00:00:12:00 - 00:00:12:20 Welcome back to

00:00:12:20 - 00:00:16:20 the M&A using weekly podcast for acquisition entrepreneurs, search

00:00:16:20 - 00:00:20:22 funders and holdco builders in the UK, Europe and beyond.

00:00:20:24 - 00:00:24:18 Today, we are shifting gears slightly to focus on a crucial aspect for business

00:00:24:18 - 00:00:29:09 owners, whether they're looking to grow, to acquire, to eventually sell,

00:00:29:11 - 00:00:33:04 it's essential that they have a robust financial strategy.

00:00:33:04 - 00:00:38:07 And our guest is Tom Griffiths, who is founder of Synergy CFO Solutions.

00:00:38:09 - 00:00:42:18 He has over a decade of experience in high finance at Jp morgan,

00:00:42:20 - 00:00:45:05 advising some of the world's largest financial institutions.

00:00:45:05 - 00:00:46:17 And Tom now applies

00:00:46:17 - 00:00:50:09 that formidable expertise to help small and medium sized businesses

00:00:50:11 - 00:00:54:04 to understand their numbers and improve their profits, their cash flow,

00:00:54:09 - 00:00:59:06 make data driven decisions on their path to growth and potentially ultimately exit.

00:00:59:08 - 00:01:01:05 So Tom is great to have you with us today.

00:01:01:05 - 00:01:02:15 Thank you for joining us, sir.

00:01:02:15 - 00:01:04:05 Thank you for having me, Gareth. Pleasure to be here.

00:01:04:05 - 00:01:08:04 No, and those finally acute to the podcast ecosystem

00:01:08:04 - 00:01:12:21 would have noted that I have also recently been a reciprocal guest on your podcast.

00:01:12:21 - 00:01:15:20 Tom, if you want to try all that, to hear you have indeed.

00:01:15:20 - 00:01:16:02 Yeah.

00:01:16:02 - 00:01:19:21 So not not going to be a duplicative conversation,

00:01:19:23 - 00:01:22:17 but yeah, excited to be here and have this conversation with you.

00:01:22:17 - 00:01:23:13 Likewise.

00:01:23:13 - 00:01:27:04 So let's get straight into your kind of transition from

00:01:27:06 - 00:01:32:09 the big high finance corporate world and into working with SMEs.

00:01:32:09 - 00:01:35:15 What was the inspiration moment that encouraged you

00:01:35:15 - 00:01:39:14 to transition from that large scale corporate world into founding synergy?

00:01:39:14 - 00:01:42:14 CFO solutions specifically for small business owners?

00:01:42:16 - 00:01:43:12 Good place to start.

00:01:43:12 - 00:01:47:19 So I always sort of had a bit of an entrepreneurial itch whilst

00:01:47:19 - 00:01:52:05 I was at Morgan, and it was really COVID that was the catalyst for me

00:01:52:07 - 00:01:55:20 making the decision to leave and kind of leave and start my own thing.

00:01:55:22 - 00:01:59:05 And initially I wasn't really sure what I was going to end up doing.

00:01:59:07 - 00:02:01:14 I just knew that it was something entrepreneurial.

00:02:01:14 - 00:02:05:15 And so initially I made the jump left Electric Morgan

00:02:05:17 - 00:02:08:04 and started providing odd bits of consulting,

00:02:08:04 - 00:02:10:09 really just kind of whatever came out of the my desk

00:02:10:09 - 00:02:14:02 and people within my network around things like mergers and acquisitions, bits

00:02:14:02 - 00:02:17:23 of fundraising and exit planning, all bits and pieces.

00:02:18:00 - 00:02:21:14 And what I realized in that process was that whilst many business owners,

00:02:21:14 - 00:02:23:19 they wanted to go and acquire another business

00:02:23:19 - 00:02:27:09 or they wanted to raise money or they wanted to get,

00:02:27:11 - 00:02:29:16 you know, sell a business and they thought they could do it

00:02:29:16 - 00:02:30:24 within a few months or whatever.

00:02:30:24 - 00:02:33:22 And the reality was that underneath,

00:02:33:24 - 00:02:36:16 within their own business, there was just a general

00:02:36:16 - 00:02:39:16 lack of understanding of what was going on with the numbers.

00:02:39:17 - 00:02:43:20 And so I realized that you can't really go and bind acquiring other business

00:02:43:20 - 00:02:47:11 if your own business is in a bit of a mess and you can't stay on top of it,

00:02:47:13 - 00:02:51:15 you can't raise money if you can't make the financial financials

00:02:51:15 - 00:02:55:23 tell a coherent story, You can't sell your business if your finances are a mess.

00:02:56:00 - 00:02:59:07 And so I realized that if I could just dial in a process where

00:02:59:09 - 00:03:02:00 all I'm essentially doing is helping

00:03:02:00 - 00:03:06:01 the business owners understand the numbers so they can see what's working

00:03:06:01 - 00:03:08:24 and what's not working in their business and then make better decisions.

00:03:08:24 - 00:03:11:16 I data driven decisions every month.

00:03:11:16 - 00:03:14:01 Then I was going to be able to help a lot of people.

00:03:14:01 - 00:03:16:10 And then once we've got that solid foundation in place,

00:03:16:10 - 00:03:17:20 then we can look at the next step,

00:03:17:20 - 00:03:19:16 which might be growing through acquisitions,

00:03:19:16 - 00:03:23:01 or it could be getting the business ready for sale or that sort of thing.

00:03:23:03 - 00:03:26:01 Yeah, So that's that's what led me to, to this

00:03:26:01 - 00:03:29:10 this process that I'm now doing, which I'm sure we'll go into a bit more detail on.

00:03:29:14 - 00:03:30:07 Yeah, sure.

00:03:30:07 - 00:03:34:15 Well, let's, let's perhaps get into that in more detail.

00:03:34:17 - 00:03:36:24 I think it's a very prescient observation, though,

00:03:36:24 - 00:03:40:02 that many companies, particularly small and small scale up

00:03:40:02 - 00:03:43:24 type companies that are, you know, fast growth,

00:03:44:01 - 00:03:47:19 maybe neglect some of those financial essentials

00:03:47:19 - 00:03:52:20 in terms of good bookkeeping and, you know, properly structured ledgers, etc.,

00:03:52:24 - 00:03:56:23 because they're head down, drive forward, you know, focus on the growth drivers

00:03:56:23 - 00:04:00:24 and maybe don't prioritize the financial housekeeping.

00:04:01:01 - 00:04:02:19 You say that's

00:04:02:19 - 00:04:06:04 something that you see often and would you consider it perilous?

00:04:06:06 - 00:04:06:14 Yeah.

00:04:06:14 - 00:04:12:14 So I think I think one of the most common identifiers is really business owners.

00:04:12:18 - 00:04:15:18 The thing that tends to ring true is when I say something like,

00:04:15:24 - 00:04:17:06 lots of business owners make decisions

00:04:17:06 - 00:04:19:03 based on how much money is in the bank account.

00:04:19:03 - 00:04:22:03 Instead of actually reviewing their numbers, understanding

00:04:22:04 - 00:04:25:04 what I call the critical force of revenue growth, for example, for cash,

00:04:25:04 - 00:04:29:13 instead of actually understanding those numbers every month or periodically

00:04:29:15 - 00:04:30:09 just go to cash.

00:04:30:09 - 00:04:32:07 Just looking at the bank, the cash in the bank account

00:04:32:07 - 00:04:33:18 and making decisions based off that.

00:04:33:18 - 00:04:36:13 But when you when you make decisions based off the amount of money

00:04:36:13 - 00:04:38:16 in the bank account, what ends up happening

00:04:38:16 - 00:04:41:11 is you might accidentally spend losses corporation tax bill that you haven't yet

00:04:41:11 - 00:04:45:15 paid or you might spend this quarter's VAT bill or

00:04:45:17 - 00:04:47:06 you spend money that you

00:04:47:06 - 00:04:50:10 needed to use for paying marketing agency for something else.

00:04:50:13 - 00:04:53:13 And then what happens is you all of a sudden in cash flow issue,

00:04:53:14 - 00:04:56:10 you face cash flow issues because you can't make payroll next month

00:04:56:10 - 00:04:59:01 and then you run the

00:04:59:01 - 00:05:03:10 negative spiral of having to kind of get back to where you were.

