#39 Judith Pinneault (edited)
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Judith: here's what I would say to you,make sure that it generates enough money that you are earning your income now.
Judith: So if you are dependent on your business to create your retirement security, you've got to be making enough money that you're putting it away for your retirement. So don't wait until you're exhausted and then just shut down and say, okay, in reality, my business is not going to sell for a lot of money.
Judith: So how do I maximize my profits? So, I can save as much money as I need for that eventuality.
Claire: Judith, welcome to the small town entrepreneur podcast. We are having too much fun. [00:01:00] We haven't even started recording and I'm telling you to hold these thoughts because these are gems I want you to podcast. So welcome Judith. Welcome to
Judith: Well, hello, Claire. It's wonderful to be with you today.
Claire: Oh,well, those of you that are listening, Judith is an absolute gem.
Claire: And as you know, with my introduction, talking about, her and being in business for 30 plus years and moving into different roles and being a huge leader in small business entrepreneurship. Especially wearing the title along the certification of a successor, a succession planning. What's the title, Judith?
Claire: What are we calling you these days?
Judith: Well, it's interesting because really I'm a business advisor, but I've ended up working with a lot of people who are looking for ways to transition their business, the ownership of their business. Okay. So that is called many, many different things, but I carry the title of Certified Exit [00:02:00] Planner Advisor.
Judith: Woohoo.
Claire: You know what? It's how to get out. Exactly. With, with it. I think I was talking to my husband about this. He's like, yeah, because I was saying where I'm jumping on this, on the episode with you. And he's like, yeah, what happens? Do businesses just like disappear? And I was like. You know what? That is such a great way of putting it and I think it's like, it's interesting we forget about, you know, what happens to these businesses unless they're generating, you know, and we're going to talk about that 5 million plus, what happens to these small businesses around the world that there comes a point and yeah, do they just disappear?
Claire: And that's what we're going to talk about to you, to everyone listening today. Okay, so. Let's back up though. Judith, how did this whole journey, how did your journey lead you to becoming this Certify Exit Planning [00:03:00] Advisor? Well, it was
Judith: more by chance than anything else. Welcome to
Claire: entrepreneurship.
Judith: Yeah, indeed.
Judith: so yes, I've been the CEO of our family business for 30 years. and as my husband and I were progressing in our business, we realized that There would need to be an onus ownership transition. it was just time, right? and we are part of that cohort of people that are getting to that stage in life that we're, we were looking to rationalize what next looked like for us.
Judith: Right. So, we sold our business in December of 2019 and I learned a tremendous amount through that process. Now, I knew that my next, It didn't mean retirement, but it meant business advisory services. So I was very fortunate at that time to connect with a number of old colleagues. And I started working for the women's program, WECAN, through Queen's University and as such worked for, in a three year [00:04:00] period, oh my goodness, I added it up the other day, over 70 female startup and scale up businesses.
Judith: So advisory services, so how to start, financials, process management, quality assurance, sales and marketing, all of those neat things that you have to do to make a business successful. But I was asked more and more and more, just from clients, what do I do about wanting to sell my business? Interesting. And so it evolved because of the need out there in the marketplace and then statistically when you look at it, it makes sense.
Judith: You know, we have that whole boomer, cohort coming through the market, many of whom were small business owners and now they're saying, okay, what is our next? So they're looking for transition strategies on whether that's selling to an intergenerational. a transition to the next generation, whether that's maybe to key employees or whether it's [00:05:00] to a third party in the marketplace.
Judith: So as a result of that demand, I decided to educate myself better. So I took the certification that we were alluding to, and right now I have 21 small companies actually in play in the process of being transitioned.
Claire: Wow. Yeah. 21 and you, and this is all in the last couple of years. And this is the thing. I love this.
Claire: You know, I always ask, and I know this is something you do when you're working with a business, a company, an individual, and they want to, you know, they want to start selling something. You ask them, you know, what is the problem that you're selling or sorry, what is the problem you're solving? I'm going to sell it too, but and then, you know, okay, well, what's the solution?
Claire: And it's so interesting that so many times in entrepreneurship, it does evolve from this, where something, there is a need, you're recognizing this pattern, either we're frustrated from something and it's not providing something. Now, correct me if I'm wrong, I think I [00:06:00] was reading something a couple of weeks ago and we were having this conversation.
