I really appreciate it.

Jonathan Baker 22:28 Absolutely. It's been a pleasure.

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