00:05:03:12 - 00:05:08:19 So yeah, I think it starts with having a process to actually review the numbers

00:05:08:21 - 00:05:11:23 and then understanding and making sure you're focused on the right one.

00:05:11:23 - 00:05:14:08 So lots of business owners just focus on revenue.

00:05:14:08 - 00:05:16:14 They think growth equals more revenue

00:05:16:14 - 00:05:19:05 and that may be true and it is true for a lot of businesses.

00:05:19:05 - 00:05:22:24 But if you're if you double your revenue but you have your profit margins,

00:05:22:24 - 00:05:24:19 you end up with the same amount of profit.

00:05:24:19 - 00:05:26:05 So is it really worth doubling the business

00:05:26:05 - 00:05:27:16 and taking on all that additional stress?

00:05:27:16 - 00:05:30:18 And the hardest part of any business is to get clients.

00:05:30:20 - 00:05:31:19 So the hardest thing to do

00:05:31:19 - 00:05:34:19 most of time is going to be to get new clients to to grow revenue.

00:05:34:21 - 00:05:38:21 But if you can do that at a lower profit margin, then you sort of need to know

00:05:38:23 - 00:05:40:05 what it's going to cost you.

00:05:40:05 - 00:05:44:20 Yeah, And whether it's really worth it, I mean, is the vanity sanity old adage

00:05:44:20 - 00:05:47:24 that's overused, but would you say that's a key

00:05:47:24 - 00:05:51:17 blind spot that exists in lots of kind of fast growth entrepreneurs?

00:05:51:17 - 00:05:56:13 Or are there other blind spots that you could speak to that you come across often?

00:05:56:15 - 00:05:58:20 I'd say that is that is a main one.

00:05:58:20 - 00:06:01:22 And really having an understanding of what is driving the profit margins.

00:06:02:02 - 00:06:04:11 So understanding firstly what the profit margins are,

00:06:04:11 - 00:06:07:19 what should they be, what's the norm for that particular sector?

00:06:07:21 - 00:06:11:02 And then understanding why we're on track

00:06:11:02 - 00:06:14:13 or off track and then using that to kind of drive your decision making?

00:06:14:13 - 00:06:18:14 And it doesn't mean going in and slashing load of costs, but it means

00:06:18:16 - 00:06:21:22 perhaps because you can only cut costs to a certain degree

00:06:21:24 - 00:06:25:14 at some point, cutting costs leads to

00:06:25:16 - 00:06:28:03 reducing the potential growth of the business.

00:06:28:03 - 00:06:29:15 But or worse.

00:06:29:15 - 00:06:31:08 Or worse. Exactly. Yeah.

00:06:31:08 - 00:06:35:10 But if you can focus on driving efficiency and then once you're comfortable

00:06:35:10 - 00:06:36:22 with the level of efficiency that you're operating at,

00:06:36:22 - 00:06:41:11 then you focus on generating more revenue, then I think that's a more healthy way

00:06:41:11 - 00:06:41:21 to do things.

00:06:41:21 - 00:06:43:19 As I'm speaking in general terms, obviously every business

00:06:43:19 - 00:06:45:21 is completely different and it does differ across sectors.

00:06:45:21 - 00:06:47:18 But as a general theme,

00:06:47:18 - 00:06:50:19 well, while we're generalizing, let's look at some general statistics, shall we?

00:06:50:19 - 00:06:57:16 And you were all aware that something like 80% of companies ultimately fail in

00:06:57:16 - 00:07:03:01 the first five years of their existence, which is a real sad indictment

00:07:03:03 - 00:07:07:24 of how hard it is to to build a material growing business.

00:07:08:01 - 00:07:11:10 But I think you've mentioned to me in previous conversations

00:07:11:10 - 00:07:14:14 that about 82% of those that fail are failing

00:07:14:14 - 00:07:18:16 because sometimes self-inflicted cashflow issues.

00:07:18:18 - 00:07:21:11 Could you could you speak to,

00:07:21:13 - 00:07:25:00 you know, perhaps why that is the case?

00:07:25:02 - 00:07:29:05 Yes, I think I think what it comes down to is really

00:07:29:07 - 00:07:30:24 a business that is focusing on the wrong thing.

00:07:30:24 - 00:07:34:08 So they're not focusing on preserving cash and not running out of cash.

00:07:34:08 - 00:07:36:18 They're focused on it could be top line revenue

00:07:36:18 - 00:07:39:23 or it could be growth, whatever growth means to the business owner.

00:07:40:00 - 00:07:42:23 But the bottom line is that cash is what keeps all businesses alive

00:07:42:23 - 00:07:46:15 and a lack of cash will cause any business to go bust.

00:07:46:17 - 00:07:49:14 And you can get cash from three places for any business.

00:07:49:14 - 00:07:53:03 It either comes from debt, the borrowing, the business, borrowing money and debt

00:07:53:03 - 00:07:56:04 and keep the business in the business going for a long time.

00:07:56:04 - 00:07:57:12 If you look at what happened in COVID,

00:07:57:12 - 00:08:00:22 the government gave out loans to people, to lots of businesses, and kept them alive

00:08:01:00 - 00:08:04:12 when actually they would have gone out of business if left to their own devices.

00:08:04:18 - 00:08:07:05 On the other hand, you've got owner investments.

00:08:07:05 - 00:08:09:17 Lots of businesses run based on external investment

00:08:09:17 - 00:08:11:13 for years and years and years before ever turning a profit.

00:08:11:13 - 00:08:16:03 Yeah, but at some point both debt and external investment are unsustainable.

00:08:16:05 - 00:08:19:02 So what we need to do is we need to focus on the third source

00:08:19:02 - 00:08:22:11 of any business's source of cash, which is the business.

00:08:22:11 - 00:08:24:18 So we need to get the business going at generating cash,

00:08:24:18 - 00:08:26:19 a consistent positive cash flow.

00:08:26:19 - 00:08:30:01 And once we focus on generating consistent positive cash flow

00:08:30:03 - 00:08:33:02 and everything else just becomes a lot easier, I'm not saying it's easy

00:08:33:02 - 00:08:34:14 to generate consistent positive cash flow,

00:08:34:14 - 00:08:36:14 but if we know that our focus is on that,

00:08:36:14 - 00:08:40:01 then we can kind of say no to that, to the other noise and the fundamentals

00:08:40:01 - 00:08:44:12 that drive that particular silver bullet, the self

00:08:44:13 - 00:08:48:14 generated strong recurring cash flow

00:08:48:16 - 00:08:49:00 that's

00:08:49:00 - 00:08:50:07 coming from that

00:08:50:07 - 00:08:54:08 business model, coming from an understanding of their cost to serve,

00:08:54:10 - 00:08:57:12 you know, what are the things that should an entrepreneur be kind of scrutinizing

00:08:57:12 - 00:09:01:13 in order to really maximize that cash generative nature of the business?

00:09:01:15 - 00:09:04:09 So what I like to do is break the business into

00:09:04:09 - 00:09:06:16 and you can really break it down to as many as you want.

00:09:06:16 - 00:09:08:18 But I go for I go to 16 drivers.

00:09:08:18 - 00:09:10:05 And so fundamentally it's

00:09:10:05 - 00:09:12:11 the critical force of revenue growth, both net profit cash,

00:09:12:11 - 00:09:14:14 and then they break out into more, more drivers.

00:09:14:14 - 00:09:16:15 So those drivers apply to any business.

00:09:16:15 - 00:09:21:02 Doesn't matter what size business or what sector same drivers apply.

00:09:21:04 - 00:09:23:17 And so it's really understanding the pyramid.

00:09:23:17 - 00:09:26:19 So you've got revenue at the top, gross profit, net profit in cash at the bottom.

00:09:26:19 - 00:09:29:17 If your goal is to optimize for cash flow, the one at the bottom,

00:09:29:17 - 00:09:31:12 if that number isn't where you want it to be,

00:09:31:12 - 00:09:35:08 then the cause of it is, is that one of the other drivers

00:09:35:08 - 00:09:38:04 that are driving that further up the pyramid is proportion to be Yeah.

00:09:38:04 - 00:09:39:13 So if you've got zero leads coming

00:09:39:13 - 00:09:42:11 in, then naturally everything else is going to be zero.

