Welcome to part one of a valuable two-part series with the founder and CEO of Best Practice Biz, Kobi Simmat. Kobi and our host Joanna Oakey discuss the very important topic of how to build a business up for sale, by using Kobi’s own business as an example of how it can be done.
We drill into some gold nuggets of how Koby has approached increasing the valuation multiple (to increase your value at exit), the benefits of choosing an industry that is trending, how (and why) you should build a business around recurring revenue, how to identify what you are good at, and what high-value activities you should be spending your time on!
About Kobi Simmat
Kobi Simmat is the founder and CEO of Best Practice Biz, a global business improvement agency. He is extremely passionate about helping organisations become great places to work at, buy from, and invest in.
- Why are we talking about this?
- The importance of building a recurring revenue business
- Is your business a renovators opportunity?
- Know what you are good at
- Spend your time doing high value activities
Note: This has been automatically transcribed so will be full of errors! We are not providing it to you as a word-perfect version of the podcast but just as an easy way to provide you with a different way to be able to scan for information that might be relevant to you.
Joanna: Hi, it’s Joanna Oakey here and welcome back to the dealer room podcast, a podcast proudly brought to you by our commercial legal practice Aspect Legal. Now today we have on the show the fabulous Kobi Simmat from Best Practice ought to talk about his own experiences on building a business to sell and other gold nuggets. Now, this is such an interesting conversation that it has actually become a two-part series. So in this episode, you’ll be listening to part one of the two-part series, where Kobi and I discuss how to build a business up to sell on the basis of what he is doing in his own business right now. And in the businesses of clients that they work with, through Best Practice, and of the businesses of their clients that they work with. Through best Practice, Kobi and I discussed some really interesting insights into the ways to increase your multiple exits, the benefit of choosing an industry that’s trending and many other golden nuggets, all about how you can take your business from being a job to being an investment. And then we’ll be back with part two of this two-part series to talk all about the pillars in a business that will grow sale value. So this is really useful listening if you are building a business to sell, or indeed if you are looking to acquire a business, because all of the things that we talking about in this two-part series will give you a really good insight into how you can get into this new business you’re acquiring and turn around the value and really add value during your period of time prior to you exiting the business. Well, that’s it without further ado, here we go with our discussion with Kobi.
Joanna: Kobi, welcome to the deal room Podcast. I am so excited to have you on the show today.
Kobi: Thanks for having me, I’m so excited to be here.
Joanna: Fabulous! I’m super excited number one because there’s a lot of content that I think will be really, really useful to our listening audience. And number two, because I just love talking to you, because you’re full of beams, I feel like I meet my energy match when talking. I love it, it’s great. But we do have a lot to get through. And I feel like when you and I start talking, we just keep talking. So let’s really dig into these. Today, the theme that we’re talking about is how to build a business to sell and then we’re really going to then touch on and why having a business that is in a sale ready estate is the best kind of business to be in anyway. But can you just give us a quick background on why it is that you’re here talking about how to build a business to sell at the moment? And hint it’s because we were discussing this together, and I love the method that you’ve been using and following on your own trajectory. But can you just give our listeners a bit of an insight into that?
Kobi: Yeah, absolutely. So yes, I’m Kobi Simmat I lead I founded and I lead an organization called Best Practice. I’m right in the building phase myself. So I’m building this organization myself. You know, for those of you listening, you know, if you are monitoring for one of your clients, or if you’re monitoring yourself because you’re building to sell yourself, your share price, your private share price, you know, I’m literally laser-focused on that number. I’m laser-focused on the culture with my team, I’m laser-focused on, you know, having this thing as an asset that creates, you know, it’s not just a wealth-building exercise, it’s an exercise to build wealth for everybody in our team. But it’s part of actually, you know, I’m really passionate about helping organizations to be great places to work. I’m really passionate about helping organizations to create great buying experiences for their customers thus really passionate about helping organizations to be great investments for whomever their shareholders or their owners or their founders. And so I think if you can line up those three key stakeholders, the team, look after the team make it amazing for the team, they will smile. If they’re smiling, and you look after your customers, your customers start smiling, and then you know that then it becomes a beneficial investment. And myself, you know, I’ve got some pretty strong family values, I’m hoping for a little bit more business freedom, I’m literally about to take six weeks off, I’m getting better and better every year at the business running by itself for longer periods of time. My record trip is 12 weeks, and I’m just trying to have this thing I do enjoy doing meaningful work. But I also have a bucket list that I’m trying to get through.
