Business Exit Advisor: Save £4,000, Retire A Millionaire! Most Owners Never Do - Saul Cohen

Automatic captions of the conversation. They can contain errors and do not name who is speaking.

If you save £4,000 a year on your tax at retirement, it gives you an extra million pounds. We ended up saving him nine times the cost of the tax plan. Nine times? Nine times. They think that their business is going to be worth millions and that's going to be their retirement and it isn't. So for a lot of business owners, they're just looking for the cheapest accountant because they look at accounting as a compliance boxed Sol Cohen, founder of ExpertEye. I'm one of the UK's most experienced acquisition advisors. Welcome to the show.

Sol started his career at PwC, being involved with 150 acquisitions, and he's not even 35 yet, which is ridiculous, right? When do you know it's time to change accountants? Tax to the point where it's time to leave your accountant. How do accountants calculate valuations? Finger in the air. Don't tell me it's guesswork. Stop it. What's the biggest mistakes you see people making when they think, oh, it's time to sell the business? They wait too long. Well, it's a minimum 18 months to sell a business. Yeah. So you've got this framework called Score.

Basically the combination of 150 acquisitions. The last one, exposure or risk, will absolutely cap your multiple. Your multiple. Share the story about how you had to downplay the results. All the ads were, say, £40,000 a year. And what we found was that no one was kicking the ads. Hi, welcome to this edition of the Grown Up Business Podcast with me, Paul Avins. If you are an entrepreneur who wants to understand finance and numbers, but also wants to know how in the world do you scale using acquisitions, you are in for a treat today.

This podcast is the place to be because we are going to take a deep dive into the whole world of acquisitions with our amazing guest today who has, and I kid you not, been involved with 150 acquisitions and he's not even 35 yet, which is ridiculous, right? I'm so excited to welcome to today's show Saul Cohen, founder of ExpertEye. I'm one of the UK's most experienced acquisition advisors. Welcome to the show. Saul started his career at PwC, which is incredible, right? And has done 150 acquisitions. Really sort of specializing in businesses between one and five million, that kind of space.

Yeah, but at some... Sub audit. Sub audit level, which is 10 million for those who don't know. And really kind of, you've got tons of lessons, I'm sure, about what to do and what not to do, which we'll get into in the show. You also sold your first business before getting involved in the corporate world, which I think is a really interesting journey we should unpack as well. And we've known each other for four years, I reckon. Yeah, five years. Four or five years, because you've been in one of my 12 miles of mine for that length of time.

I have to say, really interesting to see your growth and journey as an entrepreneur and CEO over that time as well. And we'll talk about some of that as well. So welcome to the show. Thank you so much. Yeah. So here's the thing. Have you always had a fascination with numbers? Has that like always been your thing? um yes because i was good at it and i i think it is that way around um i was very i was actually it was algebra that i was really good at right i'm thinking about it now um i mean i was good with arithmetic because i just picked that up quickly i'm dyslexic so um welcome to the club yes We have a shirt.

Numbers always spoke to me. And I was more naturally drifted that way. In hindsight, I realise that now, actually, algebra is probably the more creative side of maths. Right. And I think people who are a little bit more creative are better at algebra. Right. And I think that's part of the reason I picked that up quickly. And I was just drawn in that... yeah that direction that direction so when so what was the first business that you set up then what were you doing because because i was saying just before we came on camera i've known you four years and i don't think that's i don't know much about that so what was that and then why did you sell it and what were the let's let's talk about some of that okay so it's a funny thing um when i was at school all my friends always they used to like they used to get annoyed at me they'd be like You know, they got really frustrating.

I think I was just naturally good at persuading people to do things. And that was what it was. And it sort of, it led on from there. I was always thinking about, okay, well, what business can we do? How can we make some money? And I was creative. I liked building. I liked creating things. And we always came up with loads of ideas. And the one that, by the time I got to uni, I was really frustrated. Right. I was frustrated with the fact that I'd just been in education for so long. I'd never taken a break. I was really bored of it, actually, at that time.

Right. And I just wanted to do something. I wanted to create some kind of value in the world. I wanted to make a change. And so I thought, what would be really cool is, I'm good at maths. Let's go tutor. LAUGHTER And travel. Was that like a tutor and travel thing? No, no. Actually, at the time, it was I could probably tutor kids who need help. Right. Kids who need help. I'd be less expensive than a qualified teacher because I'm a student. True. And that'd be really good value. And I did that and was fairly successful at it.

And then I thought, well, do you know what would be really cool is if we can get other people to tutor. And then I don't actually need to tutor. And then I thought, well, do you know what would be really cool is if we set up this online platform and we tutored across the world and we could, we got overly creative with it. And the aim actually was, could we find a way to provide cheap education in the developing world and also give students an income? Right. Because I thought that'd be really cool. So you're trying to have an impact and generate income at the same time?

Yes. And we tried it. It did all right. We built a nice website. It had a good database. It was very strong back end. When I went to PwC, I had to sell it. It never really reached the heights that I thought it might. And this is quite a cool one to know, actually. So there was a competitor who launched doing a similar thing without the social, let's go and build a platform in the third world. And he sold his business when I left PwC for $14 million. Wow. Yes. And I did not sell for 14 million. OK. Yeah. We sold for a lot less than that.

And I think that was that was one of the great reminders for me that the value is not in the idea. It's in the execution. Yeah. And as someone who naturally comes up with loads of ideas and things say great. I think that is a really important lesson to remind myself of. I think, wow, what an insight. I think what's interesting is that I've always said that the universe gives the same idea to about half a dozen people at roughly the same time, right, in some way, shape or form, or half a dozen entrepreneurs all see the opportunity or the window.

And I think the difference is, like you say, who executes and who executes consistently and fast enough, right? And I'd also say that you were probably right ahead of your time as well, because when was that? When were you doing this? This must be, what, 10 years ago, maybe? Oh, it was long. Yeah, it was about... 2010. Right. So you think how far the online education market grew after that and then when COVID hit and all those things, it blew up. You were just probably a little bit earlier as well. But it's interesting that you were in the same market that someone then exited for 14 Well, actually more because in COVID, as you say, I had a friend of mine who was working in a private equity that was wrapping up schools, global schools, and they acquired an online platform, an online school platform for 18 million.

So do you know what I mean? The opportunities really were endless. It's the same business. It's just the execution, delivery, and timing as well. Yeah, timing is a big thing. I guess we'll talk about that when we come into deals and trying to do acquisitions. Timing is a big part of that, right? So why did you go to PwC? Because you're an entrepreneur, you're in charge of your own destiny. Why do you want to then go get a job? I think after that experience, I realized that I needed to learn more. Okay. And I knew that I wanted to be my own boss and an entrepreneur at some point.

My dad was, you know, it was in the family. I could see it. I liked that creativeness. Yeah. But I also realized that I was young. I still am young, but I was very young. Yes, you are. Stop it. I was very young then. And I had a lot to learn. And I just thought, what better place to go and learn than to go out and support other entrepreneurs on their journey? And that was what I really thought about doing. And I thought, actually, my career, and still this is still my ambition, my career is to be deeply involved in at some point, you know, have equity in a number of companies, you know, small portfolio.

And I'm deeply involved in them. And I use all of my experience over the years to run and scale those businesses. I think that'd be a really cool journey to have. And I just thought that has to start with being a consultant to entrepreneurs. and learning from other really good consultants from the outside. I mean, it either starts with you do it or you help people do it. Yeah, similar, actually, the reason why, you know, it's 21 years ago, the reason why I decided to become a business coach, having, you know, I'd had some entrepreneurial success, I'd had quite a lot of failure, but I suddenly thought, hang on a second, I don't know enough at the moment, and I actually want to go, I want to go make a difference, I want to contribute, but I also want to get paid to learn, and my version of that was, well, I'll buy a franchise and become a business coach and start helping people and learn that way at the same time.

and that i just use a different vehicle so it's interesting we both kind of got to that point of actually we need to learn we need to go back and develop ourselves more which i think is something that i think not enough ceos take an audit on themselves and go okay if my business is stagnant right now or it's struggling it's a reflection of me what do i need to go learn what do i need to go and and develop myself how do i need how do i develop myself right Yeah. Do you see that with people you sort of chat to, you know, through the expert iBusiness, do you see people coming in, their numbers are stagnant, but then you look and think, well, that's because you haven't changed or...

Yeah, I do think that. I absolutely see it all the time. I say to people quite a lot that there is a difference between 20 years of experience in the same year 20 times. Yeah, it's so true. And that difference is, have you learned and developed along the way? Yeah. And the point is that there's no school for entrepreneurship and business, right? We have like a CAS business school, but the truth is it's all academic, and there's no school for genuine entrepreneurship and business. And the funny thing is, is that I'd come to the end of my academic career and realized that I didn't know anything about business, right?

And I'd studied economics, I'd studied business, and I was in, you know, more finance-y than most, and I still didn't really know anything about, I maybe scratched the surface. And worse than just scratching the surface, because of the fact that I'd studied all of those areas, I thought I knew quite a lot. Right. over time realized that I knew very little at that point right and and you know and I think it's one of those where the more you know the more you realize that you don't know 100% um and I think that sometimes the value is in knowing what you don't know because you can ask for help And the worst position that you can ever be in is you don't know that you don't know.