00:09:42:11 - 00:09:44:19 If you've got if your gross profit margin is zero,

00:09:44:19 - 00:09:46:20 then naturally everything else below that is going to be zero.

00:09:46:20 - 00:09:50:07 So what I do is I get clear on those 16 drivers

00:09:50:09 - 00:09:54:12 and we we track those 16 drivers every month and then we can identify

00:09:54:12 - 00:09:58:02 which ones are not where we want them to be by setting a target for each one.

00:09:58:04 - 00:10:01:14 And that way we can make sure that our focus is going to be

00:10:01:14 - 00:10:04:16 on the drivers that are going to have the biggest impact on profits in cash

00:10:04:17 - 00:10:05:03 every month.

00:10:05:03 - 00:10:09:23 So, for example, if you if you if you break the 16 drivers down,

00:10:09:24 - 00:10:14:11 you identify that actually the main thing that's stopping our cash flow from being

00:10:14:13 - 00:10:18:08 at the level it needs to be is that we're taking too long to collect our cash.

00:10:18:08 - 00:10:21:04 We're taking 60 days instead of 30 days, which is the industry norm.

00:10:21:04 - 00:10:24:14 So for the next 30 days we're going to focus on doing is collecting the cash

00:10:24:14 - 00:10:28:12 that we're owed and making sure that our customers pay us within 30 days.

00:10:28:14 - 00:10:31:23 And by repeating that process every month and focusing on the number one

00:10:31:23 - 00:10:32:22 or two drivers,

00:10:32:22 - 00:10:35:17 they're going to have the biggest impact on that bottom number naturally.

00:10:35:17 - 00:10:39:13 And by definition, you will end up in a much healthier place.

00:10:39:18 - 00:10:40:17 It doesn't mean it's quick

00:10:40:17 - 00:10:45:03 and it doesn't mean it's easy, but your focus is then more focused.

00:10:45:09 - 00:10:47:16 Yeah, some of those quick and easy things that the entrepreneur

00:10:47:16 - 00:10:52:01 may have got into the habit of, though, like underpricing

00:10:52:03 - 00:10:56:01 and not chasing, you know, overdue debts and things like that,

00:10:56:03 - 00:10:59:02 you know, those aren't necessarily easy to dig yourself out of.

00:10:59:02 - 00:11:00:17 That will take time to sort of

00:11:00:17 - 00:11:04:09 almost change the culture in the way you're dealing with your customers. Right?

00:11:04:11 - 00:11:05:04 but yeah, really

00:11:05:04 - 00:11:09:10 interesting that your process goes all the way to the top of funnel.

00:11:09:12 - 00:11:13:24 What are you doing about sourcing leads, converting those leads,

00:11:14:01 - 00:11:14:10 making sure

00:11:14:10 - 00:11:17:12 you make money out of those leads right the way through to how that then impacts

00:11:17:12 - 00:11:20:20 the bottom line with all of the various overheads and cost to serve along the way.

00:11:20:20 - 00:11:26:03 That's that's really a great kind of toolkit I imagine for for entrepreneurs.

00:11:26:05 - 00:11:30:01 Talk to me a bit about what you've termed in the past messy books,

00:11:30:03 - 00:11:33:03 and I think that conjures up lots of, you know,

00:11:33:03 - 00:11:37:15 iconography and visions in someone like, you know, for the finance world mind.

00:11:37:20 - 00:11:41:13 But like, give us some examples of where you've seen real, truly messy books.

00:11:41:17 - 00:11:45:14 Yeah, So I could probably talk quite a long time on this.

00:11:45:16 - 00:11:49:06 But I think I think what it comes down to is when you open the books,

00:11:49:08 - 00:11:53:09 you pull out the, the three financial statements, profit loss, balance sheet,

00:11:53:09 - 00:11:57:19 cash flow forecast and things don't tell a story that reflects reality.

00:11:57:21 - 00:12:00:11 That's that's what it comes down to. Now that could be.

00:12:00:11 - 00:12:02:16 But isn't that creative accounting?

00:12:02:18 - 00:12:03:24 It could be poor bookkeeping.

00:12:03:24 - 00:12:07:19 It could be stuff that's been registered in the wrong place

00:12:07:21 - 00:12:11:19 or it could be that the books just aren't in an appropriate format

00:12:11:19 - 00:12:15:13 where you can't view that's a gross profit across different product lines.

00:12:15:13 - 00:12:18:07 So you can actually see how much money you're making on each product

00:12:18:07 - 00:12:22:02 or you might have, you know, payroll bundled in with other costs

00:12:22:02 - 00:12:23:13 and therefore you can't break out how much

00:12:23:13 - 00:12:25:09 you're actually spending on payroll every month.

00:12:25:09 - 00:12:28:20 So it's a good granular general ledger that allows you to get into each account

00:12:28:20 - 00:12:33:14 and work out where your expenditure is going, where your revenue is coming from.

00:12:33:14 - 00:12:38:12 You know, more more depth of that taxonomy is better generally.

00:12:38:13 - 00:12:41:10 Generally, I would say more depth is better. Yeah.

00:12:41:10 - 00:12:45:05 Having a competent bookkeeper is step number one.

00:12:45:07 - 00:12:48:04 I'm not suggesting that any business owners should be doing this themselves,

00:12:48:04 - 00:12:50:01 and the business owners job is to run the business.

00:12:50:01 - 00:12:54:11 And naturally that doesn't mean going through the bookkeeping.

00:12:54:11 - 00:12:56:07 Not to think many of them will be pleased to hear that.

00:12:56:07 - 00:13:00:00 Yeah, but that's where they need folks like you to

00:13:00:02 - 00:13:01:08 to put them on the straight and narrow.

00:13:01:08 - 00:13:02:03 You mentioned bookkeeping.

00:13:02:03 - 00:13:04:02 That's not something that you necessarily get stuck into.

00:13:04:02 - 00:13:07:06 I think you set the rules in the sort of framework and, you know,

00:13:07:06 - 00:13:08:19 help them find the right people.

00:13:08:19 - 00:13:14:05 But I doubt that you're going back to a bookkeeping role for your clients. Yes.

00:13:14:05 - 00:13:16:05 So what I support with is the strategy piece.

00:13:16:05 - 00:13:19:07 So I'll take all of the data, all of the financials,

00:13:19:11 - 00:13:21:02 and then I'll help them look forward.

00:13:21:02 - 00:13:24:18 So how do we identify what's working and what's not working in the business?

00:13:24:24 - 00:13:27:06 And then how do we identify what to focus on?

00:13:27:06 - 00:13:30:10 And then what actually do we need to do to actually improve that number?

00:13:30:12 - 00:13:31:15 And that's what I work on with the business.

00:13:31:15 - 00:13:33:06 So this is very much forward looking strategy.

00:13:33:06 - 00:13:34:12 So we'll start with our goals.

00:13:34:12 - 00:13:37:00 We'll think 3 to 5 years away. What do you really want to do here?

00:13:37:00 - 00:13:37:23 Do you want to sell the business?

00:13:37:23 - 00:13:41:11 You want to work one day a week from Spain, whatever it may be,

00:13:41:13 - 00:13:44:14 reverse engineer that back to what profits and cash need to look like

00:13:44:14 - 00:13:47:13 in order to deliver that goal and then turn that into a one year target.

00:13:47:13 - 00:13:48:15 So therefore we achieved the target.

00:13:48:15 - 00:13:51:00 This year we're on track to the three of Target

00:13:51:00 - 00:13:54:12 and then we break the business up into those 16 drivers, work out

00:13:54:12 - 00:13:55:16 what's not where it needs to be.

00:13:55:16 - 00:13:58:07 And then that's how we drive the decision making and the focus.

00:13:58:07 - 00:14:01:07 And then together with the business owner, we come up with what

00:14:01:12 - 00:14:03:19 specifically each person in the team is going to do

00:14:03:19 - 00:14:06:03 to get the business moving in the right direction.

00:14:06:03 - 00:14:08:19 And so to answer your question, yeah, I don't do the bookkeeping, but

00:14:08:19 - 00:14:12:08 I will support the owner in making sure that Got a competent bookkeeper.

00:14:12:08 - 00:14:13:07 An accountant? Yeah.

00:14:13:07 - 00:14:16:11 And that they're disciplined, I guess, because a lot of entrepreneurs

00:14:16:11 - 00:14:21:06 are running their books retrospectively and sort of reconciling after the fact

00:14:21:06 - 00:14:24:12 and have had a look at a couple of M&A opportunities recently

00:14:24:12 - 00:14:25:17 where we got into the due diligence.

