What actually causes most business acquisitions to fail?
It usually isn’t the price. Or the financing. Or even the due diligence.
It’s what happens after the deal closes.
Too many buyers spend months negotiating the perfect acquisition, then expect two businesses, two teams, two cultures, and two sets of systems to magically become one. That’s where things start to unravel.
In this episode, Jaryd sits down with Julie Keyes, Certified Exit Planning Advisor, author of Poised for Exit, and host of the Poised for Exit podcast, to unpack why integration is the most overlooked part of buying a business and why it’s often the difference between creating value and destroying it.
They dive into the biggest red flags buyers should spot before making an offer, why customer concentration and owner dependency can quietly kill a deal, and the simple question every acquirer should answer before buying another company: “Why are we doing this?”
Julie also shares why culture matters just as much as cash flow, how successful buyers prepare long before signing the paperwork, and why the smartest acquisitions aren’t about buying revenue, they’re about creating a stronger business for everyone involved.
Because the best acquisitions don’t end at closing.
That’s where the real work begins.
🎧 Hit play to learn how to avoid the mistakes that sink most acquisitions and build a business that’s worth far more after the deal than before.
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Episode Highlights
04:15 – The 4 Biggest Deal Killers Buyers Spot Immediately: Customer Concentration, Owner Dependency, Weak Cash Flow and One-Product Businesses
11:08 – Why Most M&A Integrations Fail Within the First 1–2 Years After Closing and How to Avoid Becoming Another Statistic
15:45 – How One Strategic Acquisition More Than Doubled a Global Health Business With 19 Patents
17:35 – The $3–4 Million Business That Never Sold Because the Owners Couldn’t Let Go of Their Identity
20:02 – Why Chasing the Highest Sale Price Can Leave Sellers With Less Money After Taxes
21:18 – Earnouts Explained: Why Staying 1–2 Years After Selling Can Protect Both the Buyer and the Seller
24:42 – More Than 80% of Enterprise Value Comes From Intangibles The Hidden Assets Most Buyers and Sellers Undervalue
Key Takeaways
➥ The success of an acquisition isn’t decided at closing, it’s decided during integration. The biggest mistakes happen when buyers underestimate how long it takes to align teams, systems, technology, leadership, and culture.
➥ Before buying any business, ask one simple question: “Why?” The strongest acquisitions are driven by strategic fit, not ego, revenue growth, or the desire to simply own a bigger business.
➥ Customer concentration, owner dependency, unstable cash flow, and limited product diversity are major red flags. These risks can significantly reduce a company’s value and make future growth much harder for a new owner.
➥ The best buyers plan for people, not just profits. Keeping key employees engaged, building trust early, and improving their day-to-day experience can create far more value than cutting costs after an acquisition.
➥ Many deals fail because owners aren’t emotionally prepared to sell. Some overvalue their businesses based on personal attachment, while others back out entirely because they haven’t planned what comes after business ownership.
➥ The highest purchase price doesn’t always produce the best outcome. Smart deal structures, tax planning, earnouts, and payment terms often have a bigger impact on the wealth both parties ultimately keep.
➥ More than 80% of a company’s value comes from intangible assets. Strong leadership, loyal customers, experienced employees, efficient systems, brand reputation, and company culture are often far more valuable than the physical assets on the balance sheet.
About the Guest:
Julie Keyes is a Certified Exit Planning Advisor (CEPA), founder of KeyeStrategies, and author of Poised for Exit. With 30+ years as an entrepreneur, she’s helped hundreds of private business owners build enterprise value and exit on their own terms. She’s a two-time EPI Thought Leader of the Year, inducted into the Exit Planning Hall of Fame, and hosts the Poised for Exit podcast. Julie is EPI faculty and trains advisors and business owners across the country on exit strategy.
Connect with Julie Keyes
Transcription:
There's a saying in the US that we call when a deal is no deal. So if there's any way that you're gonna sell, if there's any way that you could create some kind of competition between at least two potential buyers to actually, you know, improve the terms, maybe improve the price.
I'm Jaryd Krause. I'm the host of the Buying Online Business podcast. And today I'm speaking with Julie Keys. She's a certified exit planning advisor. She's the founder of Key Strategies and author of Poise for Exit. And she's got over thirty years as an entrepreneur, and she's helped hundreds of private business owners build enterprise value and exit.
On their own terms. She's a two-time EPI Thought Leader of the Year, inducted into the Hall of Fame of Exit Planning, and hosts the Poise for Exit podcast. Now, Julie is on the EPI faculty and trains advisors and business owners across the country on exit strategy. In this podcast, we talk about exit strategy. We will firstly we'll talk about how she helps sellers remove risk within their business that makes these businesses extremely attractive for buyers.
And that buyers want to acquire these and what are those risks and how can you remove them in your business to make sure your value of your business becomes or the value of your business is higher. We also talk about the intangibles like relationships in deals and how much value goes into relationships.
I share a story on how important the relationship is with the buyer and the seller, but also with the team when you purchase a business, and how much value there is in the relationships with the team within the business that can allow the business to accelerate and grow, and what you can do to make that happen after you've acquired a business.
We also talk about where mergers go wrong. So Julie shares how people get prepared to acquire a business, what they need to do to be prepared to acquire a business, and how they should acquire a business for a merger and be successful versus what people do incorrectly when they try to merge a business and it just falls apart. Obviously.
You're listening to this pod because you want to buy a business; do yourself a massive favor. Dramatically decrease your risk of buying a business by getting my due diligence framework. It's what I use; it's what my clients use. It's not only made people millions of dollars, but it's saved people millions and millions of dollars as well. It's free, and it's a link in the description. Let's dive into the pod.
Julie, welcome to the pod.
Yeah, absolutely. I'm excited to chat.
From you, you help people get exit-ready, correct? But you've also helped people.
Yeah.
So how did you get into helping people sell and get exit-ready?
Yeah.
Thanks for having me, Jaryd. Nice to be here.
Yeah.
So I'm a certified exit planning advisor from the US, and we have brokers and investment bankers that actually handle the deal-making process. I don't do that part, but what I do is help the business owners prepare for either an acquisition of their own that they're gonna go buy another business or help them to prepare to sell.