Claire: Would it be true to say along the lines in the next five years, there are, you know, over 75 percent of small businesses, I know in Canada are considering what they're going to look like, what's the next transition, what's the phase, whether permanently exiting, would that statistic be in line with what you're seeing?
Claire: Yes,
Judith: absolutely. No question about it. So a number of different bodies in Canada. I've come up with a very similar statistic. BDC says that over the next 10 years 76 percent of small businesses will transition. Canadian Federation of Independent Businesses came up with a similar number. This is very consistent with the institute that I certify through, which is a US based institution.
Judith: called the Exit Planning Institute. They also have come up with a very similar figure in the U. S. and you'll find it global because of exactly [00:07:00] the same thing. It's that cohort of people that are starting to age out. Now, I'm going to come back on you there a little bit, Claire. Your husband said something that was really very interesting there.
Judith: What happens to them? And I can tell you that 75 percent of small businesses or businesses that go on the market fail to sell. And yes, you're right. So my mission in life is to stop that happening. I look at my clients and I look at others. We've put so much time and energy and love and resource and money.
Judith: That's sweat and tears into these businesses. That is our major resource and I hate to go with the statistics but you brought them up. No, no, I'm a
Claire: numbers gal, so are you.
Judith: Okay, so 80, 80 percent of small business owners are relying on [00:08:00] selling their business. The constitute the majority of their retirement funds.
Claire: And you're saying 75 percent aren't successful. So yeah. What does that leave them with then?
Judith: That's a very uncertain future, right? Wow. And you know what? That's what makes people so reluctant to actually jump in, learn what they need to learn, and do the stuff they need to do to make sure that that is not the outcome.
Judith: It's about as appealing as having a root canal without anesthetic. But you know what, sometimes you just gotta do it.
Claire: That's a great opening line to get people in the door, succession planning, the root canal, without your anesthetic.
Judith: I'm just gonna tell you the other side, I'm gonna give you the other side of that [00:09:00] scenario.
Judith: I have come across very, very few small businesses in those that I've worked with in the last few years that can't actually do a lot better. What, what happens to us when we're entrepreneurs? We're all of us, we hear that, that statement, we're working in our business, not on our business. Right. That is so true.
Judith: We, we become very parochial. We end up sometimes with what I would call owner fatigue, and I've had it too, where sometimes you feel as though you're continually pushing this very large rock up a steep hill, and sometimes it's exhausting. And you know, once you're into that frame of mind, it's very difficult.
Judith: You really start to be creative to take more of an upper level view of your business And to be as objective as you need to be about hey Let me look at this through fresh [00:10:00] eyes. How would somebody else view the opportunities here? And make the changes that need to be made to take the business from managing, from day to day, to accelerating, to being best in class.
Judith: And that's always my goal, how do we take this business from where it is today and accelerate it through business development to best in class. Because once you've got a business that's best in class, you have a very saleable commodity. And that, that goes for whether you're selling it to the next generation, to a group of employees or to a third party.
Judith: So I'm going to come full circle, Clare, and say, so really What I do and always have done is business advisory business development. Whether you're selling your business or running your business, your goal should always be to be best in class with that business. So if you move your business along that continuum, so [00:11:00] you're hitting those goalposts best in class in terms of the KPIs, the financial performance of your business, you're always ready to sell, right?
Judith: Because you're simply running an optimal business, and that's what the goal is, and that's what makes successful sales, and that's what I plan to do in order to change that statistic. From 75 percent don't sell, they just close, to the owner walking away, hopefully with, with the return on their investment of all of those years.
Judith: Good finance. Now
Claire: you say best in class, I think for myself and for our listeners to really, can we talk practicalities? You know, what does that look like? Can we? Can we look at an example? Because the reason why I'm asking is we look at a lot of small businesses and, you know, they initially start just like a lot of businesses if they were, you know, passed through [00:12:00] a generation or they were starting up to bring in a supplementary income.
Claire: There was never, you know, the intention, unlike someone like you, especially, you know, in, When you were building it and with the family, there was an intention in the long term, but I find it becomes accidental. It's growing. And that thought of like, Oh my goodness, there is a possibility to sell. Now we also have to look at the reality.
