How to Scale and Exit Your Business (Brian Franco)

What is discussed, and when

1. 0:00 – 10:00: Brian Franco, Meritage Partners, The Inevitable Exit, Empire Builder Studio
2. 10:00 – 20:00: Darius Labers
3. 20:00 – 30:00: Google LLC, M&A Guy Podcast, Adam Coffeeoffe, Costco
4. 30:00 – 40:00: ESOP
5. 40:00 – 50:00: Dave Ramsey
6. 50:00 – 1:00:00: Great Recession, Mr. Car Wash
7. 1:00:00 – 1:10:00: The Inevitable Exit, SOP, Bible, Lightseed Virtual Training
8. 1:10:00 – 1:11:25: Tommy Melo

Notable quotes from "How to Scale and Exit Your Business (Brian Franco)"

• Brian Franco is a visionary entrepreneur, dealmaker, and private equity investor. Widely known as the M&A guy. He is the founder and managing partner of Meritage Partners, where he.

  about Brian Franco · at 0:36

• On my license plate. It's arbitrage, and it's probably the coolest thing on the planet. I just love the idea of M&A, but me personally, I've turned into a green field organic…

  about Tommy Melo · at 2:16

• Something that a lot of people don't understand is if you've got a client like Home Depot or Costco or let's just say it's Google and you're building all their stuff and you lose that contract, you're going to lose a lot in your.

  about Google LLC · at 22:33

• Adam Coffeeoffe, Private Equity Playbook. Does that ring a bell?

  about Adam Coffeeoffe · at 25:37

• Quasi public private agencies because it's difficult to fire people. It's it's because they're shareholders. They're now owners of the company. They, they think and behave differently from that standpoint, from the employee standpoint.

  about ESOP · at 37:00

• And have monthly closes and clear sights on margins and adbacks as you talked about. Document your operations and remove yourself from those key positions and develop that…

  about SOP · at 46:24

• Trannual is also good. I've heard great things, but there's always some level of customization. And there's really good SOP implementers or EOS implementers out there. I think…

  about EOS · at 1:03:04

• Your exit and your legacy. Something that everyone should be mindful of and aware of. But if you want to reach out to our firm, Maritage Partners, we're at…

  about Meritage Partners · at 1:08:42

Who and what is mentioned in this episode?

People

• Brian Franco — Person · Main guest · 2 mentions · first at 0:25
  Expert in PE investment, business succession strategy, and legacy, sharing insights on M&A and exit strategies.
• Tommy Melo — Person · Host · 1 mention · first at 1:11:10
  Host of the podcast, discussing business growth and M&A strategies with Brian Franco.
• Adam Coffeeoffe — Person · Referenced expert · 1 mention · first at 25:37
  Mentioned as a friend and expert in private equity.
• Darius Labers — Person · Referenced expert · 1 mention · first at 12:26
  Mentioned as an expert in M&A and business strategies.
  Weaknesses and stay out of the freaking way. Yeah. Because most entrepreneurs, my good buddy Darius Labers, he does a lot of M&A. He goes, if it's a $5 million IBIDA company or…
• Dave Ramsey — Person · Referenced expert · 1 mention · first at 49:54
  Mentioned in the context of financial advice and business exits.
  Dave Ramsey just had this guy call in and I just saw this on a video and I want to hear your point of view.

Books & papers

• The Inevitable Exit — Book · Primary recommendation · 4 mentions · first at 0:57
  Brian Franco's book on business succession, strategy, and legacy, central to the discussion.
  Transformative mergers and acquisitions, helping generate billions and billions of successful exit. Billion is the author of The Inevitable Exit, a definite guide to business…
• Private Equity Playbook — Book · Referenced work · 1 mention · first at 25:37
  Mentioned in the context of private equity strategies.
  Adam Coffeeoffe, Private Equity Playbook. Does that ring a bell?
• Bible — Book · Referenced work · 1 mention · first at 1:09:21
  Mentioned by Brian Franco as a book that changed his life.
  Yeah, I mean there are so many. I mean that the Bible is going to be an obvious one, but a more recent book that I've read a couple times is the power of now by Echartl.

Companies & orgs

• Meritage Partners — Company · Business focus · 2 mentions · first at 0:42
  Brian Franco's firm specializing in guiding founders through M&A and business exits.
• Google LLC — Company · Case study · 2 mentions · first at 22:39
  Mentioned as an example of a significant client impacting business valuation.
• Costco — Company · Case study · 1 mention · first at 22:35
  Mentioned alongside Home Depot as an example of a significant client.
  Something that a lot of people don't understand is if you've got a client like Home Depot or Costco or let's just say it's Google and you're building all their stuff and you lose that contract, you're going to lose a lot in your.
• Home Depot — Company · Case study · 1 mention · first at 22:35
  Mentioned as an example of a client with significant impact on business valuation.
  Something that a lot of people don't understand is if you've got a client like Home Depot or Costco or let's just say it's Google and you're building all their stuff and you lose that contract, you're going to lose a lot in your.
• Goldman Sachs — Company · Referenced entity · 3 mentions
  Mentioned in the context of financial advice and wealth management.
  Right time. The S&P had just dumped one year in 2022. I dumped all the money into 2023 and it's man, I look at the Goldman account, I'm man, we jumped up getting great, great…
• Leonard Green Partners — Company · Referenced entity · 3 mentions
  Mentioned as an example of private equity investment in car washes.
  Now you have groups like Leonard Green Partners out of Los Angeles, a massive equity group. They own a portfolio called Mr. Car Wash and they buy you know u exterior only car washes.
• Mr. Car Wash — Company · Case study · 1 mention · first at 59:36
  Mentioned as an example of a business model with recurring revenue.
  Now you have groups like Leonard Green Partners out of Los Angeles, a massive equity group. They own a portfolio called Mr. Car Wash and they buy you know u exterior only car…

Products & tech

• Empire Builder Studio — Product · Business focus · 1 mention · first at 1:03
  Brian Franco's platform focused on scaling companies and prepping them for liquidity events.
  Author of The Inevitable Exit, a definite guide to business succession, strategy, and legacy, and the creator of Empire Builder Studio, a platform focused on scaling companies…
• Lightseed Virtual Training — Product · Recommendation · 1 mention · first at 1:03:02
  Recommended as a training program for business systems and SOPs.
  So you know I think there's a lot of good programs. I think Brad Lee has a great program. He's he's tried and proven, but he's customizing those sorts of training through the.
• Trenual — Product · Recommendation · 1 mention · first at 1:03:04
  Mentioned as a tool for SOPs and training.
  Trannual is also good. I've heard great things, but there's always some level of customization. And there's really good SOP implementers or EOS implementers out there. I think you need a couple. Not.

Concepts & topics

• ESOP — Concept · Key argument · 1 mention · first at 36:54
  Discussed as a strategy for business succession and employee ownership.
• SOP — Concept · Key argument · 1 mention · first at 1:01:47
  Discussed as essential for business scalability and exit readiness.
• EOS — Concept · Referenced framework · 3 mentions
  Mentioned as a business operating system.
• Q of E — Concept · Referenced concept · 3 mentions
  Mentioned in the context of financial readiness for business exits.
  Yeah, even before a QV, you have to be Q quality of earnings ready, but to be QV ready, you have to have a CFO or equivalent in the business because they're going to be making.

Places & events

• Newport Beach — Place · Setting · 1 mention · first at 0:34
  Brian Franco's base of operations.
  He's an expert in PE investment, business succession strategy the legacy. He's based out of Newport Beach.
• Great Recession — Event · Historical reference · 1 mention · first at 52:20
  Mentioned as an example of economic cycles impacting businesses.
  Mathematical equation, right? It's not always going to stay like this. I was you think about I don't know in 2007208 when we had the great recession right I had clients that…

Media & podcasts

• M&A Guy Podcast — Media · Secondary mention · 2 mentions · first at 1:08
  Brian Franco's podcast where he shares insights on valuation, growth, and exit readiness.
  Empire Builder Studio, a platform focused on scaling companies and prepping them for liquidity events. He also hosts the M&A guy podcast where he shares practical insights on…

Full transcript with timestamps

0:01 Welcome to the home service expert built for bluecollar entrepreneurs who are ready for more.

