Adam Torres and Eric Grafstrom discuss exiting a small business.
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Show Notes:
What are some common mistakes small business owners make when it comes to selling their business? In this episode, Adam Torres and Eric Grafstrom, Co-founder of ExitGuide, explore ExitGuide and selling small businesses.
About Eric Grafstrom
Eric Grafstrom is a longtime startup executive and currently the founder and CEO at ExitGuide – a SaaS platform that helps small business owners plan and manage their business exit.
About ExitGuide
ExitGuide is democratizing M&A for small business owners to successfully plan and manage exiting their business. Sellers with unrealistic expectations or a lack of preparation are highly unlikely to complete a transaction. These are avoidable mistakes. ExitGuide combines technology with subject matter experts to help all small business owners prepare their businesses for sale and close the transaction.
Full Unedited Transcript
Hey, I’d like to welcome you to another episode of Mission Matters. My name is Adam Torres, and if you’d like to apply to be a guest on the show, just head on over to missionmatters. com and click on Be Our Guest to Apply. All right, so today’s guest is Eric Grafstrom, and he’s co founder of ExitGuide.
Eric, welcome to the show. Adam, so good to be here. Look forward to the conversation. All right. So this is a popular, popular topic. A lot of entrepreneurs, a lot of business owners that listen to this program and preparing to exit a small business that’s a big one for us over here. So I’m excited to learn more about what you’re doing, especially at exit guide.
And really just some of the nuances of how, what it takes to exit a business successfully. But before we get into all that, we’ll start this episode the way that we start them all with what we call our mission matters minute, where we So, Eric, our mission is to amplify stories for entrepreneurs and business owners and really get their message and their story out there heard.
So that’s what we do. Eric, what mission matters to you? Well, I’m a longtime entrepreneur and couple years ago, I decided to make my mission. To help small business owners prepare to successfully exit their small business. I’m curious. What took you down that niche? , long term entrepreneurs.
So like what made you think that, you know, this is going to be something that I’m really passionate about and I want to do long term? Like, tell us like how that took place. Sure. So, you know, I, I started my career in the early days at a company called audio net, which became broadcast. com. So founded by Mark Cuban, and that took me on a journey through the tech space.
So landed in Silicon Valley, worked with a bunch of venture backed startups. I Had helped us a couple of them navigate some form of an exit and contrary to what you see in in You know blogs and tech sites not all of them are pretty some of them actually, you know are winding down or selling the assets others They need work before they can exit by and large I always had access to super smart people that were talented and available and whether it was in the community or just simply through You know on staff or outside counsel I heard a radio story one day and it was talking about small business owners that are baby boomers trying to exit their business and they were struggling and I thought this is such a strange thing.
Why would that be? And so talk a little bit more about it. But what I learned is that for the most part, small businesses are really small. They’re worth less than 3 million, but there’s a lot of them. And the ones that are really small struggle to access the resources that I generally had access to attorneys, advisors, financial analysts.
And I thought, well, this is kind of an injustice. And when I looked into it, it’s actually, it’s a huge market. So I decided to take what I had learned by helping people through various and exit experiences with. You know, venture backed startups and take it into what is commonly referred to as mainstreet businesses.
Hmm, that’s interesting because I mean, one of my favorite types of entrepreneurs are the ones that either see a problem or they see a challenge in the market and they find a way to address it. And they also find a way to use their experience and talent that they’ve done in the past or that where they’ve been a value and to apply it , in other places.
So I think that’s, great. Awesome. is there anything special or like, I always think about this as an entrepreneur, especially one that wants to work with other entrepreneurs, whether it’s exiting a business or otherwise, working with founders is tricky. I mean, I’ll, I’m speaking for myself.
Like it’s tricky to work with me. What draws you to that space? Like what keeps you in the game with working with founders and business owners? Well, you know, I mean, at stage in my life and my career, the devil I know, as they say. I would say that the change for me has been going from tech founders that I’m used to working with, To becoming a tech founder, but, you know, our customers are, you know, the floral shop, the commercial cleaning business, the HVAC business owner, these are the backbone of our economy.
Small businesses account for close to 40 percent of GDP and the people that we work with and that we try to help really are the ones that are. You know, around this day in and day out. It’s the trucks you see drive through your neighborhood. It’s local stores that you shop at. It’s all sorts of things that are around us.
And I just feel very strongly that these are good people who’ve created real value by providing a service and contributing to their community. And they’re underserved. And so of my co founders, Jason, likes to refer to this is a double bottom line. But I think that there’s both lot of good that we can do with helping people, you know, with a combination of technology and on demand experts.
But, you know, there’s also a massive market opportunity. So we’re hoping to build a huge business to help millions and millions of people. So there’s a drive to help people who really kind of created something of value. What are some of the common mistakes small business owners make when it comes to like exiting their businesses?
