How a Vision Board Drove One Owner to Sell

July 5, 2017 |  

About this episode


A few weeks ago, Shaun Oshman sold iSupportU, a Colorado-based IT support business. Oshman started the business at the age of 32 and knew he wanted to sell before his 40th birthday. As that milestone approached, Oshman started getting his business ready to sell.

To read a transcript of this episode, click here.

He started by focusing on selling recurring revenue services, like antivirus software, which offered their partners an annuity stream of revenue. Next, Oshman hired someone as head of business development to replace himself as the rainmaker. Finally, Oshman started to take one out of every six weeks off to see how the business would run when he was not in the office.

Since the business was running well without him, Oshman started marketing it for sale and, within three months, he had five solid offers. Oshman agreed to sell to one buyer with whom he felt a cultural fit. In this episode, you’ll learn:

  • The definition of SDE and how to calculate it for your business.
  • How a vendor take back works.
  • The importance of bank financing for buyers and how to ensure your acquirer can get some.
  • What a vision board is and how to use one to get what you want.
  • How your ego can lower your company’s value.
  • Two questions every employee will ask when you reveal you’re selling (and how to answer them).
  • The surprising power of being vulnerable.

When Oshman was 30, he developed a vision board illustrating where he wanted to be by the age of 40. The board had a number of financial goals and a picture of Oshman living on a sailboat. As his 40th birthday approached, he knew he needed to sell his business and buy that boat to fulfill his vision.

What’s your vision for a happy and fulfilled life? How does your business serve that goal? Those are two of a variety of questions you’ll answer during The Vision Builder exercise, part of Module 1 of The Value Builder System™—get started now by completing your Value Builder questionnaire.

About Our Guest

Shaun has spent his career cultivating teams to do amazing things. He cultivated a team at YMCA Camp Ockanickon to develop and deliver the highest quality experiential education programs. While in NZ, he inspired the most fantastic group of 8 year olds to exceed their own expectations in the classroom. Today, he leads the team at iSupportU to provide the highest quality IT support and consulting. Through all of these endeavors, learning has been a common theme. In order to truly know ‘how to learn’, he finished a Masters in Education to prepare him to teach.


John Warrillow:                So are you getting bored yet? It’s okay. You can admit it to me. I get bored sometimes. I mean, after a while, five, ten, 15 years of running the same business doing the same thing every day. Its bound to get boring, right? Especially for an entrepreneur who is motivated by the new thing, the creative spirit that brings energy to a room. It’s really tough to do the same thing every day. I think it’s natural to get bored. Which is exactly the space that Shaun Oshman found.

John Warrillow:                So Shaun started a company called iSupportU. After about eight years of running it, figured life might be better on a sail boat. That’s exactly what he decided he wanted to go do. He decided to sell his company and go live with his fiance on a sailboat. Here’s to tell you the whole story is Shaun Oshman.

John Warrillow:                Shaun Oshman, welcome to Build to Sell Radio.

Shaun Oshman:                Thanks for having me.

John Warrillow:                Yeah, so tell me about this business iSupportU. I guess the name was indicative of what you guys did but maybe describe for folks who don’t know.

Shaun Oshman:                We did IT for businesses. After a number of years we focused on the B to B market. Every company needs to access the internet, and be able to use technology, so iSupportU made it suck less, was our tagline.

John Warrillow:                Make it suck less. Love it. And you were based in Colorado?

Shaun Oshman:                Yep. In Boulder, Colorado, which is a growing city. Lots of tech start ups are popping up here including Google building a campus smack downtown.

John Warrillow:                Yeah. So, you would be what a lot of companies would think of as the IT guy. You would help network the computers if they needed it. Get their Google apps set up, troubleshoot. Is that the kind of thing you did?

Shaun Oshman:                Exactly. There would’ve been a balance of consulting in order to determine the right tool to solve the problem. Then there’s deployment and support, which is where a lot of the companies like ours will focus. Then training, because implementation of a new technologies with users is really important. They need to understand how the tool works otherwise they don’t think it’s a good tool.

John Warrillow:                Got it. How did you structure your staff underneath you? Did you have sales people doing the selling, and IT people doing the delivery? How did you staff it?