0:06 When your customer says yes, stop talking. You find that the pursuit of a goal, at least for me, is a source of my happiness. You're never going to be successful doing what everyone else does. New episodes every Monday.

0:22 All right, guys. Welcome back to the Home Service Extra. Today I got an awesome guest. His name is Brian Franco. He's an expert in PE uh investment, business succession strategy the legacy. He's based out of Newport Beach. Brian Franco is a visionary entrepreneur, dealmaker, and private equity investor. Widely known as the M&A guy. He is the founder and managing partner of Meritage Partners, where he has spent over two decades guiding founders, private equity groups, and strategic acquirers through transformative mergers and acquisitions, helping generate billions and billions of successful exit. Billion is the author of The Inevitable Exit, a definite guide to business succession, strategy, and legacy, and the creator of Empire Builder Studio, a platform focused on scaling companies and prepping them for liquidity events. He also hosts the M&A guy podcast where he shares practical insights on valuation,

1:13 growth, and exit readiness. Anchored by Faith, Family, and Purpose, Brian blends discipline, execution with long-term vision to help leaders build enduring companies and exits that truly matter. The whole episode is going to be how a founder who stepped into leadership at 18 became the gold standard in M&A and what engineering exit can teach leaders about valuation creation deal readiness and building companies that endure behind the trans beyond the transaction. Man, that was a mouthful. I am ready to rock. Brian, it's so good to have you, brother.

1:50 Oh, man. I have a It's good to be here, Tommy. I mean, I have a I have a lot to live up to now. I mean, I uh everyone tells me I'm busy, but you don't stop to really think about how busy you are until you hear someone else regurgitating all the things that I'm doing. It's in it's it's in crazy, but thanks for being having me on, Tommy.

2:08 No, it's going to be great, man. I you know, M&A when I I remember in 2017, I learned this crazy word and I've got it on my license plate. It's uh arbitrage, and it's probably the coolest thing on the planet. Uh, I just love the idea of M&A, but me personally, I've turned into a green field organic machine. We grew the business. We'll do over 100 million of Ibida, and we grew 85% of it through organic, but I just got a really tight buy box, but in the future, I'm planning on really getting good at M&A. Why don't you give us a little story about yourself, your journey, how how you got where you're at today?

2:51 Yeah. Well, I I'll first lead with, you know, I I I work with founders who are they're great at building revenue, right, but have not yet built enterprise value. And I want to theme it that way because that's what we're talking about. So, my job is to help them turn a strong operating company into a transferable asset for that what we call the inevitable exit. So with that framing, you know, my my inspiration behind the book in inevitable exit really falls within my work, but more so um with a personal story with my father and um it's hard not to get glassy eyed when I talk about him. He's still here with us.

3:30 Um but my dad, he built a beautiful business. U you know today it would be worth $35 million just to put it in context. We watched my father's business deteriorate with his health. He had three spinal fusions and today he's permanently disabled. He's likely in bed right now, but when he's out of bed, he's in a wheelchair or in a cane. And that was hard to watch. And I've seen this also with our clients along the, you know, over the last 20 years. Um, and it really really inspired me to write that book because we're all going to exit at some point. I'm going to exit my business one day, right? The question is, is it going to be on my terms or somebody else's? And so, you know, my father today remains that inspiration and um he's got he has the will to live like no other, Tommy. Um to to watch him deteriorate over the years and and and really lose his identity when he had to close the doors of his company was very

4:28 difficult to watch and watch my watching my mother, watching my father and my siblings. And so, that's been my inspiration. That's my why. Um, I'm married 20 years, four kids, and I don't want to repeat history, and I don't want anyone to repeat the history of even some of the clients that we've advised. I mean, I've Don't get me wrong, like, there are amazing transactions we're closing. We're closing a a $60 million roofing opportunity next week. And that founder is going to stay with the private equity investor and they're going to grow and scale this business targeting a couple hundred million dollars of topline revenue. And so we'll pop bottles of champagne, we'll celebrate, we'll high-five, we'll do all the things, right? But I've also been at the closing table with a widowed wife because her husband died prematurely at the age of 50 of a heart attack. We we've sold a um a distributor, building

5:26 material distributor that was brought to us by a law firm and that law firm engaged our firm because this business had to be sold and it had to be sold and we sold it. But the caveat is the business owner doesn't know we sold the business and he doesn't know we sold the business because he lives in an Alzheimer's facility and he doesn't even know he started a business. And so it's these types of stories that really resonate with me in the work that I do. And that's why we're here. And you know, you on the other hand are a great example of success. You're a great example of what it takes to implement systems and SOPs and leadership so that you can scale your company. Cuz early on, you know, when we all started our companies, we we bootstrapped our companies, right? Your story is you were $50,000 in debt when you started, right?

6:19 and you built it into the empire that you have today. But it took discipline. It took consistency. It took you showing up every single day focused on that vision. And so I really want us to take this this income focused operator into this paradigm shift where we're going to teach them really and talk about even through your your story of going from that income to that outcome. And that outcome is is the transferring of that asset, their business that has massive generational wealth and enterprise value locked in. I love it.

6:59 You know, I got up on stage pretty much every time I get on stage now, I say, I'm never going to buy. I'm an investor in a lot of businesses and I'm like, I'll never invest in a company that I can't sell within five years. And that's the way that equity works. P units, you could call it EIP, you could call it phantom shares, but if no one on the team understands the plan to get to an exit, you're not going to really motivate them. And I think using equity incentive programs or something like ownership works.org, what the KKR kind of came up with coming up with this plan,

7:33 they need to see the finish line because you're sprinting, especially if you're PE managed. And I'll tell you this lesson I've learned is not everybody's cut out for private equity. Um, it is a sprint and it's hard work. Uh, but they're great people. And I'll tell you this, Brian, most people don't know this, but they have LPs to answer to and there's pension funds relying on them making good investments and executing. So, they're they're painted as these bad guys, but they've got the teachers union, the police officers, the firemen, all counting on them

8:06 to execute to make sure when you do a deal with them, you're going to work 10 times harder. You're going to fill in the blanks. You're going to fill out the or chart. You're going to have KPIs. You're going to have monthly board meetings.

8:16 And I hear all this BS about private equity because there are some bad actors like everywhere else.

8:23 There are there are um you you said it best. I mean, private equity, they're they're institutional investors, professionally raising capital from LPs or limited partners, and they have a fiduciary responsibility back to those partners to perform, to create a return. and and and that's why buyers are more thinking about transferability, leadership depth. They're thinking about predictable revenue streams and risk mitigation and scalability where you know most of us founders were just focused on revenue and income and growth, right? And so when you think about it in that light, they're human beings just like you and I. The difference is we went out, we had the tenacity, we had the courage and we we had the ability to go out and start companies from scratch. Now, nine times out of 10, most startups do fail. That's why, you know, venture capital is not what we're talking about or and not what

9:16 I'm suggesting. I'm suggesting to find the right capital partner that is going to allow you to scale at a at a typically 130% faster rate year-over-year than you would on your own. But to your point, they're underwriting to risk. And they're not they're not sharks. They're not always looking to get us or you or me or or any business owner tuned in right now. They're ultimately looking to minimize risk and maximize reward. And so if you can enable them to do their job, you and I both know they are happy to pay you more money. They're happy to pay you more cash. You just have to be able to fit in their buy box and within their underwriting guidelines to empower them to do exactly that. The stress test I really like to focus on is, you know, what would your business look like if you disappeared for 90 days, right? And I mean disappear like no emails, no phone calls, no putting out fires, you