00:14:25:17 - 00:14:30:10 And frankly, you know, there's a lot of, well, this is the record of what happened

00:14:30:10 - 00:14:34:22 rather than using Xero or QuickBooks as something to help with forecasting.

00:14:34:24 - 00:14:37:06 Which sort of size of a business should you think they should

00:14:37:06 - 00:14:40:08 start doing things like accruing and providing in their accounts to give them

00:14:40:08 - 00:14:44:02 that sort of perspective on the future and smooth out the pits and troughs?

00:14:44:04 - 00:14:45:03 I think. I think so.

00:14:45:03 - 00:14:48:24 What I usually say to my clients very often will be at the early stages

00:14:48:24 - 00:14:50:05 of working with them and they'll say, Well,

00:14:50:05 - 00:14:53:21 we can't start working together because the books aren't ready and

00:14:53:23 - 00:14:55:10 I think what it comes down to is

00:14:55:10 - 00:14:58:00 the numbers need to be directionally accurate, directionally accurate.

00:14:58:00 - 00:14:59:22 Because if I said no to every client

00:14:59:22 - 00:15:03:04 that doesn't have perfect books, then I wouldn't have any clients.

00:15:03:06 - 00:15:06:12 But also the clients that I have worked with wouldn't have had the help

00:15:06:12 - 00:15:07:11 that they needed.

00:15:07:11 - 00:15:10:08 So regardless of whether the books are tidy or not,

00:15:10:08 - 00:15:12:03 the business owner still needs help.

00:15:12:03 - 00:15:16:17 If you look at every business that's failed and many of them

00:15:16:23 - 00:15:19:11 had messy books, many of them didn't, they all had a bookkeeper.

00:15:19:11 - 00:15:21:12 That doesn't that's not the

00:15:21:12 - 00:15:24:09 the determinant as to whether a business is going to succeed or not.

00:15:24:09 - 00:15:25:22 But it's one part of the story.

00:15:25:22 - 00:15:27:02 Exactly. Exactly.

00:15:27:02 - 00:15:31:12 But having having some way to gauge what's working, what's not working,

00:15:31:14 - 00:15:32:18 that's important.

00:15:32:18 - 00:15:35:10 If we can start with direction accurate books, then we can

00:15:35:10 - 00:15:37:10 we can get a bookkeeper in the right position

00:15:37:10 - 00:15:39:21 and we can we can build it from that. Yeah, exactly.

00:15:39:21 - 00:15:43:02 It's the old adage of when's the right time to plant a tree?

00:15:43:02 - 00:15:44:13 Well, you know, 20 years ago.

00:15:44:13 - 00:15:45:09 But actually,

00:15:45:09 - 00:15:48:10 if you didn't do it, then do it now and start as you mean to go on because,

00:15:48:10 - 00:15:51:22 you know, you're now setting the framework for a different kind of future.

00:15:51:24 - 00:15:54:14 So let's listen to them and a podcast.

00:15:54:14 - 00:15:57:10 Let's turn to some of your experience with with M&A.

00:15:57:10 - 00:16:01:00 I think you supported an IT support business in its sale

00:16:01:02 - 00:16:04:05 specifically by helping them get their finances in order before

00:16:04:11 - 00:16:05:07 marketing the business

00:16:05:07 - 00:16:08:07 for sale took place, which is obviously very smart listeners.

00:16:08:12 - 00:16:12:21 So could you walk us through what that preparation process involved and how

00:16:12:21 - 00:16:16:15 it directly contributed to a better due diligence and successful saying?

00:16:16:17 - 00:16:17:05 Yeah.

00:16:17:05 - 00:16:20:19 So I started working with them about three months before the business was marketed.

00:16:20:19 - 00:16:21:21 Well, that's quite late.

00:16:21:21 - 00:16:22:12 It is quite late.

00:16:22:12 - 00:16:26:07 So what I was going to say was ideally it would be best to get the support

00:16:26:07 - 00:16:29:05 you need much earlier than a few years at least

00:16:29:05 - 00:16:31:11 if the business actually needs to improve their problems and cash flow,

00:16:31:11 - 00:16:32:23 then you'd want to be even earlier than that.

00:16:32:23 - 00:16:35:24 But fundamentally, to to get the business ready from a due

00:16:35:24 - 00:16:39:07 diligence perspective, then yeah, as early as possible is better.

00:16:39:11 - 00:16:41:12 But anyway, three months before

00:16:41:12 - 00:16:45:03 step number one was to get the business ready for marketing, which means creating

00:16:45:03 - 00:16:48:19 an information memorandum highlighting what's going on in the business.

00:16:48:21 - 00:16:51:05 So I was supporting with getting that information

00:16:51:05 - 00:16:52:23 and making sure that the financials were in a position

00:16:52:23 - 00:16:54:24 where we could pull the information that we needed.

00:16:54:24 - 00:16:57:12 And the information that we needed was to be able to see gross profit

00:16:57:12 - 00:17:01:00 by product to have a forecast in place for the next few years

00:17:01:02 - 00:17:05:04 and to start getting the data room ready so that when we did get to that due

00:17:05:04 - 00:17:08:19 diligence phase of the process, once we once we had a buyer, then

00:17:08:22 - 00:17:11:22 the business owner having to go round and find all these documents

00:17:11:22 - 00:17:13:02 that the potential buyer needed

00:17:13:02 - 00:17:16:02 wouldn't delay the process and cause the whole thing to fall through.

00:17:16:07 - 00:17:20:05 So that was kind of the early stage, early stages of it. Then

00:17:20:07 - 00:17:21:24 once the marketing took place,

00:17:21:24 - 00:17:25:24 it was actually pretty quick to find a potential buyer.

00:17:26:01 - 00:17:30:07 Then a heads of terms was agreed and then we went to the due diligence process.

00:17:30:13 - 00:17:35:03 Due diligence process meant and we were provided with a big due diligence list.

00:17:35:08 - 00:17:38:08 So financial tax, legal, operational

00:17:38:13 - 00:17:42:13 and my job was to basically get all of this information from the business owner.

00:17:42:15 - 00:17:46:07 So we got as much as we could prior to actually getting to that stage

00:17:46:07 - 00:17:50:17 so that it wasn't it didn't delay the process because a lot of this stuff

00:17:50:19 - 00:17:53:07 can be incredibly overwhelming for a business owner to have to get a fine

00:17:53:07 - 00:17:55:12 because you're giving them a list of all of these things

00:17:55:12 - 00:17:58:17 which may or may not exist somewhere in the in that filing system.

00:17:58:17 - 00:18:01:17 So this this team sensibly made that your problem.

00:18:01:22 - 00:18:04:02 Exactly. Yeah. So I it was my problem.

00:18:04:02 - 00:18:05:10 And so yeah.

00:18:05:10 - 00:18:09:09 And that also meant making sure the financials all stacked up as well

00:18:09:11 - 00:18:10:22 which was, which was a key part of it. Yeah.

00:18:10:22 - 00:18:13:11 So let's get into that exit preparation accounting.

00:18:13:11 - 00:18:17:13 You know the, the old adjusted EBITDA are now in this year you're working

00:18:17:13 - 00:18:18:17 for the home team in this case.

00:18:18:17 - 00:18:23:05 So you're looking to try and make their numbers look as good as possible.

00:18:23:07 - 00:18:27:16 How creative do you think sellers should be in,

00:18:27:18 - 00:18:32:16 you know, acceptable at backs and, you know, really kind of swelling that

00:18:32:18 - 00:18:34:07 at that adjusted EBIT

00:18:34:07 - 00:18:38:11 going from the tax mitigated accounts that are sort of like what they failed

00:18:38:13 - 00:18:43:18 to what they'd like to optimize for multiple enterprise value?

00:18:43:20 - 00:18:46:20 I think as a general, as a general rule of thumb,

00:18:46:20 - 00:18:50:12 you should in the years leading up to your sale,

00:18:50:13 - 00:18:51:17 you should run the business

00:18:51:17 - 00:18:54:17 as if someone were going to buy it tomorrow with no attacks.

