Scott Bushkie: Why Business Owners Wait Too Long to Sell

Craig Castelli:
Welcome to the Close M&A podcast, Caber Hill Advisors. I’m your host, Craig Castelli. Today, my guest is Scott Bushkie. Scott is the founder of Cornerstone Business Services, the Cornerstone International Alliance. He’s also a well sought after speaker on topics related to M&A valuation exit planning. Scott, we’re members of Cornerstone Alliance as well, have been for a couple years. It’s been hugely beneficial to us, but it’s a unique concept. You’re bringing together people who are on paper competitors yet find ways to share knowledge and collaborate. So for listeners who are hearing about CIA for the first time, tell us a little bit about it.

Scott Bushkie:
Yeah. When I set up the Alliance, it was interesting because I was the chair of the M&A Source Association, about 700 member organization and we did a poll of what size are our members. And it blew me away where 50% were one person shops, 40% were two to five and only 10% were more than six people. And we were around 10 or 12 at the time. So we were big in the scheme of things for lower middle market M&A advisory or investment banks, but we were still a very, very small company. And I looked around and saying, “How can we have more horsepower? How can we be better and take care of our clients better?” And I thought about the concept at M&A Source where we come together, we hear people speak, we’re on panels, we share best practices over beers or over dinner, and everybody’s like, “Man, that’s the best two and a half days of my life.” And then we all go back and we climb into our silos and we don’t talk to anybody for six months or a year.
I’m like, “Well, what if we could do that on a more regular basis?” And not only do that with anybody, but only the best in class, the low brand of market investment banks that are best in class, wouldn’t that be something? And the whole concept really started with we’re better together than we are apart. And looking at … The thought was we’re better together. We can get access to industry experts that we don’t have at Cornerstone. We can access to boots on the ground in different parts of the country or more so all over the world from different buyer groups access to more resources with more resources and tools. We can take care of our clients better. And then lastly, which I found to be the most interesting is just best practice sharing. And to your point of, right, we’re all on paper competitors, but when we come together, we found that the collaboration and the best practice sharing is one of the things that’s helped us all grow our practices and take care of our clients better. And I’ve seen studies out there too where there’s things that say that only 20% of deals that get done are done by professional intermediaries or investment banks. So that means we’re not fighting over the 20%. Let’s take a look at the 80% that’s not being taken care of and how do we get the word out and continue to professionalize the industry. So that’s where the alliance came from and now we’re 35 firms worldwide and did over 2.5 billion in enterprise value last year. It’s been pretty cool to see how this has grown over the last eight years.

Craig Castelli:
It’s very impressive. It’s been fun to be a part of. It’s funny because people will ask me from time to time, what other firms do we compete with? And I struggle to ever come up with a single name or two that is like a direct competitor. Yes, there are firms we’ve run into more than once a competitive pitches, never a CIA member, by the way, but the biggest competitor is the business owner who got a phone call from a buyer who just thinks, “Well, I know the buyer. I have an attorney. What do I need you for? ” And we don’t need to take this podcast too far down that rabbit hole because we both know the answer to that question, but it’s mind blowing that by and large, that’s our biggest competition out there.

Scott Bushkie:
Yeah. And not to beat that too bad, but yeah, our study that we did, which we’ll get into 55% and that study of 750 business owners between five and 100 million in revenue said they would absolutely sell their business to an unsolicited offer without bringing anyone else on even getting a value of what market is just because they don’t know what they don’t know and assumed it was the right value, which we’ll get into what they’ve done for valuation here too.

Craig Castelli:
Yeah. So let’s get into that because that’s really the meat of the discussion here. So you commissioned this survey, 750 business owners all about their mindset around selling and then the different advisors they work with, with some specific focus on financial advisors. So I guess just set the table. Tell us about the survey and the real core questions you guys were trying to answer.

Scott Bushkie:
Yeah. When we set it up, EPI, the Exit Planning Institute has a readiness survey that they’ve done back in 13 and then again in 23. And I always was impressed with that to understand the readiness, but no one really has gone into the mindset of the business owner and what do they think about when they’re selling? Who are they going to use? Why would they use an investment bank? When are they going to sell? Why would they not sell? Who’s their trusted advisors? What do they expect from them? How have they valued…This is their largest asset, what have they done understand value and just timing on everything. And it was really surprising of some of the results that came out of this. Again, these are not business owners that just started up yesterday. They’re 45 to 75 years old. They’re all over the country tied to the 2020 census bureau. And like I said, five to 100 million in revenue broken out between 25 or 25% were five to 10, 10 to 25, 25 to 50, 50 to 100 million. So sophisticated businesses that have been around for a while. And one of them was when we asked them, “What is your mindset around selling?” Whenever you decide to sell, what is your mindset? The number one answer was, “I plan to sell my business when I’m physically and/or mentally unable to continue.”

Craig Castelli:
Mind blowing.

Scott Bushkie:
And that should just scare the heck out of you as a business owner or an advisor going, “Oh my gosh, I’m going to run this thing till I can’t anymore.” And that’s their mindset. It’s like, how do we fix that mindset or help them educate? So that was one of the big items that came out of that study.

Craig Castelli:
I mean, that should scare the heck out of you if you’re an employee or a customer of a business operating that way too.

Scott Bushkie:
Yeah. And we’ve seen it. We’ve seen people run it right to the last day and because what we found is that 65% of the study said they’re not just tied to their business emotionally, their identity is deeply tied to the business. So when the business is you and if the business has success, you’re successful, the business doesn’t have success, you’re not successful and you don’t have no idea what your identity’s going to be after the company that sells or exits, that’s one of the things that we really saw as something that kind of played out through a lot of these questions was that their identity is so tied. These business owners, especially the boomers, have so much passion and pride. They’re going to run this thing till they sell it and then they’re going to go into this next chapter. But if you don’t know what the next chapter is, even if you’re tired or burnt out, you’re going to stay with what you know because that’s what you’ve done for the last several decades.