Joanna: I love that idea. You know, for business owners, leaders, entrepreneurs, that idea of taking a six-week stint, a 12-week stint for many of them is just it’s almost like a pipe dream. It’s almost like, you know, this vision in future that can’t happen until the day they sell. And that’s why, you know, I find that there is just this huge level of potential disappointment at that point of sale when someone has devoted their life to building this business on the basis that that will be the day when they can take some actual time off because they’ve not built the business to allow them to do that along the way. But then, because they’ve built the business in that way, it doesn’t have the value that they expect at that point of sale. So it’s almost like this. It’s this wheel that they can’t get off that is constantly trapping them. You know, is that something that you’ve seen in your clients?
Kobi: 100%. Let me give you a really interesting story. So, so through my early teens, my early 20s I didn’t see my dad, I didn’t see my dad for 20 years, he had a 45-minute commute, which is nothing nowadays, but it was back then. You know, in the 80s and early 90s. 40 minute on a quick run. 100 hour and a half commute to work so he would leave when it’s dark in the morning. You come home when it’s dark at night. We might have got a pat on the back or head scratch from dad when he got home but I didn’t see him so he built he was building a business you know, it was a pretty decent turnover. Big team. That business collapsed, so so it was kind of it was built but it collapsed and so not only did he compromise and sacrifice family time, time with us I didn’t see him you know we were kind of like yes back dad because dad’s building this thing for us for our families, he’s doing it for the family. We made all these compromises and sacrifices but then for what reason literally for zero so so that’s my real-life kind of family you know, the story there’s a heap more and we can kind of explore that and go really deep on that particular story at a later date but every single day, I see people long hours in the office early late-night phone calls weekend phone calls, you know free proposals, current clients, staff issues. Those kinds of things and those, they keep pulling them back. I’m working side by side with my brother, he runs a business, I run a business, there are a few years between us, but he’s early on in his journey. And he literally, he’s the guy sitting in a meeting that takes phone calls, and he’s completely ignorant of everybody. He is right in the hustle right now. And, and so I think, you know, I see it every day in so many businesses that we have this dream that kind of, we start this business to have freedom or be our own boss, or kind of do these things. But then the reality of the situation comes down to actually I’m completely locked in the business is completely tied to me, everything stops when I stop, and you kind of don’t get those things that you’re looking for, by the way, for the brokers listening in, you guys already know that those are the businesses that are worth basically nothing. So you know, and so from, that’s what I’m really interested in, you know that that third key, or the third pillar to what we’re trying to do here at Best Practices, is we’re trying to empower teams to kind of step up, we’re trying to help leaders delegate and elevate. And that is part of what we do kind of on a day by day basis with all the little tips and tricks and tools is and I’m trying to lead by example, you know, I just had two weeks off for the Easter school holidays here in Australia, I had two work phone calls that lasted five minutes each in a two-week block. So, you know, I think it’s not a pipe dream, what I will say it’s taken me 17 years to get to that point. So it’s not something that you can happen overnight, I can certainly, I can help someone get some quick wins overnight in terms of doing that. And we can work on some really efficient tactics and strategies. And we’ve really refined the art of lifting competency. As team members, we’ve been working on that internal year, and we’re starting to roll it out and educate people on how to do that and be really effective. But you know, I see that all the time, I see it every single day. And, you know, my business coach was in here the other day saying, you know, we could, we could push these things so much harder, but they’ll probably give you cancer, you know, and that’s you know, so I’m very empathetic to that. And I think that I would love to continue to work. And I will continue to work to help people with those goals that they set for themselves, which is a bit more freedom, a good investment. And also day by day, let’s do the things we really love doing. And lets you know what delegate the things we don’t like doing, because
Joanna: I love that. I love that. Yep. Look, you and I, we’re singing from the same hymn book, you know, and in my experience comes from having seen so many businesses fail, you know, as lawyers, we’re the ones who can see businesses that have pushed hard, but not focused on the right areas. So you know, from our perspective, it’s about really reinforcing the foundations to secure businesses. But the other side is these businesses that you know, have gone on for a long period of time with owners just chained to the business, not knowing that there’s a better way, not knowing that there’s a way that they can free themselves and that that way, will also increase their value. You know, I think, you know, and I see these owners that sail with this disappointment, and I just wish that you know, we could have all gotten in there earlier. And I think that’s the thing, you know, perhaps what drives you and I might be the same thing that we feel like we see the secret. Do we see the answer? Because we see successful businesses who have achieved it, and we can see what make that makes a difference. So lets I just want to round back, to one of the things that you talked about earlier on in terms of getting really deep and practical on what this all means. So we talked about valuation, and you said you were laser-focused on the number, ie the number of the valuation of your business, what does that mean? How did you come to that? And how do you determine that as you continue along?