Shaun Oshman:                This was a very organic process, and a classical boot strapping story, which I got a rice cooker here in the office which I got for five dollars from a thrift store. This thing is what kept the company running for a long time. What happened was, the way I described how the company evolved from a staff prospective is, it’s like splitting wood. When you have a really large log, you have to cleave off the edges of it before you could try to split the log down the middle, because it’s just too think.

Shaun Oshman:                With all the responsibilities associated with a business, in the beginning I did all of them because I didn’t have any funding. I do not come from a wealthy family. I just had to figure it out. I might not have been that good at certain things, like bookkeeping, but I did them because there was just no other option. There was no money to hire somebody to do it.

Shaun Oshman:                As the business grew, as it evolved and I just kept putting money back into it. Then I was able to cleave off from that log those things that other people would be better at. Starting with bookkeeping, I got myself a part time book keeper. I brought somebody on to do Windows troubleshooting which was not my expertise. My focus was in Apple and Google, so I was able to do what I did best.

Shaun Oshman:                Over an eight year period of time I ended up with that log being split up in to enough pieces so that the core which is actually running the business, is the only thing that I was left doing. That did take a while to grow that team.

John Warrillow:                Yeah. I love the log analogy.

John Warrillow:                How did you build for what you sold essentially?

Shaun Oshman:                We were very much hourly for most of our revenue. Clients would be on a month to month basis. They would either be on a fixed amount of time at the beginning of the month that’s in a bank for, like being on retainer with an attorney. Or people would just call us when things break. Then we would do the work, and then we would send them a bill.

Shaun Oshman:                That’s the way the model began, but over time it did evolve and we diversified the sources of our revenue over time.

John Warrillow:                How do you mean?

Shaun Oshman:                We focused more on recurring revenue services. In our industry of being an IT services provider, because we know the industry and we’re the trusted partner of our clients, we can look at the industry, look at the problem they’re trying to solve, and then recommend a solution. We partner up with those companies that offer those solutions. Let’s take anti virus as an example. We are a partner for Bitdefender. We pay X number of dollars, per license, per month for Bitdefender anti virus.

Shaun Oshman:                Then we go to the client and say, “Hey we vetted out all of these different anti virus services, and we consider this to be the best. Here’s the monthly fee for it.” And then there’s a margin on that. Take that and apply that same concept to email, to backup services. That’s where you start moving more towards a sustainable financial model because there’s a foundation of recurring revenue services that you know you can guarantee will come in every month.

Shaun Oshman:                The hourly work, of course, is still important as this hardware sells, but they become less important because you can depend on a foundation.

John Warrillow:                How would you describe the psychological impact of moving more to a recurring revenue model for you personally as the owner?

Shaun Oshman:                It calmed me down honestly. There was a lot of anxiety running a business where you only eat what you kill, and you never know what kind of revenue you’re going to actually get in any given month. At the point of sale, there were a dozen staff that needed to get paid. Payrolls going to run either way whether we do billable time or not. This was helpful for me from a psychological perspective just to keep calm. It decreased anxiety because it was consistent, and I knew we could depend on that revenue.

Shaun Oshman:                It just kept growing month after month. We would recommend voice over IP services that are cloud hosted for a PBX and they’re great services. We love them. We stand behind them, and that’s our thing. We know on the backend we’re going to be able to receive that check every month without having to hustle too hard in addition when I have employees come to me and say, “Hey Shaun, I need a raise.” Well, where’s that going to come from? I can only bill them for a certain number of hours in any given week.

Shaun Oshman:                So, 40 hours in a work week, let’s just say they bill 20 of those hours. Can I bleed a stone? Can I squeeze more time out of them to make more revenue in order to pay more money? It’s kind of hard to do. Somethings got to give at some point. As our recurring revenue income increased it was really helpful to keep up with the demands of staff, to keep their pay increasing over time to keep their incentives up.

John Warrillow:                Got it. What proportion of your revenue was recurring or from recurring sources by the time you actually sold the company?

Shaun Oshman:                It was in the 20 to 30 percent range by the time of sale.

John Warrillow:                Got it. How did you handle the cash flow? Of course recurring revenues great, but in your case, if you’re reselling Bitdefender as an example. You make the sale. You buy the license, and Bitdefender sends you a check, what, 30, 45, 60 days later.