Craig Castelli:
Yeah. I mean, you talk about that a little bit and how they kick the can down the road on selling. Somebody says they’re going to own the business for five more years, two years later they say they’re going to sell in five years again and it’s just constantly pushing it out. Five years is a pretty intangible difference, right? So is there anything that you see consistently break that cycle where they can actually appreciate the need to plan and execute on a timeline and then stick to it?

Scott Bushkie:
Yeah, it’s really their trusted advisors, whoever that person is. And what we found in the study that the financial advisor was the number one trusted advisor to have that conversation. And you think it probably makes sense because their job is to do all the planning for that business owner on the financial side of things. So where we see the cycle hopefully being broken is because business owners have said, 54% said, “I’m not going to talk to anybody about my sale because I’m afraid if word gets out, all my employees are going to leave tomorrow and I’ll have nothing.” So 54% over half said, “I’m not talking to anybody.” Another 32% said, “I don’t know where to start or even who to trust.” So they don’t know where to start, who to talk to, anything else. So the way to break this is really going to be that trusted advisor again, mainly the financial advisor, sitting down with them and having what we call the conversation. It’s not about the birds and the bees that you have with your teenage kids. It’s about how, when and why are you going to exit your business? Because there’s one thing that’s for sure of every business owner, you eventually will exit your business. It’s a matter if you’re doing it on your terms and vertical or if you’re doing it on somebody else’s terms or if you’re going out horizontal, which unfortunately way too many business owners do. They spend their whole life working and don’t really get to enjoy any of the benefits of it. And so that’s where we’ve seen that if the trusted advisor can ask them just simple questions. And again, I think where they have concerns is that, well, if I start talking about the market, I don’t know all the answers. It’s like, well, they expect the financial advisor to go, “Well, here’s what the market’s doing and here’s what’s going on and here’s the multiples.” No, all you got to do is ask questions like, “Craig, Mr. Business owner, have you had what we call RMA or real market analysis or some kind of valuation done by a trusted reputable M&A firm in the last year or two?” If the answer’s no, then hey, I’ve got someone on my team, which we’ll talk about that can do that work and maybe we should understand that because 36% when we ask them, “How do you come up with your valuation?” 36% said, “Well, we just sit down with our financial advisor. We just pick a number. I just come up with something and we throw that number in as an assumption.” And that’s really scary because obviously those are almost 100% of the time wrong. So it’s starting the conversation of if you had a valuation, because once you have the valuation now and it’s real, again, as you and I both know, there’s firms out there that will do a valuation disguised as basically a way to get them as a client, tell them whatever they want to hear, get a 50,000, $100,000 retainer and then never sell the company of a five to 10% chance of sell. But someone like within CIA that is reputable that’s going to be able to tell them, “Here’s what market is and why, and here’s what you can do to enhance the value.” And know is an okay answer, but once they know that real number, let’s just say it’s easy number, 10 million bucks, who cares what that number is? What’s the net number? What are you going to net out of this thing? So then sit down with your tax people and your financial advisor going, “What’s my worst case scenario? Are there ways that we can minimize taxes with different things upfront?” And then once you know your net number, let’s just say it was six million worst case scenario, but because you had a year or two to plan, now it’s 6.5, you saved a half million dollars from Uncle Sam, but now you have to sit down with your financial advisor because again, you don’t know what six and a half million dollars could do for you and your family until you sit down with your financial advisor to say, “Okay, here’s all the assets I have, here’s all the debt I have, here’s the lifestyle I want to live, is there a wealth gap? Is there a gap there and what is it and does my net number meet or exceed that number?” So if your net number is six and a half and you’re what we call the lifestyle number is eight, well then you’ve got a choice to make as an owner. You got two choices either lower your lifestyle down to six and a half because you’re burnt out, tired, sick, and you don’t want to do it anymore and know what that looks like and be good with it or say, “Nope, I have a million and a half gap and in the RMA, and I know when you guys do it too, if the numbers don’t make sense, we’ll give them probably the biggest one, two or three levers that they can pull to enhance the value of the most or give them a business coach that they can work with. ” And then we just come back and do that RMA every six months or a year until the numbers make sense. But it’s really that trusted advisor starting the conversation because otherwise they just don’t know what they don’t know. They’re not going to start it because they’re scared of confidentiality and then they just keep pushing it out and pushing it out because not only do they not know where they’re going to do, they don’t know what they’re going to do next. And that’s where we see a lot of regret or we’ve seen people that once, quite honestly, at Cornerstone, once they’re always 70 years old, we see that our closing ratio actually goes down. We have an 85% close ratio and you think, oh, if somebody here or she’s older, they’re going to sell for sure. And what we found is once they get over 70, we still sell those companies, but it’s less likely because they blow up the deal at the end of the day. And we had one that we did a few years ago down in Iowa, two brothers were majority owners, both in their 80s, neither one of them worked in the company, one lived in Florida, one lived in Iowa and the benchmark was 18 and a half million. We ran our process and got 18 different offers or something like 20 some offers, I think 28 offers and we had four buyers between 24 and 26. So the benchmark was 18, what we hoped to get. Obviously no asking price. We had buyers between 24 and 26 million and they called me up one day and then negotiated and said, “Hey Scott, here I think they’re all excited because we got well more than what we all had hoped to. ” And they said the numbers don’t work. And I said, “Well, I’m confused because 24 at the worst case here we’re at right now is still significantly above the 18 and a half that we were trying to get. ” They said, “Yeah, the numbers just don’t work.” And they blew up the deal and when we really peeled the onion back, we found that they literally, when they went to their country clubs, did not know what they were going to talk about with their buddies and said, “I just want to be a business owner until I die.” But yet they spent all this time and all this money and all this confusion and distractions within their company only found out that when it really came to signing on the dotted line, they just couldn’t let go of their baby. And so it’s just interesting to see how it plays out with the emotional side of thing.