So de-risking the owner, de-risking the business, doing what I can to help the owner shore up the enterprise value of the current business. And then if they're making an acquisition, make sure that that business actually is ready for bringing in another company 'cause that's that's a whole thing that statistically speaking, at least in the US, well, that's what we call an MA integration. And MA integrations do not have a lot of success because companies come together for the wrong reasons.
Yeah, I'm fascinated. want to spend a portion of our time talking about another business acquiring another business and doing a merger and how you get them ready for that. That's definitely fascinating. But first on the exit side, from a buyer's perspective, so you're helping somebody get prepared to sell and want to make it as attractive as possible. What are some of the red flags that buyers see that you want to help your sellers sort of remove or mitigate as much as possible before getting ready for listening in, I guess?
Absolutely. I think that this, you know, the value detractors would probably be pretty similar across the board regardless of industry. But some of the things that a buyer would definitely have a red flag over would be customer concentration. So, say for instance, I have a service business or even a product business, and I've got one particular customer that, you know, consumes the majority or a large portion anyway of the business that I do.
And if I lost that customer or client, it would be devastating to the company. So that's a big red flag. Another red flag would be that I'm a one-trick pony. I have one service or one product, right? And if there's no diversity whatsoever, I've done really well with it, but there's really not a whole lot of strategic growth that's gone into any of the work that I've done.
And there are companies out there that are like that. Another value detractor or red flag would be if I've got fluctuating cash flow. And so, say for instance, my receivables are slow for my billing.
And so I'm bringing cash in on a sporadic basis. And in the meantime, I'm having to be the bank to pay my own bills and salaries of my employees, waiting for my clients or customers to pay me. Right. So if that's a problem, if that's an issue, then we need to be able to close that cash gap.
Right. So, you know, either negotiate being able to pay your bills a little bit later with your vendors or talk to your customers and clients and say, well, I need you to pay within 30 days. And if you can't pay within 30 days, there'd be a late fee or whatever you decide to do.
But cash flow is huge. And leaving cash in the business is another big factor. So if I am a smaller company, for instance, and maybe I don't have any employees, maybe it's just me. And maybe I like to spend the money that comes into the business. And now I'm thinking about selling it. And it actually could be worth something if I hadn't already had my liquidity event. But I've been kind of using my business like an ATM, right?
And so there isn't a whole lot of business money in the company, which really hurts someone who wants to buy a company because there's gotta be some operating cash flow, right? I've gotta be able to do something with it when I come in. I shouldn't have to buy the business and then, you know, flush a whole bunch of additional cash into the business just to keep it going. It should be there already, right?
Yes.
Which also comes back to the the cash like unstable cash flow of clients not paying on time or not paying early enough, and obviously it's better to have your clients pay earlier than you have to ask to pay your bills later. In my opinion, anyway, that's how I would run my business: not have to rely on other companies that are doing a service for me to be able to pay them later. If my client came to me and said they wanted to pay later, I'd just be like, Well, there's the door sort of thing.
So there are a lot of things that buyers look for, obviously, that, like you said, that one trick pony and the single source dependency. I lately in the last month, I've turned down five deals that have had single-source dependency on the owner where they mention they have an email list and they have social media, but they don't provide any organic traffic from anything.
And hidden in the SIM or the prospectus is that they acquire all of their clients or have acquired all of their clients due to personal network and being in the industry for 20 years or so, or 16 years or whatever it is. So for somebody to buy a business, like my clients can't buy that business because they don't have industry expertise and a network to be able to get new clients in.
So who's going to go and buy this business? What I don't even know why the broker is listing this. To whom is this going to be able to purchase that business? I get there's some people out there that might, you know, want to buy. Yeah, there's a very specific person that could purchase that. I think it's probably a lot of times it's either the customer list or it's a capability of the company, or maybe it's even their team, right? Because finding really good people is tough.
And so a lot of companies now are being chosen just because they have the employees that I, as a buyer, need, right? Or I love the customer list, or they're in a strategic location that I'm not actually in, or a market that I'm not actually in. And when you have owner-centricity like that, then a lot of times that owner can very well expect to stay on for a while.
Because they're the face of the company, right? So there has to be some kind of transition period where they are helping whoever the new acquirers are to get to know customers, clients, vendors, and those relationships and reestablish all that. And so there can be a good smooth transition versus a hard start and stop. So that's not always the case, but I would say that's very common.
Yeah. Very good strategic acquisition for somebody and strategic exit for that person. I came across one of them where they had a great team, and they were just the brand, the face of the business. But there've been many others that have not had that, and the new person to come and acquire would be buying a job in an industry they've never been in, which would be a very, very tricky acquisition.
Would you really need to have time to be on board with it?
Yeah. Yeah, well, I mean, also, they're getting all their clients; a hundred percent of their clients have come from their personal network over a twenty-year career. That's just not really something you can emulate that right out of the gate.
Yeah, yeah. Julie, how does a company or a business get prepared to acquire another business, and what are the things they need to think about if they wanna do the growth by acquisition strategy? And maybe not even merge, 'cause there's two different strategies, right?
You can acquire and try to merge, or you can acquire sort of a satellite business that can link into the main business and cross-pollinate, you know, products and revenue and stuff like that.
I'm just thinking of a couple of clients of mine who have done it successfully. And and I think that I think that the number one thing to really dive into and explore is to answer the question: why?
Why do I want to acquire another company? What's the purpose? Is it because I just want to accelerate my financial success and growth? No, that's that's a that's a good reason, but it shouldn't be the only reason, right?
What are the other reasons? And then, when I've identified the, you know, prospects of who I would like to acquire, I ask myself as a buyer, why am I interested in them? Is it because they have a strategic positioning that would make sense to add on to mine? Like a strategic connection, whether it's market, customers and clients, capabilities- as I said before, they can do these things or make this thing.
That I can't make, or they've got this market in this particular geographic area that I want, whatever it is, or they just have a team and I need their team, whatever the reasons. But then take that a step further and then figure out how bringing that company into your own company is actually gonna work out. Okay. So, like we said before, when you bring two companies together, whether it's a merger or whether one acquires the other, there's always going to be an integration time period, and it's usually a year, sometimes two years.
