Ep. 7 The LOI Is Your Highest Point of Leverage Featuring: Ruben Ramirez

Bob Roark: On this episode, we have Ruben Ramirez. He’s a director at Blue and Company LLC. He’s located in Franklin, Michigan. He’s a CPA, an ABV, and I had to look accredited in business valuation, and a CEPA, which is a certified exit planning advisor. He works closely with manufacturers and distributors to navigate industry-specific financial and operational challenges. He has extensive experience advising closely held businesses and their owners. through the complexity of the sell site MA Transactions, Aesops, and Succession Planning. Rubens, welcome. You and I met in Nashville. Tell us a little bit about your firm and who you serve.

Ruben Ramirez: Absolutely. Bob, thanks for having me ⁓ on today’s show. And ⁓ as you mentioned, I’m a director out of our Metro Detroit office. ⁓ we’re about 15 minutes away from the ⁓ from downtown Detroit. My firm is Blue and Co. We are a top sixty CPA firm, full service. So, you know, our services do include the traditional accounting and tax functions, whether it’s a year-end financial statement, ⁓ tax compliance, ⁓ Tax planning, we prepare 1040s, gift returns, trust returns. ⁓ in addition to just the traditional core compliance work, ⁓ for me specifically, I do lead our transaction advisory group on the tax side, which is referred to as Blue Value Advisors. ⁓ I’ve worked in the industry for close to 15 years. I’ve worked on over 200 transactions. All closely held businesses with enterprise values ranging from $2 million on the very low end north of half a billion dollars, ⁓ with the meat and potatoes being right around that $15 million in enterprise value to $50 million in enterprise value. ⁓ being from Metro Detroit, there is a heavy manufacturing and distribution presence here, which is why I I I do and I am involved.

Bob Roark: Mm-hmm.

Ruben Ramirez: primarily on the manufacturing side, ⁓ but have been involved in several different industries from a transaction perspective and do focus more on the sell side, advisory side of the business.

Bob Roark: You know, for you, ⁓ with your credentials, you ended up at kind of the intersection, you know, of the operational side of a business and the MA transaction side. You know, you had with the ABV and the CEPA. You know, when you started pointing toward that direction, what was the thought process that took you to to those particular designations?

Ruben Ramirez: ⁓ well it wasn’t really so much a a thought process as much as it was I was kind of forced into my situation. ⁓ so prior Prior to joy ⁓ and Detroit, right, but specifically on the on the MA side. So at my previous firm ⁓ that I was with, where I served ⁓ on on the tax side for about 10 years, ⁓ we we did a lot of transaction work. And that transaction work was primarily done with one partner in the office. And ⁓ as you may be aware, transactions can be ⁓ exhausting, daunting, ⁓ time sensitive, and for one person.

Bob Roark: Hello?

Ruben Ramirez: To manage that for an entire firm. ⁓ It could spread that person thin. So I was basically forced to attend every transaction call to review every IOI, LOI, to help redline every purchase agreement, to structure every transaction, to prepare a net proceeds analysis, an asset for a stock sale analysis on every deal. And over years and years of pain and agony, I developed my expertise and ⁓ gravitated towards the MA field and ⁓ working with MAs it it made sense to get the SQL certification as well as the ABB credential.

Bob Roark: You know, it you bring up an interesting point. We we oftentimed on the owner side. Right. And you’re on the other side of the table. You know, do you not have knock-on effect on deal fatigue as well?

Ruben Ramirez: absolutely. ⁓ especially around the holidays and and year end, because a lot of businesses like closing before twelve thirty one and i i it it can be exhausting. I I do manage a full book of business. Roughly I manage about two and a half to three million dollars of a practice of traditional compliance work, and I touch practically every engagement out of our office and a significant amount of engagements throughout the entire firm, which consists of, you know, north of 15 different offices. so it’s less and less more fatiguing now just because I’ve been in the industry for so long and I’ve had so many at-bats. ⁓ the the parts that can be exhausting is when you’re coming across ⁓ new concepts or new challenges that you haven’t faced before. But given my level of experience, I’ve I’ve kind of ⁓ came across my fair share and feel a lot more confident and

Bob Roark: Yeah.

Ruben Ramirez: know that when I’m on a due diligence call with, you know, twelve other CPAs at big four C PA firms and I’m able to basically hold my own in front of all of ⁓ you develop a a level of comfort and and competence.

Bob Roark: veteran. ⁓ boy. You know, you you joined Blue and Company in 2024. You know, what what motivated or prompted you to to move to Blue and Co. And, you know, is that what you’re doing now? It doesn’t sound like it’s significantly different than what you did before. What did Blue and Co provide that you didn’t have before?

