Meet Mitch McGinley | Business Sales Advisor

We’re so pumped about our conversation with Mitch McGinley. Mitch is a Business Sales Advisor and is also a content partner. Content partners help Voyage in so many ways from spreading the word about the work that we do, sponsoring our mission and collaborating with us on content like this. Check out our conversation with Mitch below.

Mitch, it’s been too long since we last connected. Thanks so much for taking the time to share your thoughts with our community again. Some readers might have missed our prior conversations, so maybe you can kick things off for us with a quick intro?
My professional career began in Hotel Management. I worked for Omni Hotels for seven years, doing my best to climb the corporate ladder. When I was ready for more, I left to learn from an entrepreneur friend of mine who was buying hotels, fixing them up, and then selling them. That was my first introduction to business transactions. A couple of years later, the owner of our favorite yoga studio called and told my wife and I that she wanted to sell, and she wanted to sell to us. Studio ownership was a dream that we always had, and we finally had the confidence to go for it, and the timing was perfect. We were ready to start a family, and we wanted to work on something together. So…I quit my job with all its equity and awesome benefits, and the very next day, we found out we were pregnant with our first child. GULP. No pressure!

I am proud to say that six years later, we sold our studio for almost five times more than our investment. Somewhere in there, I finished my MBA and began a consulting company focused on the same industry, Health and Wellness. MINDBODY provided several opportunities to connect and consult with fitness & wellness business owners all over the world. I consulted on things like pricing strategy and sales funnels. When we decided to sell our studio in 2018, I was recruited by Sean Seaman and Dustin Sigall at SD Business Advisors to join their team, and I then merged all of my worlds to focus exclusively on helping Health & Wellness business owners sell their businesses. It is such fulfilling work, and it’s like being a real estate agent for my favorite small businesses. But unlike real estate, the transaction is so much more personal. Selling a business can take a long time, and works out best for owners when their exit is planned years in advance. Like most brokers, I usually end up working for both sides in a deal. I am independent, honest and kind and I always want to help.

Can you help us get a better understanding of how to think about Exit Strategy?
Having an Exit Strategy for your business is quite simply, a good Business Strategy. As you run your business, think about ways to maximize value, increase revenue, decrease expenses, minimize risk, and extricate yourself from the day to day so the business doesn’t rely on you. Diversify the client concentration in your business and plan ahead with prospective buyers. Another meaningful way to think about your exit strategy is Stephen Covey’s 2nd habit of Highly Successful People: Begin with the End in Mind. When you Begin with the End in Mind, you subconsciously manifest the desired outcome, and all of your decisions keep you constantly working towards it. Too many business owners don’t think they’ll ever want or need to exit. Everyone needs to exit at some point. And it might as well be your biggest payday. So why not get excited about it and plan for it?

How do you value your business?
For the most part, market-based valuations are a function of profit. Lots of people use different words for profit (net income, EBITDA, owners benefit, etc.) but we use Seller’s Discretionary Earnings (SDE). SDE is meant to include all the little things owners write off that aren’t related to the daily operations of the business. Common examples include auto expenses, meals, travel and continuing education. Other addbacks include owners salary (different from owner draws), owners health insurance, retirement savings and other similar expenses. The point is to get a clear picture of how profitable the business truly is when streamlined. Once you arrive at a number for SDE, you then multiply that number by a multiple based on market data and comparable sales. For health and wellness businesses, the multiple can be anywhere from 1x to 3x SDE based on a whole host of variables including business attractiveness, client concentration, owner role, location, access to capital and others.

How long does it take to sell a business?
I usually advise sellers to plan on  a sale taking 6-8 months. Some sales can happen a little faster, but many take longer. It really depends on the industry, the attractiveness of the listing, and certainly the price being offered. Those owners that want to push for the highest price possible often shoot themselves in the foot by reducing the number of inquiries they get, having it sit longer, and having less leverage when they do get an offer. Again, similar to real estate. Pricing your business at a fair market valuation from the beginning helps drive more interest, more inquiries, more leverage and faster transactions.