And I'm sure everyone listening to the show has experienced this in their life, whether they've done it themselves or whether they witnessed it out there in the world. I mean, I can think of like two huge banks years ago, and this has happened many times, right?
So it's not just the small companies; the big companies make the mistakes too. But it took forever for those two banks to come together. I mean, talk about broken systems and processes and confused customers and lots of mess.
Okay.
And lots of people left, lots of lots of employees left, lots of customers left because they didn't plan it out well. And if they would have actually planned out, like, okay, how are we gonna marry our technology? What kind of processes do we have that overlap, and where are their gaps?
How are things, the way we do business, gonna change when we bring this other company in? And then how will our people get along? What are we gonna do with the leaders that we have and that they have? You know, what what are the how are the roles gonna change? Who's gonna take on whose brand?. You know, those are all issues, right?
And do the cultures match? If the cultures match and the values are similar, then I thinkyou'veu got a good fighting chance at making it work as long as you have a plan. One other thing about this that I just want to mention really quick, and that is where I've seen companies fail an integration process because they don't bring experts in to actually orchestrate, coordinate, and facilitate the integrations.
They assign those jobs to the people that are already working full time, have a full plate, and then, by the way, we want you to try and figure out how you're going to onboard all these new people. And we want you to figure out how to integrate our software program with their software program.
You know what? You know what I mean? And what it should be is it should be a team of people that work with the subject matter experts within the company to help them with that onboarding and not put too much on because when they're overworked like that, then there's bitterness, right? And then the integration setup.
Yeah, I totally agree. It you can have somebody come in and just by migrating, it's actually a growth strategy hidden behind it where helping the the team merge the technologies and the systems and the culture, you can help them both on both sides make their jobs better and enjoy their role more and even create incentive where everybody is so much happier because of the acquisition and the merge and it can be a great growth strategy, right?
Yes, absolutely. Versus acquiring it and just doing a Hollywood ac acquisition, and they'll work it out themselves because I'm a leader and I'm the visionary and I can take it here. But if the foundations are, you know, broken, it's like trying to pour a concrete slab on. I'm from construction. It's like trying to pour a concrete slab and then have another concrete slab and try to merge that. Like it's just like you need to do it in the right way.
Yeah. Yeah. Maybe that's not the best analogy.
It's a marriage, right? And how do you make how do you set up a marriage to make it beautiful? Not just let's just get married because it's that's something that the world sees as success, right? Like you said before, why should you buy this company? Like what is it? Is it just for money?
Is it because you're gonna look more successful? Like 'cause hey, if you are just doing it for money, it's not, and you already have a lot of money, you're not gonna be any happier. You're gonna be more stressed, which probably leads to more unhappiness, right?
Yes, it's a very stressful thing being a business owner. I've been one my entire life, so I don't have any employees anymore, but I sure did for a long time. And I think just having a plan going into something like this. So I'll just speak to business transitions for a second to kind of, you know, illustrate a little bit.
Yeah, and maybe before you get into that, maybe you wrap that into how your, as you said, two or some of your clients have done this successfully and what and how they've done it.
Yeah, for sure. So with regard to transitions, I like to use the word business transition because it encompasses a lot of different things, including exit planning, right? So a full exit is a transition, buying a part, buying a partner out is a transition, taking on a partner is a transition, buying another company is a transition, selling part of your company is a transition. So there are a lot of different kinds of business transitions, right? And and there's and it it requires preparation.
And deep thinking and planning before you take it on. And like I said, the whole why factor is huge. So, case in point, a client of mine who is in the digestive health business sells products all over the world and has been for a long time. They have 19 patents.
And they decided that they wanted to expand their product line that was focused on digestive health and and getting get into the enzymes business as well. And so this was before COVID. We kind of define our life by that, right? Before and after COVID. Right. Yeah. Yeah, I know.
It was probably probably eight years ago or so, but that was one of the best moves that they have ever made. And more than doubled the company at the time. But it didn't start that way. So they went to the drawing board with four other companies prior to buying and making a deal on this particular company.
And the ones that fell through, actually, were primarily smaller companies owned by owners who wanted to sell their business and just retire. Okay. So there's a lot of them out there, right? Yeah, unfortunately, two of them at least, like, well, they got really far with those two.
The other two they didn't because they changed their mind right away. But but the two that they not at the same time but had worked with, you know, it's a lot of wasted time there, right? Because I learned a lot through that process.
We don't like your offer. Our business is worth more than that. And my clients' advisors- the deal maker and those who did the valuation and looked at the market and things like that to come up with a fair market value and to make a decent offer said, no, it's not. But that is very common with business owners, especially smaller ones, because they have no idea what valuation entails and how much their business is actually worth. They look at the number that they think they need to sell it for. Not what it's actually worth, right?
So big shocker. Sometimes they get mad. And then that's why that deal blew up. And then another one was a similar situation with mom and pop started the company, built it to this, you know, decent size, probably three or four million a year in sales, not very big.
But it was a good strategic, you know, could have been anyway, a good strategic purchase. And they got even further along the process with my client and then backed out because they got scared, because they didn't have a plan.
For what's next? And they said, Well, we decided we don't wanna sell our business because we don't know what we'll do with our life without it 'cause it's kind of who we are. So we're just gonna keep running it. Thanks anyway. It's a bummer.
That's very scary for them.
Such a waste of time.
Yeah, absolutely.
But for my client, it was like, you know, so lessons learned throughout that whole process, right? And then they finally hit a home run.
Yeah. I mean,n it's when people have this ideology of what something is worth, it's what it's worth to them. It's not what it's worth in the marketplace. Yeah. And we need advisors; this is why I have a job: to value businesses and make sure people are not gonna overpay because of somebody that has personally valued it based on what they feel it's worth, not what the numbers say and what the market would acquire it for.
Yeah.
Exactly.
And so what do you share with people to do in these situations, Julie, where the buyer's, you know, they've gotten down to numbers and like an offer and the sellers are saying no, it's worth far more than that. Where how do you advise your buyers to go to the next step?
I think for them, they just have to decide what their top number is and what their very best offer is. And if they've already submitted their very best offer and it was still rejected, then they just have to be okay with walking away. And I'm not really the one that's going to be helping them through that negotiating process either.
