Built to Flip: How to Buy, Build, and Sell a Business with Jim Lindstrom | Built to Sell Radio

October 18, 2024 |  

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In this episode of Built to Sell Radio, Jim Lindstrom discusses how he acquired BuzzWord, a company specializing in ESG (Environmental, Social, and Governance) reporting. Lindstrom explains how he built a killer culture by transforming contractors into full-time employees and incentivizing them with a two-part profit-sharing scheme focused on cash flow and EBITDA, setting the business up for future sale.

Here’s what you’ll discover how to:

  • Identify acquisition opportunities and assess their growth potential
  • Retain key talent and transition contractors into long-term employees
  • Implement an innovative two-part profit-sharing plan that incentivizes both cash flow and EBITDA
  • Build a business to position it for a profitable sale
  • Manage the risks and rewards of relying on contractor-based teams

Lindstrom’s experience highlights the strategy behind buying, building, and preparing a business for future sale.

Show Notes & Links

Official Press Release

Connect with Jim on LinkedIn

 

Definitions

 

Due-Diligence: This is a comprehensive appraisal of a business or investment undertaken before a merger, acquisition, or investment. It seeks to validate the information provided and uncover any potential risks or liabilities.

Earn-out: This is a financing arrangement for the purchase of a business, where the seller must meet certain performance goals before receiving the full purchase price. It reduces the buyer’s risk and aligns the interests of both parties post-acquisition.

Employer Net Promoter Score (eNPS): This metric assesses employee loyalty by measuring the willingness of employees to recommend their workplace to others. It’s an indication of employee satisfaction and organizational health.

Sellers Discretionary Earnings (SDE): This represents the earnings of a business before the owner’s salary, interest, taxes, depreciation, and amortization. It’s used to assess the true earning potential of a small business. Imagine you have a lemonade stand. At the end of the day, you count how much money you made. But from this money, you need to pay for the lemons, sugar, cups, etc. What you have left after paying for these things is similar to what businesses call “profit.”

However, if you paid yourself a small amount for your time running the lemonade stand, or maybe you bought a new sign to attract more customers, those are costs that are specific to you as the owner and are considered “discretionary.” They are costs that a new owner might not have or might choose to spend differently.

So, Seller’s Discretionary Earnings (SDE) in business terms is like the money left from the lemonade stand, plus any extra costs or payments that were specific to the current owner. It’s a way to show how much money a new owner might expect to earn from the business, considering they might have different ways of running things. In simpler terms, it’s a measure of a business’s earning power from the viewpoint of the owner.

 

About Our Guest

James Lindstrom

Jim Lindstrom, a seasoned CEO with experience in leading companies like IES, Providence Service Corp and Verdian. The discussion covers his experiences with accelerating company growth, executing turnarounds, managing balance sheets, and strategic value creation. Jim shares insights on governance, operations, capital allocation, team alignment, and business simplification, drawing from his extensive experience in various leadership roles.

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