How do you find a buyer?
The best way to find a buyer is to plant seeds with ideal prospective buyers years in advance. Too often owners are afraid to talk about selling with members of their community, fearing it will create drama or uncertainty. I find this to be counter-productive. Being open and honest with staff, clients and even competitors about an intention to sell in the years ahead allows those prospective buyers to have time to wrap their heads around wanting to be an owner themselves. This often creates a situation where they may come back to you on their own timeline, even before you list your business for sale, which gives you much more leverage as a seller. I highly recommend planting those seeds with anyone and everyone you think would be a good fit years in advance. Beyond those in and around your community, the primary website we use to advertise businesses for sale is bizbuysell.com. There are a number of others (DealStream, BusinessBroker.net, businessesforsale.com, buyandsellabusiness.com) to name a few. I like to say this approach is more like online dating…it’s harder to establish trust with a random stranger on the internet, but it’s entirely possible. About half of my buyers come from within their community, and half come from internet ads.

How important is bank financing?
Again, it depends on the industry, but for me and buyers in Health & Wellness, bank financing is everything. To be clear, when we say bank financing, we’re only talking about SBA 7a acquisition loans. Too often, prospective buyers think they can just walk into a bank and get a loan to buy a business, and that is not true. With the SBA (Small Business Administration), both the buyer and the business have to qualify. Qualifying the business is usually more difficult. For SBA financing to work, the business’s tax returns over the past 3 years are the primary deciding factor. The returns have to show enough income to support the debt payment, as well as a living wage for the buyer. That means, if your Profit & Loss statements show $100k in income, and you’re using a 3x multiple, you want to sell for $300k. But if your tax returns only show $50k in income, it won’t work for the SBA at that number, and so the loan won’t happen. This is why I constantly find myself begging owners to show all of their profit on their tax returns. At the end of the day, it’s totally worth the additional tax liability. Here’s an example: let’s say an owner writes off an additional $30k in expenses from that $100k showing on their P&L. The tax liability on that is probably somewhere around $10k. But the $30k difference in profit is $90k in value in a sale. So even if it’s 3 years in a row of paying an extra $10k in taxes, you can reasonably expect to get $90k more in a sale, and end up $60k or more better off. Another point I’d make here is the reason bank financing is critical is that if you can get your business to prequalify for an SBA loan, the terms are very attractive and it opens up the prospective buyer pool with a lot more people. With SBA loans, the buyer only has to put 10% down towards the purchase. Using the same example, if you’re selling for $300k, your buyer only has to put $30k down. That creates possibilities for infinitely more buyers. It’s hard to find someone with hundreds of thousands of dollars in their back pocket, who also wants to buy and operate your business. But if an ambitious employee or client can put down a fraction of that and finance the rest over 10 years, they can reasonably expect to get their down payment back within six months, and the rest is all downhill.

What is escrow?
Escrow is a holding company. Much like buying or selling a house, escrow acts as an independent intermediary and fiduciary, meant to facilitate trust and clarity for everyone involved in the transaction. Not all states have business escrow, and many use attorneys for this part of the process. California definitely does, and it’s incredibly helpful. For starters, they protect the buyer by doing a lien search and notice to creditors to make sure there aren’t any debt skeletons. They also hold the Earnest Money Deposit (EMD) while the buyer conducts their Due Diligence and works through the other contingencies such as Lease Assignment, Franchise Assignment and Financing. The other huge benefit is working with the state to transfer the DBA, and handle any and all tax clearances, which no one wants to deal with. Escrow usually costs around $3k total, and buyer and seller almost always split this cost equally.

Alright, so before we go, how can our readers connect with you to learn more and show support?
mitch@sdbiz.com or mitch@boutiquefitnessbroker.com www.sdbiz.com or www.boutiquefitnessbroker.com
IG: @boutiquefitnessbroker
LinkedIn: https://www.linkedin.com/in/mitchmcginley/

Contact Info:

• Website: https://www.sdbiz.com/
• Linkedin: https://www.linkedin.com/in/mitchmcginley/