Ruben Ramirez: Yeah, so our office actually merged in ⁓ with Blue ⁓ about a couple years back. And in the CPA profession in general, there is a ton of consolidation occurring. So a lot of the regional firms have basically disappeared. ⁓ And and really it it seems like the industry is going to consist of the top one hundred firms or very, very small sole practitioners. So again, this this wasn’t really a a choice of mine. It was a strategic choice of our office that we needed to diversify some of our risk ⁓ in relation to human capital because that’s another area of pressure that the industry is is currently experiencing is that not a lot of college students are going into the field of accounting and taxation. And even fewer are going into to public practice because of the workload and demand. So being able to be part of a much larger firm, again a top 60 firm that consists of 600 professionals, does provide us with a bit more risk diversification in the event that we had some staff leave. as well as we are offer to able are able to offer additional services that we just didn’t have in house previously. So a a much deeper bench.

Bob Roark: Okay. Makes sense. Yeah. And it’s a trend for sure. ⁓ you know, when when I hear about manufacturing and distributing, I’m in Colorado, so my manufacturing distributing base is likely different than what you have in the Detroit area. Are there specific segments in those verticals that you specialize in? Or you know, I guess draw me a mental picture of a manufacturer and or a distributor.

Ruben Ramirez: Yeah, so I mean, generally speaking in Detroit, a lot of the manufacturers and distributors are auto-related. Out of coincidence, I I don’t actually have a huge percentage of those auto-related clients. I I have a lot of niche manufacturers. For example, I have a a client that does about sixty million in revenue that that manufactures bulletproof glass and does business in all fifty states. I have another client that does ⁓ fire ⁓ extinguishing suppression solutions for

Bob Roark: Yeah.

Ruben Ramirez: all 50 states again about 50 to 70 million in revenue operates in multi-states ⁓ and and it’s those attributes that are pretty consistent across all manufacturing clients right they’re capital intensive they carry a heavy networking capital they tend to operate in multi-states there’s nexus exposures related to sales and use tax so You know, when it comes to manufacturing distribution, that encompasses a huge industry. ⁓ a lot that that have overlap in a lot of the same traits that ⁓ might apply to like an automotive supplier compared to a niche manufacturer.

Bob Roark: You know, it we were talking about you know deal flow and and your experience. You know, the days leading up to the close on a manufacturing sell side transaction, what is your daily tempo look like? And are there any markers or indications that you watch out for from the owner?

Ruben Ramirez: So I I guess ⁓ answer your the last question, not specifically indications from the owner, more so indications from the deal team. Has communication really sped up? Has it slowed down? is it reasonable that we’re gonna we’re going to close in two days, you know, ⁓ given that we’re missing 15 different illustrations that have to be attached to the APA?

Bob Roark: Yeah.

Ruben Ramirez: ⁓ it’s really the at least in my opinion, what what indicates whether the transaction is actually going to close on time is the is the intensity. And that’s what I would how I would describe that week leading up to the closing is that it’s incredibly intense intense. ⁓ you know, you’re you’re you’re still in the process of of basically ⁓ working with the attorneys and And looking at the last turns of the purchase agreements. You’re still redlining some items here and there. There’s we’re still putting together illustrations to be included in the agreement. We’re in the process of drafting up pro forma balance sheets for purposes of determining the network and capital calculation and the peg. ⁓ it’s exhausting. I mean, whenever we have a closing, we try to carve out a few days prior to closing, knowing that it’s going to be a very intense process. And that there’s a lot of things that have to be done last minute in order to get the deal through the the finish line.

Bob Roark: You know, w what what was on my mind that you were talking about that is your pre life when you were involved, and I don’t know where in in in that sequence that you got your your business valuation accreditation. When you when you did get that Did do you think that helped your perspective, expertise, abilities when you got the A B V?

Ruben Ramirez: To an extent, you know, the the ABV really ⁓ is in my opinion geared more towards valuations that are used for for gifting purposes, fair market value assessments. When it comes to valuations that are added to a purchase agreement or an IOI or an LOI specifically, ⁓ A lot of times that’s based off the multiple approach. So it it’s there’s a lot more concepts that the ABV dives into that really isn’t as applicable to working in the MA space. It’s it’s good to have a general understanding of how valuations are determined and the differences between the income approach, ⁓ the asset approach and looking at discounted fit cash flows and understanding what those one off adjusting entries are and what are the normalizing adjustments and ⁓ basically how does a a formal valuation, how is it put together, what considerations must be accounted for. But when it comes to the transaction world, a lot of that stuff kind of goes out the window and it’s it’s usually market based, right? Let’s look for competitors, let’s look at what they sold for. Let’s look at a leverage buyout analysis and and what this business would be able to service from a debt perspective. So it it’s not really comparing apples to apples, but it’s just a good fundamental ⁓ understanding and foundation from a technical perspective of of the concepts that apply in the valuation world, which do trickle down to the the ⁓ and A side as well.

