Garret (00:01.646)

Saul, welcome to my podcast.

Saul Cohen (00:03.728)

Thanks for having me on. I'm an accountant. I run a niche accountancy practice specializing in mergers and acquisitions in the SM.

Garret (00:12.876)

Actually, we just start over there for a second? I wanna actually ask the question of what do you do? all right. All right, now Zach will edit this out. All right, here we go. Saul, welcome to my podcast.

Saul Cohen (00:16.186)

Sure. Sorry. Sorry, I misunderstood you there. Okay, let's go.

Saul Cohen (00:31.324)

Thanks so much for having me on.

Garret (00:33.022)

Absolutely. You know, we've been chatting in the green room a little bit now that we are through our little bit of tech issues. Why don't you start by telling the audience a little bit about yourself?

Saul Cohen (00:42.204)

Cool. So I'm an accountant. I run a niche accountancy practice in the UK, specializing in mergers and acquisitions for SME companies, SME businesses in the UK. Most of my clients are looking to scale and eventually sell out to private equity.

Garret (01:02.33)

very interesting. Okay, I just got back from a conference where a good 25 % of the people are either wanting to or trying to attract PE. I am, yeah, I might change my question list a little bit. Why don't we dig into your background a little bit more though, like maybe even before accounting, were you always an accountant?

Saul Cohen (01:03.941)

Yeah.

Saul Cohen (01:13.722)

Wow.

Hahaha

Saul Cohen (01:24.988)

It's funny you say that. Yes and no. So I started my first business when I was at uni. never really, I think very early on I got very frustrated with sort of the academic side of things and I just sort of wanted to go out and achieve something. And my dad was very much like, know, go get a profession. you know, we come from sort of an

an Asian background. So he's very much got that sort of mindset, you know, go get a profession and then go and do whatever you want. And I was was reluctant, I didn't really, I wasn't really finding my feet. really liked economics and business and I loved that whole industry. And I just I wasn't sure what sort of profession to go down. And so I started my own business. I sold that business and then actually in that sort of

sort of decided actually being an accountant wouldn't be such a bad thing after all. It's quite cool. You get to learn more about different types of businesses. And so I actually joined PWC, so PricewaterhouseCoopers and yeah, started my career over there. yeah, a little bit of a nuanced journey, but I suppose I am a career accountant.

Garret (02:45.358)

So the first business that you sold was an accounting practice then? Okay.

Saul Cohen (02:49.754)

No, no. the first business, yeah, it actually it a tutoring company and it was sort of we were starting out on the idea of just getting students to teach English abroad. And we thought that was a bit too complex an idea to start with. So our proof of concept was actually to get students to teach in the UK and just teach, you know, face to face and not worry about teaching online.

And we were young, definitely inexperienced, had no idea what we were doing. I was doing it with another partner and we made loads of mistakes. But we achieved the level of success and that was great for where we were at. And I mean, when I look back on it now, it was fantastic that we did that because we made so many mistakes early on. We learnt loads.

Garret (03:44.568)

better to make them early than later, I guess, right? So you sold a business, now you're an accountant, you're with PWC. Tell me about what that was like working in a huge firm like that.

Saul Cohen (03:46.669)

Absolutely, yeah.

Saul Cohen (03:59.03)

wow. So it's completely different to what I'm doing now. That was a huge adjustment when I left. But I loved the corporate side of being in PwC. I loved the value that we gave. And I almost didn't appreciate at the time the value of the structure around me. the thing that I did appreciate at the time is that what was so fantastic about being in an organization like PwC that

understands culture and understands how to manage a business well is that even if you're an average employee, they've just developed this tide that you can't resist the tide. If you try and resist the tide, it's like when you put a rock in rapids and there's like a huge buildup of pressure and you're just going to get swept away.

I really saw that when I was there and I appreciated that at the time. But when I left and started my own business, I just appreciated how hard it was to put those structures and cultures in place.