10:13 know, would would you come back to a company that's declining or did you come back to a company that's scaling and growing? Right? That's really the difference between those that have systems in place or those that are are the system, right? Because otherwise, if you have a very expensive job or you built a very expensive job for yourself, that's great from an income standpoint, but it doesn't feed your outcome. It doesn't feed building enterprise value in the asset that you're building. You know, I I've got into this little argument with a lot of people when I say revenues for vanity, profits for sanity. Me and my buddies, we only talk about profit and IBIDA. And you know this idea I had all these people going, "What about growth years? What about when you're reinvesting in trucks and training and consulting and everything else?" And what I realized from private equity and a little bit of discipline is I can

11:07 still get the 25% of the bottom line. I can still spend 15% on marketing, which is outrageous for growth. I could make sure I'm efficient as hell. I could go on a two week vacation and not look at anything. But what's crazy is I was that guy that would argue and say, "No, no, no, no, no. we don't need to make a lot of profit cuz we're in a growth year. And then I learned you could do both, but you got to be super efficient. You got to know the numbers. The numbers a math equation. And the the the efficiency, the economies of scale, the the the the getting the right people on the bus. It's who, not how. We got seven people now on our FPNA team. That's just analyzing numbers and data and pay structures and how we're working with our vendors. And most guys, they never they don't know what a CFO does. They never heard. They don't know the difference between a a tax advisor, a legal person, a a CPA, a CFO, and an

11:58 FPNA team. I mean, they just don't know. And they go and then they wonder at the end of the year, why do I got to pay so much tax? And we didn't make any money. There's no money in the account. Cuz I was that guy.

12:09 And uh it's tough, man. I I This is not for the fainted heart. When you go into business and you work the hours, what I've realized is I don't look up to anybody that works hard. I stop looking up to them. I like the people that learn how to delegate and hire for their weaknesses and stay out of the freaking way. Yeah. Because most entrepreneurs, my good buddy Darius Labers, he does a lot of M&A. He goes, if it's a $5 million IBIDA company or less, I got to get rid of the founder. I have to. He goes, because they they stick in the way. They don't like sales. They think the old way work. That's why we bought them. He goes, you got to get rid of that mentality of the belief system that's literally crippling.

12:46 Yeah. I mean that that's really what it comes down to is firing yourself and and that's a hard statement to make and a hard commitment to make because when you fire yourself from your own company, you then truly become a business owner, not a business operator. And and that ownership mindset forces you to the the accountable measurements that you described, right? Because look, a good bookkeeper, they're going to record their historians, right? They're recordkeeping. what did you do historically? How well did you do? But it doesn't translate to cash flow. As you and I both know, you could you can make 20, 30, 40 million. You can make $5 million of revenue and have terrible cash flow and not afford to be able to pay your taxes, right? And so when you look at a CFO, I like to say CFOs are really focused on tell not only telling you where you've been, but where you're going. And and most people don't connect

13:43 with that because CFOs they they see as a drain and an expense on the P&L of and and eating into their personal profits. But in reality, we had a client in um in in underground construction. They do uh dry utilities, power and telecom. And first things first, uh in the meeting with the husband and wife, the wife says, "Hey, I I want to be fired, Brian." And I said, "Well, okay. we're going to fire you. I'm glad you're saying that because we want to bring in a CFO to come in here and create measurements on your financials that you're not just not making today. Why?

14:20 Because you don't know what measurements to make. You're just going along and trying to survive and trying to grow. But in result of bringing in a full-time CFO, and sometimes they could be fractional, but a full-time CFO, they grew the business by 10% of revenue, but increased their IBIDA by 30%. That should say enough to everyone tuned in and listening to us.

14:45 You know, here's something interesting. I'm gonna kind of talk out of the side of my mouth here. Um, I went to

14:53 I went to a uh an annual meeting for Cortech, who's a private equity mid-market, and I got to speak on stage, but they they

15:03 they brought in all these pros. They had these five guys and these guys were like the private equity experts. And what they said was

15:12 when you got a great company that's performing year-over-year, month overmonth growth, it's a healthy EBIDA company, you got to figure out everything possible to not lose the founder. Uh although the founder needs to go if it's a small company, but when the founder leaves, it kind of loses its culture. You lose the the the stickiness. Uh but the hard part about private equity is you just gave me 200 million bucks. How do I keep the founder? So it depends on the age. It depends on what you want to do. So obviously the multiple comes down if the founder is not going to roll a significant to the next deal and be all there. Uh what is your take on founders or the owner rolling equity? How much should they roll and how do they get more excited about the next deal?

15:58 Because a lot of people lose interest. Yeah. I mean, you you touched on a great point because founder dependency is perceived as risk by institutional investor, institutional capital, whether that's debt or whether that's equity. The reality is um founders staying continuous with the business does drastically minimize that risk for investors. And so the question then becomes, you know, we always talk about exits or exiting. My question is, what do you want to exit into? Because a lot of us when we first started our companies, we were good at something. We were good at production. We were good at generating revenues and sales and or building teams, whatever the case may be. But there's always something that you're we we lack, right? And so rolling equity, if you had the luxury of time, you know, some of our clients, they're well into retirement age. They should have sold, you know, 5 10 years ago.

17:01 They don't have the luxury of time. But if you do, I mean, we have clients that have had six bites of the apple. They were the they were part of the company that they sold for six different institutional investors and they had liquidity events each time. And so when you think about that, if you're given the opportunity to roll forward equity, you you have the the road map and a runway that's going to allow you to sell this company not just once, but could be twice, could be three times over a period of time. And so why is that valuable? Why is that important? Well, to the investor, they're underwriting risk. To the owner seller, right, that's considering a roll forward equity. What they should recognize and realize is that they're going to grow at 130% faster year-over-year statistically and historically. They're going to be working with somebody else's checkbook, right? Someone else's capital. And I

17:59 don't know about you, but I behave very differently when I'm the one writing the checks into the company, right? And so do owners just generally. We we have all different risk tolerance, but our risk tolerance is based typically by some intuitive feeling that we have as founders, right? Intuitive feelings are great and then they do guide us and they do lead us, but that's not how institutional investors work. So rolling equity in in conclusion gives you the opportunity to grow and to scale because you know where you're sitting today I I know I could double the revenues but if you haven't been able to do so it's because you don't have that structure you don't you haven't built the culture and sometimes that culture is you know if the culture is perceived to be selling or partnering or mergering whatever the case may be they perceive that to ultimately they're they're just exiting or they're just, you know, hanging their

18:59 hat up. That's far from the truth. Because when you can grow and scale with the bandwidth and the brain power and the capital that institutional investors bring, you're going to reach heights that you've never would have reached on your own. And so that's a blessing in my opinion because rolling equity gives you that opportunity to access tomorrow's dollar while securing and structuring that deal today with clear defined targets and exit points along the way. You know, a lot of people don't really understand exactly how private equity makes so much money, and I don't think they understand how they use so much debt. You know, a lot of companies will buy an HVAC company with 6x

19:49 borrowed on Ebida. So, if they're paying 12, they're borrowing half the money. And then guess who's responsible to make those payments?

19:58 The the the company. So, you don't have as much cash flow for growth. And then you add on to that, every time the private equity company flies out, they're flying on the company dime or goes out to dinner, stays at a hotel. Yes, the debt is great because it maximizes return and it's beautiful because the dollar goes so much further on the return side.