It's either gonna be their deal maker doing that, or it'll be their lawyer. So if they don't have a deal maker and the lawyer is kind of helping represent because they tapped on the shoulder some small company owner that they knew and said, you know, let's entertain, you know, me buying you or whatever.
That happens a lot with smaller companies. They don't get a deal maker involved. They just know each other and make it happen. However, when you're in a situation like that, especially if you're the seller, there's a saying in the US that we call when a deal is no deal. Because there's no competition.
So if there's any way that if you're gonna sell, if there's any way that you could create some kind of competition between at least two potential buyers to actually, you know improve the terms, maybe improve the price. You know, so many times too, here's another thing.
So many times too, sellers are after that top price. But it isn't necessarily the price as much as it is what you get to keep. I keep as much as I possibly can. I want to pay as little in taxes as I can. And the only way that I'm gonna know that I'm doing that is if I have really good advice well in advance. And many sellers don't get the advice that they need financially or tax planning-wise until after they act, and then it's too late.
What do they want to keep?
It is, unfortunately. It is, like you said, there's you've got that person whose identity is totally wrapped up in their business, but then you got a person that is ready to sell, but they don't have a plan for what's what's next financially. You've got the tax portion and how you allocate assets and distributions for the sale.
Really need to know, like, what if I'm gonna get X amount of money, how do I get pay that for minimal taxes and then where does that get distributed so it's put to work in the most in the best way for where I'm at personally, right?
Yeah. And do I really need or want, you know, my entire liquidity event all at once? It depends, right? There's no way that you can actually say a rule of thumb that should go one way or the other because it depends on the situation of the seller and the buyer and the type of transaction and how large it is and what type and all those good things, right? So if I, as a seller, have to stay on for a while and I've negotiated or agreed to some kind of an earnout, which means I'm gonna earn my payout over time.
Because it's a less risky proposition for the buyer. And for me as a seller, maybe it works as long as it's not tied to something I have no control over. Okay. So, say for instance, the client that you were talking about earlier who was everyone knew him, right?
He was the face of the business. That's a kind of situation where an earnout makes the most sense. Because if I'm the face of the business, then I should be pretty confident that I can continue to get those clients or customers to continue to work with.
This company, even though I've sold part of it, I'm still involved, and an earnout proves that that's the case. So that I, as a buyer, am not going to lose, you know, all those ki clients and customers once the seller moves on. So the seller isn't moving on; they're staying on for a while.
And that gives me some security in saying, yes, okay, as long as you're gonna stay on for a year or two years, and help me acclimate or reacclimate, then I'll agree to buy your company and here are the terms. Because the terms are the most important thing, really.
For sure, for sure. And the terms,s based on the earnout on like it could be a performance-based earnout, and it could protect the buyer a lot, which is where I typically like to go. But also just the terms of, like, the payment structure as well and how that is paid out for tax.
Like, I think for a buyer, the best way to go is having your money distributed to you, not all in one hit. Is obviously gonna probably get most of it in one go. Sorry, as a seller. From the bulk part to the purchase.
But why not drag out a portion if you if your business is good and you believe in it and believe in the seller? I mean, for the buyer, sorry, it's better to get that paid out over a period of time.
Taxable.
I agree. I think it can be a win-win situation for both parties, and honestly, I think the most successful transactions are a two-sided win. It isn't just one party who wins, and the other loses. Yeah, it's that's the those are the best ones.
That should be the only in my opinion is the only way people only reason people should transact: if everybody's happy on both sides. And sometimes it can be like a little bit of compromise to get there, to get to the middle. But if there's resentment on either side, it creates tension, and one per one side doesn't show up as much as they should, which sucks.
Then it jeopardizes the success of the transition.
Yeah. The relationship that is built through the acquisition is the glue, and there's so much value in that when you build a great relationship with the buyer and the seller that can last longer than just the transition period because that's one of the most valuable parts that we can't put numbers on. It's intangible, unfortunately, but I think it's one of the most valuable parts of the transaction for sure.
Are so right. I'm so glad that you brought that up because through the governing body for the certification process of exit planning, at least for the Exit Planning Institute, which is in Cleveland, Ohio, one of the organizing principles, aside from the three legs of the stool, which is personal, financial, and business, right?
And making sure that all three are taken care of. But also recognizing the intangible values in a company. Like that's over 80% of the enterprise value is in the intangibles. And so when we talk about the intangibles, we're talking about the people, of course, the value of the human capital, the structural capital, like do they have good technology?
Are their processes tight? Do they have good systems? Their social capital? You know, what does what does the what does their brand have to say about them?
Right? What does the competition have to say about them? What do their customers have to say about them? And then their customer or client capital. How loyal are they? How long have they been around? How much are they buying from the company? And all of those will be considered intangibles but totally worth value.
Yeah. Yeah, as you said, 80% is so significant. And this is why I'm so excited for my buyers and all buyers in general is that when you can see how valuable those things are and the seller of a business hasn't yet or doesn't understand it at a level that you might be able to, the level of growth you can get in the business by just helping people in their role and making their job better and building better relationships with the seller and everybody, you win significantly. Like there is no ROI that you can place on that, really.
Yeah, I think that you could become a hero really fast with an existing team if you could come in, work alongside, you know, have empathy and be a good listener right out of the gate. 'Cause you know, we're talking about establishing trust, and it's a relationship like any other.
And the more I trust you, the more I'm gonna be able to work with you and, you know, remain loyal and remain with the company. And so I think that that's that's super important, yeah.
Yeah. It's kind of like putting the shoe on the other foot and flipping it and saying, as a business owner, my employees don't work for me; I work for them. You need to tell me what you need to make your conditions better because the better your conditions are, the better you perform and the better results you get, which is better for the business and everybody else.
Like what do you need? And I just spoke to Jared Johnson, who is an SBA lender for acquisitions, and he acquired a business, and there was somebody that was in their business for twenty years on the business they acquired, and they didn't really seem like they had the best relationship with the previous owner, and they're working in the business in a physical location. They didn't like going into the physical location. So that as Jared, the new owner, came in, he said, Look, I wanna keep you on. Like you're so valuable.