00:18:54:22 - 00:18:58:22 That's that's the easiest way to run it, because the more out backs that you have,

00:18:58:24 - 00:19:02:13 the more you're going to have to have a back and forth with any potential buyer

00:19:02:13 - 00:19:04:07 and justify why they shouldn't be there.

00:19:04:07 - 00:19:05:00 And if they shouldn't,

00:19:05:00 - 00:19:08:06 if they shouldn't be there, then really they shouldn't be there.

00:19:08:08 - 00:19:09:21 If they're not going to be there

00:19:09:21 - 00:19:12:19 when the new owner takes over the business,

00:19:12:19 - 00:19:14:01 then they shouldn't be there in the first place.

00:19:14:01 - 00:19:16:12 That that would be the justification of a of a buyer.

00:19:16:12 - 00:19:19:12 So the short term benefit of, you know,

00:19:19:17 - 00:19:23:05 putting the wife on the business class flights while you're both traveling

00:19:23:05 - 00:19:27:01 to, you know, Dubai for business or,

00:19:27:03 - 00:19:31:19 you know, that small cash loan for your new conservatory and that kind of

00:19:31:19 - 00:19:35:00 so those are things you probably are going to trip yourself up with, right?

00:19:35:01 - 00:19:36:07 No, good idea, because the more

00:19:36:07 - 00:19:38:04 the more you start putting things like that through the business,

00:19:38:04 - 00:19:39:22 the more you have to have that back and forth with the client.

00:19:39:22 - 00:19:41:13 And that breaks down the trust.

00:19:41:13 - 00:19:45:06 And a big part of any acquisition for small businesses is trust.

00:19:45:08 - 00:19:50:06 Well, I've seen situations where a buyers are being told by sellers,

00:19:50:06 - 00:19:52:06 you know, okay, trust me, yes,

00:19:52:06 - 00:19:56:19 I've done some creative things in order to, you know, mislead HMRC.

00:19:56:21 - 00:19:58:07 But, but you can trust me.

00:19:58:07 - 00:20:00:20 You know, I'm I'm fully legit.

00:20:00:20 - 00:20:04:06 And I think it's difficult to have those two sides to the coin

00:20:04:11 - 00:20:08:15 and maybe have a credible conversation around acquisition

00:20:08:15 - 00:20:12:04 and at least maximize your exit value, because

00:20:12:06 - 00:20:15:09 I think all of that comes with risk and that reduces the premium

00:20:15:09 - 00:20:17:02 that someone's willing to pay for your business.

00:20:17:02 - 00:20:17:23 Yeah, I agree.

00:20:17:23 - 00:20:21:22 And I think as a general rule of thumb, of a basic salary

00:20:21:22 - 00:20:25:17 for the for the director, you know, that the tax free minimum plus pension

00:20:25:17 - 00:20:29:07 contributions, I think that's fine and most buyers are okay with that.

00:20:29:07 - 00:20:31:03 But when you start getting into

00:20:31:03 - 00:20:33:15 really personal expenses, going through the business, then

00:20:33:15 - 00:20:38:01 then you start getting into a territory that could cause deals to break through.

00:20:38:02 - 00:20:38:14 Yeah.

00:20:38:14 - 00:20:41:02 Are there any other financial considerations or preparations

00:20:41:02 - 00:20:45:23 that also get overlooked by sellers in preparing for that process?

00:20:45:23 - 00:20:46:16 I mean, okay,

00:20:46:16 - 00:20:48:05 they've got tidy books and they've maybe stopped

00:20:48:05 - 00:20:50:09 doing some of the kind of lifestyle things

00:20:50:09 - 00:20:52:05 that would be having a long term consequence.

00:20:52:05 - 00:20:56:23 But are there any other sort of, you know, things that get overlooked or missed?

00:20:57:00 - 00:21:00:14 So I think I think we can touch on a few other general points.

00:21:00:16 - 00:21:04:02 So the business needs to run without the business owner,

00:21:04:04 - 00:21:06:14 and the business only needs to go able to demonstrate that.

00:21:06:14 - 00:21:07:17 So they need to go demonstrate.

00:21:07:17 - 00:21:10:08 The business will carry on coming in to the business

00:21:10:08 - 00:21:11:10 without the business end of that.

00:21:11:10 - 00:21:14:17 I know all the client relationships are fully dependent on the business owner

00:21:14:19 - 00:21:18:04 so that when somebody buys it and the business owner steps aside, that

00:21:18:04 - 00:21:21:00 business is going to carry on operating business is going to carry on command.

00:21:21:00 - 00:21:21:21 That's number one.

00:21:21:21 - 00:21:25:20 Number two, not too many, not too much exposure to any few clients.

00:21:26:01 - 00:21:28:06 So if you've got a few customer concentration.

00:21:28:06 - 00:21:30:14 Yeah, a big red flag. Exactly.

00:21:30:14 - 00:21:33:15 So if you've got a few clients that generate

00:21:33:17 - 00:21:36:01 more than a significant chunk of your revenue,

00:21:36:01 - 00:21:39:21 that's a red flag to a potential buyer because that client could pull the plug.

00:21:39:22 - 00:21:41:20 What's the safe threshold there, would you say?

00:21:41:20 - 00:21:44:16 I mean, what I tend to look for this sort of like, give me a top ten customers.

00:21:44:16 - 00:21:48:19 And if that is, you know, accounting for, you know,

00:21:48:21 - 00:21:52:03 70% of your revenue, then I probably should probably got a bit

00:21:52:03 - 00:21:53:06 of a concentration risk there.

00:21:53:06 - 00:21:56:06 But am I being over zealous with that?

00:21:56:08 - 00:21:57:17 I would do I would do the same.

00:21:57:17 - 00:21:59:05 I would do the same. Again.

00:21:59:05 - 00:21:59:22 It's hard to apply

00:21:59:22 - 00:22:04:04 one rule to all businesses because if if those if those ten clients

00:22:04:06 - 00:22:08:09 have got five year contracts, then that's a different different scenario

00:22:08:09 - 00:22:12:10 to have all of those clients being on 30 day contracts.

00:22:12:12 - 00:22:13:16 So I think it's a case of looking

00:22:13:16 - 00:22:17:09 at the contracts, looking at what is going on with each of them,

00:22:17:11 - 00:22:20:22 looking at, yeah, looking at the contracts and finding out how sticky the model is

00:22:21:02 - 00:22:22:17 so you don't have to be super diversified.

00:22:22:17 - 00:22:24:24 Then as a, as a business in terms of your customer base

00:22:24:24 - 00:22:27:12 in order to still be a sort of acquirer well entity.

00:22:27:12 - 00:22:30:18 As long as you've got some robustness in the way that you're doing business

00:22:30:18 - 00:22:34:01 with your key customers and that you know that they're locked in,

00:22:34:03 - 00:22:39:00 I guess you're selling the business at the point where all of your top

00:22:39:00 - 00:22:43:05 customers are coming round for their contract renewal is maybe not the

00:22:43:07 - 00:22:44:05 the most

00:22:44:05 - 00:22:47:06 likely outcome is not going to get you a very high value for the business, is it?

00:22:47:07 - 00:22:48:06 But if you've just locked them all

00:22:48:06 - 00:22:51:22 in, maybe that is a good milestone to to start shopping the business around.

00:22:52:03 - 00:22:52:19 Exactly.

00:22:52:19 - 00:22:56:24 And and I think a key part of it is to think of it through the buyer's lens.

00:22:57:05 - 00:22:59:13 So essentially the buyer wants to buy something

00:22:59:13 - 00:23:02:13 that's going to carry on operating once they acquire it.

00:23:02:16 - 00:23:05:02 And if things things are going to start falling apart,

00:23:05:02 - 00:23:08:03 what the day that they acquire it, customers are going to leave, you know,

00:23:08:03 - 00:23:12:14 the gross profits going to all of a sudden start dropping, then that's a risk.

00:23:12:14 - 00:23:14:23 And you as the buyer need to understand that

00:23:14:23 - 00:23:16:14 that is how they're going to view this business.

00:23:16:14 - 00:23:18:03 It's as a as an asset.

00:23:18:03 - 00:23:19:15 And how much risk does this asset carry?

00:23:19:15 - 00:23:22:04 And the more risk it carries, the less they're going to pay for it

00:23:22:04 - 00:23:24:00 or the less they're going to be willing to pay for it.