20:17 But there is a point that stops us from growth. And so in your this is a selfish question but in your expert advice and I guess it depends on the business the growth and it depends on uh you know where you want to get to the goal but how much debt is the right amount to take with having the growth capital those first few years to to really be able to buy and greenfield is expensive too because yeah but it's an adback the first year which is nice. My favorite thing is I'm going to get a t-shirt made. If I know adbacks, like I think I know adbacks, that's an adback. But I I'll throw something in front. My my personal license plate is is is is and we made these

21:03 we made these hats based on my license plate and it it's an acronym for earnings before interest, taxes, depreciation, and amortization. Right? So this is a measurement that you institutional investors like private equity groups make. Um, but when it comes to debt load, I think people need to realize two things. One, debt's not a four-letter word. It's not a bad word. If you use debt correctly, it's a tool that allows you to grow in a scale. So, if the debt is being raised for purposes of acquiring a company, I like to see a 50/50 blend, right? 50% debt, 50% equity. And so what that does though, if you think about it, if if a transaction uh comparatively was all equity, that could potentially dilute your position if you roll equity forward. Why? Because everyone else is pouring in equity. But when you when you when you structure debt into a transaction, you're leveraging the investment for yourself

22:00 as as well as the investors. And so, you know, if it's 50% equity coming in, your 20% equity in your company that you're rolling forward could convert to from 20% to 30 35 to 40% depending on the capital table, which puts you in a superior position when it comes to the liquidity event somewhere down the road. And so, I think that the right blend of debt is key. And I I like 50/50. Uh, historically, I've seen those transaction structures work very well.

22:33 Something that a lot of people don't understand is if you've got a client like Home Depot or Costco or let's just say it's Google and you're building all their stuff and you lose that contract, you're going to lose a lot in your multiple because there's so much density in this one account. So, you know, we service 25,000 homes a month.

22:52 So, wow. The great news is we don't have and we don't have one lead source either either. We've got like all these different lead sources

23:01 cuz now people are going this AI snippet with Google. Everything's going down on Google.

23:05 So my main job is the the visionary especially in the marketing side. I'm a CMO more that became a CEO in my mind. There's CFOs that become CEOs. There's COOs. I'm more the marketing guy is I'm like I need other marketing sources to be diversified because if something shrinks especially in this world of LLMs but um I want to Well, what's your take on that? Well, I I think that um well to your to the point we were both making earlier, I mean you you have identified with that role of CMO. That's that's your specialty, right? That's what you're really good at. And so if you could find a partner that empowers you to do what you're best at, that's where you want to live. That's where you want to be. Um you don't have to be the CEO. And that's typically we think, you know, the ego steps in and thinks, "No, I this is my company. I have to be the CEO." No, do what you do best and help that business

24:04 scale because you're joining a team that is all hyperfocused on growth and scalability and getting to a critical mass so that you have that option and opportunity to then later sell that investment again. And and and I don't want to just speak to the, you know, the big national players. Let's let's address the guys and girls that have companies with $5 million of revenue or less than uh let's say floating around $2 million of IBIDA or less than that. Those opportunities are still great opportunities. You do need to minimize yourself from risk and reduce that risk.

24:42 But the reality is if you could join a larger platform where you could have access to administrative support and marketing support and HR support and all of the things, right? Then it allows you to live in a world where you could focus on what you do best. Cuz I don't know about you, but how many times I hear business owners say, "Man, if I never have to go through an insurance renewal again, I'd be a happy person. if I never have to go and deal with HR issues again, that would make me so happy, right? And so that that comes back to that question, what are you exiting into? What do you want to do? What's your identity? Where are you going to go? And so when you when you reflect on that, that answer really reveals itself.

25:28 And like yourself, you know, you found yourself most powerful for the company to be that CMO in in the organization. You know, Adam Coffeeoffe, Private Equity Playbook. Does that ring a bell?

25:42 Yeah, Adam Adam Coffeeoffe is a friend of mine. He was on my podcast. Great great guy. Great, you know, and he he's the one that had six e six exits in that business.

25:51 No, he did great. He did the commercial HVAC and great guy. Love the guy. Get along with him really well. I called him up right before my first deal and he's like, "The rule of thumb, Tommy, is always 35%." And I'm like, "I tried to do 60%." and we weren't going to get the multiple. So, I settled for about 48%. And hindsight, I I wish I would have done 60%, but I just couldn't find anybody that was willing. They still would have had control because they get they, you know, but um I just believed in it so much. And I know on this next thing is people are going to wonder how much I believe in this. And I'm like, I want to go at least half of what I've got now. Uh but that what what everyone's been telling me, the more the marrier. You know, there's a lot of reasons why to be diversified. A good a good consultant will sell you, put money in bonds, put money in the S&P, put money in the real estate, put money into

26:45 here, here, here. Let's even get some overseas stuff. Yeah. Yeah. Alternative assets, so on and so forth. But yeah, when you when you think of your wealth strategy, you know, wealth advisors typically translate this to a pie chart we were talking about. And that pie chart will have everything inclusive of what you described including cash. But a big chunk of it of entrepreneurs is typically their business or their business value. Sometimes they know what that value is. Sometimes they guess what that value is. But whatever the value is on that pie chart is typically a majority of their wealth that they cannot liquidate unless they enter into some sort of M&A transaction. And so if you can take that advice and apply it to your own business, you want to diversify away from your business, but you do that by selling majority of your company.

27:34 Let's call it, you know, 60 to 80%. The balance thereof, you keep in the form of equity and you stay with the investor and the partner that you merged or sold to. And then you know that 60 to 80% of cash that you took off the table, those chips you took off the table, that is your cushion. that is your your reserves and that allows you to sleep, you and I, to sleep better at night because we know our families are going to be taken care of. I mean, I have four kids. I have a wife, right? I I want to be able to leave a legacy here on Earth when I'm taken from Earth. And so when you think in that context, it forces you to be accountable to the to the very fact that that de derisking and diversifying is is is the advice that we're all given because it's the right advice.

28:24 You know, um the only other I know a lot of guys that I've talked to recently that have done a dividend recap, basically pulling money out of their company. Sometimes they get two turns of IBIDA,

28:36 but then they're yes, they're still reliable for that debt solely and sometimes,

28:41 right? What are your thoughts on that? Well, you know, historically, you go back 20 years, this this feature that you described of, you know, recapitalizing the business. um it was typically an instrument reserved for the Rockefellers of of the world, right? Uh the public companies of the world, but you know, capital has evolved and I like to frame it as what was once only exclusive to the Rockefellers is now available to the Littlefellers, right? So, and the and and the Little Fellers being the business owners across our country here and and those tools are great. I mean, you have to have confidence. You have to have the ability to service the debt. But if there's a good reason for you to recapitalize the business, then then explore it, look at it, get advice, you know, talk to your attorneys, your wealth adviserss, your M&A adviserss. Um, because that is something that was not available

29:43 historically to to everyone. You know, uh, one of the things I think that a lot of people make a mistake is I did not argue too much about my salary and bonus. Uh, okay. Because I wanted to be within the realm of what my company should get, but I didn't go in there and say, I want the private flights, I want all this other things. I need this massive bonus because I said, well, that's just that's just going to go against Ibida. And then by the way I yearly I get taxed ordinary income on that money. But when I sell the business and it adds as the multiple of IBIDA I'm going to pay capital gains and so it's a different game I'm playing and I think a lot of people miss that. They they over negotiate their salary. Now what happens is what is the PE saying? This guy better be damn good. He better kick ass because he's a big expense. He better be is worth worth his weight in gold. And so some of it, what I've seen is certain

30:39 PE companies become there there's uh animosity because they they allowed you to negotiate that and then you're not showing up in the right way, but then you're getting paid ordinary income. Uh you're get half of it's going to the IRS. What is your strategy when it comes to that?