Shaun Oshman:                It actually works backwards. We pay a wholesale fee to Bitdefender, and then we charge the client out for what that monthly service is going to cost. As long as we could keep up on our accounts receivable, then cash flow’s not an issue. Either way we’re going to pay out on the whole sale cost of that license. The only time it gets a little tricky is when you get a price break at those different tiers of licensing. When we move from, let’s say 250 licenses, up to 500, that’s going to give a price break because a company like Bitdefender wants to incentivize a partner to have lots of seats. So they offer it at a decreased price per month if you break a certain threshold.

John Warrillow:                Got it.

Shaun Oshman:                Which makes it more difficult to start off with because you’re paying a higher dollar amount whole sale for that license than if you were a huge company. That’s why the bigger players in this game make more money, because they have economy [inaudible 00:10:12] on their side .

John Warrillow:                Got it. So there’s incentives for them in place to scale up and buy more licenses in bulk, get better margin. Tell me a little about why you wanted to sell this company. It sounds like you were relatively early in. I think you said eight years?

Shaun Oshman:                That’s correct.

John Warrillow:                What triggered you to want to sell?

Shaun Oshman:                Reflecting about who I am, and what I enjoy. I came to realize that I enjoy starting things, and I enjoy building things. I don’t necessarily enjoy running things. That’s a different interest, and a different passion. I wanted to make sure that the team here had somebody at the helm who really gets excited every morning to come into work and run a business.

Shaun Oshman:                I noticed over time after having done it for six, seven years that I wasn’t as excited as I was. I still love my work. I love the team. I love the clients. But I didn’t have that same kind of enthusiasm because I wasn’t learning to such an extreme degree as I was in the beginning. I love learning new stuff, and if the learning curve is not as steep, then I don’t feel as challenged.

Shaun Oshman:                For the sake of the team, for the sake of the clients, and just the business as a whole, I thought it would be better to see if I could find somebody who’s excited about running a business and wants to take this thing that is well established, has a great brand recognition, fantastic team, good business model, sustainable, profitable, and then take it and grow it to a factor of ten.

Shaun Oshman:                That’s what the new buyer wants to do. That excites me. I would love to come back five years from now and see this business be ten times the size that it is now.

John Warrillow:                Yeah. I think it would be a fantastic legacy.

John Warrillow:                Was there any part of you that thought you could scratch that itch for the new thing by doing something radical in your business? By buying another company, launching a new product, going into a new market, or starting an office in another city? Did you contemplate getting your jollies if you will from some other big initiative other than selling?

Shaun Oshman:                I had considered keeping the business, and the ironic thing is that my director of operations Laurie who is amazing, I’ve known her for 20 years. We knew each other since college. She’s really been the one who was helped run this business these past three, four years. She’s done an excellent job, stood by me through all of this. When I disclosed to her that my plan, I said, Laurie, I want to do this other thing, which is actually getting onto a sail boat. That’s the next step in my life, and that’s why I needed to make space in my life to get on the sailboat and not be distracted.

Shaun Oshman:                I said to her what my goal was, and she said, “Why don’t you just keep the business Shaun? It’s okay. You can still be the owner and I will run it. It’s fine. Go sailing and make money because the business is profitable. You can make money and be on a boat and not feel bad.” I thought about this. I seriously considered it because it sounded very appealing to make money and not have to do anything is kind of everybody’s dream. However, I knew in the end, the buck was going to stop with me. If the team decided a mutiny due to something that I had no control over and everybody quit one day. I would be the one holding the bag, because I’m the owner.

Shaun Oshman:                I went through that scenario. I said, what’s my worst case scenario, and it didn’t sit well with me. I’d almost rather somebody engage with the business who will be there physically present every day and the team could look to as a leader, if I’m not going to be there it just wouldn’t feel right. Something about it just didn’t feel ethically right to me.

Shaun Oshman:                I wanted to get out of the way so that there’s room for the next person to come in and do their thing. From a financial perspective it would’ve been far more beneficial for me to keep the business because given two or three more years running it, I would’ve made as much as I made on the sale of the business.