I want to work with you. I want to make this great for you. What, what do you need? And he gave her a laptop. She could work from home and help build the business and help through the migration. And she was so happy about it. Like, that's that's something. How do you value how do you put a value on that in the transaction?
He didn't even know. Like when he was buying the business, the owner said, yeah, we've got this operations person that does these things. I don't know if you want to keep her on or not. It's like, what do you mean? Like, why wouldn't you want to keep her on?
Like, that's like obviously, as the seller, he didn't realise the value in he,r and obviously that's unfortunate for him and the business.
Yeah, so many times too, like conversely, sellers are very attached to their teams, and they're more prone to turning down deals that are lucrative if the legacy and if the team isn't gonna be remaining intact. And so that, for a lot of owners, that's a big deal.
Yeah. People will they will take less money or a smaller offer for somebody they trust more. Which again comes back to how good the relationship is you build with the seller and the buyer.
Yeah. Yeah. Julie, thanks so much for coming on. Where can we send people to talk a talk with you about prepping for an exit?
Well, I have a profile on LinkedIn, and I think everyone can find me on LinkedIn, just Julie Keys, K-E-Y-E-S. You can find my email address on my LinkedIn profile; my website is on my LinkedIn profile.
I also have a podcast called Poised for Exit, and I wrote a book of the same name called Poised for Exit, and that's in its third edition printing, and the show itself is weekly, and we just turned six years old this month.
Congratulations.
Thanks.
Right. Yeah. Yeah. So it's all exit planning related or growing enterprise value related. It's a combi combination of owners and advisors that come on the show and talk about, you know, different strategies and things like that. Yeah, absolutely. Cool. I love that. Thanks for sharing.
Thanks for coming on to your LinkedIn, where people can find everything. From new books and all. And yeah, looking forward to speaking to you again soon.
Thank you so much, Jaryd, and thanks everyone for listening.
Appreciate it.
Thanks for listening, guys. See you on the next one.
I'm Jaryd Krause. I'm the host of the Buying Online Business podcast. And today I'm speaking with Julie Keys. She's a certified exit planning advisor. She's the founder of Key Strategies and author of Poise for Exit. And she's got over thirty years as an entrepreneur, and she's helped hundreds of private business owners build enterprise value and exit.
On their own terms. She's a two-time EPI Thought Leader of the Year, inducted into the Hall of Fame of Exit Planning, and hosts the Poise for Exit podcast. Now, Julie is on the EPI faculty and trains advisors and business owners across the country on exit strategy. In this podcast, we talk about exit strategy. We will firstly we'll talk about how she helps sellers remove risk within their business that makes these businesses extremely attractive for buyers.
And that buyers want to acquire these and what are those risks and how can you remove them in your business to make sure your value of your business becomes or the value of your business is higher. We also talk about the intangibles like relationships in deals and how much value goes into relationships.
I share a story on how important the relationship is with the buyer and the seller, but also with the team when you purchase a business, and how much value there is in the relationships with the team within the business that can allow the business to accelerate and grow, and what you can do to make that happen after you've acquired a business.
We also talk about where mergers go wrong. So Julie shares how people get prepared to acquire a business, what they need to do to be prepared to acquire a business, and how they should acquire a business for a merger and be successful versus what people do incorrectly when they try to merge a business and it just falls apart. Obviously.
You're listening to this pod because you want to buy a business; do yourself a massive favor. Dramatically decrease your risk of buying a business by getting my due diligence framework. It's what I use; it's what my clients use. It's not only made people millions of dollars, but it's saved people millions and millions of dollars as well. It's free, and it's a link in the description. Let's dive into the pod.
Julie, welcome to the pod.
Yeah, absolutely. I'm excited to chat.
From you, you help people get exit-ready, correct? But you've also helped people.
Yeah.
So how did you get into helping people sell and get exit-ready?
Yeah.
Thanks for having me, Jaryd. Nice to be here.
Yeah.
So I'm a certified exit planning advisor from the US, and we have brokers and investment bankers that actually handle the deal-making process. I don't do that part, but what I do is help the business owners prepare for either an acquisition of their own that they're gonna go buy another business or help them to prepare to sell.
So de-risking the owner, de-risking the business, doing what I can to help the owner shore up the enterprise value of the current business. And then if they're making an acquisition, make sure that that business actually is ready for bringing in another company 'cause that's that's a whole thing that statistically speaking, at least in the US, well, that's what we call an MA integration. And MA integrations do not have a lot of success because companies come together for the wrong reasons.
Yeah, I'm fascinated. want to spend a portion of our time talking about another business acquiring another business and doing a merger and how you get them ready for that. That's definitely fascinating. But first on the exit side, from a buyer's perspective, so you're helping somebody get prepared to sell and want to make it as attractive as possible. What are some of the red flags that buyers see that you want to help your sellers sort of remove or mitigate as much as possible before getting ready for listening in, I guess?
Absolutely. I think that this, you know, the value detractors would probably be pretty similar across the board regardless of industry. But some of the things that a buyer would definitely have a red flag over would be customer concentration. So, say for instance, I have a service business or even a product business, and I've got one particular customer that, you know, consumes the majority or a large portion anyway of the business that I do.
And if I lost that customer or client, it would be devastating to the company. So that's a big red flag. Another red flag would be that I'm a one-trick pony. I have one service or one product, right? And if there's no diversity whatsoever, I've done really well with it, but there's really not a whole lot of strategic growth that's gone into any of the work that I've done.
And there are companies out there that are like that. Another value detractor or red flag would be if I've got fluctuating cash flow. And so, say for instance, my receivables are slow for my billing.
And so I'm bringing cash in on a sporadic basis. And in the meantime, I'm having to be the bank to pay my own bills and salaries of my employees, waiting for my clients or customers to pay me. Right. So if that's a problem, if that's an issue, then we need to be able to close that cash gap.
Right. So, you know, either negotiate being able to pay your bills a little bit later with your vendors or talk to your customers and clients and say, well, I need you to pay within 30 days. And if you can't pay within 30 days, there'd be a late fee or whatever you decide to do.
But cash flow is huge. And leaving cash in the business is another big factor. So if I am a smaller company, for instance, and maybe I don't have any employees, maybe it's just me. And maybe I like to spend the money that comes into the business. And now I'm thinking about selling it. And it actually could be worth something if I hadn't already had my liquidity event. But I've been kind of using my business like an ATM, right?