Claire: What type of business would sell? Because not every business. And maybe, and this is where, you know, our listeners are be like, well, how do I know if my business, you know, I have a small, you know, business that makes X amount of revenue. Does it have the chance for growth? What does that look like? How long does the succession plan take for the exit?
Claire: Do I, is it three years? Is it five? Is it 15? Like, what are we talking? Because I think if we look at the numbers and it is scary in, in the sense that so many are [00:13:00] looking to exit. And that's only maybe three to five years out, but based on, you know, some of the work that we have to do to put into the business to have it in that class a or class is a class a, first in class.
Claire: there's a lot more probably than three to five years of preparation to get the business where it needs to be. So a whole bunch of questions all wrapped in one there, Judith, you can answer whatever one you want, but I think the idea is, you know, what does it look like For a small business at this stage, if they had never thought about exiting, but that is something now after listening to this episode, they're like, geez, like, maybe this is a potential.
Claire: What do they have to start thinking about at a very practical level? You said the business development and the KPIs, but can we talk about A specific
Judith: example. Sure. Yeah. You've covered a lot of ground there, Claire. Okay. Sorry.
Claire: I'm also fascinated. I love, this is why I [00:14:00] love, I love this podcast. I love having people like you because you're just full of knowledge and experience that we want to, we want to learn all of it.
Judith: Okay, well let's, let's start talking about what makes, what creates value in a business. In other words, if you're going to sell, how much money are you going to get for it? because at the end of the day that's what people need to know. So that starts with the numbers, the numbers in the business, but that's only a starting point.
Judith: And I'm going to, I'm going to talk about two different types of business if you like. I'm going to talk about businesses that have the potential to be two, three, four, five million dollars in revenue. They're still small businesses. They have the opportunity to hit those kinds of figures. if you're in that type of business, that is a very attractive business to sell.
Judith: Once you start hitting those numbers of 5 million, you can [00:15:00] potentially start, attracting equity, funds, overseas investors. It opens up a larger market. Within that ratio or within that figure that I'm aiming at there, 5 million, you want to look at other KPIs, you want to look at your gross profit margin, I always say it needs to be north of 50%, 65 percent is good, and you want to be delivering on the bottom line profit of around 20 percent of revenue.
Judith: You are then hitting those best in class kind of statistics, okay? So
Claire: that's, that's me calling it class A.
Judith: I absolutely it is. And you know, there are not many of them, but more wondering, yes, there are not many of them. More have the potential to do it and do not. and again, if I'm to look at the clients that I've worked with in the last few years, I've only seen two.
Judith: That we're hitting those kinds of numbers. So most people are not. So we've got to work towards that. Other people are working in more what I would call, [00:16:00] Occupational kinds of businesses, like me right now, okay? So I'm a sole practitioner in a consulting firm. I don't have other employees working for me, the revenue I generate is because of the work that I do.
Judith: And I don't want to change that at that stage in my life. So if you're in that kind of a business, whether you're producing a good or a service, then you look at your business a little bit differently. Is it saleable? Hmm, not so much. Because if you're not in it. It's not made to sell, right? So transferability is one of the big issues that we look at when we say, okay, the numbers are good, now let's look at the impoundables.
Judith: Transferability is a big deal. So if you are the business, then there's not, not a lot there to sell. I'm not saying that it's not saleable. Maybe you have a client list that could be transferable. A bunch of things. We still look at that or product that you
Claire: develops. That's
Judith: [00:17:00] exactly all of that. But here's what I would say to you, if that's the type of business you are operating, make sure that it generates enough money that you are earning your income now.
Judith: So if you are dependent on your business to create your retirement security, you've got to be making enough money that you're putting it away for your retirement. So don't wait until you're exhausted and then just shut down and say, okay, in reality, my business is not going to sell for a lot of money.
Judith: So how do I maximize my profits? So, I can save as much money as I need for that eventuality. So, now, over and above that, and this happens for either businesses that we're looking at, the numbers tell you one thing, but then we look at the intangible value connected to a business. So, if you're one of those fortunate businesses that's moving at the right, the five million dollar mark.
Judith: What about your [00:18:00] employees, your staff? How competent are they? How long have they been with you? In other words, when you've transitioned, can they continue to help the new owner in moving your business forward? What about your client relationships? Are they contractual? Are they monthly reoccurring revenue?