Craig Castelli:
Well, it’s wild. It really is in everybody lose situation. You talk about in the survey, 44% have no understanding of their exit options. These guys in one way, shape or form fall into that category. They probably should be working with a life coach who’s going to help them figure out, okay, how do I get into this routine? How do I have things to do to occupy my time to talk about? 40% never had a formal valuation done. Their first valuation is going to be that first LOI they receive, which unfortunately means it’s too late in most circumstances to take advantage of all these tax and planning tools. Selfishly, I was in a situation once where business owner waited to get the LOI to go sit down with the financial planner. Actually did take it to the financial planner. Financial planner said, “It’s a great offer. I never thought your business would be worth this much, but it’s 50% of … ” I don’t know what term he used, but your lifestyle number, “You can’t afford to do this, dude. You live in New York, you have a house in Florida, you have an expensive lifestyle, you need the business to keep generating the cash flow for a number of years. We lost that deal for no fault of our own. We brought in a tremendous offer and these things happened, but there’s no reason they should. And the irony is I’ll throw out another stat that I found really interesting in your survey. 62% said they would leave their financial advisor if they didn’t add any value in the sale and only 4% were truly committed to staying with that financial advisor through the sales. So this massive missed opportunity for all the financial planners out there to do a major service to their clients, which can increase the liquidity they receive out of a deal, which then feeds the book of business for the wealth advisor and allows them to manage more money. So you’d think they would have fully aligned incentives here and yet this all falls apart.

Scott Bushkie:
Yeah. Well, what we learned with the financial advisors, and it was funny because before we did this study, as I speak around the country to different financial advisor groups at their national conferences, almost every time somebody would come up to me and go, ” Man, I wish I would’ve heard you speak two months ago, two years ago, picked the number and I go, tell me the story. “And it was always some version of I had Craig as a business owner client and he had maybe a million, 500 bucks to a million dollars with me. He was with me for 10, 20 years I took him out. He loved to play golf. So we went golfing once or twice a year in my tournaments. Our wives and us went out for dinner a couple times. I even took him to sporting events because I wanted to stay close to him because he had a $30 million company and someday I wanted those assets, but I’m just his wealth manager. I can’t help him business owner. He’s smart, he’s sophisticated. So finally, one day I heard through the grapevine that Craig sold this company, I said,” Man, finally my payday, because I’ve been kind of taking care of Craig more than I should, because he’s a small client right now, but I know I’ve got a chance to have him be a big client. And so I wait a couple weeks because I’m sure you’re busy. You’re going to call me. I’ve been your financial advisor for the last 10, 20 years or more and we’ve got a good relationship. We like each other, friendly and three weeks go by, five weeks go by, finally six weeks go by. “Hey, Craig, this is Scott, your financial advisor. Congrats. I heard you sold your company.” Yeah, Scott, yeah, I’m sure you’ve been busy. That’s why I didn’t want to bug you. “Yep, no, I’ve been busy. Love to sit down and talk to you about investing in those assets.” Yeah, absolutely, Scott, we could sit down and then there’s a pause, but I got to tell you that ABC and XYZ financial advisor called me too and they have big firms and they specialize as business owners with me that have a lot of money and these big sales and I’ve got to make sure that my wife and I sat down and we said,” We can’t screw this up. We’ve never had this much money before. So yeah, Scott, I’ll meet with you, but I’m also going to meet with them. “And I go from the front of the line as the advisor for 10, 20 years taking care of you, managing your money, getting you good returns to losing that to someone else that swoops in at the end of the day. So what we found through this study and we’ve just seen it in real life is for the financial advisor, there’s three things that they need to do, three things. One is, as we talked earlier, start the conversation ask the right questions, you don’t have to have all the answers, but ask the right questions and it intrigue, creates the entrepreneur that goes,” Yeah, I don’t know the answer to that. Let’s get the answers. “So we have a list at Cornerstone, we have six questions. They’re all yes or no that they can kind of get that started. And then once you say, “Yeah, you know what? I haven’t had an RMA or evaluation done. We should sit down with Caber Hill or Cornerstone to do that.” Let’s have a discovery call. So start the conversation, then they have to build out their team. So on my team as a financial advisor, who’s my tax person? Who’s my M&A attorney? Who’s my investment banker? Who’s my business broker? Who is on my team that I can bring in at the right time at the right place? So if I start the conversation, create intrigue, introduce and endorse the right experts at the right time. And then for us and like you, we keep that financial advisor in the loop. They stay part of the process. Now that conversation comes in from ABC company, hey, we’re ABC company. We specialize in companies like you or business owners like you that just sold for 30 million. We’d be happy to fly you out to New York or sit down and talk to about all the things that we can do. No, I appreciate that. Scott’s been my financial advisor for the last 15 years, in fact, a year and a half ago. He started this conversation with me. He helped me start this conversation. He built on a team. We saved a half million dollars in taxes. Caber Hill, their investment bank got me 20% more than I thought I was going to get. I had multiple offers to choose from. I couldn’t have done this without Scott. In fact, we’ve already invested the money the day after the sale. It’s because you started the conversation, you brought the team in, you stayed in the loop and quite honestly, when the LOI is signed, as you know, we have 60, 90 days typically to close and that’s where they can be dotting the I’s and crossing the T’s. So when the deal’s done, the plans are already laid out, the sellers already agreed to it and that’s how they get to AUM. I’ve had people literally take people to the masters, to the masters and not get the AUM after the sale.

