THE THOUGHTFUL ENTREPRENEUR PODCAST
Joe focuses on the lower middle market, which includes companies with revenue ranging from 5 to 25 million dollars. This market is often overlooked when it comes to exit planning, and Joe's mission is to bring the level of expertise and resources available to larger companies to these smaller businesses.
Exiting a business is not just a financial decision; it's an emotional one too. Joe shared his experience selling his healthcare business and how the buyers initially wanted him and his wife to stay involved, but eventually, they all realized it was best to have a clean break. He acknowledges that letting go of a business can be emotional, as owners worry about how their employees will be treated and what changes will be made
When valuing a company for a reasonable exit price, Joe mentions that there is no one-size-fits-all approach. While some may use a multiple of four as a rule of thumb, every business differs. Factors such as the industry, technology, and team can significantly influence the valuation.
Joe also shared insights into the process of preparing for due diligence. The potential buyers can be strategic, financial, or internal, and the preparation starts by putting together the necessary materials and working with corporate counsel. Depending on the industry, Joe either takes the company to market himself or partners with investment banking strategic partners.
Key Points from the Episode:
- Focus on the underserved lower middle market in exit planning
- Goal to bring expertise and resources to smaller businesses
- Typical clients are blue-collar business owners in the lower middle market
- Importance of maximizing business value and considering personal financial and estate planning
- Valuing a company for a good exit price is not one-size-fits-all
- Examples of transitioning ownership and the importance of clear plans and structures
- Psychological and emotional aspects of exiting a business
- What business owners typically do after exiting their businesses
- Potential buyers and the process of preparing for due diligence
- Factors influencing multiples and typical range
About Joseph Gitto:
Joseph Gitto is a distinguished senior Finance, Sales, and Operational Executive, Entrepreneur, Coach, and Thought Leader, with over 25 years of remarkable achievements across various industries. As a five-time entrepreneur, he possesses invaluable expertise in assisting clients with capital acquisition, strategic planning, financial controls, and reporting. 2017 Joseph founded Blue Sky Exit Planning, providing comprehensive exit planning solutions to business owners, their families, and their professional teams.
He also serves as a Board Member of the East Coast Estate Planning Council, showcasing his commitment to the field. Notably, in 2023, Joseph's expertise was recognized, and he was appointed as a Board Member and Chairman of the Audit Committee for iCoreConnect Inc. (ICCT), a leading cloud-based software and technology company. His diverse background and leadership roles make Joseph Gitto a prominent figure in business, offering valuable insights and guidance to companies and entrepreneurs alike.
About Blue Sky Exit Planning:
Blue Sky Exit Planning offers a comprehensive “4 Phase Process” designed to address business owners' common challenges when preparing an Exit Plan. Many owners must avoid this crucial step due to uncertainties about the process and concerns over costs and time commitments.
The Blue Sky Exit Planning process provides a clear path to maximize the value of a business during a partial or complete exit. This plan encompasses essential business, personal, financial, legal, and tax considerations in selling part or all of a privately owned company.
By completing this process, business owners are better equipped to handle unplanned events, increase the overall value of their businesses, and secure financial stability for themselves and their families. With expert guidance and a structured approach, Blue Sky Exit Planning empowers business owners to navigate the complexities of exit planning and make informed decisions for their future.
05:51 – “It's never for the money they got, it's because they're bored or they lost their identity.”
12:11 – “It is really an emotional tug, a lot of times the business part is the easier part.”
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Links Mentioned in this Episode:
Want to learn more? Check out Blue Sky Exit Planning website at
Check out Blue Sky Exit Planning on LinkedIn at
Check out Blue Sky Exit Planning on Facebook at
Check out Joseph Gitto on LinkedIn at
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Josh (00:00:05) - Hey there, thoughtful listener. Would you like consistent and predictable sales activity with no spam and no ads? I'll teach you step by step how to do this, particularly if you're an agency owner, consultant, coach or B2B service provider. What I teach has worked for me for more than 15 years and has helped me create more than $10 million in revenue. Just head to up my influence and watch my free class on how to create endless high ticket sales appointments. You can even chat with me live and I'll see and reply to your messages. Also, don't forget the thoughtful entrepreneur is always looking for guests. Go to up my influence com and click on podcast. We'd love to have you. With us right now. It's Joe Gitto. Joe, you are the managing director at Blue Sky Exit Planning Services. You're on the web at Blue Sky Exit Planning. Joe, thanks so much for joining us.