Yeah. And then you can't even ask for help and you don't know why you're stuck. And you get exactly as you say, you get frustrated. Well, it's also the speed of change. I think the challenge at the moment is the speed of change, right? So if you go to an educational establishment and you should. I studied business studies. It's a useful grounding. But like, you know, you and I yesterday were in the F12 mastermind and some of the stuff that was coming out there that people were showing they were using with AI and stuff, they weren't doing that six months ago.

Now, if you're in a formal structured learning environment, that's really quite challenging to keep up. Whereas if you're, that's why I'm passionate about kind of like group learning, whether it's like a, you know, an event or whether it's a mastermind is that, You see other people evolving really fast in front of you and you go, well, that's a great idea. Then you take that idea and you apply it. And it's the speed of execution. You slow that down. You speed that up rather than in terms of like idea to implementation.

Like you just proved it with something you shared to me before we came on. It's like hours from when you got the idea from being in that room to when you executed on it. Absolutely. And I think actually as an entrepreneur, one of the skill sets is going, okay, how can I learn and apply faster? And I think some of the business models that I've seen that really struggle with this is like if they've got a 12 month cycle, because they only do one thing once a year. So it's going to take you 12 months to learn something and apply it.

Whereas actually, if you're in, if you're able to apply every month and changing the model every month, you get to a point where it scales faster. Yeah, and I think that also depends on them realising that they need to learn, that they need to measure. And the worst part of this is that sometimes you don't realise or you think you're measuring the right information. And actually, you get to the end, you measure the info, and you're like, well, I don't have enough, so I need to go and measure something else. And as you say, if you're in a 12-month cycle, well, then you can't measure the information that you need to make the change until next year.

That's really going to slow you down. So why do you think... or do you see this in your work from the finance side of things? Do you think most entrepreneurs really understand their numbers? No. Why do you think that is? The same reason that most entrepreneurs don't understand HR. HR's a big one. It's a big point for everyone, isn't it? People. We just put it under the category of people. People, yeah. Or, you know, we have to go and learn marketing. Right. And I think that what it is is that marketing tends to be, for most entrepreneurs, the thing that they enjoy the most.

Because it's about being creative and it's about going out to people and sharing your message. I think a lot of entrepreneurs are in that energy. They're in that headspace. Whereas finance is the refining side of the coin often. Yeah. And I think a lot of entrepreneurs don't like that at Headspace. And so they know it's important. And so they will learn it to the extent that they know it's important. Yeah. But they don't love, they don't love it. Yeah. And they don't really want it to be, you know, their... Which is odd when you think the outcome is they want to make more money.

And actually, if you ask them to, you know, not everybody, I mean, over the years, we've run courses and stuff on like mastering margins and things like that. They're always the ones that people, they're the hardest to sell because people don't want to come to it. You do a marketing course, sell that. Social media marketing, oh, easy, sell that. That's easy to sell. But actually, you take people through a process of how to understand margins and difference between gross and net. And light bulbs just go off for people.

And you're like, how are you working out how much money you're even making if you don't know the difference between markup and margins? Even that sometimes, right? And I think a lot of entrepreneurs, and I've been guilty of this. will go see their accountant, sit down. The accountant puts the numbers in front of them and they just sort of look at them and go, okay, are we doing all right? And the accountant goes, yes or no. And they're sort of like, okay, but they don't know that, you know, the language of business is numbers, right?

Whether you like it or not, it is the language. And if you're going to play in that game, at some point you've got to level up your finance knowledge. Yeah. Yeah. Or get someone in the room who can help you. Yeah. But I think the problem, the problem with not leveling up your knowledge enough is that you find it very hard to find someone who can help you. in the way they need to um and i think that's the second mistake that i often see so entrepreneurs will realize that they've got a gap in their knowledge that they don't you know they need someone to help them right they might bring in a cfo but they don't know what what they don't know exactly what they need right and so they'll spend a lot of money with the cfo or you know maybe a fractional cfo but they don't know exactly how that how that solves their problem.

They just know that there's going to be someone to explain to them the problem. But I think that's the problem with that is that they then can't hold them to account and they don't know what they're looking for. And that is a bit of an issue. That's a really good point, actually. When do you think is a good time to bring in a fractional CFO? on the journey. When do you think it adds the nice value? Much later. So being when? So probably when you're going from two to five. Right. Yeah. I think up until that point, and the reason why I say that is, um, I, Generally, when people bring in a fractional CFO, what they're doing is they're paying a CFO to do the work of a controller.

So someone who's below CFO level. Because they don't have the reporting frameworks. They don't have the control frameworks. And most CFOs that you will want to hire... What their job is to do is to analyze the data and analyze your business and be the bridge between your entrepreneurial mind and the business financials. Yeah, they're meant to come up with the money models. They're meant to come up with, oh, well, actually, if we repackage things in a different way, we might be able to increase profits in, you know, across the board, for example.

yeah um that's the way that's what they're meant to be thinking about okay but i think most people will bring them in to run a cash flow i think that's true yeah i think most people do they go i'll bring in a cfo just to sort the cash flow out i think that's probably the job of a good controller yeah that's a good distinction yeah and and the cfo should be there to be able to build uh draw the bridge between the business and the finance Yeah, I suppose it also sits slightly in the box of commercial in that sense, right?

Yeah. Yeah. Now, there are some CFOs that I know, you know, David, they've got controllers in their back end. Yeah. You can sort of support them, and therefore, that's kind of, I think, the best of both. Yes. Because you've got someone to do it, and then the back end. otherwise i said to a lot of my clients you know we can help you with you know just drawing the bridge and explaining the numbers to you just get a controller get someone yeah that's a really good point i think i would probably agree below two million i don't think it adds the value and i think you're right really good controller and a really good you know accountants this is an interesting question when to me anyway when do you know it's time to change accountants Like, because I think there's a point here for entrepreneurs, and I've seen this, which is they outgrow their accountant, right?

And then they feel guilty about leaving because they've been with them since the startup. But they've outgrown them. So they've got much bigger than the accountant, number one. And number two, they're now playing a game where the accountant doesn't understand M&A or doesn't understand acquisitions. But they feel guilty about leaving them. Yeah. Do you see that? I think it's before the acquisitions. I think it's with the tax, right? Tax is the point where it's time to leave your accountant. I always say that... Hang on a second.

So let me just... So when you say... What? When you feel you're paying too much tax? Yes. Or when... Here I go. Okay. Yeah, so I always say that what you want from an accountant is someone who will be on your side and advise you on how to structure things efficiently, but not going to get you in trouble with HMRC. Absolutely. You want to stay on the right side of the law, you don't want to be in trouble, but you want to just be as efficient as you can be. um and often in many small businesses there's so many little things that they are just not aware of and when you've got a small business maybe making you know 50 000 pounds a year in profit those small things don't really add up maybe it will save you 300 quid right but when you've got a large business maybe make over a hundred grand in profit actually i think people are often really surprised at how much they can save yeah um i would say there's two things there's the game there's there's sort of three things around money there's the game of making it which entrepreneurs generally kind of figure out and get good at yeah then there's the game of hanging on to it which is like not paying you know optimizing your tax efficiency being being well structured thinking about that stuff and And then there's investing it, right?

Like there's those three games. And whether that's investing it in assets or investing it in other businesses or however you choose to do that. But if you don't play the middle game very well, if you're not keeping what you've made ethically and correctly within the law, but doing optimizing it, if you're not optimized for that, you can bleed out tens of thousands of pounds. Absolutely. And I always say this to people on our scorecard. I was like, £4,000 a year tax saving over your working life is an extra million pounds in retirement.

Hang on, say that again. So, £4,000 a year. Right. If you save £4,000 a year on your tax. Right. Or in anything. But if you save £4,000 and you keep it just invested in like a tracker fund or something at retirement, it gives you an extra million pounds. So every four grand that you are able to save over your working life, yeah, that's our compound interest, over your working life is a million pounds. And I just think people need to really think about that. Because sometimes if we're saving someone 30 grand, and well, yeah, if we'd have come in five years ago, 10 years ago, you'd be sitting on a much larger asset position.

And I think actually entrepreneurs, they're so driven to build their business that they often do neglect themselves. Yes. And that happens. That is actually my reason for becoming an accountant because I see that. To see what? I just think that entrepreneurs create so much value in the world. I agree. I think they are the drivers of change in the world and absolutely positive change and creators of value. But they very rarely look after themselves. Yeah. And I think that they rely on advisors to support them to look after themselves.

But unfortunately, or whatever it is, the world is just, most people are average. And there's no one who can help entrepreneurs sort of end the game at a better level in a way that they deserve. Because I think that they think that their business is going to be worth millions and that's going to be their retirement and it isn't. I think that's a really interesting point because I think it's two things here. One of the biggest myths I think that holds entrepreneurs back or catches them out is that all accountants are created equal.

Yes, exactly. Right? It's like, and you go, well, like all lawyers aren't created equal and all business coaches aren't created equal by the way. There are some that have got 20 plus years experience and there are some that have been doing it for three years. It's a different game. And just cause you've got their title of accountant doesn't mean you're the same. And some are really great compliance accountants and some are really good at optimizing an entrepreneur's ability to save and be tax efficient. I think you've got to realize as you grow your business, you've got to change your advisors too.