30:57 Well, you know, when you when you sell a company, you typically have a multiple agreements. To your point, one of them will be an employment or a con consulting agreement. Um, the other agreement is going to be the definitive purchase agreement, right? But what we have to realize is that if you're making, let's say, half a million dollars a year, and you want to preserve that, okay, that we we could structure it that way, but you need to know that that half a million dollar salary, base salary, let's call it, is going to be an expense of the business. that expense is going to deteriorate your valuation in that first transaction and potentially in the second. My advice typically is to structure a market comparable base salary for yourself. If that market salary is 180,000 a year, not 500, then you should consider it. Why? Because that 180,000 means, you know, you have a a commitment and you they have a

31:58 commitment to pay you that, but you could layer on top of that bonuses tied to future growth and performance. And that is more that's not static as much as it's dynamic, right? Because if you're not growing and the business is still trying to afford you at half a million dollars a year, that's going to deteriorate your IBIDA, thus deteriorate your enterprise value. So there's always a good balance between a base market salary for your role with your with your roles and responsibilities, but also layer in a bonus program. Put those targets, talk with that investor and your partner. What should those be?

32:36 Because they want to incentivize you to grow. And that's a that's a really good incentive for everybody, including the LPS. So for the dynamic bonus because it's dynamic is that considered adback? It can it can be considered an adback because if you you know on the next transaction that could be considered a non-recurring expense in whole or in part and so whatever portion of that will not be continuous with the business will certainly be added back to adjusted IBIDA which thus increases the enterprise value and thus increases the liquidity event at that moment in time in the future.

33:17 It's uh this is confusing to a lot of people, but I'll tell you this. I I remember being on a stage and my buddy walked up to me. He goes, "Why are you explaining all this crap?" He goes, "It's way over everybody's head. These are blueco collar guys." I go, "Because that was me two years ago or 5 years ago or seven years ago." And if they don't understand how the machine works and they're not building great book, built to sell by John Warllo is you should build everything to sell. And even if you don't plan on selling it, I had a guy in my shop earlier. Great guy.

33:47 Yeah. He goes, "You know, I got two sons that want to take on the business." And I told him, I said, "Let me tell you something." I sat down with a guy from Australia. He had five sons with him. I go, "Would you rather mom and dad run off to the sunset in their retirement age, be able to buy a yacht, live their best life, and give you guys each a few million bucks each to go start your own thing, or do you want to take on the family business?" And dad was sure they wanted to take on the business. And they all looked at me and they said, "I want mom and dad to live their best life and we want to work together, but some of us want to go after our own stuff." You know, and then the kid looked at his dad today and said, "I'd rather you sell the business than me take it over."

34:26 But we think our kids just they want to they want to continue the legacy, but that's what what we want, not what they want.

34:35 You're exactly right. And and so here's a good stat for you. 30 30% of of family businesses that su successfully transition to the second generation, it's only 30%. 70% fail. 12% make it to the third generation and only 3 to 5% make it to the fourth generation. And so when you consider that in all in all scenarios, it's declining. The success is declining. So if you can be approached with an opportunity or position yourself for the opportunity to exit and to liquidate, then that's something you have to pursue. And speaking to those that say, "Oh, I'm never selling. I'm I don't care what you say, Tommy. I don't care what you say, Brian. I'm never selling the company."

35:20 Well, here's the message to to them. If you're never selling the company, that's fine. But you're still inevitably going to exit your business. The question is, what are you leaving behind? Because the problems that you have not resolved in the systems that you've not implemented into your company aren't magally magically going to appear once you transfer the business to your kids or whomever it may be. It might not even be your kids. It might even be that your your next tier of leadership in your organization. You could pursue what they call ESOPS, employee stock ownership programs as well, right? And so I I say to everyone, we're all going to exit.

35:58 I'm going to exit. You just really have to know what you're building because what you're building is what you're going to be leaving behind whether it's an internal transaction or an external transaction. You know, Brian, just briefly, I want to touch upon an ESTOP. I had a wealth advisor tell me you could sell 50.1% to the employee base and take the 49.9% 99% and transfer that to a Roth IRA because technically it's worth nothing because it's all in an IOU. And then my lawyer spent six months looking at it and they said, "This has never been tried in court." And the chances are this could all unwind and you would be one of the primary people because of how much money it is cuz a Roth IRA technically you're only allowed to put 6,500 bucks and or you start with what is your take on that? Because I've seen a lot of people looking at these fancy ESOPs and they sound great. What are your thoughts?

36:52 They do. We sell more ESOPs than anything, right? Because ESOPs over time become these quasi public private agencies because it's difficult to fire people. It's it's because they're shareholders. They're now owners of the company. They, you know, they think and behave differently from that standpoint, from the employee standpoint. Now, there are massive tax benefits with an ESOP that should be waited out and considered. You don't have to sell the entire company to an ESOP. You could sell 10 or 20% to an ESOP for purposes of keeping management engaged with the business at an ownership capacity. Um, and that's something that I would recommend over selling, you know, 100% of the business to an ESOP. But that doesn't change the fact that we sell more ESOPs because over time those ESOPs tend to deteriorate in culture, in value, and performance. I'll give you a case study. We were working on a deal in

37:54 um in Bangor, Maine, the complete polar opposite of where you and I are in in the country. And this business was successful service company. They serviced gas stations and they serviced, you know, oil and gas fields and things of such. They were in ESOP. We went to sell it. The sale that we negotiated on that deal was 3x the valuation of what the internal ESOP valuation had derived for itself. So it was obvious to everyone that the company should be sold. The employees would get a massive liquidity event. the leadership, the sea level leadership, CEO, CFO, they would win as well. Well, here's what went wrong there. When you have an ESOP, there's this trustee, and I know we're getting into the weeds here, but

38:43 I'll keep it simple. There's a trustee that's elected. That trustee is designed to protect the employees, the owners of the ESOP. So, the perception of this deal was that the valuation was good. But it was good for the employees. But what they didn't not what they did not like is that the CEO and the CFO were being asked to roll equity forward with the buyer. No one else was being asked to roll equity forward. Just the CEO and the CFO. So the trustees perception of that was well wait a minute why do you two or why are you the only ones reserved to get the upside potential here? that's not fair for the employees. And so we got into this kind of, you know, standoff. And the deal never closed.

39:34 When we last worked on that deal, we gave actionable advice to the team, to the client and their team, and we said to them, structure yourself so that you could be continuous with the business because that's what investors are going to want. The CEO and the CFO are by far one of the top two in the industry in their particular industry and they need to stay continuous with the business. So there's a lot of control. The punch line there is you lose a lot of control under an ESOP because there is a trustee that is looking after the employees that buy into that company and that can be very complex as this case study illustrates.

40:16 There's there's a lot of scenarios here. We talk about ESOPS. I mean, there's all these different things, these tax structures, and uh this is why you need like the right people on the team and the right advisors. When I brought in the right people, I mean, it's crazy what I've learned about. And I'll tell you the the lesson that I learned in 2019 is a guy called me up. He said, "I've done all the deals in home service." Like, if I haven't done them, I know about them. And he proceeded to tell me every deal. And on my whiteboard, a massive whiteboard, I wrote down every deal. Then he told me, he goes, "Do you have a uh EIP program?"

40:50 I'm like, "No." He goes, "Who do you have running your HR and finance department?" I said, "Not no bueno." He goes, "I want I'm going to give you the right recruiter." He goes, "Show me your chart." He goes, "You're at 4 and a half million of eBay." He goes, "I want you to run this to 20 because that way I think you could become a platform and we could get this." And he goes, "I'm going to consult you along the way. We need you to get an FPNA team. You need the best CFO in the business. You're going to have to get your HR up. You're going to need a growth team on that M&A side.

41:16 I want this to be the full picture. He goes, I think you got what it takes. And so he got me along the way the right people. And of course, he got the deal because he's the one that kind of guided me and taught me these things. And all of a sudden, we were able to tell people we're the same thing as HRA. We're a necessity. If your garage door breaks, you're stuck. You can't get out. Just like if your air conditioning gets 120.

41:38 So, you know, that's one thing I think every entrepreneur should listen to is be curious. Don't have all the answers. Listen and take notes. Listen to podcasts, show up, and get people that are smarter than you around you.