00:23:24:00 - 00:23:26:08 Yeah, What about

00:23:26:10 - 00:23:27:21 poacher turned gamekeeper?

00:23:27:21 - 00:23:30:11 So all scenarios that you work for the away team as well,

00:23:30:11 - 00:23:33:07 have you done any work in terms of due diligence

00:23:33:07 - 00:23:36:18 and commercial and financial due diligence for acquirers?

00:23:36:20 - 00:23:39:11 I've done a few bits and pieces over the years.

00:23:39:11 - 00:23:39:20 Yeah.

00:23:39:20 - 00:23:41:16 So I've done a bit of that. Yeah.

00:23:41:16 - 00:23:44:24 So financial due diligence, the same on the other side of the table really.

00:23:45:03 - 00:23:47:02 So it's going through that, going through that data room

00:23:47:02 - 00:23:50:22 and then understanding kind of what's going on in terms of trends, checking

00:23:50:22 - 00:23:54:15 the everything that the seller is saying checks out

00:23:54:17 - 00:23:58:08 and yeah, justifying to the, to the buyer whether they should move forward

00:23:58:08 - 00:24:02:00 with the deal because I feel that having experience on both sides of

00:24:02:00 - 00:24:06:12 the transaction is a super power because you're able to bring what you know

00:24:06:12 - 00:24:10:01 to be the mindset of one party to the way you prepare the other party.

00:24:10:01 - 00:24:10:07 Right?

00:24:10:07 - 00:24:13:14 And you can obviously represent both sides of one transaction.

00:24:13:14 - 00:24:15:23 But I you know, I still feel like it's a lawyer to some extent.

00:24:15:23 - 00:24:18:23 You know, you can quite comfortably and professionally represent

00:24:18:23 - 00:24:20:16 a client regardless of which chair

00:24:20:16 - 00:24:22:08 they're sitting in, which side of the table they're on.

00:24:22:08 - 00:24:23:07 Yeah, absolutely.

00:24:23:07 - 00:24:26:05 I think the other the other point that I just want to mention is the forecast.

00:24:26:05 - 00:24:27:12 The forecast needs to check out.

00:24:27:12 - 00:24:29:07 So you can't have a forecast that says you're going

00:24:29:07 - 00:24:31:02 to double the business over the next year.

00:24:31:02 - 00:24:34:22 Well, how much weight do you think is okay to place on a forecast?

00:24:34:22 - 00:24:39:00 I mean, I've worked with some clients who are trying to use, for example,

00:24:39:00 - 00:24:42:05 discounted cash flow valuation that is heavily anchored on what

00:24:42:05 - 00:24:45:24 we're going to suddenly materialize 40% per annum, you know, growth here.

00:24:45:24 - 00:24:48:09 And it's like, well, for the last five years that hasn't happened.

00:24:48:09 - 00:24:51:24 We know what's going to change post the sale of the company.

00:24:52:01 - 00:24:53:01 I mean, discounted cash flow

00:24:53:01 - 00:24:57:11 evaluations are useful instruments for increasing.

00:24:57:11 - 00:25:01:04 We like using future potential to increase today's value, but

00:25:01:08 - 00:25:05:00 surely people are buying based on proven cash flow?

00:25:05:02 - 00:25:05:19 Yeah. Yeah.

00:25:05:19 - 00:25:08:04 I would agree that again, it depends on the sector.

00:25:08:04 - 00:25:09:23 You know, some of these tech businesses.

00:25:09:23 - 00:25:11:18 yeah. Software multiples. Yeah.

00:25:11:18 - 00:25:13:23 Well I'm sure that and he says venture capital

00:25:13:23 - 00:25:16:09 for the businesses that even though we haven't said it

00:25:16:09 - 00:25:19:22 I believe we're talking about here it's generally a you know some sub

00:25:19:22 - 00:25:23:04 1520 mill revenue owner operated.

00:25:23:06 - 00:25:24:21 Yeah traditional business. Exactly.

00:25:24:21 - 00:25:27:21 So yeah, generally you're going to be able to need to demonstrate that the profits

00:25:27:21 - 00:25:30:21 have been solid and consistent for for 2 to 3 years at least.

00:25:30:22 - 00:25:33:03 But the forecast does hold does hold weight.

00:25:33:03 - 00:25:36:23 And the point that I was going to make was if you're moderately claiming that the

00:25:37:00 - 00:25:38:11 the business is going to double over the next year,

00:25:38:11 - 00:25:39:20 you really need to be able to justify it.

00:25:39:20 - 00:25:43:19 I don't think that would necessarily come to the valuation of the amount

00:25:43:19 - 00:25:44:14 you're going to get on day one,

00:25:44:14 - 00:25:47:17 but it could result in an earnout if that materializes.

00:25:47:22 - 00:25:48:23 Yeah. Okay.

00:25:48:23 - 00:25:52:06 So maybe pipeline then if there's someone's got a

00:25:52:08 - 00:25:56:14 real crystal pipeline as regards we've got high confidence in our CRM.

00:25:56:14 - 00:25:59:14 You know, we've qualified that these transactions are going

00:25:59:14 - 00:26:03:17 to crystallize on this date and we've got, you know, an agreement in principle.

00:26:03:19 - 00:26:05:06 Is that the sort of thing that you can take

00:26:05:06 - 00:26:09:00 to the bank in a transaction or I think it could result in the earnout

00:26:09:04 - 00:26:12:12 payout being higher, but not necessarily the amount you're going to get on day one.

00:26:12:14 - 00:26:13:08 And the other thing with that

00:26:13:08 - 00:26:17:09 with the forecast is that it just shows the buyer that you've thought about it

00:26:17:11 - 00:26:19:19 and that you're not just saying, you know, because if I just said you, here

00:26:19:19 - 00:26:22:24 are the numbers, this is what we did for the last three years here accounts,

00:26:23:01 - 00:26:25:14 then the buyers are, okay, great, Well, what's going to happen next?

00:26:25:14 - 00:26:26:19 And even if it's going to just carry

00:26:26:19 - 00:26:29:07 on increasing by inflation or maybe going down 5%,

00:26:29:07 - 00:26:32:15 it just means that you've thought about it and you put something on your mind

00:26:32:15 - 00:26:34:00 not already out the door. Yeah. Yeah.

00:26:34:00 - 00:26:36:06 And I don't think this is the end of the story for the company.

00:26:36:06 - 00:26:41:22 So I think having a plan, having a forecast is probably an important

00:26:41:24 - 00:26:45:19 part of preparing the business for sale because you're wanting to give

00:26:45:21 - 00:26:48:10 confidence to the buyer that there is a future for the business

00:26:48:10 - 00:26:49:12 and that you're not just cashing out

00:26:49:12 - 00:26:52:02 because you know it's peaked and it's on the decline. Exactly.

00:26:52:02 - 00:26:54:12 The hospital pass to somebody else.

00:26:54:12 - 00:26:58:16 So I take your point that having a forecast is important,

00:26:58:16 - 00:27:03:04 but I don't necessarily think that from a biased perspective, they would

00:27:03:06 - 00:27:03:24 attach much

00:27:03:24 - 00:27:08:02 weight to things that are more than a year or 18 months out into the future.

00:27:08:02 - 00:27:09:02 I would agree with that.

00:27:09:02 - 00:27:10:20 In terms of the business of valuation, yeah, it's

00:27:10:20 - 00:27:13:02 not going to hold a huge amount of weight,

00:27:13:02 - 00:27:15:07 but just important to have because it shows that you filter out

00:27:15:07 - 00:27:18:03 and also things are upcoming expenses, like for example,

00:27:18:03 - 00:27:20:24 this particular one that I helped exit, they needed to invest

00:27:20:24 - 00:27:24:00 3040 grand into their office or office refurbishment and things like that.

00:27:24:06 - 00:27:27:24 And so the buyer would visit the property and be like, well,

00:27:28:01 - 00:27:30:20 clearly some what needs to be done here, Where's that in your forecast?

00:27:30:20 - 00:27:33:07 All right. So encouraging the seller to own that problem.

00:27:33:07 - 00:27:36:13 Yes, we have a market, you know, depreciation is a accounted

00:27:36:13 - 00:27:37:08 for these assets

00:27:37:08 - 00:27:41:01 and we know that we're going to have to call on the cash to go and replace them.

00:27:41:03 - 00:27:41:19 Yeah, really good.