Kobi: Yeah, look, you know, we’re not in the business. You know, the disclaimer is we’re not in the business of business valuations. There are brokers, and that’s their path. But someone has given me a formula. And I’m an operator. So right now to be really clear with everybody, I am operating an organization, that organization happens to help organizations and we’re a service-based business to business firm, management consultant if you want to put us into a category as part of what we do recruitments part of what we do but in terms of actually building that business, there are different component parts to the business, but I made a very specific decision in 2009 quite early I didn’t realize what I was doing it kind of it was a specific decision because it kind of made sense to me personally, not for other reasons to build a recurring revenue business. And so why is that important? Now recurring revenue businesses now have higher multiples when we go for a sale so multiples of EBIT? You know, multiples of profit to be really simple or multiples have turnover depending on the formula and what you want to agree with your buyer and what your markets doing. But I thought, hey, this is a great idea. Let’s build this subscription service and a large chunk of one of our businesses is a subscription service. And that subscription service, it’s an attractive industry, kind of made a decision to enter into an attractive industry. And I made a decision to build recurring revenue in that particular area. And we have been focused on that. So, so as an operator, I’m laser-focused on yeah, there’s a multiple, let’s call it five or six, in this particular industry, of my profit, so five or six. And so I’m literally tracking, I don’t do very often I might look at it kind of every three months, but I kinda have set myself a bottom-line profit goal for the year, not because I want to buy a new McLaren or Ferrari or a bigger boat, it’s, it’s, and I’ve already got a big boat.
Joanna: I love that you threw that in.
Kobi: But it’s, you know, I kind of have the toys if you like that I need and I have the life experiences that I have and, you know, my family’s being looked after, we are doing it. And we’ve been very clear about the profit that we’re driving out of this particular business, because that’s one of eight pillars that we’re working on in our business, to continue to grow our value and make us attractive, and I was literally thinking about this morning, we’re kind of, you know, for a sophisticated person listening, where the business renovators. We’ll renovate your marketing, we’ll renovate your processes, we’ll renovate your strategy. And then we’ll put you into a maintenance plan that keeps you going. And so we kind of, I don’t know whether we’re ready to kind of launch that as a brand slogan, kind of,
Joanna: We can talk about trademarks later.
Kobi: But that’s what we’ve done, we’ve kind of done that internally thing, we’ve given everything in Best Practice a fresh coat of paint, and we continue to maintain it and keep it clean and tidy. And we kind of know where we want to be and what we want to be looking at. And I’m, you know, more than actually helping anybody right now, I want to inspire people to actually say, well, you know, we should keep it clean and tidy. And we should be focusing on the right things. And we should be doing, we should be looking at the market and saying, hey, what does the market like? I think the biggest mistake that business owners make, is there a focus group of one, you know, they’re a focus group, are you being a focus group of one? are you focusing inside your own head? And are you doing the things and making decisions about what you like and what you think’s important? Yes, most likely, and that’s about what you just, you know, what we just talked about is about finding the secret. The secret that I stumbled across was, you know, I know how I like things. And you know, sometimes, you know, pigs are really happy in the, in the muddy pit of the pig trough, to give you that picture of, you know, they’re getting through the scraps of vegetables, and they’re snorting around in the mud. And, and there are business owners that are like that, and that’s okay. But if your goal in the back of your mind your dream, let’s make it a dream, because there’s no plan attached, if your dream is that you know what, this thing that I’ve been working on, actually, that’s my superannuation. I haven’t physically put any cash into superannuation and only accountants listening to this podcast, because I know there’s a lot of them will say, you’re absolutely crazy because you will get the tax discounts because you can add stuff to Super, you know, what I am not taking working capital out of my business, for the tax benefits, and putting it into my superannuation fund, I am leaving all of the working capital in my business to continue to grow because I’m laser-focused on that. I’ll get the tax benefit at the end. I’ll take that tax discount at the end when that working capital on that operational business is handed off to another owner, I’m not interested in putting it into super right now.