41:51 Yeah. Uh funny story for you. We we had that that My Q uh app at our house and uh we came home one night with the kids. Uh I forget where we were, but their whole system went down. We could not get into our house cuz that we didn't bring a house key. We, you know, we left the typical family, right? We lock everything but the garage door and we come in through the garage door. So, we're stuck in the car um you know, waiting for the garage door company to come out to to help us get in. We ended up having to call a locksmith and then all of a sudden the MyQ app starts working. We open the garage and we get in. But it is a necessity, right? Is is the punchline there. It's an absolute necessity. Um, and so when you when you look at your business and your service model, it it it will withstand the test of time, right? The door garage doors are not going anywhere. We know that home services is a growing segment in

42:50 the market. private equity investors are more and more whether it's windows, siding, doors, garage doors, roofing, HVAC, plumbing, you have a massive amount of equity groups going after these sort of opportunities. And and to your point, yeah, if you could get to ideally 8 to$10 million of IBIDA, you're perfectly positioned to be a platform. If you're less than that, you have work to do. But that work doesn't mean you have to get to 810 a million of IBIDA, you know, get to a critical mass of one and a half to$2 million of IBIDA and we'll still build the right pathway for you to exit the business, liquidate that that portion of the business that you want to derisk and then you continue to grow and you continue to scale. But the advice you were given was spot on. And that's why I spent a lot of time, you know, educating founders and provoking thought in them because this is not something, you know, you wait for until

43:48 your retirement age. This is something that you should be working on from day one. And and I argue we all have business plans, but none of those business plans have an exit strategy plan. And if you don't have an exit strategy plan, you have not completed your business plan in my opinion.

44:05 Yeah. Yeah, the probably the the most annoying question I ask entrepreneurs the answers are, "What's the exit plan?" And they go, "I don't know. I'm still having fun. You know, we'll figure it out when we get there." And some people say, "At least 10 years."

44:18 And I'm like, "Well, you're going to show up to these same events in 5 years and say the same thing." And you're still going to be wondering like when you're fight or flight and you set an agenda and a timeline, that's like saying, "You know what, Brian? I want to lose some weight in the next year or two, but if a guy tells me, look, here's what I'm going to do. I'm going to go get a DEXA scan. I'm going to watch my macros. I'm going to do this many calories burned per day and I'm going to pay attention to it daily. That person's going to succeed. But when somebody says this vague thing of like, you know, we're just focused on revenue this year.

44:47 I'm like, what kind of revenue? How many jobs do you need? What's your conversion rate? What's your average ticket? How many people do you need to hire? What's your turnover rate? Like I'm going into these things and most people, Brian,

44:56 I'm like, what's your booking rate really? What it's to the decimal point. They're like, it's probably like 90%. And I'm like, probably 90%. What's your cancellation rate? And like the math that I look at is the feedback loop that makes me if I got a boat and there's a hole in it, there's always going to be a hole in the boat. What's the biggest hole? Where am I focused? Most entrepreneurs don't know what they're doing on Monday. They go in and they get busy. I see the big holes and I'm sitting in the outer layer not doing any of the the busy work anymore. I'm like, look,

45:28 yeah, I'm delegating saying this is what's going on. How are we going to fix this? What's your plan? What's your timeline? Here's the resource you have to do it. Now go execute. And I think the biggest lesson is I've hired really smart specialists in the company that are way more competent than I am to accomplish these things.

45:46 Yeah. My my my uh I was given good advice at a young age. Um and and one of my mentors said, "Brian, you don't need to know everything. You need to be able to afford those that know. And that's exactly what you did in my mind, Tommy, is that you went out and you hired the right people and put them in the right positions because here, you know, here we are at the beginning of 2026, right? And so, you know, really what we should be focused on and those tuned in right now should really focus on, you know, building a real general management team, cleaning up their financials, right? and and have monthly closes and clear sights on margins and and adbacks as you talked about. Document your operations and remove yourself from those key positions and develop that leadership depth that ultimately is going to empower the business to grow and to scale. Because most people, they don't have a revenue

46:41 problem. They have a structural problem. And so those that say, "Hey, yeah, next year, you know, in five years, I'm having fun." Okay, I get it. It it it it's it's comforting, but inevitably they're going to have to come to a time and a place where they need to work on these things in order to exit the business or the asset that they built along the way. And if they don't, they're going to be stuck between a rock and a hard place because, as we talked about throughout this entire podcast, investors are underwriting to risk. And the lack of systems and processes is risky. and the fact that you someone you know tuned in or they have key person issues or key man issues that's a risk that needs to be addressed.

47:30 You know what I've learned about investing is uh if I look I've got a lot of opportunities. I've got the home service freedom. We know these companies. I walk into a million- dollar EBI at a company and I'm like oh my gosh we've got so much work to do. It's almost like and then I wonder, you know, like what's the level of sophistication I need 10 million and then you get into the 20 30 million and you're like this is great but that takes a massive investment. That's a massive family in family office. It could be a dual investment. So I just think I want to get in what I'm learning is I want to take good to great then broken to good.

48:10 Yes. Yeah. Um, in my book I talk about uh you you cannot sell a problem, right? No one's going to buy your problem. And if you have problems in the business, it's you know, yes, it's it's a it's it's seductive to think, well, when I go to exit or when I go to sell, we'll fix that. No, because they're underwriting to risk. And if you have problems, even to your own point, no one wants to buy a problem. So you can't even sell a problem. You need you need you don't time your exits. You build readiness and then you choose to be accountable to that playbook that we put in front of you to follow it and execute on it.

48:52 I had a guy that I'm working with. He's, you know, 14 million of IBIDA and we compared our KPIs and I over overlapped mine and I said, "Our average ticket's three times yours. Our booking rate is 20% more." And I just showed him everything and and he goes, "Well, I want to do all this stuff before I sell." And I'm like, "But you won't." I'm like, I wasn't condescending and I wasn't a dick and I flew out. And but I'm like, "Why don't why don't you what what would you like to roll?" And he's like, "At least half." I'm like, "Then then roll half and get the upside and have us do it within 6 months. We'll integrate this machine. We'll retrain your guys. We'll get you on the right CRM. We'll get you the right price book.

49:33 And we'll get five star reviews all day, every day." I'm like, you could have as much side as upside as you want. You're not going to lose anything. You're going to lose several years trying to get here. You're very good at what you do. You've done well on M&A. You got a good beast, a machine, but

49:48 yeah, you're better at a lot of things. We're going to learn from each other. But this idea of like, I want all the upside. You know, Dave Ramsey just had this guy call in and I just saw this on a video and I want to hear your point of view. Do you got a few more minutes?

50:01 100%. Let's go. Okay. So the guy, he's got this uh Texas kind of redneck accent. He goes, "I got to ask you, Dave." He goes, "I got 20 million in the bank and uh I only work one hour a year." He goes, "I got a good team. I take care of them. I pay him." Well, I'm going to stop talking like that, but he goes, "I liked it, man. It was good."

50:24 He's like, "I got the money. I got the life." He goes, "But I only want to work here and there." And Dave's like, "Well, what kind of business?" He's like, "Hra." He's like, "I just passed 11th grade. I worked hard. I got the right people." He's like, "I'm getting offered 20 million. I'm bringing in 2 million." So, he's getting offered a 10x, right?

50:44 I think he could probably get more than that. But moral of the story is Dave said, "What are you going to do with the money?"

50:50 He goes, "I'm only 42 years old." And he goes, "So, you're wondering, do you keep the cash flow or do you take the lump sum?" Now, in my mind, I'm going, "Dude, take the cash." Dave's like, "Well, what are you gonna do with the money?" And because he's like, "I'm not working now. The business runs itself." I'm just curious, what would be your take on that? I'm sure there's further questions you want to ask, but what would you do?