And so there isn't a whole lot of business money in the company, which really hurts someone who wants to buy a company because there's gotta be some operating cash flow, right? I've gotta be able to do something with it when I come in. I shouldn't have to buy the business and then, you know, flush a whole bunch of additional cash into the business just to keep it going. It should be there already, right?
Yes.
Which also comes back to the the cash like unstable cash flow of clients not paying on time or not paying early enough, and obviously it's better to have your clients pay earlier than you have to ask to pay your bills later. In my opinion, anyway, that's how I would run my business: not have to rely on other companies that are doing a service for me to be able to pay them later. If my client came to me and said they wanted to pay later, I'd just be like, Well, there's the door sort of thing.
So there are a lot of things that buyers look for, obviously, that, like you said, that one trick pony and the single source dependency. I lately in the last month, I've turned down five deals that have had single-source dependency on the owner where they mention they have an email list and they have social media, but they don't provide any organic traffic from anything.
And hidden in the SIM or the prospectus is that they acquire all of their clients or have acquired all of their clients due to personal network and being in the industry for 20 years or so, or 16 years or whatever it is. So for somebody to buy a business, like my clients can't buy that business because they don't have industry expertise and a network to be able to get new clients in.
So who's going to go and buy this business? What I don't even know why the broker is listing this. To whom is this going to be able to purchase that business? I get there's some people out there that might, you know, want to buy. Yeah, there's a very specific person that could purchase that. I think it's probably a lot of times it's either the customer list or it's a capability of the company, or maybe it's even their team, right? Because finding really good people is tough.
And so a lot of companies now are being chosen just because they have the employees that I, as a buyer, need, right? Or I love the customer list, or they're in a strategic location that I'm not actually in, or a market that I'm not actually in. And when you have owner-centricity like that, then a lot of times that owner can very well expect to stay on for a while.
Because they're the face of the company, right? So there has to be some kind of transition period where they are helping whoever the new acquirers are to get to know customers, clients, vendors, and those relationships and reestablish all that. And so there can be a good smooth transition versus a hard start and stop. So that's not always the case, but I would say that's very common.
Yeah. Very good strategic acquisition for somebody and strategic exit for that person. I came across one of them where they had a great team, and they were just the brand, the face of the business. But there've been many others that have not had that, and the new person to come and acquire would be buying a job in an industry they've never been in, which would be a very, very tricky acquisition.
Would you really need to have time to be on board with it?
Yeah. Yeah, well, I mean, also, they're getting all their clients; a hundred percent of their clients have come from their personal network over a twenty-year career. That's just not really something you can emulate that right out of the gate.
Yeah, yeah. Julie, how does a company or a business get prepared to acquire another business, and what are the things they need to think about if they wanna do the growth by acquisition strategy? And maybe not even merge, 'cause there's two different strategies, right?
You can acquire and try to merge, or you can acquire sort of a satellite business that can link into the main business and cross-pollinate, you know, products and revenue and stuff like that.
I'm just thinking of a couple of clients of mine who have done it successfully. And and I think that I think that the number one thing to really dive into and explore is to answer the question: why?
Why do I want to acquire another company? What's the purpose? Is it because I just want to accelerate my financial success and growth? No, that's that's a that's a good reason, but it shouldn't be the only reason, right?
What are the other reasons? And then, when I've identified the, you know, prospects of who I would like to acquire, I ask myself as a buyer, why am I interested in them? Is it because they have a strategic positioning that would make sense to add on to mine? Like a strategic connection, whether it's market, customers and clients, capabilities- as I said before, they can do these things or make this thing.
That I can't make, or they've got this market in this particular geographic area that I want, whatever it is, or they just have a team and I need their team, whatever the reasons. But then take that a step further and then figure out how bringing that company into your own company is actually gonna work out. Okay. So, like we said before, when you bring two companies together, whether it's a merger or whether one acquires the other, there's always going to be an integration time period, and it's usually a year, sometimes two years.
And I'm sure everyone listening to the show has experienced this in their life, whether they've done it themselves or whether they witnessed it out there in the world. I mean, I can think of like two huge banks years ago, and this has happened many times, right?
So it's not just the small companies; the big companies make the mistakes too. But it took forever for those two banks to come together. I mean, talk about broken systems and processes and confused customers and lots of mess.
Okay.
And lots of people left, lots of lots of employees left, lots of customers left because they didn't plan it out well. And if they would have actually planned out, like, okay, how are we gonna marry our technology? What kind of processes do we have that overlap, and where are their gaps?
How are things, the way we do business, gonna change when we bring this other company in? And then how will our people get along? What are we gonna do with the leaders that we have and that they have? You know, what what are the how are the roles gonna change? Who's gonna take on whose brand?. You know, those are all issues, right?
And do the cultures match? If the cultures match and the values are similar, then I thinkyou'veu got a good fighting chance at making it work as long as you have a plan. One other thing about this that I just want to mention really quick, and that is where I've seen companies fail an integration process because they don't bring experts in to actually orchestrate, coordinate, and facilitate the integrations.
They assign those jobs to the people that are already working full time, have a full plate, and then, by the way, we want you to try and figure out how you're going to onboard all these new people. And we want you to figure out how to integrate our software program with their software program.
You know what? You know what I mean? And what it should be is it should be a team of people that work with the subject matter experts within the company to help them with that onboarding and not put too much on because when they're overworked like that, then there's bitterness, right? And then the integration setup.
Yeah, I totally agree. It you can have somebody come in and just by migrating, it's actually a growth strategy hidden behind it where helping the the team merge the technologies and the systems and the culture, you can help them both on both sides make their jobs better and enjoy their role more and even create incentive where everybody is so much happier because of the acquisition and the merge and it can be a great growth strategy, right?
Yes, absolutely. Versus acquiring it and just doing a Hollywood ac acquisition, and they'll work it out themselves because I'm a leader and I'm the visionary and I can take it here. But if the foundations are, you know, broken, it's like trying to pour a concrete slab on. I'm from construction. It's like trying to pour a concrete slab and then have another concrete slab and try to merge that. Like it's just like you need to do it in the right way.