You've got to level up your advisors. As you get to the next level, once you break a million, you need a different level of advisory team around you, whether it's HR advisors, whether that's business growth advisors, whether that's tax advisors. You start to need different advisors. And I think one of the mistakes I see people make is that they resist either getting advisors, number one, because I think they figure it out themselves, or B, they resist changing advisors and leveling them up because they don't want to pay more money for the next level of advisors.

Yeah. without realizing how much money they save them. Do you know what, it's really funny, and I think that it's really common. And a really great case in point in this is that we had, he is now a client, he was very concerned that we wouldn't be able to save in the tax we're saving. So I said to him, I was like, fine, we'll do a tax ban. You don't pay anything if we don't save you at least double the cost of the tax ban. nice offer yes thank you nice offer well done um so we ended up saving him just nine times the cost of the tax plan nine times nine times um and then he said okay well should i get my old accountant to do that my old accountant started doing doing the year-end accounts so i'm going to get them to do it and then i get you to do it is that because i don't want to pay them and you and And I said to him, I was like, okay, but let's just think about this.

Even if you pay us to redo the work, you're still going to be saving this amount of money. And in the end, I had to make another offer to him. And I basically said, okay, look, let your old accountant do your accounts. Just before you submit, tell me what the tax is going to be. And I will guarantee you. that our fees will be capped at 30% of the tax, basically. That if we can't save you at least three times off fees, you don't pay anything type thing. Nice offer. And yeah, I mean, obviously it worked and it was fine.

But it was such a big reminder to me that sometimes people were... Even when they know they're going to be saving and even when they know they're going to be better off, they're still like a little bit reserved, though. Maybe this time it won't be. Yeah. You know, and I get it because for a lot of accountants, sorry, for a lot of business owners, they're just looking for the cheapest accountant because they look at accounting as a compliance box. Yes. Yes. So true. So true. And therefore they don't see the value that can be added.

Yep. Well, because a lot of accountants aren't adding any value. yeah either by the way a lot of them are just sitting there turn up at the end of the year go oh you had a good year you had a bad year here's what you owe in tax i mean the number of clients i've gone in and talked to and we usually upgrade their accountants it's kind of one of the things we'll not quite often do in the first year because you know just nine times out of ten accountants haven't looked at them as they've grown their business they haven't restructured what they're doing you know i was with a client the other day who and we just taken on and And they had hundreds of literally 100,000 plus sitting in their trading account and their IP was sitting in their trading account and there wasn't a holding company and there wasn't.

And you're like, how long have you been with your accountant? And they went, oh, five years. And I was like, how has your accountant not protected you? And you're like, and they, well, I didn't know. I didn't know this stuff. And they'd been in someone else's mastermind. And that. coach hadn't mentioned it either and i'm like you have to get around people who are used to operating with businesses that are at the level you're at yeah one of the things i think you should always ask your accountant is right you know if i'm a three or four or five million pound business how many people are you dealing with who are at my level because if it's if you're the only one or one of two then they're learning on you right as opposed to like how many deals have you done or how much m&a experience have you got so if it's none then don't find someone who's got experience because otherwise you're paying for that education right Yeah, I think the other side of this is that I think when I left PwC, I did one of my first lead magnets was a graphic of the ideal finance function.

Right. Yeah. And I counted, I think it was 21 or 22, I can't remember now, distinct roles within accounts. And in the SME world, you have one accountant who basically de facto plays all 22 of those roles. That's a great insight. And they are... I mean, well, literally, you've got a pocket knife. Yeah. And what you want to develop as you start scaling is a load of scalpels, right? You want distinct advisors for each area that you go into, that you are working on. And so you might have someone who... And I think because of my background, being at PwC, I was very used to being in the room with, I'd be sitting in the room with a client and there'd be, KPMG would be on the other side and they'd be doing the tax planning and then there would be perhaps BDO and they'd be doing other consulting piece and we'd be sitting there doing the risk and internal audit and controls And it was very natural when you are in larger organizations that they will pick and choose the advisor that they want to use for a particular project.

Whereas in the SME world, we don't do that as much. I think that as businesses scale and get bigger, that's important. Yeah, no, I think it's critical. I think, I also think the reason why is, in my experience is because most businesses start underfunded, they haven't got enough capital, so they're trying to save costs. And that becomes a sort of like paradigm that they just operate in, is like, I need to do this for the least I can afford, I can spend. And there's a point at which it's usually around seven figures when you start becoming a grownup.

And you know you've become a grownup when you start investing in better advisors. When you start going, look, it's worth me spending £20,000 to be in a mastermind because I'm going to make £100,000 out of what I earn. It's like, that's a good return on my money. And then it's worth sitting with you and getting tax advice because that's going to save me £10,000, £15,000 a year. Now, if the government turned up tomorrow and put a tax on entrepreneurs that was going to cost them £5,000 a year, everyone would kick off big time.

But because it's money you're saving rather than money you're spending, people don't prioritize saving and investing that money, right? That's the mindset shift. And I think, you know, you become a grownup when you're starting to look at your business and go, right, I need to take money out of this business for me as well. Personally, I need to do that. And I think one of the mistakes, I don't know if you see this, but I see this quite a lot, where entrepreneurs justify not paying themselves a salary. which creates a massive amount of stress in their personal life and their families and stuff.

And they, they justify that because they go, Oh, at some point I'm going to sell this business for millions and it will all balance out. Do you come across that? I do. Um, why do you think that exit? Why do you think, why do you think they justify not paying themselves? Um, I think it all comes down to identity, actually. Right. I think that they see them, they're creative, and they want to put everything that they can into this, into building their baby. Right. And that's how they look at it. I also think there's been this fallacy that goes around that the business valuation is going to be sort of, I've heard ridiculous numbers, but, you know, 10 times profit.

Yeah. And or, you know, someone told me, oh, yeah, but it's three times revenue, isn't it? I was like, excuse me? So let's let's let's a great sort of like segue into that kind of conversation. Right. In terms of how how do you how do accountants calculate valuations? Finger in the air. Don't tell me it's guesswork. Stop it. There must be. Like, genuinely. Like, how do they... Where do they start? If you go to... Well, I think... Can I just say, there's an interesting thing here. If you're listening to this podcast and you haven't had your business professionally valued in the last two years, please take one of the actions out of this show to go and get your business professionally valued.

Because if you don't actually know what it's worth, how do you know whether you're growing the value if you want to exit at some point? Yeah. Like get a valuation every couple of years and go, what is this thing actually worth? Yeah, I do think that's important. And joking aside, I think being in the know of your valuation is really important. Right. Because it allows you to wealth plan as an individual. Right. Right. Because you know, okay, well, what are my assets? Yes. What assets am I actually sitting on? And I think the problem comes was that when people don't do that, when they get to retirement, it's often very tough.

So I do think that's really important. How do accountants create value a business? Well, look, there's a few ways that it's done. Either we're looking at the assets of the business. So I love, Ken explains this better than anyone else. Ken Gorman, yeah. Yeah, he's been on the show. We'll link to Ken's podcast below. So I'm going to nick his analogy of the cows because I think it's the best way, right? If you think of your business as a cow, you can either sell it for the fact that it could generate future milk or you can sell it for the value of the carcass.

And the business is really the same. So either we look at the assets of the business and just say, if the business stopped tomorrow, what's the assets worth? right um so in your case assets being like vehicles or physical assets or ip i mean sometimes it's sometimes it's the client book right in the sme world if it's going to sell for assets the most valuable asset is the client book right so it's the customers right yeah okay yeah so it'd be that but sometimes it is ip sometimes it's a website that's really well converting yeah Or you can also sometimes get asset value for social media.

Somebody I know recently just bought a business, really small, relatively small turnover, but with 40,000 people on Instagram and the value was in the Instagram following or that side of it. So value can be digital and physical, right? Yes. Okay. Or you can sell the business for sort of the future milk, well, for future cash flow or, you know, in the cow analogy, future milk that it produces. And in the SME world, that's the most common used method. And so what we do is we say, based off of what is the cash flow that this business generates?

And then how risky is it that that cash flow will continue to be generated in future years? and depending on the risk I will inversely give you a multiple so if the risk is low I'll give you a higher multiple if the risk is high I'm going to give you a lower multiple okay and it's all quite crude in the SME world because and the best method to assess the risk that we use is basically the size on the first thing that we'll look at will be the size of the profits and Because if your profits are high, for example, if your profits are above a million, they're inherently less risky than if they're below a million.

Because there's more of them. So even if you lost some, you're not going to lose it all. Or you're less likely to lose it all. And therefore, businesses over a million pounds will have a higher multiple. They can generate greater leverage. There's a much bigger engine behind it. um that is a really kind of like if you're going to play the game and grow big and then yeah i would say seven figures in revenue is the first thing to get to yeah then the next big ambitious goal i think you should be going for seven figures in profits and then depending on your margins you might be able to do that on four million turnover or five million or you might need 10 million but i i think like the once you break a million pound in profit it it creates a massive different amount of options from a wealth creation standpoint as a as an entrepreneur as well right Yeah.

I mean, this part of the reason why I developed the score framework. Yeah, I think before we jump into that, I think what what I always tell my clients, I think is really important is in 24 assets, Daniel Priestly brings this thing of the you know, you've got the lifestyle business and a performance business. Yeah, right. And I think it is so valuable to know which of those you're building. Sure. Because if you're building a lifestyle business, you might reinvest in the business a certain amount every year. But your primary builder of wealth...

is going to be your method of extraction, taking the money out and putting that money, you have a personal vehicle to invest, and then you're investing in a series of other assets, be it acquisition, maybe property, maybe whatever it is for you, you're investing in a portfolio of other assets. Because the lifestyle business is there to give you freedom and flexibility. I agree. And you want to de-risk your reliance on the lifestyle business. If you are building a performance business... Or grown-up business is probably my way of describing it.