Craig Castelli:
Yeah. Yeah. It’s wild. I mean, there’s a whole industry around just cold calling business owners when you see press releases well-heeled firms with huge marketing budgets who were never there until after the sale and yet they win the business time and time again. I mean, what we do, and I’m sure you guys do this at Cornerstone as well, we’ll offer to all the wealth advisors we’re close with. You can call us with any question. You need market data, you need to understand valuations. It can be just us talking with you. You can bring your client in. If you want to talk with them, we’re not going to pitch them. We’ll just let them ask questions, give us our honest take on their prospects for a sale and it helps the business owner make decisions. It helps the wealth advisor advise them. It improves that relationship. Obviously, it’s good for our marketing too because it gets us closer to that opportunity should it go to market. I’m not completely philanthropic in these efforts, but I mean, at the end of the day, if we can prevent business owners from making shortsighted decisions, probably really just driven in most cases by lack of information and in some cases we’ll call it frugality, but a lot of times it’s just misinformation, lack of information and feeling the pressure that they don’t need to feel to approach this a certain way, we can save them from themselves.

Scott Bushkie:
Yeah, absolutely. And you’re right, that’s what we’ll do is we’ll help the financial advisor even before they talk to the client, here’s some tools that you could use, here’s some questionnaires, talk through what they’re probably going to ask. Just same thing. We’ll have a call with the financial advisor without the client just to make sure they feel comfortable and then a call with the client and it’s an hour long and it is. We learn a litle bit about their business and about the first 20, 30 minutes is learn about their business and what their goals are, what they’re trying to achieve. Then we flip it around and they can ask any question that they want. There’s nothing that’s off limits and now they leave that call a lot smarter, a lot more educated than they did an hour prior to that call. Yeah, sometimes they stop there and sometimes they move into the RMA to help understand what the value is, but it’s all what the client wants and what they need at that particular time. And one thing that we found that’s really interesting too that we found in the study because we asked, how did you get into business? And there’s four ways you can really get into business main ways. You either started it, founded it, you inherited it from your family, you bought it from your boss or your employer, or you bought it from a true third party like what we do. And I was blown away by the sale to a third party or bought it from a third party because that’s what we do all day long and we did over 300 deals as a group last year and everything else, but only 3% of the study said, “I bought my company from a third party.” So only 3% have actually gone through as the buyer going, “I’ve done my due diligence, I’ve done my QOOs, I’ve done all the legal negotiations, I’ve been there, I’ve made that seller’s lives hell for 90 days, I’ve gone through it so I know what to expect, but yet 76% founded the company.” And that’s when you see buyers, private equity, family office companies going, “We love to buy founder owned companies.” Well, one of the reasons is because they have no clue what’s about to happen. And what they find out is that flattery, “Hey, we like your company, Craig. We’d love to sit down and talk with you. You built up a really nice company.” All of a sudden it’s like, “Wow, man, 25 years of my life, someone’s validated all the work that I put into this and they think that my baby’s cute and they really want to buy my company and how exciting is that? ” But yet they have no idea that they’re going to get completely taken with a very low ball offer because there’s no other buyers at the table. And that’s going back to the unsolicited offer. Again, I think that’s one of the biggest dangers is people can build their business up for 20, 30, 40, 50 years and then just make one mistake and it costs them tens of millions of dollars. And a quick case study on that is we worked on a deal, was a market leader in the region. They’ve been in the business for 40 years, family owned business and they came to me on a Friday through their trusted advisor, said, “Hey, we’ve got two buyers interested in us. We want to sell, we want to maximize the value and go out on top and so we want to work with you guys.” So on Friday, they said, “Yep, we’re going to work with you.” We already had the SIM interview set up for Tuesday and between Friday and Sunday when I talked with the attorney, they got really smart and they said, “You know what? We’ve got the two biggest buyers already knocking down our door. We’ve been in this for 40 years. I’ve sat on the national boards. I know the industry inside now. I know how the thing works. To your point, why do I need to pay Cornerstone to do something that I can do?” So they said, “You know what? We’re going to do it ourselves. We still want you to do an RMA. We want to see what market is.” I think so they could show us that they could get more than what market was, I think was the reason they still wanted to do the RMA. And so I said, “Fine, we’ll do that.” And the first offer came in a week later, because they’ve been talking to them for a while. Our RMAs take usually two, three weeks. It came in at 31 million, 26 at close, five and a seven out, maybe an earnout, but they didn’t think they were going to get the earn out. So 31 million bucks. And the next week we got our RMA done, it came in at $43.3 million. And they said, “Yeah, that $31 million offer, that was the second company. Now we’ve got the biggest company coming into town. They’ve already taken us out to two amazing dinners. They paid for dinners. They told us how smart we are, how great a management team we built out, how just everything’s so good and all the synergies between our two companies, they’re the biggest, they’ve got the most money to send, they got the most synergies. They’re for sure going to knock the $31 million and probably your $43 million number out of the park.” Next week they came in, I got a call $25 million. So I said, “Can we please run our process? Can we please create a structured sale process like you and I run to create urgency, create scarcity, create tension and competitiveness.” And they finally said, “yeah, if you can get your $43.3 million or more, we’d be happy to pay you your fee.” But I had warmed up a couple buyers confidentially. They didn’t know who the target was, but I kind of got them emotionally engaged and like, Hey, someone’s going to buy one of the biggest competitors who’s going to buy in your backyard if you don’t step up and creating that defensive position along with an offensive position. And in 10 days, what we call creating POMO, the Power of Multiple Offers, we got a signed LOI for $51.3 million And we closed 45 days later through Thanksgiving and Christmas. And if they would have gone without us and the ironic thing is that same buyer came to them nine months earlier, which we didn’t know this until the deal got done and the owner told us this, it said, “How the heck did you get them to pay an 8.2 multiple?” I said, “Well, create urgency and scarcity and competitiveness.” He’s like, “Well, we talked to them nine months earlier and they said they’re private equity, but they were backed by private equity as well.” They were doing a roll up in the industry that they had a written mandate with the private eq group that we could not go above a five multiple because the multiple with that industry was four to five and we couldn’t go above a five and in 10 days we had them at 8.25 multiple. So without us, they would have paid 30 million. The other company would have paid 25. The other one would have paid 31 with 26 at close. With us, 51.3 getting 80 plus 85% cash at close or something like that. So just a completely different game and the financial advisors that was part of that deal that we kept in the loop got a check for $30 million to invest.