Yeah. Yeah. Maybe that's not the best analogy.
It's a marriage, right? And how do you make how do you set up a marriage to make it beautiful? Not just let's just get married because it's that's something that the world sees as success, right? Like you said before, why should you buy this company? Like what is it? Is it just for money?
Is it because you're gonna look more successful? Like 'cause hey, if you are just doing it for money, it's not, and you already have a lot of money, you're not gonna be any happier. You're gonna be more stressed, which probably leads to more unhappiness, right?
Yes, it's a very stressful thing being a business owner. I've been one my entire life, so I don't have any employees anymore, but I sure did for a long time. And I think just having a plan going into something like this. So I'll just speak to business transitions for a second to kind of, you know, illustrate a little bit.
Yeah, and maybe before you get into that, maybe you wrap that into how your, as you said, two or some of your clients have done this successfully and what and how they've done it.
Yeah, for sure. So with regard to transitions, I like to use the word business transition because it encompasses a lot of different things, including exit planning, right? So a full exit is a transition, buying a part, buying a partner out is a transition, taking on a partner is a transition, buying another company is a transition, selling part of your company is a transition. So there are a lot of different kinds of business transitions, right? And and there's and it it requires preparation.
And deep thinking and planning before you take it on. And like I said, the whole why factor is huge. So, case in point, a client of mine who is in the digestive health business sells products all over the world and has been for a long time. They have 19 patents.
And they decided that they wanted to expand their product line that was focused on digestive health and and getting get into the enzymes business as well. And so this was before COVID. We kind of define our life by that, right? Before and after COVID. Right. Yeah. Yeah, I know.
It was probably probably eight years ago or so, but that was one of the best moves that they have ever made. And more than doubled the company at the time. But it didn't start that way. So they went to the drawing board with four other companies prior to buying and making a deal on this particular company.
And the ones that fell through, actually, were primarily smaller companies owned by owners who wanted to sell their business and just retire. Okay. So there's a lot of them out there, right? Yeah, unfortunately, two of them at least, like, well, they got really far with those two.
The other two they didn't because they changed their mind right away. But but the two that they not at the same time but had worked with, you know, it's a lot of wasted time there, right? Because I learned a lot through that process.
We don't like your offer. Our business is worth more than that. And my clients' advisors- the deal maker and those who did the valuation and looked at the market and things like that to come up with a fair market value and to make a decent offer said, no, it's not. But that is very common with business owners, especially smaller ones, because they have no idea what valuation entails and how much their business is actually worth. They look at the number that they think they need to sell it for. Not what it's actually worth, right?
So big shocker. Sometimes they get mad. And then that's why that deal blew up. And then another one was a similar situation with mom and pop started the company, built it to this, you know, decent size, probably three or four million a year in sales, not very big.
But it was a good strategic, you know, could have been anyway, a good strategic purchase. And they got even further along the process with my client and then backed out because they got scared, because they didn't have a plan.
For what's next? And they said, Well, we decided we don't wanna sell our business because we don't know what we'll do with our life without it 'cause it's kind of who we are. So we're just gonna keep running it. Thanks anyway. It's a bummer.
That's very scary for them.
Such a waste of time.
Yeah, absolutely.
But for my client, it was like, you know, so lessons learned throughout that whole process, right? And then they finally hit a home run.
Yeah. I mean,n it's when people have this ideology of what something is worth, it's what it's worth to them. It's not what it's worth in the marketplace. Yeah. And we need advisors; this is why I have a job: to value businesses and make sure people are not gonna overpay because of somebody that has personally valued it based on what they feel it's worth, not what the numbers say and what the market would acquire it for.
Yeah.
Exactly.
And so what do you share with people to do in these situations, Julie, where the buyer's, you know, they've gotten down to numbers and like an offer and the sellers are saying no, it's worth far more than that. Where how do you advise your buyers to go to the next step?
I think for them, they just have to decide what their top number is and what their very best offer is. And if they've already submitted their very best offer and it was still rejected, then they just have to be okay with walking away. And I'm not really the one that's going to be helping them through that negotiating process either.
It's either gonna be their deal maker doing that, or it'll be their lawyer. So if they don't have a deal maker and the lawyer is kind of helping represent because they tapped on the shoulder some small company owner that they knew and said, you know, let's entertain, you know, me buying you or whatever.
That happens a lot with smaller companies. They don't get a deal maker involved. They just know each other and make it happen. However, when you're in a situation like that, especially if you're the seller, there's a saying in the US that we call when a deal is no deal. Because there's no competition.
So if there's any way that if you're gonna sell, if there's any way that you could create some kind of competition between at least two potential buyers to actually, you know improve the terms, maybe improve the price. You know, so many times too, here's another thing.
So many times too, sellers are after that top price. But it isn't necessarily the price as much as it is what you get to keep. I keep as much as I possibly can. I want to pay as little in taxes as I can. And the only way that I'm gonna know that I'm doing that is if I have really good advice well in advance. And many sellers don't get the advice that they need financially or tax planning-wise until after they act, and then it's too late.
What do they want to keep?
It is, unfortunately. It is, like you said, there's you've got that person whose identity is totally wrapped up in their business, but then you got a person that is ready to sell, but they don't have a plan for what's what's next financially. You've got the tax portion and how you allocate assets and distributions for the sale.
Really need to know, like, what if I'm gonna get X amount of money, how do I get pay that for minimal taxes and then where does that get distributed so it's put to work in the most in the best way for where I'm at personally, right?
Yeah. And do I really need or want, you know, my entire liquidity event all at once? It depends, right? There's no way that you can actually say a rule of thumb that should go one way or the other because it depends on the situation of the seller and the buyer and the type of transaction and how large it is and what type and all those good things, right? So if I, as a seller, have to stay on for a while and I've negotiated or agreed to some kind of an earnout, which means I'm gonna earn my payout over time.
Because it's a less risky proposition for the buyer. And for me as a seller, maybe it works as long as it's not tied to something I have no control over. Okay. So, say for instance, the client that you were talking about earlier who was everyone knew him, right?
He was the face of the business. That's a kind of situation where an earnout makes the most sense. Because if I'm the face of the business, then I should be pretty confident that I can continue to get those clients or customers to continue to work with.