Judith: What do they look like? Are they one off? So how locked in are those client relationships? Again, you're asking yourself. When the owner's not there, is that business going to continue to flourish? Right. The third we look at is protests. How do you deliver your service or your good? What are your processes around that?
Judith: Can you automate it? Is there a way that you could make it more efficient? Is there a way that you can improve your gross profit margins by automating your processes? And what is your fulfillment methodology? Which gives the, the client satisfaction, if you like, that, that, that client [00:19:00] experience. And last, but not least, is that great big thing called brand.
Judith: Aha! You see, everybody does that because immediately we say brand, we think about a brand that's iconic and it makes us smile. Is that what your brand stands for in your marketplace or is it a, ooh, that place? These are the intangible values over and above what the numbers tell you that drive up your sales price.
Judith: Or drive down other things too, like is it a legacy business? You know, is this something that technology is disrupted? So really there's not much runway left in this sense, right? Yes. Those kinds of things. So these are all the things that you look at and then you say, from where we are now, right now, how do I improve my options?
Judith: So to loop back to your [00:20:00] origin, how long does it take? It depends on. Your situation currently, how long it's going to take. You do want at least three years, preferably five years, good track record of financial numbers behind you. So when people are looking at that and they're doing their due diligence, they say, okay, it wasn't just a one off year that they had this great year, but it's sustainable.
Judith: That gives comfort to the purchaser. It also gives comfort to anybody who's going to finance that acquisition. So these are all consideration. So yeah, that's it.
Claire: And, and you know what, we'll, we'll put this in the show notes. we, we print all this out so that you have that, you know, the steps of that. Now let's wind back and think about a business that's like generating, let's say majority of businesses.
Claire: that we see, especially in small business, they're generating regularly [00:21:00] under a million. Yeah. What? And they have employees and, you know, on the, you know, the books are, are good and, you know, they're following, you know, this, this process that looks great, but what does the end look like for them? What are the possibilities?
Claire: And you had talked about, you know, third parties selling it off. What are the options if they? No matter what they do. And let's say they, they see me, the magician Judith, and they spend the three to five, 10 years with Judith. They get it ready, but really, realistically, they're still under a million revenue yearly.
Claire: What are their options?
Judith: they don't have as many options as the larger businesses because the larger businesses will attract a corporate purchaser, whereas a smaller business is going to attract another. So when you're looking at attracting somebody else just like you, you need to find somebody who's going to obviously [00:22:00] love the business, want to take it on,and follow in your footsteps in many ways.
Judith: So there are fewer of those folk around, and there are fewer of those folk that have got the money, right? Yeah. Be able to afford to buy your business. So here's a rule of thumb for you. in the smaller businesses. Those businesses are generally valued by discretionary owner earnings. What does that mean?
Judith: It means how much money does the owner take out of the business every year? That's over and above maybe the salary. So you should add into that. You run your car through the business. is your son and daughter employed during the summer months in the business? Are there certain perks that you run through the business?
Judith: So you add that up and you say, okay, so the discretionary earnings in this business are whatever that figure might be, and that is going to be used as what determines how much it's worth. And generally speaking, those [00:23:00] discretionary earnings could be worth two, one, two or three times, at best. in, in sales value.
Judith: So, and then the same things apply. You know, what are the intangibles that you're adding to that? Right. You also have to add into that if you're selling to another private individual, that person has got to finance the sale. Or are you going to offer a vendor take back, where the person is going to pay you out through cash flow over a period of three to five years?
Judith: And of course there are inherent risks around that. But if you are fortunate, you will find that individual that wants to take over your business, sees it with fresh eyes, and sees it as a great opportunity. On the outside, banks prefer to finance people who are buying an existing business with good cash flow than they do to fund somebody who's looking for startup.
Claire: Interesting. Yeah. I mean, that makes [00:24:00] sense. There's a little more, there's less risk. Now I'm spinning it another way too, because, a lot of entrepreneurs I work with mentors, there's a huge, movement we're seeing in personally personality. They call it personality led growth businesses where. They're individuals and you know, this is hopefully the trajectory I am on.
Claire: I work with a lot of other individuals that are bringing five plus million dollars in as a individual. They have people on their team, but it's under a personally led growth. Business in the sense that they sell physical and digital products. What does that look like for the future of, I do see a lot of these businesses building for those specific.