Joseph (00:01:12) - Josh Thanks for having me today. Looking forward to our conversation.
Josh (00:01:15) - Absolutely. So, yeah, explain who you're typically working with and what you do in the world of exit planning.
Joseph (00:01:23) - Sure I'd be glad to. So my focus is on the lower middle market, which we define as companies with revenue of 5 to 25 million, which is typically an underserved market when they're going to sell their businesses. And so what we've tried to do is bring the level of expertise and and and oh, God, I'm stumbling. Sorry. What we're trying to do is bring down the level of expertise and resources that are available to larger companies to that lower middle market.
Josh (00:01:48) - Yeah. So why is it I mean, so it's typically underserved then? And obviously that presents a pretty good opportunity. That world has got to be very different that when you're talking about exiting, you know, a $500 million company versus, you know, a a $5 million company.
Joseph (00:02:05) - Absolutely. So think about it. If you're running a $100 million company and you're looking to sell, you've got an investment banking team, you're getting tax expert, you're getting estate planning and vice, you're getting financial planning advice. You've got all these people that are helping you, but also looking to sell you product, right? But that's why they're there.
Joseph (00:02:20) - But they're there to help you. And you're getting the benefit of all this experience to make this the most efficient outcome for your business. When you're selling a $5 million business, the larger companies are not looking to come downstream and do that. It's not it's cost prohibitive usually. And so what we're trying to bring to that level is some level of a cohesive plan, not just for you of selling your business, but what does it mean to you personally. So what we've developed as an integrated process that will look at you as an individual, your personal financial planning, what does it mean from an estate planning standpoint and then working with you to also maximize the value of the business? My typical client is typically going to be a blue collar business who is run a great business. They probably have had it for 20 or more years. It's generally their largest asset and they've just been working with a local accountant, a local attorney who may have done great work for them over the years, but aren't necessarily used to doing deals or selling businesses.
Joseph (00:03:13) - And so what we try to do is bring to them the opportunity to increase the value of that business and maximize that one asset that they've devoted their life to building and then also making sure that they're leaving the legacy. Right? Because you're a business owner, you know, this this is this is like another child to you. And when it changes hands, you want to know your employees are doing well, that they're being taken care of, that your clients are being taken care of, your vendors and etcetera. And so we really try to create this a holistic approach for business owners to have a process, to have a plan and not just post it up on a website, hope somebody is interested, take the best offer. Let's move on with our lives.
Josh (00:03:46) - Yeah, When you're talking about SME SMEs, does that factor into, you know, say, a potential multiple that you'd be looking for or is it really just a matter of how is that money coming in? I'm just curious about like, how do we actually value, you know, a company for a good exit price?
Joseph (00:04:09) - That's a great question, Josh, And, you know, everybody tries to use the rule of thumb of a multiple of four, but every business is different.
Joseph (00:04:15) - All right. So at the end of the day, there's always a multiple applied to it, but that's not necessarily what drives the deal. And especially on the lower end. A lot of our blue collar, smaller businesses are becoming bolt ons for private equity firms that have a platform company and they're looking for add ons. And so a lot of times if you're earlier in the game, you're going to get a higher price because they're looking to build out that platform whether you're later in the game. And a lot of times, you know, the buyer is not buying what you think you're selling. Right? They may be after technology you have or they may just really want to get into a market. So there's a lot there's more art than science to really positioning the company for sale.
Josh (00:04:51) - Yeah. And I know that one thing, you know, looking through your website, you mentioned that you can kind of point to some surveys that it's as many as 75% of former business owners are unhappy or they have regrets a year after their transition.
Josh (00:05:12) - What's going on?
Joseph (00:05:13) - Yeah, that's a great question and that's one of the reasons why we've tried to develop this holistic approach, because what we're trying to get the business owner look, especially the boomer generation, right, we define ourselves by by our work and we work 50, 60 hours a week. And it sounds really romantic to say, I'm going to get up in the morning and have a cup of coffee, play around the golf, and that grows old pretty quickly. And so what we do is part of our value creation process is we're working with that business owner to say, how are you going to fill this time? Do you have a charitable bent? Do you want to volunteer time? Do you want to sit on boards? What are the things you're going to do to fill your schedule? Because that's why business owners have the regrets. It's never for the money they got. It's because they're bored or they lost their identity.