This company, even though I've sold part of it, I'm still involved, and an earnout proves that that's the case. So that I, as a buyer, am not going to lose, you know, all those ki clients and customers once the seller moves on. So the seller isn't moving on; they're staying on for a while.
And that gives me some security in saying, yes, okay, as long as you're gonna stay on for a year or two years, and help me acclimate or reacclimate, then I'll agree to buy your company and here are the terms. Because the terms are the most important thing, really.
For sure, for sure. And the terms,s based on the earnout on like it could be a performance-based earnout, and it could protect the buyer a lot, which is where I typically like to go. But also just the terms of, like, the payment structure as well and how that is paid out for tax.
Like, I think for a buyer, the best way to go is having your money distributed to you, not all in one hit. Is obviously gonna probably get most of it in one go. Sorry, as a seller. From the bulk part to the purchase.
But why not drag out a portion if you if your business is good and you believe in it and believe in the seller? I mean, for the buyer, sorry, it's better to get that paid out over a period of time.
Taxable.
I agree. I think it can be a win-win situation for both parties, and honestly, I think the most successful transactions are a two-sided win. It isn't just one party who wins, and the other loses. Yeah, it's that's the those are the best ones.
That should be the only in my opinion is the only way people only reason people should transact: if everybody's happy on both sides. And sometimes it can be like a little bit of compromise to get there, to get to the middle. But if there's resentment on either side, it creates tension, and one per one side doesn't show up as much as they should, which sucks.
Then it jeopardizes the success of the transition.
Yeah. The relationship that is built through the acquisition is the glue, and there's so much value in that when you build a great relationship with the buyer and the seller that can last longer than just the transition period because that's one of the most valuable parts that we can't put numbers on. It's intangible, unfortunately, but I think it's one of the most valuable parts of the transaction for sure.
Are so right. I'm so glad that you brought that up because through the governing body for the certification process of exit planning, at least for the Exit Planning Institute, which is in Cleveland, Ohio, one of the organizing principles, aside from the three legs of the stool, which is personal, financial, and business, right?
And making sure that all three are taken care of. But also recognizing the intangible values in a company. Like that's over 80% of the enterprise value is in the intangibles. And so when we talk about the intangibles, we're talking about the people, of course, the value of the human capital, the structural capital, like do they have good technology?
Are their processes tight? Do they have good systems? Their social capital? You know, what does what does the what does their brand have to say about them?
Right? What does the competition have to say about them? What do their customers have to say about them? And then their customer or client capital. How loyal are they? How long have they been around? How much are they buying from the company? And all of those will be considered intangibles but totally worth value.
Yeah. Yeah, as you said, 80% is so significant. And this is why I'm so excited for my buyers and all buyers in general is that when you can see how valuable those things are and the seller of a business hasn't yet or doesn't understand it at a level that you might be able to, the level of growth you can get in the business by just helping people in their role and making their job better and building better relationships with the seller and everybody, you win significantly. Like there is no ROI that you can place on that, really.
Yeah, I think that you could become a hero really fast with an existing team if you could come in, work alongside, you know, have empathy and be a good listener right out of the gate. 'Cause you know, we're talking about establishing trust, and it's a relationship like any other.
And the more I trust you, the more I'm gonna be able to work with you and, you know, remain loyal and remain with the company. And so I think that that's that's super important, yeah.
Yeah. It's kind of like putting the shoe on the other foot and flipping it and saying, as a business owner, my employees don't work for me; I work for them. You need to tell me what you need to make your conditions better because the better your conditions are, the better you perform and the better results you get, which is better for the business and everybody else.
Like what do you need? And I just spoke to Jared Johnson, who is an SBA lender for acquisitions, and he acquired a business, and there was somebody that was in their business for twenty years on the business they acquired, and they didn't really seem like they had the best relationship with the previous owner, and they're working in the business in a physical location. They didn't like going into the physical location. So that as Jared, the new owner, came in, he said, Look, I wanna keep you on. Like you're so valuable.
I want to work with you. I want to make this great for you. What, what do you need? And he gave her a laptop. She could work from home and help build the business and help through the migration. And she was so happy about it. Like, that's that's something. How do you value how do you put a value on that in the transaction?
He didn't even know. Like when he was buying the business, the owner said, yeah, we've got this operations person that does these things. I don't know if you want to keep her on or not. It's like, what do you mean? Like, why wouldn't you want to keep her on?
Like, that's like obviously, as the seller, he didn't realise the value in he,r and obviously that's unfortunate for him and the business.
Yeah, so many times too, like conversely, sellers are very attached to their teams, and they're more prone to turning down deals that are lucrative if the legacy and if the team isn't gonna be remaining intact. And so that, for a lot of owners, that's a big deal.
Yeah. People will they will take less money or a smaller offer for somebody they trust more. Which again comes back to how good the relationship is you build with the seller and the buyer.
Yeah. Yeah. Julie, thanks so much for coming on. Where can we send people to talk a talk with you about prepping for an exit?
Well, I have a profile on LinkedIn, and I think everyone can find me on LinkedIn, just Julie Keys, K-E-Y-E-S. You can find my email address on my LinkedIn profile; my website is on my LinkedIn profile.
I also have a podcast called Poised for Exit, and I wrote a book of the same name called Poised for Exit, and that's in its third edition printing, and the show itself is weekly, and we just turned six years old this month.
Congratulations.
Thanks.
Right. Yeah. Yeah. So it's all exit planning related or growing enterprise value related. It's a combi combination of owners and advisors that come on the show and talk about, you know, different strategies and things like that. Yeah, absolutely. Cool. I love that. Thanks for sharing.
Thanks for coming on to your LinkedIn, where people can find everything. From new books and all. And yeah, looking forward to speaking to you again soon.
Thank you so much, Jaryd, and thanks everyone for listening.
Appreciate it.
Thanks for listening, guys. See you on the next one.
Host:
Jaryd Krause is a serial entrepreneur who helps people buy online businesses so they can spend more time doing what they love with who they love. He’s helped people buy and scale sites all the way up to 8 figures – from eCommerce to content websites. He spends his time surfing and traveling, and his biggest goals are around making a real tangible impact on people’s lives.
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