00:27:41:19 - 00:27:46:00 I like that that you're talking about earn outs as I do, like a fait accompli.

00:27:46:00 - 00:27:51:02 Like they you know, there were obvious and in a prerequisite

00:27:51:04 - 00:27:52:24 part of a transaction these days

00:27:52:24 - 00:27:55:04 and that's certainly what we're seeing at base branches.

00:27:55:04 - 00:27:59:24 You know there's no such thing really as a deal of 100% cash up front anymore.

00:28:00:05 - 00:28:04:02 I think we've inherited the Americanized model of at least deferred consideration

00:28:04:02 - 00:28:06:23 because it comes becomes part of the leverage of the transaction.

00:28:06:23 - 00:28:07:23 But also if you can attach

00:28:07:23 - 00:28:12:09 a conditionality to that deferred consideration with financial performance

00:28:12:11 - 00:28:15:15 KPIs, then you know all the better for the buyer.

00:28:15:15 - 00:28:16:16 Right?

00:28:16:16 - 00:28:19:10 But how have you seen that play out with sellers?

00:28:19:10 - 00:28:23:01 I mean, do you do you give any of your seller clients

00:28:23:03 - 00:28:28:12 advice around when it's a good idea to take an out and when it isn't

00:28:28:14 - 00:28:29:24 so? So

00:28:29:24 - 00:28:34:01 yes, is also that definitely very popular again from the buyer's perspective,

00:28:34:01 - 00:28:37:01 they want to buy something and take as little risk as possible.

00:28:37:03 - 00:28:39:12 From the seller's perspective, they want to go 100% on day one.

00:28:39:12 - 00:28:43:03 Obviously that's not realistic nowadays or not sure if it ever was,

00:28:43:05 - 00:28:45:16 but part of that could be,

00:28:45:16 - 00:28:49:23 you know, deferred consideration isn't contingent on any performance go

00:28:50:00 - 00:28:53:10 and it could be contingent on performance, which would then be done out.

00:28:53:16 - 00:28:57:11 So I've seen them based on revenue, gross profit,

00:28:57:13 - 00:29:00:13 a variety of different variable of factors.

00:29:00:17 - 00:29:03:14 And I think the key is to work out

00:29:03:14 - 00:29:06:07 well from the buyer's perspective, what can't be manipulated.

00:29:06:07 - 00:29:08:07 And then from the seller's perspective,

00:29:08:07 - 00:29:11:01 obviously they want to make sure that they get that deferred consideration.

00:29:11:01 - 00:29:13:21 So what can they do that's going to maximize the chance of that?

00:29:13:21 - 00:29:16:23 And it does sometimes come down to really the wording,

00:29:16:23 - 00:29:19:23 the way it's worded in the the shepherds.

00:29:20:02 - 00:29:20:11 Sure.

00:29:20:11 - 00:29:21:13 That manipulation thing,

00:29:21:13 - 00:29:26:05 I think runs both ways because as I said, I've handed over the keys to the door.

00:29:26:07 - 00:29:28:16 Someone else is running the show saying the policy, you know,

00:29:28:16 - 00:29:31:12 could they make a decision? And normally there's

00:29:31:14 - 00:29:32:08 clauses in the

00:29:32:08 - 00:29:35:08 SBA to prevent this during a non out period.

00:29:35:09 - 00:29:38:11 But could the buyer make a decision that, you know, reduces

00:29:38:11 - 00:29:40:08 the performance of the business so that they don't

00:29:40:08 - 00:29:44:03 end up paying the earnout element, seeing that happen?

00:29:44:06 - 00:29:45:17 Yeah, absolutely.

00:29:45:17 - 00:29:51:06 So how do businesses usually come to the conclusion that they need

00:29:51:06 - 00:29:55:03 your services like we've talked about some of these compelling milestones

00:29:55:05 - 00:29:58:15 where they're thinking about acquiring or thinking about selling

00:29:58:17 - 00:30:03:05 and aside from your outreach and your because you're increasingly visible

00:30:03:07 - 00:30:08:09 and obviously appearing on lots of these podcast, etc., and you on your own,

00:30:08:11 - 00:30:11:01 how are your clients usually

00:30:11:01 - 00:30:14:12 discovering and realizing they need you?

00:30:14:14 - 00:30:16:05 I think it's quite a personal thing.

00:30:16:05 - 00:30:20:12 It's a it's a personalized individual service and it's relationship based.

00:30:20:14 - 00:30:25:02 So it's not it's not like people decide they need to buy something

00:30:25:02 - 00:30:28:23 that something generic and they go and they go to Google and go buy it.

00:30:29:00 - 00:30:34:05 It's a it's a relationship based service and so it's usually through,

00:30:34:05 - 00:30:36:15 you know, appearing on a podcast or something like this.

00:30:36:15 - 00:30:39:02 I say something that resonates with the business owner

00:30:39:02 - 00:30:42:03 who has it, or it's going to an event, you know, having a chat with someone

00:30:42:08 - 00:30:46:01 saying, me saying something just rings true with them.

00:30:46:03 - 00:30:50:16 Usually it comes back to somewhere along the lines of just not really having

00:30:50:16 - 00:30:53:21 a solid grasp of what the financial is doing in their own business.

00:30:53:23 - 00:30:56:10 They might they might not be a complete mess, but

00:30:56:10 - 00:30:57:22 perhaps they realize that they're not

00:30:57:22 - 00:31:00:22 they don't review the numbers in the way that they should.

00:31:00:23 - 00:31:04:11 Maybe they've had someone run their accounts or,

00:31:04:13 - 00:31:07:01 you know, doing their books for the last 20 years

00:31:07:01 - 00:31:11:00 and they're wondering whether that person is actually adding much

00:31:11:02 - 00:31:12:14 or doing what they should be doing.

00:31:12:14 - 00:31:15:09 They know that they're not providing any forward looking guidance.

00:31:15:09 - 00:31:18:13 But is there something that can be improved in that process?

00:31:18:19 - 00:31:19:20 These entrepreneurs aren't necessarily

00:31:19:20 - 00:31:23:17 waking up in cold sweat one morning going by bookkeeping crap.

00:31:23:19 - 00:31:27:01 I think there's like you see with commercial finance, like there's

00:31:27:01 - 00:31:31:24 a compelling moment of, you know, or as I like to call an shit moment

00:31:32:01 - 00:31:35:04 whereby they have a, you know, an impairment

00:31:35:04 - 00:31:39:10 or they have something that is some headwind that

00:31:39:12 - 00:31:42:03 makes them have a rethink about is the status

00:31:42:03 - 00:31:45:13 quo really working for me and go and try and fix it?

00:31:45:15 - 00:31:48:13 And are you finding

00:31:48:13 - 00:31:52:02 a disproportionate number of potential clients are in a

00:31:52:02 - 00:31:56:00 sort of adverse conditions where they need help to turn something around?

00:31:56:02 - 00:31:59:02 Or are you seeing, I hope, this case

00:31:59:03 - 00:32:01:13 entrepreneurs that are forward thinking and going, well, yeah,

00:32:01:13 - 00:32:04:13 we're growing up as a business and we need some professionalism here.

00:32:04:13 - 00:32:06:05 To be honest, it's kind of a mixture of both, right?

00:32:06:05 - 00:32:08:16 Yeah. You have the ones who are struggling and need help.

00:32:08:16 - 00:32:10:15 They know they need help.

00:32:10:17 - 00:32:11:12 But then on the other

00:32:11:12 - 00:32:14:13 end of the spectrum, you have the ones who are really profitable.

00:32:14:13 - 00:32:15:09 They're doing really well.

00:32:15:09 - 00:32:17:02 They've got loads of cash in the bank and they just don't

00:32:17:02 - 00:32:18:14 know how to grow to the next level.

00:32:18:14 - 00:32:20:15 And they that kind of humbling.

00:32:20:15 - 00:32:23:17 They they know that they're not a financial expert.

00:32:23:19 - 00:32:24:21 They're an expert of what they do.

00:32:24:21 - 00:32:27:09 They're an expert so that that trade or that craft,

00:32:27:09 - 00:32:28:20 but they're not a numbers person.

00:32:28:20 - 00:32:30:06 And so understanding profits and cash flow

00:32:30:06 - 00:32:32:14 isn't something that necessarily comes naturally to them.