Josh (00:05:51) - Yeah. So, okay, so what can we be doing to kind of I'm curious about the kind of the psychological transition that we have to make if we're talking about, Well, listen, the money's the money, but tell me more about what's going on emotionally and psychologically.
Joseph (00:06:09) - Sure. Think about it. Right. Orlando is not a small town anymore, but a lot of the businesses that I work with are coming out of small towns where the the business owner who's selling is known in town as the employer. He's he's at the country club. Everybody knows who he is. He's created wealth. He's created jobs. That's his identity. Then he sells the business. And what what's his identity at that point? And so we're working with them to find other ways to be. And generally in the smaller towns, these are the folks that really want to get involved with community or stuff like that. And that's what we're trying to help them make that transition early on. And it also increases the value of the business because nobody wants to buy a job. And so if you're a business owner and you're still grinding 50 hours a week, it's a different sale than if you have a management team in place. I always tell people my my job is to make you irrelevant in your business.
Joseph (00:06:55) - That's really part of what we do. And that's. And so as they're getting as they're gradually exiting the business because management teams taking over, we start to work with them to fill up their time with other things that are going to keep them motivated.
Josh (00:07:08) - Wow. So like at the SMB level, what does a management team look like?
Joseph (00:07:12) - Yeah. So, you know, under $5 million business, you might have maybe you have a CFO, maybe you have like a strong controller. You have somebody who's running your day to day operations. You have somebody who's running sales, but you have a leadership team. And we we use a platform called the Entrepreneur Operating System known as traction. And we use that as our as our baseline for how we help these companies transition people into leadership roles and working with the communication and making sure that they're all firing on all cylinders and so that the owner can gradually start to step away.
Josh (00:07:42) - Yeah. Well, and obviously that's going to be that's going to impact, you would think the the sale price because any buyer think they they don't want to do what you've been doing in the past necessarily don't know maybe they do but unlikely they they do step in and they're like well listen if they didn't put the management in play team in place, I'm going to have to figure out how to do that.
Josh (00:08:04) - And, you know, that's a little bit more risk.
Joseph (00:08:08) - Yeah. And that's going to crush your valuation because they're already thinking, all right, what is the salary I need to add and the time I have to train and then there's my time. And so it's a less sellable business, which is why it's you know, we always tell business owners, if you can give us a window of 6 to 24 months, depending on your size and the complexity and how much structure you have, we that's what we do with them, is to get them into that position so that it's really a saleable business. Yeah.
Josh (00:08:32) - Give me maybe an example or two of companies that you've worked with and what that transition look like.
Joseph (00:08:38) - Sure. So we have one right now that we're doing. It's a little this is an internal transfer. We're doing a business succession between a mom and a daughter. That's you know, the mom started this business 40 years ago and the daughter is now stepping in. And mom was the person and everybody, you know, rotated around her orbit.
Joseph (00:08:55) - And the daughter is looking to build a leadership team. And we've worked with them now for about eight months and we've put people into key positions and the daughter is taking over to day to day. So that's that is one example. And then we're working with another company in Texas that we've actually got out on the market now. And we spent a year working with them, not only getting a person in charge of running the day to day of the business and they're in the flooring, installation and retail space, but we also process documented everything that went on in the business. So under the theory of the business owner left the office, got hit by a bus, how would this company function? And so literally an owner could walk in there and be able to run that business probably about 80% of the level that he did prior to leaving. So those are the kinds of things that we're doing so that when you take over the business, it's it's not a mystery. Because the other thing is, right, every buyer thinks they want the seller to stick around for a long period of time.
Joseph (00:09:48) - And I'm talking from experience. My wife and I sold the health care business in 2019, and, you know, the buyers thought they were going to want us around for six months. And honestly, after 3 or 4 weeks, they didn't want us around as much as we didn't want to be around, you know? And a lot of that is right. Your employees are still there's a new owner, but the employees still identify with you. And that's frustrating to the new owner. And they want to make changes. And they're hesitant to make changes because they feel like they're in you know, they're criticizing the way you did business. So they really want that clean break. They also realized that it's not as complicated as they think it is stepping in. So if you've done a good job of, you know, building the team, having the your processes documented, it goes a long way in making the transition smoother.
Josh (00:10:27) - You know, I want to go back to this. I just want to make sure that because this is important to me.