Craig Castelli:
That’s amazing. It’s amazing. It happens so often. I think a lot of entrepreneurs, when they’re successful, they come by the confidence and the ego, honestly, as they’re building the business, every sales rep that has something to sell them is telling them how great they are. Eventually they join the country club and it’s Mr. This or Doctor That, everybody they turn to, everybody thinks they’re successful and feeds it. Kind of the front end of those negotiations are just, you’re great. It’s a sales pitch. We love you. We love your business. It’s congratulations on your growth. That’s the line that always drives me nuts. Congratulations on your success so far. And then what’s not said is because I’m about to screw you.

Scott Bushkie:
Yeah.

Craig Castelli:
And you know, I think that that is why even diligence can be so tough for business owners because that is the first time somebody’s really telling them their baby’s ugly. And the reality is diligence is tough no matter what, no matter who the buyer is, no matter how perfect the seller is, but that’s really going to be that first experience they have with somebody saying, oh, but this isn’t perfect. Oh, why did you do this? Oh, questioning their decision making, which they take as questioning their character.

Scott Bushkie:
Right. Yeah, no, and we see that in fact, we just had two deals. One, we closed and one we’re trying to get signed up, but we had where they were working with a buyer, an unsolicited offer and they told the unsolicited offer that they were going to work with us. And in both cases, one was a $10 million deal that we got to 14. The other one, the buyer came in at around 32 million, I think, and our RMA was 54 million. And the first, what do you think after they said, Hey, we’re going to work with Cornerstone, they’re going to run a process. What do you think the first thing they said after that the buyer said? “Are you sure you want to do that?” Yeah. What’s it going to take for you not to sign with Cornerstone? And the other group is like, “We can’t pay a penny more. We’ve gone up 40%, we can’t pay any more.” First phone call after they sent the email, “What’s it going to take for you not to sign with Cornerstone?” Because they know if we run a process, if Caber Hill runs a process, we are going to get more money for their company. And in one case, they had five million at close and we’re going to get 10 million on earnout, which earn out was really as they negotiated higher, the earning got more and more unlikely. And we got nine other offers. We got the deal done at 14 million at like nine and a half at close, so almost double the cash at close and 40% more because we brought nine other offers. So we’ve run a process for six years against unsolicited offers and in six years, the buyer always threatens to leave. We’ve never had them leave because they’re going to hang around the rim in case the deal doesn’t get done, their offer’s still good, but they don’t leave because they’re always going to threaten to leave and that scares sellers, but they don’t leave And 100% of the time, our sellers in six years have always chosen one of the other buyers we brought to the table, not the original buyer. 100% of the time, higher value, better structure, better culture fit, whatever was important to them. And so the analogy like what you were talking about and you talked about the country club is what we found is that the traits in our study, what we found is the traits that make a business owner great, the grittiness that I can do this, the pivoting, the complex problem solving of, I lost a customer, I’ll go out and find two. This happened, I’ll fix it, this happened, I’ll fix it. And it’s those traits that make them terrible sellers. They make them great business owners to grow and build a company, but they make them terrible sellers. It’s like, I can do this myself. I don’t need to work with Scott or Craig because why pave for something I can do myself yet they’ve never done it before. They don’t know what the value is. It’s their highest and biggest asset, probably 80 to 90% of their net worth. Over 60% have never had a valuation done, let alone in the last year by a reputable firm to understand what market is today. And they’re going to try to run this process. The analogy I’d like to use is say that you’re the business owner and you’re an amazing tennis player from grade school through high school, college pros, Olympics, you’ve worked your butt off, but you are a world class athlete and the best tennis player in the world. But now you’ve never picked up a golf club. You’ve never played mini golf, golf, nothing. And I bring you to my country club. And again, it’s that confidence of I’m a world class athlete and everybody tells me I’m the best athlete around. And you start talking to the club pro after a couple of drinks. And the club pro is like, golf isn’t that easy. Oh, how hard can it be? I’m hitting service at 100 miles an hour. The ball sits there. I get a big club to whack the thing with. I’ve got great eye coordination. I’ll be amazing at golf. And the club pro is like, want to go play around the golf for $10,000? And that club pro maybe never played tennis, but he or she knows that course, has played hundreds, if not thousands of times, knows exactly how the greens lie, where the water hazards are, where the bunkers are, knows the course inside and out and yet that tennis player who’s a great world class athlete thinks they’re going to beat the club pro in their own game. And if you said, who’s going to win that 10,000 bucks? It’s going to be the club pro all day long. And that’s what happens with business owners. They have that tennis pro like, “I am the best athlete. I’ve built the best company in my industry.” And they might have. They might know it better than anybody else and they might be amazing at what they do, but now they’re playing someone else’s game. And these private equity, family office, private, public companies, they have teams