John Warrillow:                I want to get to that in a second. Just for clarity, you refer to being on a sailboat. Is that a metaphor for something, or are you actually aspiring to spend an extended period of time sailing?

Shaun Oshman:                I already bought the boat.

John Warrillow:                So it’s a real thing.

Shaun Oshman:                It is a real thing. That is true. It’s a 1982 Passport 40. It’s located down in Florida. I’m in the process of moving all of my things onto the boat. Heidi and I are both moving onto the boat. To be on a boat is a full time job. You have to maintain the boat. So I am quite literally going sailing for the foreseeable future.

John Warrillow:                So I said, what triggered you to want to sell the business, and you talked about not loving to run things, wanting to start things, which sounds like a legit sort of reason. But there was this other thing in the background, your aspiration to go to something. In a way you were being pushed out of the business by its sort of maturation, but in another way you were being pulled by something, the boat.

John Warrillow:                Is that fair?

Shaun Oshman:                That is fair. When I turned 30, I created a vision board. I am a big fan of vision boards. I think that if you don’t visualize what you want for your future, there’s no way it can happen. That’s the hardest part. I think a lot of people don’t even know what they do want, so then trying to attain that is impossible.

Shaun Oshman:                When I was 30, when I was living in New Zealand, I was an elementary school teacher and I made this vision board. There’s certain things I put on there that were very specific. There were goals. Financial goals were on there. Business was on there. Being a professional was on there. There was a huge picture of a sailboat smack dab in the middle of this thing.

Shaun Oshman:                It was clear that was what I wanted to do. I had set a deadline for myself by the time I was 40. I’m 39 & a half now. I turn 40 in December, so I’m right on target.

John Warrillow:                When did you sell the company?

Shaun Oshman:                A month ago.

John Warrillow:                That’s awesome.

Shaun Oshman:                It is awesome.

John Warrillow:                Right down to the wire.

Shaun Oshman:                Yeah.

John Warrillow:                So you’re going to move from sunny Boulder to Florida to sail?

Shaun Oshman:                That’s it, until we continue on to the Caribbean and do the sailing thing until it’s not fun anymore.

John Warrillow:                Wow, and do you have kids? Do you have family? Me as a guy with kids, I’m like, that sounds like the worst thing in the world frankly.

Shaun Oshman:                No I don’t have kids.

John Warrillow:                Good for you.

Shaun Oshman:                I could definitely see it in the horizon. I’d love to. The idea of raising kids on a boat is just awesome to me. I would love to see that happen. Lots of people do it. It’s great for kids growing up on a boat. I’d imaging it would just be a fantastic reality.

John Warrillow:                I shouldn’t diss it. I’m sure it’ll be amazing. It’ll be an amazing life experience for sure.

John Warrillow:                I think common among a lot of entrepreneurs there is this sort of in the back of their mind they want to go do something, go on a sabbatical, go on a trip, move cities. In your case, you kind of have all of those boxes ticked.

John Warrillow:                Talk to us about the next step. You decided you want to sell. What did you do? Did you hire a broker? Did you market it yourself? What was the next sort of step in the process?

Shaun Oshman:                When the thought first occurred to me, what I did is I went down to meet with Front Range Business brokers and those are the guys that I worked with to get the business listed, and do all the negotiating for the sale.

Shaun Oshman:                I met with them and they educated me on a lot of different aspects of what goes into a business sale. Many of these things I had never heard of, or had not considered because [crosstalk 00:17:59].

John Warrillow:                What was the most surprising?

Shaun Oshman:                Just the way that they structure it in the multiplier, and how they determine evaluation I thought was really interesting.

John Warrillow:                Tell us what we don’t know. What did they tell you about evaluation and the way multipliers work?

Shaun Oshman:                The sellers discretionary earnings is the number that they used in order to determine, from that point is the multiplier, then the sale price of the business. That’s going to be what I paid myself in salary, and then add to that what the business made in net profits, then add to that other benefits that I would’ve received from the business, things like the business paying for my cell phone, the business paying for the car that I drove. Any other benefits that are ancillary benefits outside of normal pay. I hadn’t considered those as being things that actually added value to a business, but they do when I reflected on it, because those are costs that I’m not incurring directly as a person. The business is paying for them. Which is going to be the case with anybody who owns a business. The business will cover certain things like that.