Yes, yeah, okay. I don't know if I agree, because you can have a grown-up lifestyle business. Okay, that's an interesting... But yeah, if you're building a performance business... then you're going to optimize it for exit value. Okay. And all of your assets is probably going to be tied up. Well, most of your assets are probably going to be tied up in that business. Right. So each year, you might take out a small amount to hedge your bets, but you're going to want to be investing as much as you can in that. Because ultimately, a performance business at some point is probably going to look for private equity funding.

It's probably going to look for external investors. And you want to put that off as much as you can so that you can retain as much equity so that you can take out, you know, sell out at highest valuation that you can. Yeah. And so I think it is really important before you start thinking about this, like, what do I really want? I think I've not heard I don't think I've heard you explain it quite like that to think okay if it's a lifestyle business then the tax strategy is about pulling out as much as you can and then investing it into other vehicles be that you know like startups or property or you know like other you might buy a franchise who knows other vehicles right so your goal then is to put is to generate lots of profit pull out that cash and then put it into other vehicles like that that makes sense as a model then if you're going to go if you're going for a performance business and an exit let's just put it kind of like that journey then you want to leave more capital in the business to fund the growth number one but to also retain share ownership Okay.

See, I think strategically, most people aren't even clear on which of those two they're trying to do. I agree. And I think sometimes you get people who are trying to do the scale and exit journey. Yeah. And they're ripping out loads and loads of cash out of the business and then wondering why it's struggling. And it's like, well, you're using the wrong strategy in the wrong vehicle. Yeah, you can't do both. No. No, that's a great insight. Actually, I think if I think most people don't stop and go hang a second, which one am I building?

And I think, do you know, I think sometimes entrepreneurs get and I've been in this category where I'm building a lifestyle business and felt guilty about it. I should be building a performance business. Yes. I don't want to at this point in my life. Actually, I enjoy investing in startups or tech or, you know, helping other people scale rather than going, I want to do my own scale and exit because I did that when I was in my 30s. Don't want to do that now. But I think you have to, it's like sometimes it can feel guilty, like, oh, I'm not playing a big enough game.

Well, it's fine. If you were making a million pounds a year personally and investing in other businesses, that's a great model. There's nothing wrong with that. It's a great model. Yeah. I think also the nature of creativity is you want the freedom, but you also want to keep creating. Yeah. Yeah. That's true. Yeah. And so you want the freedom of the lifestyle business, but you want to be able to do it. But I often think that, you know, if you've got a lifestyle business and you've scaled the lifestyle business to be generating you, let's say, I don't know, half a million pounds or 400 grand a year or something, a good number that's giving you what you need and you've got the flexibility to do other things.

Well, you now have the ideal, you've got the ideal plan. um a situation where you've got time and money yeah um so that gives you options yeah so go out and do other projects have other things well also have some fun right like you know invest in some startups do some do some kind of seed and angel investing stuff and and and just have some fun with it i think is taking that pressure off it right yeah So let's just talk, can we shift gear a bit and talk about acquisitions for a moment? Yes. Because I really, I promised that in the startup and I really want to, really interesting just to talk about the tax thing.

By the way, Justin K, we'll drop a link below the show. You have a scorecard for people if they want to find out how much tax they can save. Yeah, how likely you are to be overpaying. Yeah, but there's a really interesting story attached to that, which I do want to come back to at the end of the show about that and marketing, and there's a big lesson for everyone at the end, right? So stay tuned. We will come back to that at the end. Remember, if you're enjoying this podcast, make sure that you subscribe if you're not subscribed because we're going to cover loads of good stuff going forward.

I want to make sure you don't miss any other episodes. Okay, so you've done 150 episodes at this point. Sorry, acquisitions. I've done 50 episodes, but you've done 150 acquisitions. I've done about 40 episodes. You've done about 40. Well, thanks for being on this one. Right. So what's the single most common reason that you find when founders are trying to exit that they miss and they leave money on the table? When like when they're trying to exit, first of all, rather than do deals, like what's the biggest mistakes you see people making when they think it's time to sell the business?

They wait too long. It ties into what we were saying before about valuation. You said that you should get a valuation early on, and I think that's really important. One of the reasons that it's really important is because you've got a line in the sand. You've got something that you're measuring against, and you're watching how that valuation might change over time. I think the biggest problem that I see or the biggest mistake that I see owners make is that they're not clear on their valuation And they wait too long based on an assumed evaluation So they what are I've got 200 grand in profits assume.

I'm gonna be able to sell that business for 2 million I don't need to sell yet. I'm very happy right now I can wait three years and then in three years time that I write one of my business. I'm done. I'm out and um let's sell it and they realize that well it's a minimum 18 months to sell a business yeah and and actually if you were to put three years into it maybe five you would have been able to sell out for a much better number because you could have done that when you still had energy now you're desperate to get rid of it it's going to be much harder yeah and you're going to settle for a much smaller number than what you thought.

Yeah, also the market can move on you, right? Absolutely. It could be worth, you know, like 10 million now, but in three years' time, if technology has come out and disrupted you, you might be worth 3 million. Yeah, so I think that's probably the second thing, is that knowing when to exit, like sometimes you just need to take an opportunity, because I always say that sometimes in an industry, a few years ago it was in vets, vet practices, right? you know then a lot but yeah we're sort of now in sort of the accountancy practice but private equity will come into an industry and they say right the industry is very fragmented perfect opportunity for us to come and do some roll-ups and they'll put money in and because they're putting money in they are inflating the valuations in those markets and they're That's a temporary thing.

And so if you've got one of those moments and you're nearing your exit, you need to take that opportunity because that won't last forever. And it's just worth selling out in that time. That's your peak. But I always say to people, I'm like, if you're thinking about exiting in the next... eight years, 10 years, and someone can forward you all of that cash flow today. You're going to see that cash. What's the point in waiting five years and then deciding that you're going to sell? Yep. And then you're going to sell for a much lower valuation.

So if you can get 10x today, or even if you can get 8x today, but you're going to sell out for 4x in five years time, well, you could have had the money today. Yeah. It's also the value of time, right? The value of time. Yeah, and experience, by the way, because entrepreneurs always do better the second time around. True. I think it's really interesting because I was involved coaching quite a lot of vets around that sort of time, and we've had a similar thing happen in dentistry too. And you looked at the multiples that the PE firms are paying, and it just made no sense.

Absolutely. Like on any commercial, and people would go, oh, I might wait a year and see if I can get more money. I'm like, you're getting 32 times profits. Like, what the hell are you? How much more do you need? You know, and it's like, look, this is the best opportunity you're ever likely to have. Like, do you need more than that? You're getting in, like, how much more, how much is enough? And I think that's the other thing I think most entrepreneurs don't go, don't have a decent financial advisor as well to go, right, how much money do you actually need invested to be able to not worry for the rest of your life?

Yeah. And therefore, if you get that number done and someone will pay you that for it, then you're done. Right. You've achieved that first that first level of freedom. But I think most people don't even know that. How much do I need? They think they need more than they do, in my experience. Absolutely. Which means they stick around in the business longer than that. Right. So let's talk about acquisitions then. When did you get interested in that? Was it PwC times again? So I sold my business. At PwC I was kind of interested in it.

I didn't really help on that many acquisitions when I was there. I was more focused on risk management. That was the department I was in. So some of that was supporting people in acquisitions. But mainly it was just general business risk management. When my dad sold his business, that was what opened me up to this, because he was sort of the classic entrepreneur, thinking his business was worth one number, and actually it was worth less. And luckily enough, he did save, he looked after himself, so he wasn't completely dependent on the business valuation, but he was then forced to sell because he became ill and just couldn't keep working anymore.

And, you know, he was forced to sell very quickly, couldn't do anything about the valuation, just took the number. And that was what it was. And I remember thinking at the time, just I wish someone could have advised him, you know, the 10, 20 years previous. you know, number one, he probably could have been saving more tax. And number two, he could have done something about the valuation. He was more capable of doing what getting the number that he wanted. Yeah. It's just he would have had to change a couple of things in the business and he was absolutely capable of doing that.

Yeah. So it was not a capability issue. It was just an access to the right people. Yeah. To turn around and tell him this what you need to do. What business was he in? Fire safety. He was an engineer. He had sort of a fire safety business. They did sort of extinguishers, systems, all that sort of stuff. Yeah, I had a couple of clients in that space who've kind of scaled and one sold and then one acquired another one in that space. Yeah. So what was the first acquisition you were involved in then? So the first acquisition that I was involved in that came off successfully.

Yeah. How many of you been involved with that haven't come off successfully? Do you track that metric? I haven't tracked it actually. But the first one that I was involved in didn't come off. That was one that just didn't happen. But the first one that I came across that was involved in that did come off was... Actually, it was a nursery business. It was a nursery channel. All right. Yeah. And so it was someone who was building a small group of nurseries. And he, yeah, he made a couple of acquisitions. I got involved in that.