Josh (00:10:32) - Sure. You know, thinking about this psychological and emotional transition. So so obviously, I think one of the biggest things is start working yourself out of a job. So that and I think naturally we you know, if you've got a good management team in place, you're not, you know, you're just not as required if you've got those. I mean, I think that that's absolutely going to kind of assist that with that. So you're not going from, you know, 50, 60 hours a week down to zero. Correct. You know, you may be, you know, you were kind of whittled it down to like 15 hours a week or something like that of stuff you had to do. Otherwise, you know what, companies running, they got it right. Is there are there any other, like, I would say, emotional or, you know, kind of psychological considerations other than just stop doing quite so much in your company, get the team in place and kind of ease your way out?
Joseph (00:11:27) - Yeah, I know.
Joseph (00:11:28) - I'll go back to what I said earlier, which is that you do have this cycle and I experienced this when I sold one of my businesses up in New York. We had a great offer. It was going to a great firm. I was actually going to be part of the transaction. And yet the day we went to clean and clean out the office, I was sitting in the car going, I don't think I want to do this. I was just, you know, you're letting go of your baby and you're just wondering what changes are they going to make? How are they going to treat my employees so that all of that emotion comes there? We'd like to think like even when we got out of the health care business, it's probably the business that I've owned that I lease the light I like the least. And I was on one level thrilled to be getting out of it. And yet when we went to the closing, I was still thinking about the families we were dealing with and our caregivers and stuff like that.
Joseph (00:12:11) - So yeah, it's it is really it's an emotional tug. A lot of times the business part is the easier part. It's and that's why a lot of deals fall apart. You always hear people are almost at the goal line and then the deal falls apart. It's usually because the business owner is just not emotionally and psychologically ready yet, so they find a way to kill the deal. And so what we really work hard at is making sure when we get to the finish line, they're going to punch that ball over the into the end zone.
Josh (00:12:36) - I'm curious because you've been through this cycle as many times as you have. What do the the folks who exit, what do they end up doing with their time in their life?
Joseph (00:12:49) - Yeah, great question. Some some folks are just they start sitting on company boards or I had one gentleman who sold his business and then became a volunteer at Score and started working with entrepreneurs. I have one gentleman who was younger. He was in a blue collar business, but he sold out early, said he was going to retire in six weeks, later, said, Hey, I'm buying this business.
Joseph (00:13:09) - Can you take a look at it for me? So that was you know, he failed retirement, which is a good thing, I guess. But yeah, you know, folks get involved with a lot of different things. I've never seen somebody who's run a business, in my experience, who is that type A personality who just, you know, kicks backs and says, I'm just going to vacation and play golf and chill out. It just doesn't happen.
Josh (00:13:29) - Mhm. Yeah, I could see that happening maybe for a few weeks and then I know that if it were me I'd start getting a little itchy and antsy. It was enough golf I got. Absolutely. I got to go do something.
Joseph (00:13:42) - My, my wife has already told me too. She loves me and wants to stay married, but she doesn't want me home every day of the week either when I'm ready to. So I'm positioning myself to work less, but not necessarily ever retire.
Josh (00:13:53) - Yeah. So, Joe, what does it look like when when folks with you like, how do you begin that process? You know, if someone's like, well, you know, I'm kind of planning an exit over the next few years, what are those initial conversations look like?
Joseph (00:14:08) - Great question.
Joseph (00:14:09) - So what we'll do is we'll really try to understand why they're exiting. Sometimes they're just burnt out and there's options other than selling. But if they really are sure that this is the time and they want to get out of the business, what we've done and I put a lot of thought into building this process. I went back and looked at some of the businesses that I sold and said, you know, what was the experience and what did I what didn't I like? And so I developed a four step process for business owners, and they're not required to use all four steps. But generally, if you came to me, Josh, and said, Look, I'm thinking of selling, I'm tired of this, you know, what can I get from my business? So the first thing we're going to do for you is we're going to do a fair market valuation just to make sure that you and I are at least in the same church, if not the same view. Right. Because if you think your business is worth 20 million and the market's telling me it's worth ten, we're only I'm only going to upset you in the long run anyway, so we might as well stop right there.
Joseph (00:14:57) - But let's just assume we agree on the valuation price. The next thing we're going to do is go out to the market and pull some comps to understand what similar businesses have sold at. So we have a baseline of where you are going to fall in. And then the third thing we're going to do is say to you, well, what does this money mean to you? Right? $5 Million means different things to different people, right? For some people, $5 Million becomes a generational type of change. And for other people, it may get them through the decade. So the next thing I want to do with you is your financial plan and say, what does this money mean? At that point, you can stop and say, I don't think I'm ready or I want to build up value more because I need more money for my retirement, or I want to move to phase two. And generally what happens is phase two, the business owner is focused on. All right, so you said my business is worth $10 million and and that that that equates to a multiple of six.