Joanna: So just as a comment, as a disclaimer, this is not financial advice. I love it, because this is your belief obviously, that the business that you’re growing will have a greater return than the return that you can get through, you know, General passive investments, you know, by, for example, via superannuation, right. So this is and this is where you’re saying that your belief in business is in the return that you can create if you’re focused and understand if you’re focused on a number, you’ve got a plan, and you’ve got a plan, you know, you have a plan to put that in place. And I just want to go back one step where we talked about multiples, just to make it super clear because you and I talk in this terminology all the time, some of our listeners may not completely understand. What we’re talking about here in multiples is the valuation that’s attributed to your business by someone who might look to look at purchase in the future, when they look at your earnings or your profit or an adjusted profit, multiplied by a certain number. And that multiplier that you’re using has the ability to have a massive impact on the value at the end of the day. So you’ve got profit, which many owners, you know, clearly are focused on which is a great thing but then it’s also about what the multiplier is on that profit that can make a massive difference. And so you, you were talking, you know, about multiples, you know, five or six, or many times when businesses look at the sale, they multiply and might be one, one or two. So the way they’ve run the business, and when you’re talking about a multiplier of, you know, let’s say you’ve managed to get it to 500, grand, a million, whatever in profit, and then you multiply that by one versus multiplying that by five, that’s a large difference, right?
Kobi: Huge difference. Absolutely. You’re spot on there. And, you know, I think it would be wise for anyone listening to clearly educate themselves on different pillars that drive value. And you’re exactly right. And I see the disappointment in lots of business owners faces because they’re kind of like, but I like doing this work. And I’ve chosen this industry, and I know this industry, and that’s excellent. But the multiplier in that particular industry might be and I saw a business recently sold where the multiply was point eight, two. Yeah, so so they were given, you know, 82 cents in the dollar of profit. And so that business owner was like, Well, I can run this business for another year, and I can make more money by keeping the profit. And that’s that, unfortunately, becomes the decision that ends up being made. You’re gonna stay chained to that desk for another year because you’re going to make more money than what someone’s prepared to buy. Because it’s, it’s a renovators delight.
Joanna: Yeah. I love it. And, you know, I am super keen on acquisition for growth. And here, herein lies some opportunities. So if you’re, you know, an opportunity finder, and you’re into this idea of, let’s call it business renovation, is that what you’re calling? I’m not gonna take it, you can have that one.