Shaun Oshman:                When I learned all of those things, I went back to the business and instead of going and saying, hey I’m going to sell this thing and then somebody’s going to grow it, or finding somebody to run the business while I’m away. I knew there was nobody else who could grow the business as well as I could. I knew what I needed to do once I met with them, and this was two years ago. I had quite a big on ramp, and I had a goal in mind. I said, okay, I understand how these numbers work, and these guys just told me what this valuation is. I want to put another 100 grand onto that valuation. So I’m going to do these things, so these are my financial goals that I’m going to put in front of myself for this next year, and then we’re going to re evaluate.

Shaun Oshman:                It had to begin with understanding how the system works, then going back with that knowledge and applying it in order to get the goal.

John Warrillow:                Got it. So you figured out. What did they tell you the business was worth when you met back when you were 38, the first meeting? On a multiple of STE.

Shaun Oshman:                The multiple was the same. The multiples, it was two and a half to three as a multiple of STE but the thing that I had control over changing was what the SDE was.

John Warrillow:                What the E was. Yep.

Shaun Oshman:                Correct. What I did after that meeting, I immediately increased what my pay is on normal payroll because, why not. If I pay myself more, somebody from the outside looking in is going to say, oh great, if I ran this business I’m going to step into that salary.

Shaun Oshman:                I had not perceived this scenario in this way before. I didn’t put myself into the position of somebody outside of the business and what they would think and what they would want. The process of learning all that stuff really helped me empathize and get into their shoes, and say how could I set this up so that this is really appealing to them from the outside without having the emotional attachment to it that I have. I love the business. I love the work. I love the clients. I love the team. They’re not going to have the same emotional attachment. They’re going to look at it from a numbers perspective, so how do I grow that?

John Warrillow:                What else did you do to prepare to take it to market?

Shaun Oshman:                There were certain team members that needed to get cleaned up, and also getting the team aligned in a certain way. I hired a business development person in order to grow our sales. I knew she was going to require at least a year of on ramp to get up to speed on her effectiveness, to get out there, know enough people, do the networking, understand her job, because that’s what I was doing. That was the last piece of the little log that I was still responsible for was business development.

Shaun Oshman:                I would go out in the community. I served on committees, on boards. Did a lot of fundraising stuff. Just to be an active and engaged member of the local community like you do. Being in the chamber of what not. I needed to get her up to speed first because I knew business development is going to be critical. I wanted as few things as possible to be dependent upon me.

Shaun Oshman:                I also took a lot of vacations, tons of vacations. I would take a week off every six weeks. I wanted to decrease the teams dependency on me and make them more self sufficient so that they can make decisions for themselves. They’re all shockingly intelligent people. They can handle it. They can solve a problem if I’m not around. If I’m around the easy thing to do is to come ask me. Of course I’m going to know the answer because I’ve been doing it a long time. When you’re not there, it’s not that they don’t solve the problem, they just get to do it themselves.

Shaun Oshman:                That’s what I observed for the past year and half when I’ve been in the process of moving the business to a place where it makes more sense to hand off.

John Warrillow:                What would you say to an owner who just says, that’s a pipe dream for me. I’m glad that you were able to take a week off every six, but there’s no way I would be able to take off that amount of time. What advice would you give someone with pushback like that.

Shaun Oshman:                Being honest with yourself about how necessary you actually are. Some of it is going to come down to ego. Being somebody who’s the founder, there’s a lot of ego injected into the day to day life of being a founder. Is there any way anybody could do this as well as I can, because I started the business, and well, are you right? Sure. You’re probably right. But, is that going to benefit you in the long run? It is an easy ego fix to say, I do this better than anybody on my team, but the way to really empower people is to have them be better at the job than you are. You just create a vessel with which they can pursue their passion.

John Warrillow:                Got it. So you take a lot of vacation. You improve the earnings of the business. You hire the [inaudible 00:23:52] person. A year goes by, you’ve improved earnings. Then what? Do you go back to the guys at Front Range and say, we want to take this thing on market? What was the next step?