00:32:32:14 - 00:32:35:14 And so they want someone like me to just come in and just guide them

00:32:35:20 - 00:32:38:09 every month, help them see what's working, what's not working, and then help them

00:32:38:09 - 00:32:42:02 make those data driven decisions on the most important things.

00:32:42:02 - 00:32:45:09 And then naturally, that feeds into things like acquisitions.

00:32:45:09 - 00:32:47:09 Do we grow organically or do we go through acquisitions

00:32:47:09 - 00:32:49:10 and how are we going to get this thing ready for sale?

00:32:49:10 - 00:32:53:14 I'm glad to hear that, that you've got a mix of potential clients

00:32:53:14 - 00:32:57:06 coming to you with different challenges and different opportunities.

00:32:57:08 - 00:32:58:23 Yours and your teams.

00:32:58:23 - 00:33:02:20 Time as professionals, you know, are limited too much

00:33:02:22 - 00:33:04:24 where you've got to have existing customers and,

00:33:04:24 - 00:33:07:23 you know, taking on new clients, I guess it has to be where you feel

00:33:07:23 - 00:33:11:17 you can add value and also where you feel that there is a good fit

00:33:11:17 - 00:33:12:14 between those clients.

00:33:12:14 - 00:33:16:07 Is there any particular filters that you apply to

00:33:16:12 - 00:33:19:17 to sort of determine whether you might be able to assist?

00:33:19:19 - 00:33:24:02 I think I just work out if the business owner is someone that I want to work with.

00:33:24:04 - 00:33:25:03 It really comes down to that.

00:33:25:03 - 00:33:27:02 The human factor, how are they going to take action?

00:33:27:02 - 00:33:30:02 Because there's nothing more frustrating than having these calls.

00:33:30:04 - 00:33:31:23 You know, you agree what needs to be done.

00:33:31:23 - 00:33:35:01 The business owners are in agreement that, you know, that needs to be done

00:33:35:01 - 00:33:37:03 and then you get to the next goal. Nothing's happened.

00:33:37:03 - 00:33:38:19 And it's frustrating.

00:33:38:19 - 00:33:40:22 And so, yeah, I really enjoy working with the business owners.

00:33:40:22 - 00:33:43:00 The they just take action

00:33:43:00 - 00:33:46:19 is the basis for action, trustworthiness, coach ability, you know,

00:33:46:20 - 00:33:51:11 those kind of fundamentals that mark out the successful entrepreneurs.

00:33:51:11 - 00:33:53:00 Yeah, and it is a relationship thing.

00:33:53:00 - 00:33:57:05 So obviously meet them in person and you know

00:33:57:07 - 00:34:00:07 we'll spend time together, go to lunch or whatever before, after our meeting

00:34:00:07 - 00:34:03:12 and it's much makes the job a lot more enjoyable.

00:34:03:12 - 00:34:07:02 And actually the clients get much better results when that's an enjoyable tension.

00:34:07:02 - 00:34:09:00 Free experience.

00:34:09:00 - 00:34:10:03 Very well said.

00:34:10:03 - 00:34:13:09 Yeah, they have to trust their professional service providers

00:34:13:11 - 00:34:16:11 and be open and open minded as well.

00:34:16:14 - 00:34:17:14 So that's great.

00:34:17:14 - 00:34:19:19 Super. Well, how do central clients contact you?

00:34:19:19 - 00:34:21:04 How do they how do they find you? What's what?

00:34:21:04 - 00:34:23:10 Where do they need to go to learn more about synergy?

00:34:23:10 - 00:34:25:20 CFO Solutions So nice and simple.

00:34:25:20 - 00:34:28:20 I'm on LinkedIn and drop me a message on LinkedIn or connect with me.

00:34:28:24 - 00:34:31:20 I've also got a number of free resources that I can provide you

00:34:31:20 - 00:34:34:22 links to and some PDFs that it basic.

00:34:34:22 - 00:34:38:15 Explain those 16 drives that I us about how to measure them, how to track them,

00:34:38:17 - 00:34:40:16 and then how to make decisions based on them.

00:34:40:16 - 00:34:46:11 So that process just gives you fabulous well giving without expectation to receive

00:34:46:12 - 00:34:50:12 and refreshing that that's nice them and I'm sure you'll be inundated

00:34:50:12 - 00:34:51:20 with listeners and viewers

00:34:51:20 - 00:34:55:21 that might want to avail themselves of those those assets, those tools.

00:34:55:23 - 00:34:58:08 And we'll put obviously a link to Thom's contact

00:34:58:08 - 00:35:01:24 Information and Synergy CFO Solutions website, etc.

00:35:01:24 - 00:35:03:04 into the show notes today.

00:35:03:04 - 00:35:08:13 So, Tom, I just want to really kind of give you the opportunity to make any

00:35:08:15 - 00:35:13:09 takeaways that are really takeaways that you'd like listeners or viewers to, to

00:35:13:11 - 00:35:14:10 leave this

00:35:14:10 - 00:35:17:22 experience with any pearls of wisdom to impart.

00:35:17:24 - 00:35:22:15 I would just say for any business owner, if you're not tracking a numbers

00:35:22:17 - 00:35:25:22 every month with some sort of simple

00:35:25:22 - 00:35:29:15 to follow system, then I would recommend just getting started.

00:35:29:15 - 00:35:31:08 You can start with the critical four

00:35:31:08 - 00:35:33:09 that I mentioned revenue, gross profit, net profit, cash

00:35:33:09 - 00:35:34:06 just tracking every month.

00:35:34:06 - 00:35:36:07 Just look what's happening month to month.

00:35:36:07 - 00:35:38:12 And then over time you're going to start seeing trends.

00:35:38:12 - 00:35:41:00 And then from those trends, you can start making decisions.

00:35:41:00 - 00:35:43:14 And then when you're making those data driven decisions

00:35:43:14 - 00:35:46:08 and you focused on the most important things in the business and naturally

00:35:46:08 - 00:35:49:07 everything else is going to improve, it's much better

00:35:49:07 - 00:35:52:07 during that than it is making a decision based on how much is in the bank account.

00:35:52:07 - 00:35:55:11 So if anything I've said as resonated with you, then by all means grab

00:35:55:11 - 00:35:59:04 a copy of the the training that I mentioned a few minutes ago

00:35:59:10 - 00:36:04:01 and welcome to reach out and have a chat with anyone who's you want to have a chat?

00:36:04:01 - 00:36:05:19 Magic. Yeah. Thank you very much for having me.

00:36:05:19 - 00:36:06:13 It's been a pleasure.

00:36:06:13 - 00:36:10:08 Tom, it's been an absolute pleasure hearing all about how your business

00:36:10:10 - 00:36:15:09 serves the important and often overlooked part of our economy.

00:36:15:09 - 00:36:19:08 These small and medium businesses in that growth stage where, you know,

00:36:19:09 - 00:36:23:13 there's a is an opportunity for them to continue to

00:36:23:15 - 00:36:24:03 contribute

00:36:24:03 - 00:36:27:03 to the economic success of the UK and beyond.

00:36:27:08 - 00:36:30:11 I really think that the sort of financial and practical insights

00:36:30:11 - 00:36:31:24 that you've shared today have been very valuable,

00:36:31:24 - 00:36:34:07 and I'm sure you'll see that in the comments.

00:36:34:07 - 00:36:36:22 Understanding your numbers is is clearly fundamental

00:36:36:22 - 00:36:38:05 to the success of any business.

00:36:38:05 - 00:36:42:24 And we can't stress enough at base Crunch that, you know, the path

00:36:42:24 - 00:36:47:20 to a smooth exit involves having good financial professionals on your team

00:36:47:22 - 00:36:49:20 to ensure that your accounts are in good order

00:36:49:20 - 00:36:54:03 because you won't survive the first pass of a due diligence if they're messy books,

00:36:54:03 - 00:36:55:00 as we talked about earlier.

00:36:55:00 - 00:36:56:15 So great.

00:36:56:15 - 00:36:59:09 Well, listeners for us, thanks so much for tuning in today, Tom.

00:36:59:09 - 00:37:01:08 Thank you so much for joining us. Jenny.

00:37:01:08 - 00:37:05:10 Next time for another episode with another interview from the community.

00:37:05:10 - 00:37:19:22 And until then, do keep on crunching by for now

00:37:19:24 - 00:37:20:05 and.