Because I mean you have a unique vantage point and I think one of the challenges is when many times when a small business Exiting a business maybe it’s their first time doing it a lot of times like selling your first home. Yeah like that It’s your first time but so what are some of those common mistakes that you see?
Well, you know, and this gets down to how we’ve decided to approach the market when I mentioned to people, you know, casually, whether I’m out and about in the community, you know, they say, so you help them find a buyer. And that’s actually not what we do. And it often leads to a look of puzzlement on their face and they say, well, what do you do?
Yeah. 80 percent of small businesses never sell. We collect a lot of data when, when someone comes through because we ask them a bunch of questions to kind of help curate and cater the service that we have on our website to them and their needs. But what we find is only about 23 percent state their biggest concern is finding a buyer and about 65 percent say that they just have no idea on where to start and what to do.
And so some common mistakes are, You know, often skipping this preparation process, they list their business on a website and they, one, maybe they’ll guess what the number should be. It’s what they want for their business, not what that business is necessarily worth. So, one is just simply trying to price the business.
Two, it’s lacking any form of preparation. You know, a lot of deals where they fall apart tends to be in the due diligence process and there’s various ways. I mean, due diligence doesn’t have to be this in depth analysis with an entire team of, you know, lawyers and analysts that you might see in a, in a large corporate transaction, but it is reviewing things.
And so, you know, we oftentimes encourage owners don’t talk to anybody yet until you started to gather the information. So it’s your legal docs, your financial reports and make sure everything’s accurate date. And then the third is, is just simply getting comfortable with some of the terminology and, and ways to approach this.
And so, you know, what we focus on is what we call an exit readiness score or a sale readiness score. And so we try to guide them through much like you would if you were trying to apply for a home loan, your, you know, your credit score. You know, you may need to do a little bit of work with paying down some bills or, you know, taking care of some things that may be incorrect because you want that score to be as high as possible when you apply for a loan with your bank.
But we’re trying to do the same thing with small business owners is to say, Hey, look. Don’t guess at this process. This is going to be one of the biggest financial transactions you’re ever going to see in your entire life. It makes sense for you to, not only gather things from an administrative perspective, but also to educate yourself and quite frankly, to, prepare yourself.
Mentally and emotionally, which is often an under looked part of this. So, you know, the three things that I’d say one is learn how to price your business with some actual data to make sure you’ve got information that’s, you know, going to be part of the due diligence process and three, make sure you’re somewhat educated as to whether you’re selling the assets, you’re selling the business or how you’re going to go about this before you even talk to a buyer.
Do you find that many times also, and I’m just curious about this because people will listen to this type of show especially with the people that you’re talking about, like, you know, that your HVAC owner, your flower shop or something else, maybe it started as a family business.
Maybe it started out of necessity. Maybe it grew over time and they never really. Designed the business for an exit like that wasn’t their initial plan. It grew over time. It grew over years. So now that that’s even a possibility when you kind of look under the hood because it wasn’t designed for that That wasn’t the you know the plan initially there’s probably some heavy lifting to do oftentimes am I off on that or you’re 100?
Right on that adam you know one thing that we know in We say this is part of our marketing or whether we’re pitching people for, you know, media or investment. We say, look, one thing that we know. 100 percent of small business owners will eventually exit their business. Father time is undefeated.
So whether it’s, you know, desire to do something else, you have health issues or simply need to retire from for the business, someone comes in and makes an offer. There’s a variety of factors. But, you know, it’s 100 percent certain that you as the owner of that business will eventually exit. But, you know, we often find that very smart people who run good businesses.
And that exit part, on that for a moment. By exiting it could, it means retire, it means maybe, I mean, I mean, I don’t mean to be morbid, but pass away, pass away like you’re not taking the business with you. Like I want to like. Cause some people will listen to what you just said. It’s I’m never retiring.
Well, you know, God may have some other plans on that. I mean, that’s not how the world is designed. So think further than that, because, and the reason I’m kind of a stickler on this point, I paused for a moment. It stopped your flow is because like when I was in a financial advisor, when I did other things like, you know, passing down that business or that value in a succession plan or otherwise.
Which is one of my previous careers before media, like there’s so much lost value many times when the business owner had this mentality while they were still with us or while they were still active of like, Oh, well, I’m never retiring and they never consider the value that’s going to be lost by not putting some things in place, even if you don’t choose to retire.
Right. Well, you know whether you choose to retire or not There’s going to be a point where someone’s going to have to go through this process of transitioning in the business and and what I tell some some owners who are are Maybe wanting to procrastinate in this process is to say look This is something that you will do and if not It’s going to be a member of your family or your company that’s going to have to to take care of So yeah, I can say that with certainty just because again father time’s undefeated.