Shaun Oshman:                Sure did. In October of 2016 is when I approached them. It coincided with of course life event, falling in love, because that had to happen in order for me to know that I had a partner to go onto this boat with because I wasn’t going to do it alone. That needed to happen. That was the trigger where I said, okay, now it’s time.

John Warrillow:                Dude you’re a newlywed and you’re going on this boat. This is getting really thick now.

Shaun Oshman:                It’s going to be awesome.

John Warrillow:                That’s great. So a life event, obviously you’re getting married. So, more sort of acceleration to the fuel to the fire so to speak.

John Warrillow:                What next? Did they go market the business and find a buyer? How did that come about?

Shaun Oshman:                They created a description of the business, I guess a brochure, best way to describe it that said here’s the history, here’s the brand, here are the numbers. They put it out on the market in October. We knew because it was the holiday that there’s probably not going to be a lot of attraction that’s going to happen between October, November, and December. It was what we thought, not a lot happened. Then come January, come February, then a lot more motion happened. We got more inquires. By the time all was said and done, there was somewhere in the order of 60 total inquires for this business specifically. From that my broker narrowed that pool of people down to five or six paries who we considered offers from. All of them had their strengths. Some of them had some flags where it said, you know, you’re probably not going to succeed at this as we would like so this might not be the best fit.

John Warrillow:                Why did you care if they were going to succeed or fail?

Shaun Oshman:                I cared because of the team. I felt that I do still feel an ethical responsibility to them to make sure that they continue to do what they do well in a safe environment structured in much the same way that they’re used to. They took the job because they believe in how the company does what it does. Yeah, they probably liked me too, and they liked the work. That’s all great, but people do things because they believe in them. So these guys are here for that purpose and I just wanted to keep that continuity as much as possible.

John Warrillow:                What would you tell an entrepreneur who is going through the sale process for the first time and they’re looking at their first few letters of intent, their first few offers? What are some of the red flags they should be looking at, or things they should consider in evaluating the offers that are coming in?

Shaun Oshman:                Most of it has to do with culture fit, and humility. The reason why we went with the buyer that we did, he was very intentionally chosen, was that he came in very humble. He was not the highest offer dollar amount wise, but he had good experience, he had a positive attitude. His life as a whole where he was in his just life cycle I guess was good, well aligned. In his mid 30s, just gunning for it. Family man, very kind positive, quick to smile, really just fit with the team and the vibe. We’re bolder, I can say vibe. It’s cool. The vibe of the team. The team actually interviewed him before we pulled the trigger, before we closed the deal. Which is very unusual in a business deal. Normally it’s a bit like horse trading. You go there, you pay the money, you have no idea who the team is. That from his perspective I’d imagine would be very scary because what if they hate him?

John Warrillow:                What was the reaction of your team?

Shaun Oshman:                I only let two people in the team in on what was happening early. The reason for that is because they had been with the team for a while. They were pretty key players as well in the team. They had mixed feelings. They were happy for me, because they want me to do fun great things and move on to the next thing. They were worried because it’s uncertainty, and everybody’s concerned about uncertainty, because it’s the unknown.

Shaun Oshman:                Then when the whole team was notified and let in on the big secret, they really had two questions. Question one, will I keep my job? Question two, is anything going to change? And thankfully, the answers were what they wanted to hear. Yes, you do keep your job, and no nothing’s going to change. Brett is a very wise guy. He’s the buyer. He came in with the wisdom to know that he’s not going to change anything until he understands what it is that he’s changing, which is exactly what you want to do.

John Warrillow:                So you mentioned you got five offers for the business. Brett’s was not the best offer, but you ultimately went with it. I’d be interested to know of the five offers, what was the gap or the difference between the lowest offer and the highest offer on a percentage terms?

Shaun Oshman:                There was about a ten percent swing.

John Warrillow:                Oh wow, so very close.

Shaun Oshman:                Very close. The biggest difference would’ve come from the earn out. An earn out, it’s a wide range of possibilities with an earn out. An earn out can either really be a fantastic thing for you, or it could go really poorly, so as a seller you’re pretty much investing in the risk of the business and it’s future, which is not preferable as a seller. It is a lot more risky because you don’t know about the competency of the person who’s buying the business. You do the best you can to understand how professional they are, how well they’re going to do, and you hope they succeed. Once the papers are signed, it’s not in your hands any longer.