Bob Roark: Okay. You know, switching gears a bit, the wire lands and you did the valuation and you know the numbers just confirmed and you know, or it was negotiated. You know, what is that moment when that finally happens? What does it look like from where you’re sitting?

Ruben Ramirez: ⁓ I I feel like I just finished a marathon. ⁓ when that when that happens, you know, when the when the the when the wire lands, when the the closing funds are are rolled out, when we get our our fees paid for. ⁓ it’s just it’s relief because again, the weeks and months leading up to closing are incredibly, incredibly exhausting. The due diligence process is

Bob Roark: Okay. I’m gonna turn this off. I apologize if you cannot tell. ⁓ the cell phone is set for ⁓ duck hunting. I like to duck hunting. So it qu it quacks instead of rings, so apologies. So

Ruben Ramirez: No, no worries. Ha ha ha. Yeah, no no worries at all. ⁓ just a sense of relief, just because there’s been so many hours and hard work that have been put into getting to this point of closing, which really should happen, you know, two or three years in advance when it comes to preparation. ⁓ oftentimes, you know, as a a an MA CPA and also on the MA attorney side.

Bob Roark: Okay. Yeah.

Ruben Ramirez: Our our two professions and our areas of specialty tend to get pulled in kind of last minute, you know, after the LOI is signed or after there’s a an initial draft of the APA. But really we really need to be involved and brought into the discussion two or three years in advance of the transaction so that we could help position our clients to best negotiate the the transaction when something is ⁓ proposed to them. and making sure that we’re in a position to really negotiate the LOI to be as favorable as we can from my perspective from from the sellers because I do a lot more of the sell side advising.

Bob Roark: You know, you you mentioned the advice and and work on the LOI. ⁓ do you find that the sellers are as focused on LOI terms as you are, or are they more unaware?

Ruben Ramirez: They are not as much focused on the terms as I am. And in my opinion, the seller’s highest point of leverage is on the very onset of a transaction. And that really is the LOI. You know, what’s included? What are the terms? How is it going to be financed? How is it going to be structured? You know, what’s defined as a tax favorable sale? Does that mean they’re gonna buy my stock? Does that mean if they’re not gonna buy my stock, are they going to propose a tax true up that would normalize my net proceeds as though I sold my stock? You know, what’s the exclusivity period? What is my management incentive compensation plan expected to be? What are the holdbacks? ⁓ you want to be as explicit as possible because it’s really the LOI that lays out the economics of the transaction. And although it’s a non-binding agreement, the intention is for all those economics to be laid out. And it’s much easier to hold the buyer’s feet to the fire when you have clear expectations and clear ⁓ outlines in advance of signing the LOI than trying to fight for those items after the LOI is already signed and you’re already down the due diligence process. It’s i I would in my opinion, I think that is the most important aspect is negotiating the LOI.

Bob Roark: That’s a common thread that I’m hearing frequently. And I I don’t think that’s that well known or recognized perhaps. ⁓ you know, in in manufacturing specifically equipment, real estate, customer concentration, workforce, what’s the thing that surprises your owners at the close that your valuation was already accounting for? But I think maybe the gravity of that didn’t land until that moment. Is there something that pops up then?

Ruben Ramirez: Not necessarily on the valuation side, but probably the largest point of contention tends to be around the networking capital ⁓ adjustment. ⁓ and and for those who are kind of unfamiliar with the concept, ⁓ I I like to use the analogy that networking capital is similar to a U-Haul in the gas when you rent a U-Haul. You know, when you go out there and rent a U-Haul, one of the first things that

Bob Roark: Okay.

Ruben Ramirez: They do before you leave the U-Haul station is that ⁓ one of the workers will go out to the truck, they’ll look at how much gas is left in the truck, and they’ll say, Hey, when you bring it back, if you’re going to leave with a half a tank, you have to bring it back with a half a tank. It’s the exact same concept when it comes to networking capital. When you sell your business, you are going to deliver that business with a certain level of networking capital. And if there is a shortfall, then you have to pay for that shortfall.