Kobi: We can all have it, we’ll talk about it. You know, you know, is my business a renovators opportunity? Or is it purely polished? Because, you know, I’ve watched, you know, I’m right in the thick of it, we are right in the thick of it here in the Northern Beaches in Sydney. You know, if you’re not at dinner on a Saturday night, and the topic of property doesn’t come up, you’re mixing with the wrong people. And so, you know, we sit, we sit there, and we talk about it. And I have a lot of friends who do not want to lift a finger, they don’t want to lift a paintbrush on the weekends, they want to go into a fully finished house. And the buyers at the top end, you know, when you talk about, you know, we can talk turnover numbers or profit numbers. But when you’re talking profit numbers of a million dollars, and then profit numbers of $5 million in profit numbers of $20 million. There are big businesses out there, who are they want to buy a going concern that operates by itself, that they don’t have to lift a paintbrush. Because they, they want to buy future profit. And there are things that they value, they value the maturity of your management team, they value, you know, the clarity in your strategy, the value, you know, you have defined processes, and that there is a recipe book available that they can open up tomorrow, once you’ve left, and you know, metaphorically and follow those processes, and continue to guarantee that profit, because if they do this thing you said to do in the document or in the process, then you can you know, that will guarantee them profit. This is how you do the marketing. This is how you generate the leads, this is how you, you know, do the sale, this is how you do the customer service or products. And so I’m not an advocate for writing everything down in policies and procedures, because I think we’re moving away from that industry, that’s a whole nother podcast. But I think it’s those starting to understand what those key leavers are. So you know, and then, for example, think they will value recurring revenue, because they’re like, you mean to say we can buy this business and we don’t have to do another sale, and we will get that guaranteed revenue, which equals a guaranteed profit. You go Yeah, they go, actually, we value that because this thing will pay itself off. So you know, that that’s kind of I would like the listeners, you know, and I know there’s a lot of listeners of this particular podcast that end this here in the deal room that that kind of know this stuff. But if you’re somebody listening and you are building a business, right now you’re operating a business and that business is going to be a legacy that you might leave for your family or it’s going to be superannuation, then it would be wise to start doing one simple thing. This is my one simple tip. Write down, delegate and elevate. There are people out there that are super passionate about doing the things that you don’t like doing. I like running around and staying fit. And I would be happy as a pig in mud on the back of a garbage truck picking up garbage beans because I would be fit. I would love to do that. If I had my time again and I didn’t have to worry about financial stuff, just what I love labouring for bricklayers because I can lift weights all day and I can stay fit. I like running around. I like you know staying fit and healthy. And I would be happy to do that. And I’ve got the mental resilience to do that people think I’m gross I don’t want to be on a garbage truck. I’m like, What a great opportunity to just like be jogging all day.
Joanna: In the morning, finished early in the afternoon
Kobi: Exactly right, hang out with your friends go to the beach, that kind of stuff. So so I think that’s just me as a case study that, you know, thinking about your business, you’d actually don’t have to do everything. And in fact, your time is better spent on really high-value activities. Stop doing the low-value activities. If you’re a business owner and you file emails, then that is absolutely the worst use of your time. And so, you know, those that are just a really simple you know, if you’re OCD, I need to make sure my inbox is in order, well, then you’re kind of not adding to your multiple
Joanna: Yeah, oh, that’s it’s such a good point isn’t it? And it comes back to this really simple thing as well. So you know, number one, know what you enjoy doing and get rid of the stuff that you don’t know what you’re good at and get rid of this stuff that you don’t but also do what you can to structure yourself in business so that you’re focusing on the working on rather than in right? These fundamentals.
Kobi: Absolutely. 100%
Joanna: Well, that’s it for our discussion with Kobi Simmat from Best Practice. And of course, if you would like to talk to Kobi about some of the work that he does with businesses, building them up for sale and converting them from a job to an investment, then just head over to the show notes of this topic or our website at the deal room podcast.com, where we will link straight through to Kobi. And we will also provide a transcript of this podcast episode if you would like to read it in more detail. Now, don’t forget to come back next week for part two of this two-part series, where we really dig into the pillars in the business to grow sale value. And that’s a really important episode because we dig into what you actually need to do in a practical way to increase the value of your business at scale. We also talk about how to find trending industries, looking at what’s happening geographically, and also the benefit of adding new products and services to your current client bases. Kobi shares his top three takeaway tips for businesses. And really, this is highly important listening for any business that’s looking to buy or indeed that’s looking to exit at some point in the future. Now, don’t forget at our website, you’ll also be able to find details of how to contact our legal Eagles at Aspect Legal. If you or your clients would like to discuss any legal aspects of sales or acquisitions, whether that is preparing for an imminent sale or acquisition. or indeed if you are right at the point of sale or acquisition right now and need some legal assistance to get you through the process. We have a number of great services to help guide businesses through the sale and acquisition process. And finally, if you enjoyed what you heard today, then I’d be very grateful if you could pop over to iTunes and leave us a review and that’s it for today. Thanks again for listening in. Don’t forget to come back for part two of our two-part series next week. But for now, thanks again for listening in. You’ve been listening to Joanna Oakey and The Deal Room Podcast, a podcast proudly brought to you by our commercial legal practice Aspect Legal. See you next time.
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