Joseph (00:15:43) - But other transactions were in nine. Why am IA6? And so we use two software products. We don't even charge for phase two because this is also now a vetting stage for me. I'm going to give you links to two different software products that we have that will really help. They'll take you about an hour to take these assessments, but at the end of it, we're going to get a bunch of data. We're going to compile some reports, and I'm going to sit with you for an hour at no charge. I'm going to walk you through all the things we've identified in the business and talk to you about how if we implemented these things, it'll drive the value of the business. And this is where the vetting part comes in, because the business owner who says to me, Wow, this is really great, I'm going to do this with my team and I'll be back to you. That's probably a business I'll never be able to sell because this is not a business owner who's ready to let go or make changes.
Joseph (00:16:25) - But the business owner says, How do we do this? Then we'll go to phase three with them, which is retainer based, and it's depending on scope, right? It's how many problems you have, how many things do you want to implement, how fast you want to do it. And then what we'll do is we revalue the business every six months for them with no no additional cost. But all things being equal, equal in the macro environment, we should start seeing the value of the business increasing as we're implementing these changes and then we'll have that conversation at the end of the year and say, So Josh, here's what the new valuation is. Here's the number. What are you thinking? And if you say, well, you know what, it's a good number, I think I'm comfortable. I want to go to market, then we work with you to start really start really towards in the middle of that phase three engagement is when we start moving you out of the business a little bit, building the team.
Joseph (00:17:07) - But now we're having the conversation. Who's the most likely buyer? Is it strategic, Is it financial? Is it internal? We're going to start putting together the materials will prepare you for due diligence. We'll start working with corporate counsel to put together the documents that we need to take you to market. And then we either, depending on the industry, there are some that I will take out to market myself or I will partner with some of our investment partner or investment banking strategic partners to take the company to market. Yeah, and so that's our process.
Josh (00:17:34) - Yeah. Just out of curiosity, what are some of the higher multiples that you've seen and what are the conditions that that influence that?
Joseph (00:17:41) - Sure. So the, the, the high multiple that I've had was a cyber company that was looked at it. I mean, they're in a hot space. It's not going away and that was a multiple of 12. Wow. Yeah. But it's a hot space and they were in an interesting part of the market with a unique team.
Joseph (00:17:56) - But our typical transactions and it's been a little tougher out there right now, but we generally see things between 3 and 7.
Josh (00:18:04) - Yeah, Yeah, for sure. All right, Joe, your website is Blue Sky Exit planning.com For someone that is listening to our conversation right now, what are their next steps? What would you recommend and and what might be some things that if this is going on this is going on this is going we should definitely have a conversation here.
Joseph (00:18:25) - So the best thing is, if somebody wants to go to my website and I'll offer this to your to your listeners, let them go. We have buttons right on the top of our page there. They can take two different assessments, Value builder and exit and exit map assessments. If they go take those assessments, I'll do a call with them, take them through just the what the feedback was and what they could possibly do and give them some insights into their business. So I think that's a great place for them to start. And I would say, you know, if they're if they're experiencing turnover, a lot of these businesses don't really manage cash the way they should.
Joseph (00:18:56) - They don't have a plan, right? So they get caught off guard with. So we're very big on putting in cash planning if they're really looking to upgrade the talent or if they're looking to expand. Those are all areas where we can help them ahead of. Thinking of. We'll do some oversight. I have a couple of good, really outsourced CFOs on my team that would work with these business owners to kind of professionalize because a lot of business owners are on QuickBooks. They have a chart of accounts that's alphabetical. It doesn't really tell a great story. So we'll professionalize their financial statement. So when the due diligence comes around, it'll look a lot more professional. It'll help the buyer understand the story a little bit better.
Josh (00:19:31) - Yeah. Joe Gitto, again, your website, Blue Sky Exit Planning. When you go right to the website, there's a couple of assessments you could take right there, the value builder assessment, exit map assessment, and that you can fill that out. And Joe, it's been great having you.
Josh (00:19:47) - Great conversation. Appreciate it.
Joseph (00:19:50) - Thanks, Josh, I really enjoyed it. Enjoy.
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