51:16 Well, generally speaking, you know, someone that has grown content in their business is really the the theme in which I'm hearing. You know, this gentleman is content with where he's at, but that's today. you know, fast forward, you know, 5 years down the road, is his uh current state of contentment, is it going to feed the growth? Is it going to keep him nimble? Is it going to keep him competing? Or are others in the marketplace that are hungrier going to work harder to get an access market share? Some of that could be his existing clients and and it it may or may not be. But the point is there's always someone that's hungrier than than us. And you have to assume that if you have reached this level in place of contentment, it's usually a deteriorating uh uh mathematical equation, right? It's not always going to stay like this. I was um you think about I don't know in 2007208 when we had the the great recession

52:22 right I had clients that were in architectural engineering and construction new construction and they thought the world's never going to end it's only going to get better. Well what happened? Well money stopped flowing. New construction stopped overnight. These companies shut their doors or they were working on jobs at break even just to keep the doors open. Right. And so I I don't say that as a doom and gloom, but I'm just using history to to to not predict the future, but history does repeat itself, right? We do go through economic cycles. And so the question is, are we ready for those economic cycles, but if we're working an hour a week or and that may be an exaggeration, but we have to assume there's someone working with more capital than you, with more hunger than you, and they're going to get creative on how to gain and and access additional market share. And so I'm with you. I think you in his

53:22 situation he should derisk, roll some equity forward, give himself that opportunity and that ability. If he wants to work a week, an hour a week, so be it. Just sign a cons a consulting agreement that's explains exactly that. But then pour into a team that's going to continue that legacy and it's going to you're going to pass the baton to. But meanwhile, you have a a lump sum of cash in the bank. You've derisked yourself. You're you're reinvesting that money in some capacity and you're giving yourself a bright future to grow and to scale because look, I don't know about you, but if if you or I started working an hour a week, our cultures will change. We will lose good people.

54:11 That's what I've seen. You know, I I I think a lot about that and I'm going, one of the things that I think most people don't understand is the money that's working that I took it took the chips off the table and I got in at the right time. The S&P had just dumped one year in 2022. I dumped all the money into 2023 and it's like, man, I look at the Goldman account, I'm like, man, we jumped up getting great, great, great returns. And I think people got to realize when you take chips off the table, that money is working for you.

54:42 That money is actually like making money. It's Einstein said it. Compound interest is the most powerful thing in the universe. And so you got to understand, plus I got into a uh I was at a service time panel. We were talking on stage to a guy that said he would never sell. And I said, "I'm going to sell over and over." And I said, you know, and I got tears in my eyes. I said, "My parents are in their 70s." I said, "I had an opportunity. I always had money, but not FU money. I said, they're living in a nicer house. They're going on vacation. I just flew my mom to Italy. She went with my uncle. Like, they they are retired. They got they could do anything. They get a quality of life they've never had. And that to me meant more than anything because I don't know. They could live another 20 years.

55:24 They could go tomorrow. I don't know. I don't know if I'm going to go tomorrow. I know that get hit by a bus, but I said there was other people. I paid $100 million out on the first deal.$100 million went out. That was me doing it. No, the through the EIP. Now, they earned it. I didn't give it away. They had earned it. But I'm like, and then this is what really bothered me, Brian, is people go, I I need you to take care of my people. It's all I care about. I'm like, how much are you giving them in the transaction? Well, nothing. That's my money, but I need you to make sure you pay them better. And I just I see people like talking on both sides. I'm like, I love my people. Just take care.

55:57 The culture is perfect. Well, what are you going to give them? Did you give up? You're not going to give them anything for the 10 years they gave to you.

56:03 On almost every transaction, any sort of key personnel, employees or leaders, we make sure we structure typically a 10% management pool for them because and then that management pool could fully vest at the closing table or better in my opinion have it vest a couple years beyond the closing table. but give them value because they got you to where you are today. Not solely, not independently, but collectively. And so I I'm like you. I I like to eat at the the table with others. And if I'm eating all the food at the table, you know, I'm not going to make friends and I'm not going to build partners that are going to want to stick stick around is is the punch line. So, I think that, you know, those that are hard set on, you know, they're never selling or, you know, they're never exiting, I I I call BS. I call BS because when they fast forward in time, they will exit, you know, because most Tommy, most home service

57:05 businesses, you know, they think they're building a business, but in reality, they're building an asset that they don't fully understand. And the ones who structure it properly like you have, they create generational wealth. They they are given the tools to be able to send their family on like you described vacations and and and have a better lifestyle and and that is something that I mean what what a better form of uh to show your love and appreciation for those people that you know you have interacted with along your journey. And so I think that I think that's shortsighted. I think it's um I don't think it's appropriate. I think I think that those that helped you get to where you are should certainly be able to access some of that wealth at some capacity and and that is good for the business which is an asset and that provides continuity of of predictable revenue streams for the business owners whoever that may be.

58:07 It might be one or it might be 20, but it gives that business the opportunity to continue to grow and scale and it and it develops a great culture.

58:16 I couldn't agree more. What What do you think, Brian? Right now, I I talked to my real estate friends. Some of them are brokers, some of them own commercial real estate, some developers are SAS products, and they all say,

58:27 "Dude, I've been listening to your podcast. I'm going to start buying HVAC companies, or I'm going to get into the plumbing industry." And I go, "What do you know about it? Do you know anything about capacity planning? you know anything about seasonality? They're like, "Well, look, I meet some of these guys. If they could do it, I could do it." And I'm not saying it does work out. Like, there's a lot of private equity guys that say, "I'm just going to go buy my own business. They were a partner." Uh,

58:49 and but I'm going to say it fails more often than not because there's a lot of things that go into this. And you're trying to hurt bluecollar guys that sometimes we didn't grow up with moms. We didn't feel the love. We didn't pass seventh grade. And so I think it's a very difficult business to just say I'm just going to go start that. It's a lot harder than opening up a McDonald's.

59:12 It it is, you know, and there's a lot of it's a seductive thought, right? Because, you know, 20 years ago, home services wasn't a thing. You know, I mean, look at look at car washes, right? Yeah.

59:26 25 years ago, no one was buying car washes. Now you have groups like Leonard Green uh Partners out of Los Angeles, a massive equity group. They own a portfolio called Mr. Car Wash and they buy you know u exterior only car washes

59:44 and and why you know what they really do when you look at their thesis they're buying companies that have some sort of membership, right? Because you could buy unlimited washes,

59:55 reoccurring revenue. Reoccurring revenue. What's reoccurring revenue? Reoccurring revenue is predictable revenue. Predictable revenue is what investors want and what business owners want. So I think it's um it is seductive to think, yeah, I'll go buy an HVAC company, a plumbing company, a roofing company, whatever it may be. But there is a lot of knowhow that you cannot access just by buying a company. You have to be the boots on the ground at some point. You have to experience what that sale's like, what it feels like to knock on a door, to win a win a job, to lose jobs. There's so much learning in that because it's a it's a humbling experience as as you and I both know.

1:00:38 And part of what I think is part of our growth as entrepreneurs is experiencing humility at some capacity. And for some of us, it's different. All of us, it's different. But the common theme there is humility. There's still I mean look I don't know about you but I have learned more when I have been humbled than times that I've been you know succeeding grown

1:01:01 and yeah there's so much learning and some people call it the dumb tax but I I like to say look I've I'm here to say I've never lost money in business but Tommy I paid a lot of tuitions to learn the things that I've learned along the way.

1:01:18 I love it. Uh, speed round. What's the fastest way a founder accidentally destroys enterprise value without realizing it?

1:01:27 They they strip the cash out of the business and and weaken their equity position. I love that they're paying themselves a fat. They're not investing in growth or the people. Um, how do buyers really think about key person risk and what systems remove the founder from being the bottleneck? SOPs and documented systems will help replace a founder because ultimately you need to download everything that's in that founders's brain and put it into the systems of the company and that allows the business to be derisked but also in it it empowers the machine that they built to continue to grow and scale.