John Warrillow:                Got it.

Shaun Oshman:                The decisions they make are going to affect you financially. From my perspective, I wanted to keep it as simple as possible. The other advantage of Brett’s offer was that it was simple, it was, here’s the amount, here’s what I think it’s worth. It’s a little less than what you asked but it’s still fair, and here’s how I want to break it down those payments, and I said, great. That’s perfect. Nice and clean. Nice and clear for me.

Shaun Oshman:                The reason why I’m selling the business is because I want to move on to something else and not have to think anymore about this project.

John Warrillow:                The overall selling price was in the two and a half to three times SDE range?

Shaun Oshman:                You got it.

John Warrillow:                Of that two and a half three times STE, what proportion were you offered kind of payment up front?

Shaun Oshman:                Payment up front was about 80 percent of the total sale amount. That remaining 20 percent was put into a node so as the seller I was backing that portion of the sale. This was good for the bank. The bank loved this, because it gives them some semblance of confidence because if the seller feels good about financially backing the deal, then they feel better as well.

Shaun Oshman:                The bank is still going to be first position, because they’re a bank. That’s what they do. I’m still going to subordinate to them. Then also there’s a two year ramp up time where the buyer is not making any payments to me. That was what the bank put in as a stipulation to insure that from a cash flow perspective, the buyer is still going to be able to make the payments to the bank first and foremost.

Shaun Oshman:                Then after a couple of years of doing that, having some stability, then he can start payments to me to pay me off the rest of the amount, which suited me just fine. Then it’s going to be an exciting surprise two years from now when I start getting those payments. It’ll be awesome.

John Warrillow:                Yeah, great. So, lets just refocus this. So, Brett the buyer went to a bank and borrowed the money to buy your business. He would’ve put in some cash I guess of his own, plus some bank funds. Do you happen to know what proportion of the deal he was able to come up with on his own versus what he had to finance?

Shaun Oshman:                From what I understand he came up with between a quarter and a third of the cash down payment in order to get going with the business. He needed more than just that sale amount. He also needed operational cash to have in the bank just to run the business. That dollar amount he determined by doing cash flow projections based on reports that I shared with him. It was an SBA 504 I think loan. It might’ve been 7A.

John Warrillow:                For folks not in the United States listening SBA Small Business Administration is a loan program that they essentially guarantee some loans in some cases for small businesses, under certain circumstances this happens to be one of them, so that’s interesting.

Shaun Oshman:                Correct.

John Warrillow:                Good. So that’s how you got the deals done. So you took a 20 percent vendor take back. What’s the percentage interest you get on the 20 percent? We’re in such a low interest environment. I’m imagining it’s pretty low.

Shaun Oshman:                It’s a six percent interest rate on the node.

John Warrillow:                Got it. Is that six percent start right away even though there’s no requirement to pay and of the node off for two years? Or does it kick in after two years?

Shaun Oshman:                It kicked in the day of closing. That was something that I needed to have negotiated on the APA, the asset purchase agreement previous to closing to make sure that would be there. Otherwise I would be losing money on that money that I wasn’t paid, which doesn’t really make a lot of sense.

John Warrillow:                Sure. So basically the amount of money you’ve lent essentially to Brett is increasing all the time up until he starts paying it off in a couple years.

Shaun Oshman:                That’s correct.

John Warrillow:                Got it. That’s fascinating to get that level of detail into what is a very common way that smaller companies are bought and sold, which usually involves some kind of financing, and some sort of vendor take back using industry lingo for when the owner, you, lend a little bit of money to the buyer. But you got 80 percent of your money up front, which is great.

John Warrillow:                On this show we’re used to hearing all these crazy stories of acrimonious sales. It sounds like in your case it was a pretty good sale. As you look back on the negotiation, is there one thing that you might do differently if you had to do it over again?

Shaun Oshman:                That’s an interesting question, because the reason why this deal went as smooth as it did, and the broker described that as good will. Every deal is going to have a certain amount of good will. That’s really comes down to how much trust each party has in the other party. When people get laywered up, then the trust decreases because they get defensive. Just like in any relationship, showing vulnerability first is helpful when it comes to growing trust.