of very, very smart people. I’ve run a panel at a conference where we ask them, how many deals do you look at to how many do you buy? In one year, they look at three to 5,000 deals come across their desk. They put offers in on 60 to 100 and they buy five to 10 and they have a huge team. They spend 300,000 to over a million dollars in due diligence with some of the best firms digging into your company, looking at the nth degree of due diligence and you think because you know the industry, you’re going to beat them at your game. And that’s to your point, that’s where all the value they’ve done for 20, 30, 40 years, all the sacrifices, all the blood, sweat and tears, all the missed kid stuff or whatever else it is, so much of that value just goes up in flames like that because they don’t get multiple offers. They get one offer and they leave tens of millions of dollars on the table and only when the buyer goes, “Hey, someone’s going to come in and run a process. It’s a reputable firm. Oh, how much more money do you want so you don’t run a process immediately after they’ve said they can’t pay anymore?” And I think that’s really the message that for financial advisors, it’s so important that they start the conversation with these people because if they can start the conversation, if they can build a team of experts and they go through a process, everybody wins. The client gets to choose who’s the best fit for me. And a lot of times, as you know, especially in the Midwest, it’s not always the highest offer. It might be the second or third highest offer because it’s a better culture fit. Or I get to roll equity and say for five years or I want to retire, I’m burnt out and I get out in three to six months or they’re going to give my employees some equity or whatever’s important to that business owner, they get that peace of mind that they get to choose. Last year we have eight offers per client. You refer that was 10 offers per client. So they get to choose who’s the best fit for me, my family, my employees, my legacy, my business, not just here’s an offer, take it or leave it. And oh, by the way, even if it’s what I want to hear, if I’m the only buyer, I’m going to drag this proces out. I’m going to keep asking for more things. What’s going to be quick sale turns into six, nine, 12 months and they’re going to eventually wait till your company dips or all the games that they play, they’re going to buy that company at a lower value. And that’s why private equity and others do so well is they buy low, sell high because these buyers, excuse me, these sellers, especially the founders, have no idea what their business is worth. My client would have probably said, “Well, 25, 31, boy, I can get 35 million for this thing. Oh, I killed it.” Yeah, they left 16 million dollars on the table that the buyer’s now going to take and do that. And the worst case scenario I’ve heard of this, and I wasn’t party to this, but a financial advisor told me this story is this is the worst I’ve ever heard it. A guy had a digital marketing company and a young guy and he came to his financial advisor said, “Hey, I just got this unsolicited offer for $10 million. What do you think? ” And the guy’s like, “It’s $10 million. You’ve got no assets. It’s all whatever you guys do at your secret sauce.” And he ended up taking the deal for 10 million bucks. And he thought, “Man, I really came out. I started this thing and 12 years later, I sold it for $10 million.” Well, the private equity waited one year and one day. Why? Because as you know, they wanted capital gains treatment in the sale and they sold the company for $150 million. Now they did not bring $140 million of value in 366 days. They knew they had some secret sauce that they exploited and sold the thing for over $150 million. And again, that’s the worst I’ve ever heard, but I’ve seen routinely where we get double the value of what an unsolicited offer is. In fact, the last three deals that we’ve done, the average premium over benchmark was 73%. And I think the CIA average took it a longer term look at it was like 36%. So it’s not like, “Geez, I’m going to pay Craig three, four, 5%. He’s going to get me another 5%. Why go through all the headaches? I’ll just do it myself.” It’s like, no, I can get you on average over a third more for the value of your company and the peace of mind that you get multiple offers and a better chance of closing and closing sooner because of that competition versus just taking the unsolicited offer and thinking that that’s going to be the best deal for you.

Craig Castelli:
But you know what’s crazy to me, and this is really a well kept secret outside of certain circles is most professional buyers, especially in the PE and PE backed world, would prefer the seller have an investment banker. And I can’t tell you how many times I’ve had a partner at a prominent PE fund say, “We’re working on this deal. It’s proprietary. They don’t have an advisor involved. Tell me the profile of the company. Would you be willing to work with them? Can I give them your name?” Of course you can give them my name. I said, “Look, and hopefully it works out that you win the deal, but just know if they hire me, I am their fiduciary. I have to look out for their best interest. We may have to run some sort of process here beyond whatever they’re doing on their own.” Look, I get it. I understand it might cost me more, but I really want the business and I know my likelihood of closing increases exponentially if they’re working with an investment bank and then if they’re trying to do it on their own. And so they are willing in most cases to pay more just to know that the process is going to be organized. Milestones are going to be met and all of that means the first six to 12 months following the close are also going to go a lot more smoothly for both parties because everything up until that point was run. Professionally, expectations were set accordingly. The deal got done without any more friction that was necessary.