Actually, at that point, it was just in valuations and actually post-completion. Right. Just with completion accounts. and that was my route in actually because I did, we saved quite a lot of money on the completion accounts just because of the fact that I thought about completion accounts the way I did when I was at PwC. Right. As I was thinking about it. Are you going to be really, I don't know, what are completion accounts? Okay, so when a business sells, let's say it sells on the 1st of January, you prepare a set of accounts that basically finalizes the balance sheet at that date, and those are completion accounts.

and you've got to say a few months to prepare them. But based off of the completion accounts, you will make an adjustment to make sure that you've left the right amount of working capital in the business. Okay. Depending on what was in the sales purchase agreement. Right. So there's quite a lot of opportunity there in terms of number one, the clauses that you can put into the sales purchase agreement. Okay. Like what? Give us an example. What's the process for writing off debtors, for example? That's probably the easiest one.

So let's say, for example, let's say a very, very common manufacturing company. We've got on their debtor book, we might have debtors that are 30 to 60 days old, 60 to 120, 120 to 180. Right. And at what point do we raise provisions? At what point do we write off debt? That's incredible. um yeah because you gotta think about that if you're exiting right absolutely um and well and if you're making the acquisition you don't want to be taking because you're going to be paying for that as an asset yeah assuming that that money's gonna come in if it doesn't if it doesn't you want to be protected so yeah i mean that that's the first one we always go for but there's a whole list depending on what we do in due diligence Basically, what we do in due diligence is we find out what the risk, what we're concerned about in this business.

Right. And then we review the sales purchase agreement to think about, okay, well, based on what we're concerned about in this business, what clauses do we need to include in the sales purchase agreement? Right. And what, particularly around the completion accounts. So, to ensure that there's enough working capital in the business to keep it going, keep it healthy. And then in the completion accounts, we make sure that that money was left in the business. But for example, in the case I've just given you, if we write the policy and we say that we're going to increase anything over 120, normally you get paid in 120 days, anything over 120 days, we're going to put a 50% provision.

We will write that. If we write that policy in the sales purchase agreement, that's it. It's done. It's in stone. It's in all of it. When we do the completion accounts, you write that provision, that money comes back into the company. because the selling owner has to pay it. And the important thing is from a sales point, a seller's point of view, is that particularly if you're selling out to private equity, they know this stuff, right? And they will sneak things into your sales purchase agreement. And so often clients will say to me, well, yeah, I'm selling the business, I'm very happy, it's very simple, why do I need my accountant to review it?

And I'm trying to explain to them that this is what you're looking out for. They will put clauses in. It's not going to be clauses that are going to take away the full million pounds. They're not going to reclaim large time. But it's going to be enough that it's going to be painful. Maybe £10,000 here, £20,000 there. That does make a difference. And you don't want that money reclaimed. You want to make sure that it's fair, that the business has enough to continue, that it's got healthy working capital to continue. You want the business to be successful now.

But you also don't want them to take advantage and you need someone to make sure that that's not happening. And that isn't what the lawyer does. The lawyer does that in all the other clauses. That's really interesting. The lawyer doesn't do that. Not on the financial clauses. Right. Yeah. So generally, the financial clauses and the financial clauses and the completion accounts clauses, the lawyer will normally turn around to the accountant to do. And it's funny because I've spoken to a couple of lawyers about this and they say to me, normally we ask an accountant, are the clauses okay?

And they say yes. But when we ask you, are the clauses okay? We get one page document with what the clauses should be. And, you know, if they push back what we need to negotiate down to. Right. Yeah. And that just is not. I didn't even know that was a thing you should. You should. That's an area of expertise that you have. I would suggest I don't I didn't know that was an area of expertise that you had either. Yeah, I mean, it's part of what we do. Yeah, but that's the challenge, isn't it? If you do 150 deals, it's just part of what you do.

I didn't know you should necessarily... I've not heard other people talk about that you want to look at those clauses. Yeah, I mean, it's just the small things that add up, and they do. Yeah. So, okay, so you've done 150, or you've done 150 deals or helped clients do it? I've been involved with 150. What are two of the best stories, and then, of course, one of the ones you look back and go, that was not a good deal? Car crash. Yeah. Give us the positive one, like the best deal you've seen go through, if you can, just as a high level.

What was a great deal you saw someone do? One of the most incredible deals I've ever seen was it was a client who came to us. He was buying... a say was it was in construction and I didn't really understand exactly the mechanics of it but it's basically they made fun they made the foundations for large buildings okay and it was a very like niche business that was very good at creating these iron steel foundations right right and they yeah and what that business was being sold off as from a branch of a much larger company right because it just it wasn't there they wanted to divest from that area they didn't want to focus on it and it was just taking too much of their attention but massively profitable i think it was making 2.5 million pounds a year And they were happy to...

They sold it to him for 10 million. He got 5 million up front, which he financed. 8% and then he basically... it it was eight percent interest only um over five years so fantastic 400 grand grand and the um remaining five million was paid over the next five years so wow yeah um so deal good grief that's a good deal yeah Cash flow positive, really, really healthy, fantastic deal. He was in the space as well. He knew the industry. And I don't represent him actually anymore. I recommended him up to a colleague of mine at PwC.

Because I think he's now going for like a 150 million exit now. Wow. Yeah, fantastic. Really, really great client. Well, great story. Probably one of the best. Another one of the best. Actually, this is really interesting. So it was a client of mine who came in. He was, it was a consultant, not HR, a recruitment consultant. Right. And he was thinking he wants to go on his own. He's been sort of, he basically just... the business the company that he was at promised him partner they he'd been you know basically running the business um the owner was exiting really honestly from the own from the existing owner's point of view this is bizarre stupid decision um the exiting owner basically screwed him over and said i'm not selling out to you um and he said fine that's it i'm gonna leave as he left um and he didn't want to start from scratch they thought he'd make an acquisition um and i was sort of saying to him yeah okay fine you probably want something about a million pounds you've got some sort of structure and he thought about it went back he said let me come back to you And then he said, actually, I don't want that.

That's too much for me. I'm going to take something 400 or 500 grand revenue. I know it's going to keep me very operational and I'm operation heavy. But I think I need that. I need to go on that journey and take it to a million pounds before I can buy a million pound business. Right, smart. And I just thought, do you know what? I work in an industry where that humility doesn't exist very often. And he had it. And it worked fantastically well. That's really, that's self-aware, isn't it? I think you talk about it about, I think, what is it?

I made a note. Some of you said, I heard you say, you talk about the business as a mirror for the founder. And I think right there, I think one of the skills of leadership is to have a level of self-awareness of going, actually, I don't yet have the skills to buy and run a three or four or five million pound business. And one of my hates in my industry is, people running around teaching people to buy businesses that they've never run before you know like hey buy this business for two million pounds yeah but you've never run a million pound business you know you've run a 250 grand business like you don't have the skills or the mental capacity to deal with this yet absolutely and and i've seen too many people get hurt and have them and seen them crash and burn um from doing exactly that and i think you know one of the number one skills of a leader is to have the level of self-awareness of i'm good at this i'm not good at that i have that skill set yet or i don't have it yet Yeah.

He was a smart guy to know that. And I think that's a really smart play. What's the car crash thing? Come on. The car crash is probably the polar opposite of this. The most polar opposite that I could find. And it was someone who came in. I won't give too much detail. No. Because, yeah, for obvious reasons. But it was someone who came in. They bought a £12 million business. They were currently running a £150,000 business. That's a totally different ballgame. And they bought a £12 million business. I mean, I admire the ambition.

I just, I think, like... It's funny, that's why I wrote my book. We'll talk about your booze coming out. Yeah, but, like, what? You've got to admire the ambition. Absolutely. Absolutely. Think big, swing for the fences and all that stuff. But, like, the risk profile on that's pretty massive. Exactly. And, you know what? It was a healthy, really healthy business. But because of the fact that they had no idea how to run the business... Right. You know what? Were they not in the industry either? No, so they were in the industry...

Right. It's a completely different beast. Well, you're over 10 million, you're at audit level two and all that. And the thing is, is that it's exactly what we said before, is that ultimately, if the leader of the business is a 200 grand leader, then somehow the business is going to come out to match them. Yeah. And if the business is a 20 million pound leader and you buy 200K business, at some point the business is going to come up to match you. and that was exactly what happened it wasn't the media it took time but over 18 months business absolutely car crashed and then there was a long liquidation and that was painful and they got put into liquidation by a creditor they lost control of the liquidation which is the worst position that's the worst situation to be in isn't it I've had a business that went into administration and it was forced administration by two creditors And I think we had seven days to get it into liquidation ourselves before they'd take us to the court.

And the advice I got, and it was great advice, was just if you lose control of this, you'd be better to go under yourself and then be in control of the process. You lose control, it's a nightmare. And so normally I would tell clients, you know, you don't lose control. Let's pop it. Yeah. The business is insolvent. We need to liquidate it. Let's do this. Get ahead of the game. When I told them, they didn't listen because they thought they could save it. Again, ego. And they thought they could save it and tried to save it and then ended up losing control and liquidation.

That was terrible. Yeah. Can we just take a bit of a side road for a minute and talk about this? Because I think if you're an entrepreneur and you play the game long enough, you are going to have a business of one or two that fails, right? You're going to have stuff that doesn't work out. Like, nobody hits home runs all the time, okay? And certainly in the early parts of your journey, there's a pretty good chance you're going to get stuff wrong or you get caught out by technology. I think nobody really explains very well what the process of going into liquidation even is and how it works.