Bob Roark: Real things.

Ruben Ramirez: Or alternatively, if there’s excess working capital, then you get a walk away with that excess and it just increases the total consideration of the sale. So a lot of sellers oftentimes will be surprised that at closing they may have to ⁓ adjust their purchase price down or bring cash to the table for the shortfall in their networking capital. And that’s because they weren’t effectively managing the managing their working capital 18 months, 12 months in advance of the close. But that could be significant points of contention. I’ve seen networking capital adjustments and shortfalls that were multimillion dollars ⁓ that ended up causing ⁓ you know, the transaction to go in in in legal dispute.

Bob Roark: Yeah, I w what strikes me is, you know, one, why do you think that is? And two, when you start working early with the company, how do you preframe that so that d is that doesn’t end up being an issue for your clients?

Ruben Ramirez: Yeah, so that’s why I stress the importance of working with a MA professional on the CPA side well in advance of the transaction, so that one, they’re educating you on what’s customary in a deal. How does how is the deal structured? How is the purchase price or total purchase price ⁓ determined after including the networking capital? What is a buyer going to come in and look at? And we want to avoid surprises, right? So we’re gonna clean up the balance sheet twenty four months in advance of a transaction because we know that when buyers come in during due diligence, they want the last twelve to twenty four months of trailing balance sheet and P and L activity. So we wanna again make our client and put them in a position where they’re already have clean financial statements and they’re already in a position to really negotiate the the the the transaction from from their perspective.

Bob Roark: Yeah, I d and again, one of the things that I hear frequently is the working capital, you know, negotiating at toward the close. And it’s an unhappy event if it becomes a focal point. So you know in your work, you hold both the numbers you valued the business, you or you could have, you know what it’s worth, you know what the owner needs that sale to generate. When those two numbers don’t match, you’re kind of in the middle of of the gap. And you have visibility. How do you navigate that conversation with the owner that needs X and it looks like it’s gonna be worth something less than X?

Ruben Ramirez: Well i i it really actually does help with the conversation and and makes it a bit easier because you’re able to quantify what is that value gap, right? My business is operating with this level of EBITDA, and based on this EBITDA and this multiple, this is what my expected enterprise value is. After taxes, after my debt payoff, this is what my net proceeds are. But I know that I I need X amount of net proceeds in order to really live the lifestyle that I want to live post sale.

Bob Roark: Yeah.

Ruben Ramirez: And then we just defined what that gap is. And now we could reverse engineer the operating side and identify, you know, what can we do to either de-risk the business or to grow profitability? Does that mean that we need less customer concentration? We need less more product diversification. ⁓ we need to increase ⁓ growth rates annually, we need to reduce our fixed costs, we need to, you know, have our our key employees tied in with some type of ⁓ Phantom agreement to help drive value, to allow the business owner to have less of a material participation in the business so that it’s more turnkey for a buyer. ⁓ there’s a lot of elements that we could identify, but step one is just quantifying what that gap is and then working backwards to identify what do we need to change at the business level from an operational perspective to achieve that net proceeds at exit that we need in order to bridge the gap.

Bob Roark: Boy, that was a bunch. You know, the the de-risking the business, and then you basically laid out customer concentration owner dependency, you know, and any number of factors. When you have the time to work with a business owner ⁓ pre-exit, and you’re looking at it and you go, We have a tall order to de-risk this business to get it ready for sale. What’s that like with the business owner? Do you think, you know, is in your experience, are they aware or are they absolutely just not aware?

Ruben Ramirez: No, oftentimes they they tend to be aware and they they realize that they’re operating a lifestyle business and you know historically they they really didn’t mind that because the lifestyle business was you know feeding a million dollars into their pocket on an annual basis. ⁓ And they just didn’t really want to make the investment at that point in time to really make it a lifestyle business to more of a turnkey business. So they oftentimes are aware of those challenges ⁓ and just really haven’t haven’t had a be put in a position where they’ve really had to focus their efforts into transitioning from a lifestyle business to more of a turnkey business. And it is a tough discussion just because it’s you know, you never want to call a client’s baby ugly.

Bob Roark: It’s unique. It’s not ugly. It’s unique. I like it.

Ruben Ramirez: Exactly. And you know, and identify the challenges and what I tell all my clients, like I will never know more about your business than you do. I I could tell you where, you know, there’s risk. I could tell you what’s your exposure. I could help quantify what needs to be done, but you’re gonna know more about your business than I ever will. I mean, you run into business owners who could basically operate their business by just looking at the bank, looking at what customer deposits they have on on the balance sheet, knowing what’s sitting in AR, knowing what’s sitting in AP, knowing, you know, how the industry is doing by just talking to some of their suppliers and customers. They have a much closer pulse on the market than I ever will. For me, I’ve just seen so many of these transactions that I could identify. you know, what are those critical components that we can tweak that would really magnify the outcome in a favorable perspective.