So we know that eventually you You will exit now exiting means different things to different people. And this is one of the things that we really try to stress, which is it may be finding a buyer and having an exit. That’s a financial windfall. We’d love to talk about that. It’s a great story, but it’s not the case all the time.
We like to talk about businesses that transition to the second and third generation, less than 6 percent of businesses actually make it to the third generation. We’d like to talk about, you know, businesses that you know, gobbled up by private equity. So, yes, all those are possible.
But another way of exiting may be selling the assets and taking cash out of the business. Once you pay down your liabilities and closing the doors and so there’s different things based on, you know, an individual scenario and timing. But yes, to your good point, you can deny this. What we tell people is our job isn’t necessarily to say.
You need to sell this way on this timeline. But what we want to do is we want to increase the odds of you actually completing the process and getting the deal done. Because if you’re not planning for success, what are you planning for? Yeah, and getting the deal done, and I’ll just add one piece to that, and not as a fire sale out of necessity.
Because that’s what, that’s what kills me is the lost value. It’s the lost value. And because selling a business, I mean, it’s not like we’re talking about, you know, stock market where you’re just pushing a button, right? And let’s just, whether we’re arguing there is or is not efficiency, whatever, that’s not the point here, but it’s liquid.
So when you’re selling that business as a fire sale, it’s super inefficient. And you don’t want to be in terms of like the pricing and if it’s a fire sale, right, if you just have to get rid of it and it’s at that point, and then also thinking about if a family member is doing it because you didn’t have a succession plan or anything else in place or anything else.
And let’s say they don’t even have a business background and they’re, and now they’re at the will of whomever you is advising them, which may or may not be the right person, may just be their lawyer, maybe something else that doesn’t necessarily They literally have let’s just say that, that strength, right.
to make sure that they’re getting the right value. So just completing it is one thing, of course, I agree with you. And I, and just adding to that, completing it, but at a value that you can, that you feel is respectable and not letting all that hard work that you’ve done in building your business over the course of sometimes decades to lose that value.
That doesn’t go on to whatever you, wherever you want that money to go to. Right. you’re right. Adam, just to add your point, heading to my point, you know, the one thing people can often relate to is preparing your house to sell it. You don’t wake up on a Monday morning and decide to stick a sign in your front yard and hope to get the best offer on your house.
you know, touch up the paint, you fix the leaks, you clean up the yard, you do things to bring it to market. And you also will go online and, and, you know, there’s all sorts of information. You may talk to a real estate agent as a professional, you’re doing a bunch of things to educate yourself on what’s the state of the market, our house is moving.
And if so, what are they moving for? And then you’re trying to maybe bring in some, Objective opinion is to, hey, that thing that you’ve not noticed in your kitchen that you’ve just become used to because you looked at for the past five or 10 years and don’t see it anymore. We need to touch these things up.
And so this gets down to why we take the approach that we do, which is, you know, The fire sale does happen when someone says, well, look, you know, we’re moving into the retirement home next week. We’ve got to have some liquidity and I’ve got to sell this business fast to lay down money. Well, you know you’ve now taken away the opportunity to prepare your business to make sure that a buyer looks at this and says, okay, you know, I like the way the business is.
I see the opportunity for growth. I see that there aren’t problems and I’m going to have to come in and pay to go fix, you know and the ones that do need to be fixed. There’s some type of structure in place for me to go do that. You know, you wouldn’t stick a sign in your house, the yard of your house to sell it without doing those things.
You shouldn’t, you know, just try to sell your business without preparing it first. Amazing. Well, Eric first off, great discussion with you today and thank you for sharing more about exit guide and really in educating myself, the audience, everyone else about what it takes to prepare to exit a small business.
That being said, I know that you have much more to offer and along this topic and also around the lines of services. How do people follow up if they want to learn more about exit guide? Yeah, it’s very straightforward. Just go to exitguide. com and you can start with reading some of our free resources about various aspects of selling a business to, you know, terminology, to then going through the process of getting a free assessment to see if your business is sale ready.
And then from there, we provide other tools and services to help you navigate the process. So our goal is to help give you both confidence and the information you need to be exit ready. So just go to exitguide. com. Perfect. And we’ll, and for the audience, we’ll put all that in the show notes. And speaking to the audience, if this is your first time with mission matters and you haven’t hit that subscribe button we welcome you hit that subscribe button, we have many more mission based individuals coming up on the line and we don’t want you to miss a thing.
And for our long term listeners, Hey, if you haven’t left us that review yet, definitely get that review in there. We definitely appreciate that on Apple podcasts, leave that review. Eric, been a pleasure and thank you so much for coming on the show. Adam, thanks so much for the opportunity. Great to talk to you.