Could we do a quick, like, and how it's a tool to actually help you come back if you use it, right? Yeah. So, okay, first of all, you do have to be careful because there's lots of anti-phoenixing laws. Yeah, we don't want to do that. We're not trying to screw people over, put the company under, buy it back, all of that, right? But I'm just saying, like, when is it a tool that is useful to restructure a business to come back stronger? Yes. So if a business is genuinely insolvent and the liabilities are greater than the value of the assets, then what that means is that if I were to sell the trade of this company...

I wouldn't get enough to pay off the liabilities. Got it. So the people you owe money to. Yeah, exactly. The creditors in the business and the people you owe money to have grown so far beyond what this business can deal with. Now, in that case, business is insolvent, it goes into liquidation. And essentially what you do in the liquidation is you hand over the keys to the liquidator and you say, I no longer run this business anymore, you run it, take it. And what the liquidator will do is, they take their fees, so they're allowed to- Which everybody forgets about, by the way.

Yes. So they are... How much are you taking out of this? Yeah, they take their fees and they get paid first. Yes. That is the thing of the liquidator. And then they will sell off all the remaining assets and use whatever's left over to pay the creditors something. Now, there is a bit of a priority. So obviously, employees will get paid first. Pension schemes will get paid first. If there's anything left over, then it will go to creditors and it will go to creditors in sort of a percentage, depending on how big they've got.

And shareholders usually last. Absolutely last, yeah. Which is just worth understanding as a shareholder. Yes. You're the last one. Now, what you could do is, it has to be done at arm's length, it has to be legitimate. But in some cases, you might be able to buy back the business or the trade of the business. And so then you have to pay for it. but it's it's less than paying for the liabilities and and you know we're doing it this it has to be done legitimately but if it is done then that can be a useful tool yeah you've also got to know though that fundamentally there's a sound business there right otherwise if you buy it back you're just going to make the same mistakes again yeah which i've seen people do as well interesting piece of psychology though um and i find this with it and i think there's studies on it as well is that people who just um sort of pull out the band-aid pull off the band-aid um and they declare bankruptcy or they declare liquidation if you cycle five years later they are doing much better than the people who try and and fight it out and save themselves from Because the fact that trying to get your head back above water is so painful.

Yeah. And just sort of saying, do you know what? Cocked up is what it is. Or, you know, we've blindsided, took too much risk. Industry took a turn. Whatever it is. Draw a line, learn a lesson and move forward, bounce back. We know people who have done that. Yeah. Nick Manuel on this podcast talked about how he rebuilt from the ground up into seven figures in 12 months. Incredible. Yeah. And I think that sometimes people, they try and they're floundering, and they do much worse because of the fact that they never really, it takes them so long to actually catch up.

Yeah, I mean, there's a great piece of advice around that I got once as well, which is one of the things that really cripples entrepreneurs as being investors is they lose money in a business and think they have to stay in that business long enough to make the money back in the same business, rather than going, actually, I just need to make the money back. If I can make it back in a different business or a different vehicle, that's actually all that counts. But we kind of feel like, well, I lost it in this business, therefore I've got to turn this business around, or I've got to make it in this industry again to prove a point.

I think there's an interesting... Are you fascinated by psychology then? I am a little bit, yeah. Yeah. I mean, I often say that sometimes I feel like I'm more of a psychologist than I am an accountant. Yeah. You have a conversation about people's accounts and then you end up talking to them and sort of solving all the other problems that they're going through. Yeah, because they're trusted. Accountants get invited to weddings and all kinds of stuff, right? Yeah. So let's talk about your score. So you sort of mentioned, you dropped it in earlier, but I don't think we really unpacked it.

So you've got this framework called score. Is that what's coming out in the new book? Yeah, so what it was is that, actually, when I was in, I thought I understood valuation when I was at PwC. Right. um and then there was a business that i looked at in covid i remember it so clearly i took the call i was in the garden fantastic business owner she was incredible everything you want in a successful entrepreneur who's looking to make acquisitions humble clever intelligent intelligent everything really really good we've had lots and years of experience And I said to her, I was like, listen, business is doing fantastic, really healthy.

It's doing really well. It's got a great pipeline. It's got a great pipeline. It's healthy financially. Forward-looking looks really good. You're all clear. Due diligence looks good. And she said, thanks. I really appreciate that. It's really helpful. But I'm not buying it. And I said, why not? And she said, the culture's crap. Wow. She's like, I went into the business. Everyone's fighting. You know, the owner wasn't there. It was the first time I'd been, the owner wasn't there. People are fighting. There's bitching about each other.

People are sleeping with each other. She's like, horrible, absolute train wreck. She's like, I'm not touching it with a barge pole. And I was like, wow, okay, this is interesting. And I knew that she was right, but I couldn't rationalise it with the models that we had, the conventional models of valuation. Right. And I just thought, well, do you know what? These models are missing an absolute trick because... culture, team, these things do impact the value. And logically, we know that as accountants, those that really, when we say multiple, that's what we're talking about when we're talking about the risk profile of the business.

We just find it very hard to actually give those things a place in that valuation. And so we default to what we can easily measure. But I think for a business owner, it's really particularly an exiting business owner, but also an acquiring one, it's really important for them to understand what drives that valuation. Right. So that's why I came up with the SCORE framework. Right. Because I wanted to try and capture that. And basically what it is, if we just rutted it off very quickly. Go for it. What do they stand for?

So SCORE... We'll come back to that one in a minute. No, we'll come back to that. Jim's jumping ahead. It's exciting. We'll come back to culture and we'll use it then. For sure. It's all good. Culture is a big part of the score, actually. Yes. So the score framework, so it's systems, which obviously doesn't need explanation. There's all the systems that go behind the delivery of your business. Then we've got the commercial side. Okay. So how you win work, what your money model looks like. And so then we've got operations.

So that's your team and how the organisation is structured. Right. Then we've got the regulatory side. So what do your legals look like in the business? What's the legal risk exposure? And the last thing is exposure or risk. And so now the last one, exposure or risk, will absolutely cap your multiple. Your multiple. And each of them, in the book, I've come up with what I think is an initial sort of weighting for each of them, more heavily weighted to team and commercial. Right. Because I think those are ultimately, if you think about what people are buying, they're buying forward-looking cash flow.

So I need to know that you've got a good pipeline of work coming in. um and a process to do that and i need to know that you've got the team to deliver it and you've got a really good culture and that without you there it's not going to fall apart yeah um and that is all in the team and that is an all intangible asset in in the culture of the business i think one of the one of the indicators if you're looking at culture is like what's what's the team turnover number number I was talking to somebody recently, they brought us in to do some work around their team dynamic stuff.

And they had like 70% turnover in the last two years. And you go, right, there are some fundamental issues here with culture because like people shouldn't be leaving at that level. You know, and it's not, it was 35, 40 people. So the turnover on that in two years... was was was like the whole team was almost different there were like three people for three or four people left who were there two years ago and you just go the cost of the business of that but also the risk to that right yeah absolutely there's no way of working you can't understand client relationships and no client relationships yeah so and you lost a lot of knowledge of people because nobody been there very few people have been there for more than two years exactly So whatever your processes look like at that point, it has to be capped.

I've actually now sent it off to someone who works at Columbia Uni in the finance department and we're trying to get them to test it and see how that actually stacks up. Nice. Yeah, because I think that would be important and valuable. Yeah. Was this where you got passionate then about your own culture and your own business? Because obviously your business is scaling right now. You know, you're very close to breaking through the seven-figure level and becoming a seven-figure business in your own right. I hope you don't mind me saying that.

I don't. Which is cool. But when did you take culture seriously in your own business? The biggest problem with being an advisor is that it's often do as I say, not as I do. That is a risk, yeah. That is a risk, yeah. I would love to say that I take my own advice because... Yeah, but sometimes you just forget it when you're looking at yourself. I was talking to someone yesterday in F12, and they were saying, it's really easy when I'm looking at other people's businesses and to know what to do. It's much harder when you're looking at your own.

And I think for me, I'd love to say that, oh yeah, I knew intrinsically that culture was important. I did know. But no, that's not what triggered it. What triggered it was really painful. Like I just kept messing up and I was, you know i just had to evolve as a leader and when as i evolved as a leader i realized that the culture in my business just wasn't where i wanted it to be and that's when i put the work in cool we'll come to that i'll tell you a funny story though because what one year i can't remember if it's lost a couple years ago anyway um uh exactly that whole kind of thing that we had this conversation as a team about like we need to we need to walk our talk it's one of the cool kind of values for us like if we're going to say it we've got to do it So I actually put one of the team in F12 for a year to sit at the back of the room and go, anytime I say something that we're not doing, make a note of it.

And then we'll go back and do it. And honestly, that year, it was really funny because you're thinking about it out loud now. Like the business doubled that year. And it was because someone in my team was going, yeah, you're saying we should do that. We don't do that. So then we did it, right? And it was like, okay, all right. I probably ought to do that again at some point. Go back and go, right, what am I saying now that we're not doing now? So let's go through just because I think this model is really useful. How did you come about?