Shaun Oshman:                I did that in the very beginning before we even signed the asset purchase agreement, Brett had asked me about numbers. He said, hey I want to see these financial reports, and these financial reports. I said, “You know what Brett, here’s a login to QuickBooks. Go for it.” Which just never happens with a deal. My broker said, “Are you sure you want to do that?” I said, “Yeah. I have nothing to hide. He’s welcome to go into QuickBooks, and poke around and run whatever report he wants. That’s totally fine. He’s coming into this, this is going to be his business. I want him to go into it with eyes open and understand as much as he can before he puts pen to paper so that I don’t feel bad as if wool was pulled over his eyes.”

Shaun Oshman:                That was step one in building trust with him in addition to introducing him to the team and bringing him in two weeks before closing to the business to meet the team, get some training going, which again it was very unusual for the deal. That is a double edged sword. When you give somebody access to financial data but they don’t necessarily have the experience or context to be able to know how to accurately interpret that data, there could be problems.

Shaun Oshman:                With this business there’s a very specific way with which the cycle of money comes through. The PNL in any given month is going to have certain cycles. At the first of the month, were working on closing the previous month, but it doesn’t close until maybe ten days after the first of the month. Therefore, there’s ten days of anxiety because you’re staring at the PNL freaking out thinking that we’re in the red for whatever the previous month is, when in actual fact all the billing is still not complete. We haven’t charged for all the licenses yet.

Shaun Oshman:                I had to train myself over a number of years to not get anxious until then the month is totally closed.

John Warrillow:                Did you give this kind of coaching to Brett so that he understood how to interpret the numbers?

Shaun Oshman:                I did, but the problem is it didn’t help enough. I don’t think I did a good enough job of helping him understand the numbers because the problem is he drew conclusions based on what he could see, which were, you would imagine very black and white measurable conclusions. I saw it differently because I said, oh I understand these one time expenses that have come in. Let me help you understand this. But the problem is, I intervened way too late. He had drawn his conclusion, and he said, hey I’m kind of freaked out. These numbers freak me out. I don’t know if the business is doing well. I’m like, no, here’s what’s going on. Let me educate you. Let me help you understand this.

Shaun Oshman:                In retrospect, in conjunction with giving a potential buyer access to the books, it’s very important to make sure that they have enough context to be able to know how to interpret the books.

John Warrillow:                Got it.

Shaun Oshman:                Before they draw their own conclusions and freak out, because business is scary. Cash flow is scary. Having to make payroll is scary. When you’re going from zero to 60 like he did, because when somebody is purchasing a business, they don’t have the benefit of an on ramp. I’ve had eight years of build up to get used to the stress associated with having to make payroll, and the month closing.

Shaun Oshman:                Now for the sales we have in any given month are equivalent to the annual sales the second or third year of the business. We’ve grown by ten fold in the matter of five or six years. But I’ve been able to do that gradually. He’s coming right into it which I have a lot of respect for him for having the calm, the maturity, the professionalism, to be able to deal with that volume of business and that level of complexity right out of the gate.

John Warrillow:                Yeah I know. It sounds like you’ve found a great match in Brett and he’s going to do well with the business.

John Warrillow:                I guess I was going to ask what sort of trophy you bought yourself after the check cleared, but I think I know the answer to this one. Boat.

Shaun Oshman:                The irony is that I had bought the boat two years before.

John Warrillow:                Cart before the horse.

Shaun Oshman:                Trusting the game to the universe.

John Warrillow:                I wish you all the best on your trip around the world.

John Warrillow:                What’s the best way for people to reach out to you if they wanted to get in touch? Do you accept LinkedIn invitations, or do you have a website you want to point people to?

Shaun Oshman:                Sure LinkedIn in great. I’m active on LinkedIn, there’s a bunch of articles on there that I’ve written in the past for BizWest running in the range from IT things to really even general management of a company. Those articles will be on there two. Then because the name of the boat is breeze, and I’ve got, that website should be up in the next few months.

John Warrillow:                We’ll have to check you right there. Thanks again for joining the show. It was great to know you.­

Shaun Oshman:                Okay, thanks for having me.


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