Claire: So, you know, we look at, we're looking at manufacturing or we're looking at [00:25:00] other industries that, you know, that product or service is not attached to a personal name. what does it change? I think that, you know, I think the bigger question is like, What does that look like over time? How close, you know, does it have to be to the name to make it profitable or, advantageous for a buyer?
Claire: What does that look like for this new movement of businesses that are very personality led, businesses? Yeah, it's an
Judith: interesting question because it is a bit of a new phenomenon. historically through time, One would have discouraged that because remember
Claire: we talked about
Judith: transferability. Yes. Yes. So if, if you are such an integral part of the brand, but you as an owner, if you're no longer there, that is going to have a detrimental impact on the revenue of your business.
Judith: That is something you have to factor in. [00:26:00] So that's when you start to say to yourself, well if that's the reality, and I know that about my business model, then I need to make sure I make enough money with this business, up until that time I want to transition, that I've taken my business, my money out up front, instead of waiting for it to be back end loaded when I say it.
Judith: I'm not, I'm not saying to you that those businesses will not have a resale value because they will. And the smarter you are, as you're going through the last decade maybe, last five years, in a business that is branded in that way, in order to make some transitions, the easier it's going to be for you to do so.
Judith: But those businesses also tend to make a lot of money. So I would just say to you, make sure that you're meeting your financial goals as you're running that corporation instead of waiting for it to be rear end
Claire: loaded. Right. And that's, and I think that's Which is [00:27:00] interesting. I think approaching it, recognizing, I like that if you're making money right now because it, we all know that if you're running your own business, it's just you, chances are your overhead costs and everything is much, much lower than if you have a team of 20 that you need to be paying for, you have a brick and mortar, all these different things, it's, it's, it's a lot different.
Claire: So maybe it's not for everyone having, you know, having that, it's. That exit strategy might not be for everyone. Was there ever a time in your journey when you're running the business that you knew, Oh, We need to, not uh oh, but like, uh oh, maybe it is uh oh, I realize what I'm saying, like, we need to start figuring out what that looks like and how did that, how did you, because now you're the it person, was there a Judith when you started it, the exit strategy for your company?
Claire: [00:28:00] No,
Judith: our business was never branded around either myself or my family. It was always branded. I actually, I was very strategic not to do it. And I always ensured when I built our business that it was detached. Many main, vendors that we might have, and that it was totally separately branded on its own as standalone.
Judith: I made sure that it was not geographically branded in any way that would limit its, its growth. so yes, so almost the adverse of what you're talking about there, but that's, that's part of business strategy, eh? Yes.
Claire: I love that you had that going in. A lot of people
Judith: don't. Yes. Yeah, so these are important things.
Judith: You know, we often talk about visualization exercises and, and these are so, so important and sometimes I think people breeze over them when I say, Okay, ideally, what's this going to look like in five years for you and [00:29:00] 10 years for you? What does that look like? Because that has to be your overarching vision, right?
Judith: Yes. And everything else has got to support that. So if that's your goal and what, what does that look like for you and what you hope to achieve in that time? Yeah. And everything else you're doing from a strategic point of view, whether it's planning for your exit, whether it's planning your revenue streams, whatever, has got to be consistent with that overall goal.
Judith: So I think it's important as you, as your business evolves, that you're clear about these issues. Which is why I say that exit strategy is nothing new. It's just good business strategy.
Claire: Totally. That's what it comes down to. It's almost like when we start a business, these are the same questions that we ask ourselves for the longevity and sustainability of the business.
Claire: Where do we want this to go? And are we building it out for an intentional future of blank? And, and it's true because I think [00:30:00] when you're talking, I've talked to a lot of entrepreneurs or CEOs and they're like, I built this to sell, or, you know, I've built this, this is my a hundred year business plan, which.
Claire: I sit into that bucket. So when I'm 100, Judith, I might hit you up and I'll have 15 years left, probably. And that's when I'll do my exit.
Judith: I look forward to that.
Claire: I love it. But then, but I think it's good to, because I think When we're building out products and when we're offering services, it's important for our listeners to know who this is for and who it's not for.
Claire: So it's, it's really important that like, okay, if we sit in this bracket with our business, this is something we should be considering. And would you say you see, cause this is a fun question. You've seen a lot of businesses. I'm excited about this answer. If you can share what business. And I think of that analogy and I love it like just pushing up a big heavy rock up a hill and that [00:31:00] owner fatigue, we all can relate in some capacity.