Bob Roark: You know, I do in your experience, do you think that the business owners you’ve worked with through the transactions recognize the value of the insights and structure and changes you bring to the table and how it affects their net sale proceeds? You know, basically value increase from the work that you guys do. Do you think they really know that math or appreciate it?

Ruben Ramirez: I don’t think they appreciate it until it’s been quantified to them and I, you know, and and explicitly identified, hey, as of today, you’re here. If we change these mechanisms of your business and get to this point, that’s what these will result in. If we get to the next point, that’s what that’s what this these changes will result in. And I I really do think you have to break it down and and try to. Try to make it as simple as possible in order for them to grasp the the concept because you know our fees might be fifty thousand to a hundred thousand dollars a year and trying to accelerate the growth, but that is you know might result into an additional fifty to a hundred thousand dollars at EBITDA and you take that EBITDA times a ten times multiple, and that’s a million dollars in enterprise value that you just created. So a lot of times that’s lost until you actually map that out to the business owners.

Bob Roark: Yeah.

Ruben Ramirez: And I think that that’s what it really takes in order to make them feel comfortable with engaging a professional to help them grow the business.

Bob Roark: I I think ⁓ my observation that’s underappreciated, truly. You know, and and I think about the business owner that falls in love with his business again after it’s operating. And I suspect there’s some of that that goes on too. You go, like, I had no idea it could be like this.

Ruben Ramirez: Yeah, yeah, I had no idea that I could work thirty-five hours a week opposed to to fifty hours a week and and make a lot more money and ⁓ have less participation and have happy employees and they may change their mind.

Bob Roark: Yeah. ⁓ Yeah. Yeah. I hear of those. You know, in in the manufacturing side, when the sale closes, you know, the owner identity is, you know, favorite machine that dad brought in in the second generation company, the shop floor, you know, the people that run the lines. ⁓ what do you see in the owner in the first few weeks after the close that perhaps you wouldn’t see in in a tech business or some other industry? What do you typically see?

Ruben Ramirez: I don’t know if it’s necessarily within the first few weeks. I think it’s probably within the first six months or the first year. But, you know, to your point, when when you’re a manufacturer or distributor, you you tend to be showing up to an office every day. You’ve, you know, spent decades with some of your key employees and growing your business. You’ve developed a regimen that you’re just accustomed to. and ⁓ a lot of times when you sell a business. business, those owners will likely be, you know, active still with with the with the buyers for a period of time. They might have an employment agreement for six months to two years just to help with the transition. And I I would say that the first hurdle that I I tend to see business owners encounter is, hey, I’m an employee now. I’m no longer an owner. Like what I say doesn’t necessarily go. I can’t, you know, just leave when I want to. I can’t just charge expenses to my business when I want to. that that’s the first hurdle. Once they s stop showing up as often to the shop because that employment agreement has lapsed, then I think that’s where reality really sinks in. You know, for a lot of these business owners, it’s about legacy. Again, it’s taken them 20, 30, 40 years to build a business and to sell it. And to tell them to go do something else is not going to feel normal and comfortable to them. On top of that, they no longer are are the driver of what happens to their Employees that’s now in the arms and the hands of the buyer, and that could cause significant issues. ⁓ you know, from my perspective, one of the most important aspects of seller due diligence, because sellers need to do their due diligence when it comes to the buyer, is making sure that there is a culture fit. Because if there’s not a culture fit and if you’re leaving your company to a buyer that’s going to basically wipe out your entire management team, is going to lay off thirty percent of the administrators that are that are with the organization, that is going to ruin the legacy of your name. That’s where I see the most the most challenging aspect being encountered by the sellers is that seller’s remorse. And if I would have known this about the buyers, I would have taken a lower purchase price on the front end or sales price and I would have gone with with someone different. So I I think it’s incredibly important that you know who you’re getting in business with because a lot of times there is legacy that exists with the seller’s organization. And oftentimes that it’s ⁓ that’s more important to them than the dollars that they’re adding up with in their bank account.

Bob Roark: You know, that brings to mind I was talking to another business owner. He was talking about integration risk, right? And I asked him, What do you mean? He says, Well, it’s everything all at once, kind of thing. And and is there advice you would offer to business owners about to exit where they knew, you know, just here’s the top two or three things you need to keep in mind when you’re negotiating post sale ⁓ responsibilities and so on. Is there something you would offer to them as advice?