So we'll put up the screen. So if you're watching on YouTube, you can you can check it out. So how did you come about with creating these values? Because I think, you know, values of values are everything. You should recruit to your values. You manage to your values. You lead from your values. How did you go about creating this and walk us through them? Okay, so it was at the lowest point of the business, actually, that I came up with it. And I just thought, do you know what? There was one person in the business that I really trusted and I thought embodied most of the values.

Right. But I couldn't really put my finger on exactly what it was I wanted from that person. Right. Right. And what was it that made them unique? And then I just thought, I need to think about what do I want in my business? I think normally it would be really helpful to do it as a team. But I just had no one in the team that I wanted to be part of the future. Right. Or only one person. And so I thought about, well, what is it? Let's break it down. Let's think about it and try and be consciously competent rather than unconsciously.

And I drew a lot from it from my PwC days because they were very strong on values and local values. And so the first one that I always remembered was growth. Like you have to be growth minded. Yeah. And so... that was like just drilled into us. And I just, well, okay, fine. So I've got to have growth minded on there. Just need to make that work. And then I started to think about what else matters. Well, it matters to me that we are, we're always respectful. We're always open minded to other people's opinions. It always matters to me that, you know, I've got a very diverse client base.

Right. I've always had a diverse team. Yep. You know, people come from different backgrounds. I think that's, valuable you know people should be comfortable listening to things that they don't like yes um and so let's just be respectful of other people's opinions um and that yes that that was that was really important um ownership um i think it really it just it went hand in hand with growth minded and actually when i with all of these are things that well this is what i want our firm to be like yeah um wow focus is probably the one that's most aspirational for us is like well but i think that's what we need to hold ourselves to right we need to be aiming to be so good that we put a smile on someone's face yeah yeah um because if you've done that then you haven't just then then i've lived what i'm what i'm aiming to do i haven't just helped someone with compliance i've changed their life positively yeah um even if it's a small thing i've changed my life um so i think i think there's nothing wrong there's an important point there there's nothing wrong with having values that are aspirational i think sometimes people think oh we're not living this so i can't have it as a yeah i think that's great look that's this is where we want to be we're going up the mountain we're up the scale up mountains like that's what we aspire to be this kind of a company well at the time i built this everything was aspirational yeah but that's the foundation isn't it that's what foundations are for right like you can't build if you haven't got them yeah um and then just being creative and and open and honest for people um and and i think that so thoughtful was the next one why do you think yes it's thoughtful is about about being creative that's what it is it's about you know coming up with you know we come up with simple solutions to complex problems that was that was what it was i like that that's really cool i like that um i don't know if it's on there it doesn't actually say that no but i like that language i think it's really good um and then honest honesty at the back yeah so honestly i just think it's you know what everyone cocked up and i wanted to create a culture where it's not that it's okay to cock up i don't want everyone cooking up every five minutes but that if you do and you take ownership i'm never going to have a go at you yeah and i'm i'm i'm going to value the fact that you've made a mistake you've learned from it you've told me what you've learned from it um you've you've you've thought about it and you're never going to make that mistake again fantastic okay you've taken ownership you've been honest about it let's do it and we should do the same with the client you know let's be honest tell them what's going on what's what's the problem um and it came at a point where people were just making mistakes and covering it up and i just i've really didn't that transparency for me is such a big thing it's like i don't mind you making a mistake i just don't want to hear about it from the client i want to hear about it from you before i hear about like we mess up yeah fine tell me fix it and then move on it's like great look that's speed for me it's like absolutely and and also i think honesty is important now because i think in the world we live in now very very often entrepreneurs don't get honest feedback from people around them and if you're their accountant or you're their advisor and they you know somebody sat down f12 to me and said can I ask you a question?

I said, yeah, sure. And they said, because nobody else will give me an honest answer, but I know you will. And I was like, yeah, that's what this group is about, is that we won't, if we go, is this a good idea, and we think it isn't, we'll say, no, that's a bad idea. Whereas everyone around you, there's a risk that people just say, oh, it's a brilliant idea, even when it isn't. And I think that whole kind of like you need to have an accountant who can be honest with you and go, look, your business is in trouble if you don't sort this or your margins are going the wrong direction.

You've got to fix it. It's like rather than just sit there and give you, oh, yeah, you had a tough year. You know, the platitude stuff that isn't remotely helpful. How often do you think you should meet with your accountant? I think twice a year minimum okay ideally I think once every three months two to three months I think it's size dependent though right if you're over a million I'd say you should meet every six months Yeah, I agree with that. And I think that sometimes there is a case to me every month. It's size and situation dependent as well.

It depends what's going on. It depends, yeah. So I don't think there's any set rule. If you're doing a deal though, so if you're doing an acquisition, how long does that, typically how long does that take? So I'm thinking like, is that a three month process when you're from where we're from initial. I want to make an acquisition to completion or I found a deal. Do it from I found a deal. OK, so from I found a deal to completion, I think it can be done in two or three months. More commonly, probably four or five. OK, so if you budget for four or five and you get it done quicker, then that's a win.

Yeah. When people are selling, how long do they think it should take to sell it? Minimum 18 months. Really? Expect two years. Yeah. Because look, it takes time to find a buyer. You don't just want a buyer who's going to give you the biggest number. I know everyone thinks that they want the biggest number. Ken says that on the podcast. He talks about finding the right buyer is more important than just finding a rich buyer. And I've seen that more often than not. People will take lower numbers if they feel like it's the right buyer.

Even the people who say, oh, yeah, I just want the biggest number and I want the most amount of money and whatever. When it comes down to it, push comes to shove, they will take the buyer that they think is the right fit for their business over a buyer who's giving them a bit more money. Yeah. So right fit's critical, isn't it? Especially if you care about the team, right? You don't want them to come in and mess the team up. Yeah. And generally, business owners, they care. They do care. They want their business to continue.

And don't get me wrong. If it's going to be a material difference, it's not going to be the same. But within a margin, absolutely, they want the business to continue and they want it to go to the right buyer. Where do you see the biggest opportunities right now in the market for acquisitions? Where do you see, because I think you talked about it in F12 once about the baby boomer wave and like just talk us through that. Where are you seeing opportunity at the moment now? So I think that we are sitting through the biggest transfer of wealth that we have seen.

And I think that this is the opportunity of our generation, not just in acquisitions, in all areas. Right. And I look at that and I think, well, there's a lot of businesses that are going to be sold over the next few years. Right. Well, I think the risk is they're not sold, because I think if they're not sold and they get closed, we're going to have a lot of people coming out of employment that aren't looking for jobs to change. It's exactly right. There's a lot of people who are going to be retiring. I think I've worked at this 25% of business owners are over the age of 60.

60. Really? Yeah, and 30 or 35% are over the age of 55. And yeah, I can't remember exactly the numbers, but it's around that. It's a big proportion. Well, and you've also got the next generation doesn't want to own those kind of businesses, right? They want to be social media celebrities and YouTube stars and stuff like that. And they're boring for them because they are boring businesses. They just happen to make a lot of money. Yeah. Yeah, but boring is brilliant, right? But I think that's, if you look at it, I remember seeing a statistic that said, what's the average income from people in the creative industries?

And it was like less than $35,000 a year. And you're going, wow, okay, that's like, it looks glamorous from the outside, but it really isn't paid very well at all. And then you go, okay, great, you could run a really boring steel manufacturing business and be making half a million a year, but it's not very glamorous. No. But that's the ego again, isn't it? It goes back to that ego stuff. yeah so so that's where you see the opportunity and what do you think that's a five-year window we've got with that right now I think people are rushing to say that it's a five year window, but people have been saying it's a five year window for five years.

I think it's longer. I think that I think I always encourage people to sell quickly. I know you also say this, you know, don't hold on to your business for too long. Do the cycle a number of times. Think of yourself as an entrepreneur. You know, you build a business, you get it to a point, you sell it and you start again. Yeah. Unless you're doing, go back to the lifestyle conversation before. If it's a lifestyle thing and you love it, like I've been doing the coaching and training business for 20 years, I love it.

It is more lifestyle based for me, for sure. But also, I want to do other things and play and invest in other stuff. So yeah, they're the cycles I'm running. They're just different cycles. Yeah, and I agree with that. That's true. But, yeah, I think that generally most business owners, even when they get to 65, they're not willing to really give up. Yeah, they don't want to retire. Yeah, and I've seen owners selling in their 70s and 80s. I actually saw someone who was selling. He was 98. What? Yeah. And I remember talking to the buyer about it, and I said to him, I was like, you know he's not going to sell you this business.

It's just not going to happen. Why do deals fall... Sorry, we're done with that. Thanks for that. That's great. So why do businesses... Why do deals fail or fall over, in your experience? There's a number of reasons. Number one is... Well, I think for me, actually, one of the biggest things is the identity of the seller. Right. There's a lot of psychology around the seller's headset and what's going on for them. And they think they want to be out and all of these things. But actually, what I tend to see is that they have a real identity crisis because that business, well, being the owner of that business was their identity for 20, 30, sometimes 60 years.

yeah um and so that that's a big shift and it's it's often very hard for people to to uh get over um i think the other thing is sort of the deal going stale and that's where a good business broker can help um because they keep the business they keep the deal alive they keep everything ticking over um they you know, they will tell people when to be, you're going over the top with your diligence here. You don't need the answer to that. Come on, let's keep the deal moving. There are very, it's hard to find a good broker, but when they are good, that's what they do.