1:02:07 Is there anything you recommend for like an LMS or SOPs or manuals and checklists? Is there a tool that you really like that that actually you've seen go to market and that's the cleanest

1:02:18 like like I'll give you an example like I've heard of trule. Yeah. Trrenual. Yeah. I mean um there's trrenual. There's you know uh the real Brad Lee at Light

1:02:28 Yeah. Lighteed virtual training. Yeah. So you know um I I think there's a lot of good programs. I think Brad Lee has a great program. He's he's tried and proven, but he's customizing those sorts of training through the Lightseed network that I personally have experienced works very well. In fact, we we're launching a um uh a training program called Empire Builders, uh which is basically a community that's deriving from my book, The Inevitable Exit. But I I I do like Lightseed Virtual Training. Trannual is also good. I've heard great things, but there's always some level of customization. And there's really good SOP implementers or EOS implementers out there. I think you need a couple. Not just the system, but also the customization.

1:03:21 What's one operational upgrade that consistently leads to an outsized valuation multiple?

1:03:27 Financial readiness. Financial readiness is so key and audited financials. Yeah, even even before a QV, I mean, you have to be Q quality of earnings ready, but to be QV ready, you have to have a CFO or equivalent in the business because they're going to be making measurements that you're just not making. And they're going to be your translator to institutional investors and lenders like debt lenders and things of such. But I think that the number one area that we see valuation deteriorate is the lack of financial controls and reporting. And you know some of us most of us report our financials on a cash basis system. Well cash basis accounting only tells you what you deposited where a cruel method accounting is going to tell you what jobs you what work in progress do you have in place? What does your AR and your AP look like? what jobs are are where and have they started, have they not started? Because there's

1:04:30 always this progressive billing that occurs, right? And um a big example is you could take on a big job, buy all the materials for that job and still not get paid on it at that moment in time. So you've really deteriorated your income, your your c your your net income that is. And so that is going to provide a skewed picture of your business and it's not going to be representative of how well you're really doing. So cash to acrruel conversion is key and most often a fractional CFO or full time CFO will help you get there. Um two more questions and then we'll close out. Um what's one hard truth about exits that most advisers won't tell founders but you will?

1:05:17 I I I constantly tell them they're not ready. Um, you know, yes, our work at Emmeritage Partners is transactional in nature and we do want to get to the transaction, but we don't want to push them prematurely into a transaction because we will not meet their expectations. And so, we need to understand the expectation, set the expectation, and then meet that expectation. And that ultimately does not occur while marketing a company for sale. that occurs prior to going to market.

1:05:48 I love that. Um, I'm thinking about writing a book. It won't be this year, probably next year, but it's, you know, I've got a family office now. I've got a house manager. I've got a driver. I've got a chef. I'm not bragging. I bought back a lot of time. And I screwed up a lot. Setting up my family and my household and getting everything dialed and what cars to buy and how to keep everything insured. That was like when when the house manager said, "How do you want down service?" I'm like, "What does that even mean?" And it's like, "Before you go to bed." And I'm like, "I've never I've never had anything like this." And all of a sudden, people look at you a little bit differently. You get attacked the first year. You go out and spend all this money, but you really don't know what you're doing.

1:06:31 So, I want to write this book after the money comes and the loneliness. And and and how do you set these things up if you're interested? What's the amount? Who's who's the people that are the sharks that are going to attack? Because all the people in the deal, you're going to sit on a phone call and you're going to go yes. Are you ready? Yes. And there's a lot of yeses. And then all of a sudden this wire comes in. For me it was 30 days cuz it was a significant amount. And I'm like is there any way I could lose this money? And they're like just don't get in a car accident or do anything stupid or DUI.

1:07:01 Um, but but I was it just it's a big event and all of a sudden your life is no longer your life that you had, especially if you do a full exit.

1:07:14 Um, so what is your best advice? Because I was very fortunate. My president set me up with Goldman. I got the right tax adviser. I mean, it's a whole different team I walked into. But for you, what would you get tell somebody that just did an exit? I think you said it best. I mean, it really comes down to having the right team and the right protectors around you because, you know, you know what you know and you and you know what you don't know. Um, you don't always know what you don't know, but having the team that have been there and done that is is crucial. And the fact that you're considering writing that book, I mean, and I'd be happy to participate in whatever capacity you like, but the reality is you're going to be going into uncharted territory. And and really this is an evolution of ourselves, right? And so as you evolve, you know, I typically I find that evolutions are typically

1:08:06 positive, but they can be negative. But if you can evolve yourself by having good advisors around you and good protectors around you, that will help you become more clear on what you're exiting into. How do people get a hold of you, Brian? Well, I appreciate you asking that. You know, if this conversation hit home hit home for people, I mean, I I think that they should certainly pick up the book Inevitable Exit. They can find that at inevitableexit.com. Um, on there, we have a free list of 10 things that will kill your exit and your legacy. Something that everyone should be mindful of and aware of. But if you want to reach out to our firm, Maritage Partners, we're at marriageheyenpartners.com and we happy to be happy to book a discovery call with you and our team to learn more about your specific expectations and needs and and really build out a roadmap for you. Um because the goal isn't always to sell tomorrow.

1:09:06 The goal is to build so that you're equipped to sell when you're ready. Give me one book that changed your life and the the the way you look at life or just the most influential book.

1:09:19 Yeah, I mean there are so many. I mean that the Bible is going to be an obvious one, but um a more recent book that I've read a couple times is the power of now by Echartl. And um the power of now forces us really to think about what we have power over and that's of this moment right now. We can't control the past. We can't change the past. And if we're constantly thinking about the future, we're going to miss what's happening right here, right now. And that book has really made me mindful of, as the book is titled, the power of now.

1:09:55 Be where your feet are. Last thing I'll do, Brian, is let you close us out with anything you want that you want the audience to listen to. Well, you know, again, those that have been really, if we provoke thought in you, if you're looking at this and you're hearing Tommy's story and you're thinking about what's next for you, this is your time to make a move. This is your time to set the trajectory of the rest of your life here on Earth. So, join us one of our training. You can see me online. We put a lot of content out there, but we're here for you. We want to meet you wherever you are on your journey and help you build for your inevitable exit. And we I really appreciate the time, Tommy. This has been

1:10:36 I I could do this over I could do this for a couple more hours quite honestly. But looking forward to spending more Yeah.

1:10:42 I love this Brian. I got a lot out of the whole conversation and I think this people need to be aware of what's out there and get educated

1:10:49 and uh the more you know the more bright people you get. I mean, you're building significant wealth, but also you're building freedom, too. And I think we miss that is you, you know, I've always said, I want to do what I want when I want with who I want.

1:11:01 And um it doesn't make me work any less harder. It just opens up I I call money fun tickets. Uh it's not going to change who I am, though. It'll never change the real the real Tommy Melo. So, Brian, this has been amazing. I really appreciate you jumping on today.

1:11:17 I I appreciate it as well, and uh looking forward to seeing you again. We will for sure. Thank you. All right.

Questions about this episode

What is discussed in "How to Scale and Exit Your Business (Brian Franco)"?

In order: 0:00 Brian Franco, Meritage Partners, The Inevitable Exit, Empire Builder Studio; 10:00 Darius Labers; 20:00 Google LLC, M&A Guy Podcast, Adam Coffeeoffe, Costco; 30:00 ESOP; 40:00 Dave Ramsey; 50:00 Great Recession, Mr. Car Wash; 1:00:00 The Inevitable Exit, SOP, Bible, Lightseed Virtual Training; 1:10:00 Tommy Melo.

What is mentioned in this Home Service Expert episode?

25 people, works and ideas are mentioned, including Brian Franco, Tommy Melo, The Inevitable Exit, Meritage Partners, Empire Builder Studio, ESOP. Each one on this page links to its own page with every episode that mentions it.

How long is "How to Scale and Exit Your Business (Brian Franco)"?

The episode runs 1 h 11 min; the transcript is about 13,167 words in 130 timestamped sections.

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