Scott Bushkie:
Yeah. I mean, when you look at private equity, they’re all very sophisticated. They build these companies up. Well, they all use investment bankers. None of them go, “Well, let’s just get an unsolicited offer and sell to that group.” And public companies, they use the big investment bank. So it’s a difference between what’s the difference between an amateur and a professional athlete. The professionals have coaches. Michael Jordan had a shooting coach. Steph Curry has a shooting coach. The weekend warrior has no coaches out there firing up shots and bricking them up. So it’s funny that the more sophisticated, the bigger companies that have boards and really, really smart people at the top still use an investment banker because they know they’re going to get more value, but it’s the ones that are less sophisticated, not smarter and not less sophisticated in business, just less sophisticated in the selling process because again, typically, especially baby boomers, they go through this once in their life, Gen X, maybe twice and that’s why we exist is to allow these business owners that have spent so much time building up this company and giving people jobs and families and building out their communities and giving back. We want to make sure that they exit on their terms and strong. And that’s why Cornerstone exists, both the Alliance and our company is to find really good people like yourself at Caber Hill that we all have that same level of ethics, that same level of passion of whatever it takes to take care of the client. And I think that’s one thing that really we’ve done a better job at is collaborating like, Hey, before it was like, “Oh, I’m going to keep … Yeah, we think we can do it and we’re probably good at it. We’ll take the whole fee.” Now it’s like, “Hey, if we can bring in someone else to partner with, we just picked up a defense, a DOD GovCon deal and about 60, 80 million, and we brought in our GovCon partner because that’s all that they do. So now they have us who they know and trust in our process along with the GovCon expert and the same thing with you and dental and other industries that we brought you in on things and veterinarian clinics with other people. And so it’s all about collaborating what’s best for that client because again, they get one chance to do this and I don’t want to beat a dead horse with that, but it’s true that they get one chance to sell their company. It’s their largest asset. And once you ring the bell, you can’t unring it. And that’s why we’re passionate about what we do and love to have the alliance and why we all share best practices and try to help each other out.

Craig Castelli:
Yeah, absolutely. I always say there’s two things that a PE firm would never not do when selling their company. One is they never sell a company without hiring an investment banker. Two, they never sell a company without doing pre-diligence like quality of earnings and various compliance audits and whatever else that business owners always just push off. I want to get to one more thing in your survey before we wrap up here, because I think this is interesting. We’ve been reading for a decade plus about this quote unquote silver tsunami. All these baby boomers are own businesses that at some point they’re going to have to sell them one way, shape or form, or at least they’re going to have to exit them because as you pointed out earlier, they can exit them without selling. And just looking at your stats, 48% plan to sell within three years, 64% within five, 82% within 10. I don’t think we’ve really seen the huge wave yet. So where do you think we are in that cycle? Is it actually coming and what do we all collectively need to do about this?