Ruben Ramirez: Yeah, you know, once the deal closes, I would suggest being ⁓ I mean really it should happen during due diligence, but y you don’t want to hide any skeletons in the closet from an operational perspective. You know, if there’s key employees that you know, their dynamic is ⁓ a little bit unique, or if there’s challenges that are are are being faced with within the the company itself.

Bob Roark: Mm-hmm.

Ruben Ramirez: To really lay that on the table and not to hide that, ⁓ just because I mean it when a buyer comes in and oftentimes sellers are you know rolling over a percentage of their sale, they really are looking for buyers to help provide some insight, especially if it’s strategic and oftentimes even on the PE side. So getting an outside perspective is also very helpful and you you never know what experiences the buyers have has had. That could help with the existing integration, but try to be as transparent as possible from an operational perspective. A lot of times sellers are not saying they’re trying to hide items, but they might not be as forthcoming because they’re concerned about the implication on the sale price and the terms of the transaction, but

Bob Roark: Yeah.

Ruben Ramirez: You know, I I I think sellers may think that it’s going to be a a lot more detrimental to them if they were to vocalize those concerns, but I think it it does it does show that you’re being a good partner to the buyer, especially if there’s some type of rollover equity ⁓ that’s involved.

Bob Roark: You know, your engagement as a blue value advisor, you know, what does that specifically represent? What does that role cover ⁓ that a standard CPA relationship might not?

Ruben Ramirez: So we have just had more at bets, you know. I’m considered a a member of Blue Advise ⁓ Blue Valley Advisors because of the amount of engagements that I’ve been involved with. ⁓ normally, you know a CPA doesn’t regularly work on transactions throughout the year. Their focus is more on the compliance side. And same thing with an attorney, right? If you have an in-house corporate attorney. So it’s just That you’re working with practitioners that have the experience and understand the customaries of the transaction and of the industry because it’s the most significant financial transaction of you know of your life, at least you would expect it to be, unless you plan on hitting the lottery. ⁓ it’s important to make sure that you’re working with professionals that are well equipped. You know, do they understand what the buyer is going to look at in due diligence? You know Is the sales and use tax ⁓ filings, are those all in order? Are the income tax filings in order? How clean are the month over month financial statements? You know, how do you transaction your how do you structure your entity prior to transaction to prepare for a sale? How do you negotiate the network and capital calculation? ⁓ it’s just the experience level. That’s what it comes down to.

Bob Roark: Yeah, you don’t want to be in the boat with the owner who says this is the first time I’ve ever sold a business. Yeah, me too. You know, that I don’t that’s not a thing that’s that’s not a good equation there. You know, in your experience, when you’ve got a manufacturing owner, you know, whose post sale year went the way your planning expected, you know, you put all the value drivers in, did all the pre-work. What did they have going for them? Was it financial prep, personal prep, or something else?

Ruben Ramirez: Ha ha ha. ⁓ both and and well in advance of the transaction. Again, they’ve they’ve thought out the sale process. Those tend to be sellers that didn’t just sell to someone that just knocked on their door a few weeks ⁓ you know, in advance. The successful sellers tend to be people who have

Bob Roark: Okay.

Ruben Ramirez: already came to the conclusion that they want to sell. They’re working with professionals well in advance of the sale in order to prepare themselves for a successful exit. They’ve already thought about what are they planning to do once they sell the business? What level of participation do they want to have after the deal is closed? And you know, how do they want to spend the first couple of years after the sale from a personal perspective? You know, do they want to travel the world? Do they want to spend time with their kids? Again, you’re you’re changing your entire lifestyle. And you have to be prepared in all aspects, financially, but also ⁓ personally. So it’s those people who have really put the time and consideration in advance to make sure that it makes sense for them to go ahead and pull the trigger and that they’ve prepared for it in all aspects.

Bob Roark: You know, in in your experience dealing with the business are you know there’s the pre exit, post exit. Where do you think the gravity lies? Are they really more focused on getting to the exit, or do you think they appreciate the gravity of what next after exit?

Ruben Ramirez: No, I I do think that they’re probably more focused on getting to exit and and getting the highest multiple that they can, which again is not always the best driver of what should be triggering triggering your decision. ⁓ I I personally think that people put too much value in the enterprise value itself and really should focus on, you know, what does this mean for me? What is my my value gap? Like what is that lifestyle that I want to live?

Bob Roark: Yeah.