Claire: Is there types of industry or, you know, a persona or a business persona that you see that that owner fatigue, you know, there, that owner is the biggest obstacle to Building out their plan or changing it. Do you see any trends or patterns of like where there's great opportunity, where you're seeing that if they just stepped out of that, you know, give someone else, give someone else the, you know, push the rock up for a bit.
Claire: So they have a little better insight. Do you notice what are the biggest things that they could do to change? To improve their business. That was a long winded question, but I guess what are the biggest challenges? They get in the way. I
Judith: think that one of the biggest challenges is that, as we chatted about at the beginning, it's working [00:32:00] in your business, not on your business.
Judith: And you can get so caught up with the day to day issues that you have to do and deal with. So, you know, if you had a retail store, you have to be there at seven, because you have to make sure that it's open, and is it clean, and did whoever lock it up? What does the washroom look like? And oh my goodness, is the inventory coming in, and the shipment is late, and I'm You can get so overwhelmed with those pressing issues that have to be dealt with day in, day out, that you're just praying that you're going to get by this month, get by this month.
Judith: Then all of a sudden you end up, that's just the way you operate. And one of the biggest things you need to be able to do is to take a deep breath and say, You know, what's happening right now is, isn't really working. It's not working for me, it's not working for the business, so alright, what do we do to change it?
Judith: You know, it's, it's stuff at the end of the day. I have seen very, very few [00:33:00] businesses that can't be changed significantly, so that the owner gets A new shot of energy and life. Actually, it's really interesting.
Claire: That's great. That is fantastic. Yeah. I mean, that's exciting.
Judith: Yeah, it is. Two of the businesses that I've worked with in the last couple of years, the owners both came to me saying, sell it, get rid of it.
Judith: I can't get rid of it soon enough. In tears, had enough. one of them was in the hole financially a lot of money, so a lot of debt involved. Technically speaking, when you looked at it, it was technically bankrupt. it was a legacy business. There was not much runway to be had. Anyway, this individual is just a remarkable human being and we've done a lot of work around that.
Judith: So to cut a very long story short, we now have a totally revitalized business. that's done a 180 on its delivery and how it fulfills services and [00:34:00] products. it's looking at its next generation. And when I asked the owner not that long ago, I said, okay, I think we're good to put this business on the market.
Judith: They said, are you kidding me? I'm having so much fun. Ask me again in five years.
Claire: Okay, you can't get a better testimonial than that to your work. Oh my gosh, Judith, I'm having so much
Judith: fun. It's amazing how joyful your business becomes when it's making money, guys.
Claire: Wow. Okay, I don't think, I don't think we can top a better finale to today's episode on, you know, you don't know until you talk to Judith.
Claire: Right? Like you really don't know the possibility because if you are listening and you were in the owner fatigue hole, not knowing where you're going or how you're going to get out, then Judith, correct me if I'm wrong, but you do have, an opportunity and people can ask you a few questions to see if You're the right [00:35:00] fit.
Claire: Absolutely. And how can they find
Judith: you? Okay, so if you go on my website, there's a little contact me link there. And I'm so easy to find. I really am. Uh, and yes, I, I will be pleased to chat or we can do a Zoom or if you are local, we can get together and have a coffee. We have a, an hour's discovery meeting at no charge.
Judith: And then if you want to move forward, we can set a game plan.
Claire: Judith. Ah, I hope the listeners can feel this, but you are an incredible human being that has done so much both globally and locally in this world. And we thank you. And just to leave our listeners, what's one just million dollar advice. that you're going to leave with aspiring or, you know, the business owners that are starting up, but also the ones that are really considering what's next for me.
Claire: What would you tell them?
Judith: Okay, well, just start, just start where you are, but you know what? Fortune favors the [00:36:00] brave. Think big, visualize it, realize it, just understand that obstacles are just things that you need to plan and work around and make sure you keep your eye on the goal. Keep moving forward.
Judith: Bye. Bye. Oh, you are wonderful. Keep spreading the awesome Judith. We are so lucky to have you with us and thank you for listening and we will see you next week. Cheers. My pleasure. See you soon. Take care. Bye.