They do that and they do that really well because deal fatigue is a real thing. Yeah, it is. And, you know, we just all sort of give up and... And then a lack of trust between the buyer and seller. I think that one of the most important things that sellers forget to do is invest in the rapport between them and the seller and the buyer. Yeah, great tip. um i think it does two things actually the first thing is it keeps the deal alive um well as i say it does two things other than just being a nice person uh being a good human being which we should aspire to anyway yes but other than that it keeps the deal alive and it keeps you know you need to have trust and an open relationship with each other so that you want the seller to be able to be forthcoming with information that is in your interest um the second thing is is that i often say to people i'm like if you like the seller there's a good chance that you're going to like the people that he surrounded him with himself with yeah um you know if you get on with them culture comes from the top always um and so if you get on with the seller there is a good chance that you're going to like the culture in the business i like that the feel of it That's a real...

And also, like, I think people are afraid to have a relationship in that instance, like go for dinner with them or build that bridge or, you know, and it's like, it's not combative. It shouldn't be a combative process. It should be a, look, we're a good fit for each other. And actually, I want to take over your business and make it better or continue the legacy. And you want to walk away feeling like you left it in a safe pair of hands. This isn't a kind of a combative, or it shouldn't, in my opinion, it shouldn't feel like a combative process.

I agree. Again, I do think it is another value of having a good broker in your site because they can play bad cop and allow you to nurture the relationship. So you've written a book. It's pretty much probably out at the moment or coming out. It's out very soon. Yes. Depending on when the podcast comes out. So I think it's called Finding Gold. Yes. So talk me. Why did you write the book and why should somebody go buy a copy? Okay, so I was triggered to write the book because I saw two people buy. Well, I saw two people who I respected in business.

Right. A seller, a buyer and a seller. Buyer had made acquisitions before. Seller had run many businesses, made acquisitions, sold businesses before, done really well. Um, and they, the deal happened and post the deal happening, I noticed the buyer of the business making a series of, of mistakes. And every time he made a mistake, I deferred to him and I was like, well, look, he's done this before. He's actually done this before. Right. Right. I've advised on it before, but he's actually done it before. I'm sure he knows what he's doing and let's see how it plays out.

And after seeing how it played out, I realized, actually, do you know what? I do really know this. I know enough about what goes wrong. I'm not saying that I'm sure at some point soon I will make an acquisition. And I'm sure when I make an acquisition, I will make mistakes because I don't necessarily have a map to absolutely succeed without failure. There are no guarantees in that work. Absolutely. But I know absolutely the patterns of what goes wrong and where it goes wrong. Okay. Because I've seen those things happen.

Post-acquisition. Yeah, post, sometimes a bit before. What could be done before to prevent it? And I think that that was, I just thought, you know what, I really need to get this message out there. I need to, there's going to be a lot of acquisitions and I want them to be good acquisitions. And most acquisitions fail to deliver on what you want them to deliver on. And I don't want that to be the narrative. And so if I can get a book out there, publish that, then that's only a good thing. And is the score framework in there or is there different...

Yeah, the score framework's in there. There is a framework around the book, but the score framework's the main thing, right? And that is because it's the valuation piece that is basically the culmination of my 150 acquisitions. That is... Which is an insane amount. Yeah. It is. Like, that should be a career-ending number, let alone a career-starting number. You're going to hit 500 if you carry on at this run rate. Yeah, we'll have to wait. Is that the ambition? Would you like that? Would you like to be sitting there, you know, in 10 or 15 years' time going to help clients do 500 deals?

No, I think in 10 or 15 years' time, I'd like to say I've done 100 deals. Oh, wow. I think that's where I'd like to get to. So, yeah, my next stage. Is that the big move for you next? Is that the next big move, do you think? Yes, I think in some way, shape or form, I want to sort of be a part of a new private equity fund that works on buying small groups, small businesses and getting them up and supporting them and then taking them forward. So I think that's the next journey. Yeah, we just need to think about how we find those deals.

But yeah, but that's okay. Yeah, and it's like, as we were talking about yesterday, wasn't it, in F12, it's like most of the challenges that we have in a business is a who question or how question. the how question can be answered by ai nine times out of ten yes the who question though is a better question because somebody either has the network has the contacts i'm just thinking of somebody now i can plug you into who might be able to help with that and it's like a great if i think there's a lot of power in speaking things into existence yeah when you start saying well this is where i want to go next you know i want to get seven figures and then i want to start thinking about fun it's like great That could be a five year journey, right?

Before you're ready to do that. But if you start talking about it, then people will be, oh, that's interesting. I didn't know you were trying to do that. And then they start looking at it. It's the same when I started saying, well, actually, I've become an angel investor in sort of SaaS companies or tech companies, but specific niches that help entrepreneurs scale. That's the kind of thing I'm passionate about. You've got to absolutely help entrepreneurs scale. But then it became suddenly things started coming to me because people go, I didn't know you did that.

And I was like, well, yeah, because I'm really talked about it. And I think sometimes you have to you have to project it into the future in order to attract the connections that you want as well. Yeah, absolutely. So you've done you've done lots. First of all, is there a question that I haven't asked you about acquisitions or anything that I should have asked you? No, no, none that jumps to mind. Nothing that jumps to mind. Okay. So let's kind of round out with this. Obviously, we'll drop a link to where people can grab a copy of the book or find out about the book.

We'll drop that below in the podcast below, which is awesome. But you've been around me for three or four years now. What's your definition of a grown-up business? I think a grown up business is a business that gives the owner what they're looking for. And I think that it's about being, yeah, it's about giving the owner what they're looking for. So if that's flexibility, if that's finance, that's flexibility and finance. And if that's a performance business that, you know, generates a large asset value that creates incredible value in the world, then that's what a grown up business is.

Yeah. I think, yes, I think it's absolutely dependent on the business owner and their ambition. But if you don't know what your ambition is, you can't have a grown up business. This is true. This is true. Listen, it's been an absolutely really enlightening conversation. Gone into some areas I wasn't expecting as well. So if you are listening to this podcast, you want to find out how do you save that £4,000 a month tax, check out Sol's tax school cards, which we'll link below this. Highly recommend you follow him on LinkedIn and connect with him on LinkedIn.

He's always sharing amazing value on that. And yeah, make sure you grab a copy of his brand new book, which is called... Finding Gold. Finding Gold. So just before we jump out, I promised earlier that we'd talk about a marketing lesson that you got from using your scorecard around the tax saving. Yes. So you set up a scorecard to help people work out how much tax they might be able to save. Yeah. Right. Share the story about how you had to downplay the results. Yeah. Okay, so that was really interesting. So I started it with, say, £40,000 a year in tax.

Right. That was sort of the headline, and all the ads were, say, £40,000 a year. And what we found was that no one was clicking the ads. It just wasn't going through. And even the people that clicked the ads, they weren't taking the scorecard. So we looked through, we tested a whole load of things, and then the agency that I was working with, they said, I reckon it might just be not believable. Yeah. Yeah. So I said, oh, really? They said, yeah, so let's change it. And they made it save £10,000 a year in tax. And increase was just three of the shots.

Yeah, it was believability, right? Yeah. And then I think they settled on 12%. I think that's what it says. 12 is a magic number, as we know. It's a very powerful number. It's a... Do you know what? I'm big getting into numerology and stuff like that. The number 12 means to feel supported. Do you know, which I didn't know when I created the F12 Mastermind. But the number 12, I mean, 12 for 12 months was part of the reason we did that. But the F12 Mastermind, actually the number 12 means to feel supported and to feel like you are guided and supported, which is just interesting.

That is very interesting, actually. Yeah. So people resonated. So the number 12 converted better than the number 40. Yeah, which, you know what, is really interesting. I thought that was really quite funny. We just had to say that it was less. But, yeah, I suppose it taught me two things. Number one, the value of, you know, actually sometimes you need to undersell yourself to make it more attainable for people. Yeah. And if you make it look like you're too good, then people might think that you're out of their league a little bit.

Oh, that's interesting, yeah. So that was also quite an interesting takeaway. And then the other thing was that sometimes it's much better if you can undersell. I think Alex Almosi mentions this. Once you've made a promise and the promise is converting, you want to get the promise as low as possible to still have conversions. Because then what happens is instead of that promise becoming... what gets you through the door, that now becomes added value post-sale. You're nice. And I have noticed that, actually. You know, when people come in and they say, oh yeah, well we can probably save you 12 grand.

And then we look at them and we've managed to book a call. And on the call I say, yeah, we can probably save you 25. And then they're really excited. Excited. And then we do the work and they say 45 or 40 or whatever. And they're like, this is incredible. And, you know, from my point of view, I knew that at the beginning, that that was likely. But now I'm seeing it. Great tip. Brilliant stuff. Cool. This is Sol. Thanks ever so much for being on the Grand Up Podcast today. If you're not subscribed, make sure you subscribe, follow, like, and give us some feedback.

What did you take away? What did you like most about this conversation? What's been really helpful? Listen, we'll see you on the next show. Take care. That concludes this episode of the Grown Up Business Podcast. I hope that got you fired up and ready to grow. The key thing though is to remember you get paid on what you get done. So write down the top three actions from the show and make sure that you implement those in the next 72 hours. Hey, and while you're at it, make sure you click the links and the resources below this episode to claim free growth resources to help you build the business you desire and deserve.

I'll see you in the next episode.