Ruben Ramirez: post sale, how much do I actually need? You know, what would I consider to be the icing on the cake? What will actually make me happy from a personal level outside of just the dollar amount? That’s what the focus needs to be on, not just what’s the highest multiple I could get.

Bob Roark: Yeah, you know, in in thinking, you know, on the the other side of the coin without naming names, ⁓ an exiting owner whose post close year went sideways, what did they plan or where did the execution fall short? In hindsight, you know, what did they fail to do or catch?

Ruben Ramirez: ⁓ oftentimes they fail to get us involved well before the transaction. ⁓ They negotiated or they did not negotiate the LOI. You know, the earnout that was ⁓ incorporated into the transaction was way too aggressive. ⁓ they didn’t consider what was the appropriate structuring. They didn’t consider if they wanted some type of rollover interest, they didn’t do their due diligence on the buyer to make sure that it would be a good fit and that their key employees would be taken care of post-sale. they didn’t consider what they plan on doing with all this additional time that they have, you know, going forward. I mean, it you would be shocked with the amount of clients that I have had that have sold their business and one or two years later, they’re already looking for a new opportunity just because they’ve they’re bored. You know, these are folks that are in their mid to late fifties, early sixties. They still have, you know, twenty, thirty years ahead of them. They’re entrepreneurs, so They tend not to like to be in one place at one time and they need something to do. ⁓ so it really is just the lack of planning and and lack of bringing qualified professionals well advan in advance of the transaction.

Bob Roark: You know, I I think for some of those folks, you know, the serial entrepreneur is pretty hard to fix. I mean, that’s just just what they do. You know, I I like the folks that says, Yeah, I’m gonna retire to Florida and play golf. Go, well, you’ve been to Florida? No. Play golf? No. Do you think about renting and maybe trying it out? Had one guy says, You know, I think I’d like to fly. And I go, Well, have you ever flown a plane before? No. Maybe you go out and take a lesson, see if you just like flying with you, you know, kind of thing. So, You know, and and I think for the folks, at le in in my observation, is go they’re so worried and focused about getting to the closest, I’ll worry about all that other stuff after I’ve gone past the altar. You know, bef I think there’s a bunch of that, truly. So ⁓ for the family or the owner that doesn’t have the luxury of two or three years. there’s, you know, death or divorce or some or health issues and they don’t have the luxury of a long runway with you folks. How do you adjust what you do for the folks that have, you know, a life event that causes an exit early? How do you help them then, you know, different than having a big runway?

Ruben Ramirez: Yeah, we we try to identify all the skeletons in the closet just so we’re aware of what the potential pushback could be during due diligence. ⁓ and again, that’s why it’s important to understand this in advance of the LOI because if we know what those pressure points are, we could be a bit more aggressive in the LOI and at least be a bit more ⁓ Комуник ан сэттингі expectation with our client of Hey, if they realize that, you know, you had a significant warrant warranty issue last year or two years ago, this is how it might impact your your sales price today. So it it’s really good to just understand the have a good feel of the institutional knowledge and the institutional risks that exist at the organization. make sure you bring in an MA attorney so that they’re aware of it as well. Knowing having an idea of what all those ⁓ risk and expo exposures are, tailor the LOI appropriately and again just set the expectation up with with my client, the seller, and knowing how ⁓ it could adversely impact their sales price.

Bob Roark: You know what what strikes me, ⁓ you know, I I think it’s an unfair benefit is I learn so much from these episodes and from folks like yourself that are s you know, very experienced, you know, and have kind of been down the road and been down the bumpy roads too. So, you know, for the owners that are out there, whether they’re in the Detroit area or not, that are in the manufacturing space, you know, and and they’re not sure whether they’re in the the slot to sell, but they’re two to five years out if they’re going to. How do they find you and how do they reach out to you? And what does that first conversation look like?

Ruben Ramirez: Yeah, so I would suspect you would probably share my contact information in this podcast. So you could look me up on on blue and co dot com. ⁓ but you know the that that first discussion is really getting an understanding of what are your ultimate goals? Let’s not even talk about the dollar amount, let’s not talk about the enterprise value. How do you envision living your life post sale? From that perspective, what’s important to you? Is it

Bob Roark: I’ll tell. Yeah.