Scott Bushkie:
Yeah. I mean, I think we’ve been talking about this wave coming for the decade for well over a decade. I’ve been doing this for 27 years now and I remember talking about it back in the early 2000s. But what we saw, most surveys that were done nationally had always been 75% in five years and like 80-ish percent in 10 years. And what we saw with this one, and that was done in 2013, that was done in 2023, we just did ours in January 2025 and to be able to show 48% in five years or excuse me, in three years, not five years, that was just really interesting that most times, again, it would be like I said, 50% in five years, 75%, maybe 10 or whatever. And now to see 50% roughly in three years, I do think that that’s coming. You look at the boomers now and the youngest boomers, 61, 62, the oldest is around 80. The average is 67, 68. I think we are seeing … I know our inventory and the number of business owners that we’re talking to, especially on the Boomer side, has doubled just from last year to this year and it’s really getting ready. We’re hiring more people. We’re hiring three people at the start in June. And I think for financial advisors that are listening to this, you’ve got to start the conversations now because if you think, oh, again, I’m a great wealth manager and I got well above returns from my client and they’ll be there only 4%, as you said, 4% said, My financial advisor’s good for me now and it’d be good for me after the sale. No questions asked. That means 96% aren’t sure of who they’re going to work with yet. And so having the conversation, because for a business owner, there’s two things that you can do to have a better chance of selling and to maximize that value. One is start planning earlier. So having that trust advisor start the conversation, or if you’re an owner listening to this, sit down with your trusted advisor or give one of us a call. It’s all confidential just to learn more about what’s going on. And then two, build that team around you because if the owner can start planning earlier and they build a team of specialists around them, who’s the tax specialist? Who’s the investment banker? Who’s the M&A attorney? This is not just your CPA and your attorney that you worked with for the last 30 years who are going to do this for you. And fortunately, again, I’m going to do this with my attorney who knows me and likes me and understands my business and my CPA who’s done my taxes for the last 30 years. Well, that is probably not the dream team that’s going to take you to the promised land. So start early, build that team, learn early. What we say, we’ll do our valuation and then we’ll update it for three years at no cost so they can understand where are you at now because people will, “Oh, I’m going to wait a year or two because I’m going to sell in three years. So I’ll wait a year or two to find out. I don’t want to invest in the money twice to understand what my value is. ” Well, why wouldn’t you want to know today? Because you might find out that, oh my gosh, between the value that we can get for them in the marketplace today or the way they can minimize taxes or what their lifestyle number is that I could sell today and live my ideal lifestyle. Well, that was when we asked, why would you sell if I can live my ideal lifestyle with my post-sale proceeds when I can get that financial independence, that’s when I would sell my business. But too many people never take the chance to really understand where is that at. So having the conversation, doing the RMA, the valuation by a true investment bank that understands the marketplace of your size and company, doing the net number, doing the lifestyle number, that’s where it really starts is by doing those things because like I said, you either can find the holy cow, I can sell two to three years sooner or boy, I put that number at 20 million with my financial advisor and now I go to Caber Hill and they’re telling me 12, holy cow, I got an $8 million wealth gap. Well, if you still got two or three years of energy left, you could fix a lot of things in that two to three years and probably be worth 20 million, but if you work on it right coming out, but if you wait till you’re burnt out, tired, sick, and all of a sudden now it’s like, man, I thought I was always going to be 20, it’s 12, I’m burnt out, I can’t go anymore. That’s not a fun place to be. And just a quick story to wrap up my side is that one of the reasons I’m so passionate about this is my dad and my dad was not really an entrepreneur. He was a corporate guy. Worked for John Deere as an executive in John Deere’s office for 28 years. And my grandpa, his dad was not a very nice person. He was a good guy, went to the war and came back, was never the same like a lot of folks were. And so from the age of 10, he was the youngest of from the age of 10, he was working at some level and through high school he worked through college. He put himself through college and worked and worked all the way to 60. He was 60 years old and he saw an opportunity within the deer where he heard some rumblings that they’re trying to get some of the old guys out to bring some new blood in and lower salaries and everything else. So he inquired about it and found out an opportunity where he could sell or he could sell, he could retire at 60 and get two years more of his pension. So get 30 years of pension for 20 years of service, get a year severance and plus his vacation paid out, which he had a ton of vacation and he’s like, “I’m taking it. I’ve worked since I’m 10. I see this opportunity. I’m taking it now. I’m jumping on it. ” So he came home one day and my mom always tells a story like, “Hey, how was work?” Mike, “Oh, it was good. I retired today.” She’s like, “What? You’re thinking of retiring?” He’s like, “No, I’m not thinking about it because 62 was always the year.” They’re like, “No, I retired today. I’m never going back to work again.” And she’s like, “Oh my gosh.” And thank God he did because he got to play golf with his buddies all the time. He got to travel with my mom. He got to go to the places he wanted to go to and check off the bucket list. He got to come up and hang out with the kids and grandkids for a while because at 62, when he should have retired 10 days before my wedding, I get a call from my mom, he’s on the golf course playing the best round of golf in his life on whole seven something kind of feels a little weird. By whole nine, he couldn’t get out of the golf cart. He had a massive stroke on the golf course. He got flight for life down to Madison, Wisconsin. I run down there, he’s hooked up to all kinds of tubes. He lived through the stroke, but it took him over a year to walk and his mind, this guy was brilliant with numbers and was the master schedule for deer and all their locations. He couldn’t balance his checkbook. If you’d said, “Here’s a circle, draw me two o’clock on the clock, he couldn’t draw it. ” And so his body wasn’t the same, his mind wasn’t the same. He’s frustrated as hell and he finally died five years later at the age of 67 of cancer. So if my dad would have just waited until somebody finally said something, they’re like, “Oh, I can’t do it anymore.” He would have worked till 62, from 10 to 62 to have a stroke, live a crappy life for five years and die of cancer. And that’s not what life is about, especially for business owners. If you can live your ideal lifestyle, and that’s where can help you separate your identity and your emotions from the business and why did you get into it anyways? And we talk about what is on that bucket list. We talk about having people write it almost like a eulogy of what do you want to be remembered for because that grounds them into, and maybe it is, I’m going to run my business until the day I die. And as long as you’re conscious that that’s what you want to do, then great, go for it and be the best, but you might want to be the best grandpa or the best ex or dad or other things and you get, “Man, I got caught up in the rat race.” And that’s where you and I can help them understand what is that true value and then working with that team of what’s the net number, what’s my lifestyle number? Is there a wealth gap or not? And if there’s not, why would you wait? And that’s why the biggest thing is for all the baby boomers is have that conversation, get that RMA done now by a reputable firm like Caber Hill or Cornerstone because now you’re making well-informed decisions because again, most business owners wake up one day, it’s not fun anymore. They don’t go out on their terms. They just pay the total vote on taxes, pay whatever the most it is on taxes and then just pray to God they can live off whatever they get. And they’re frugal as heck and they’re afraid to spend any money. And I saw it with my mom that she was afraid to spend money, afraid to spend money. She finally got a good financial advisor that said, “Hey, look, you can spend this much money every year and you’ll be fine.” And the relief and the independent … She’s traveled the world in more countries that I’ve ever thought about being in since my dad died and she’s done all these other things to really live her life because she knows that she can spend this much money each year and still be fine and not going to run out of money with the plan that they’ve got in place. So it’s just I think those couple of things with all the boomers coming through, it’s scary because you think of how many boomers will just shut down their business. You hear the numbers from when we started 25 years ago, 20 to 30% sell. Well, is that really the number, I think as you get bigger, the numbers, the percentages go up, but that’s a real number because so many people, again, to your point, try to do it themselves. And I could do this myself. I’ve done everything myself for the last 30 years and all of a sudden they end up running into the ground and then shutting the doors and their legacy’s gone, the employees all get fired or let go and now that legacy that they built is gone and there’s nothing there to live off of. And we’ve seen people that … I just talked with a guy whose company’s worth $54 million said, “Well, how much money do you have with a financial advisor in the market?” Zero, zero dollars. He’s rolled everything back in the company. I want to control, I can control it, I’m going to put it all in there. And that’s what so many do. But all of a sudden now it’s like if you’re not going to get the value you thought, it’s almost like putting money in your 401k all your life and then when you want to retire finding out that the CFO has embezzled all the money and there’s nothing there and yet owners do that all the time. There’s no need for people to suffer through that. There’s no need for them to fight this alone. There’s no need for them to have that level of fear and frugality in retirement if they eventually make it there. They’re the ones standing in their own way. And I think this demonstrates all that. So Scott, this is a lot of fun. If anybody watching or listening here wants to get a copy of the survey or wants to get in touch with you, where should they go? Yeah, go to our Cornerstone website, which is cornerstone and then a hyphen or dashbusiness.com. So cornerstone-business.com. If you go to our resource page, there’s a study there for business owners, there’s a study for financial advisors and what we found. There’s white papers on Pomo, the unsolicited offer versus multiple offers. There’s all kinds of different resources there for the business owner and the financial advisor to be able to pull down at no cost.

Craig Castelli:
That’s great. Well, it’s been a lot of fun. Appreciate you joining here. Thanks everyone for watching us on The Close.

Scott Bushkie:
Thank you.