Ruben Ramirez: The dollar amount, is it the legacy? Do you want, you know, a a a bite of the apple down the road? Do you want to try to sell it a hundred percent? Like it’s first understanding what their goals are holistically and what’s important to them before we even start talking about a transaction. And with how the market’s been the last five, six, seven years, you never know who’s gonna knock on your door. You always have to be prepared. Because folks are getting unsolicited offers every day. I mean, I have clients who are telling me I’m getting 30 emails a day of selling wanting to buy my my business. You always have to be prepared and you never know what opportunities out there and you never know what you’ll be offered. So put your in it put yourself in a position where you’re prepared for that knock on the door. Cause for all you know, you could be getting two, three, four times as much as what you expected.

Bob Roark: ⁓ it brings up many thoughts. You know, the unsolicited offer. Yeah, I I own another business besides this one. And it’s I’ve had one from somebody’s dog trying to get me, you know, the dog is writing me a letter and I’m going, well that’s unique and different. You know, that’s kind of speed it up as it went to the trash can. But, you know, it’s a it’s a distraction from operating, I think, to get the unsolicited offers. ⁓ For the owner that’s looking at a s another bite at the apple, what type of framing or advice do you offer to that business owner about the nature of that second bite? What should he should look for, and what they should prepare for? is there ⁓ service that you guys offer in that arena?

Ruben Ramirez: ⁓ there’s not a specific service that we offered in that arena. I I think the most important part is really doing your due diligence on the buyer. And again, one, making sure that the values align. From my experience, where I’ve seen the most frustration out of sellers is dealing with their ex-management team, their ex-employees with their legacy, and how new buyers have come in and either eliminated positions or just didn’t. Treat them with the same level of respect as my my client did. So if you’re gonna have a rollover interest, you wanna make sure that you feel comfortable showing up to the office and not feeling ashamed that you sold your business to a buyer who’s not treating your ex-employees as favorably as you did. That’s number one. And then obviously, you want to make sure that they could execute ⁓ profitably because there’s a lot of PE firms out there. I mean, we see PE firms that are popping up every day and as many that pop up are as many that go ⁓ you know, ⁓ under in any one given year because it’s kind of like the Wild West right now. And you know, going through and facilitating a leverage buyout analysis or leverage buyout ⁓ transaction is happening all the time and you really have to trust the operators that you’re leaving your business with.

Bob Roark: You know, if you were to envision for a business owner the ideal, not the money necessarily, but their life and the structure of their life eighteen, twenty-four months after exit, what are the key markers that you think would be the hallmark of a really good exit and how you drove that exit?

Ruben Ramirez: Yeah. kind of just to reiterate what I what I just said, you know, when you show up to your old facility, are your your employees happy? You know, do they greet you with a smile and and are they thankful that for your years of service and their years of service for you with you and are they happy with who their existing and employer is? Like in my opinion, that’s one of the most important aspects and elements. Obviously, post-transaction financially, meeting all the metrics that you were expecting. to, you know, the the earnout requirements, that you got back all your your hold your holdouts or your holdbacks, that that was all paid out. ⁓ that you are in a position to use your proceeds to divest however you’d like, that you’re living your lifestyle that you envisioned before the sale, and that you’re you’re you’re happy.

Bob Roark: Yeah. Do do you often see your clients, you know, two, three, four years after exit?

Ruben Ramirez: ⁓ yeah, and in about ninety five percent of the cases because we continue to do their compliance returns and yeah, usually folks that with with large sale proceeds, you know, will get into to real estate because of the the favorable tax laws or will, you know, invest in alternative investments. And likely, you know, prior to the transaction they they set up trust and they did some estate planning, so we’re doing the trust work as well. So

Bob Roark: Sure.

Ruben Ramirez: Probably even more than ninety-five percent of the cases, maybe ninety-eight percent of the cases, we still maintain those relationships well beyond the the transaction event.

Bob Roark: Well, you guys have been through the crucible together. They’re either gonna love you or hate you. One of the two. So, you know, Ruben, I you know, oftentimes I have no idea what I’ll hear in an episode. I really appreciate the expertise and perspective that you brought, you know, to this episode. And and for the folks out there, Blue and Co., you know, Ruben Ramirez, and you can find him online. ⁓ And it’d be the Detroit office, correct? So that’s and in the show notes, we’ll have how to how to reach you and contact information and so on. So Ruben, I appreciate you carving out time of your day to share the intellectual property that you’ve earned along the way. And ⁓ with that being said, ⁓ this is the Exit Series. If you know of a founder who sold or is about to, or a broker who’s seen it from an attorney who’s been across the table. Send this episode to him and subscribe to wherever you listen. And if you’re that business owner that’s getting close, feel free to reach out to Ruben and have a discussion. And we’ll see you next time. Ruben, thanks so very much.

Ruben Ramirez: Thanks, Bob. Take care.