Garret (05:09.838)

Speak to me a little bit more about that. I mean, I have a medium-sized business, probably even small by the traditional standards. I mean, culture, engagement, the tide, as you say, is that more of the workload, the pressure, or are you talking about other things?

Saul Cohen (05:30.416)

No, it's other things. PWC is built in this incredible way that there's just everyone becomes, they have this idea called the PWC professional and everyone becomes like that. And they've just developed a system of getting everyone to yes, be an individual, yes, have their own way of thinking, but be

the PwC professional. And, you know, they document a certain way, they act a certain way when they're in front of clients, they coach their colleagues a certain way. And because it's sort of been like that for so many, I suppose it's a generational thing, right? It's been like that for so long. It's imprinted on new joiners. And it's impossible not really to not to have that leave an impression on you, I feel.

And as a result, think a certain way, you develop a certain work ethic and you develop a core set of values that I think really align with what PwC's main values are. And think that's ultimately, that's the power of culture, isn't it?

Garret (06:44.756)

It is. mean, that's, that's the goal. I mean, what you're talking about is sort of almost like you see on TV with these, you know, blue chip law firms and things like that, where like everybody is wearing the suit and it's just expected of you. I mean, I wish I could, I mean, I'm trying to strive for that culture and I don't want to derail the, you know, the main topic a little bit, but I think engagement is important when you're talking about companies and we're talking about acquisitions and selling because really

Saul Cohen (06:54.298)

Yeah.

Saul Cohen (07:05.18)

you

Garret (07:13.484)

I think a buyer is going to be also looking under the hood and making sure and looking what the culture looks like, because they want to also purchase something, not just a bunch of transactions and a bunch of invoicing, right?

Saul Cohen (07:26.812)

absolutely. I mean, you know, at the end of the day, when people are looking to buy a company, they're not just looking to buy, as you say, contract. If they were, they'd be buying the assets. They wouldn't be buying the business. Buying the business is inherently more risky and complex. And what they're buying is not just, you know, the assets that you might have developed, but also the culture and the people and the systems that you have in place.

I certainly don't have all the answers. I'm privileged enough to have been in an environment that got it really right. And then subsequently left and joined the place where it just wasn't as good and was able to compare and contrast and get an idea of why things work on reflection. But yeah, I mean, we're all really stabbing in, you know, just trying to work out what our best paths are, aren't they?

Garret (08:23.256)

No, absolutely. One more question about PWC. From an emotional standpoint, tell me what it was like walking into work.

Saul Cohen (08:34.479)

Wow.

Garret (08:34.562)

getting up in the morning, driving into work, you're taking the elevator or whatever it is, like what was the emotional feeling that yourself or you can imagine that an employee would have?

Saul Cohen (08:45.5)

Do know what I remember it so clearly there was these two contrasting things there was on the one hand I I I certainly felt like Until you make partner you're gonna have this feeling of I'm just being taken advantage of Particularly in the UK. I know that the salaries in the US was a little bit different in terms of how they're split But in the UK, it's a real j-curve and that sort of the lower middle end

I just remember thinking like, wow, this is a real shaft until you get to partner. And that was really hard. it really like, you know, it takes its toll, I think, just in terms of living and having, you know, the amount of hours that you're working and you look at your friends, maybe in law firms, and they're working hard hours and earning really well. And then maybe some of your friends were earning well and not working as hard. And that I think was tough. But then

It's coupled with this huge sense of pride that you know, you can't walk into to you walk into a PWC office, particularly when you're carrying the badge and there is there is you represent the brand and you I think you really start to value that. Like, know, you look at these really impressive offices. There's something really nice about, you know, working in that kind of an environment. And I think it does affect your mindset. It really sort of lifts your level. mean,

You probably have the same, right? Even today, you know when you're in an environment with high net worths or if you're in an environment just at a local bar, it's completely different and your thinking changes, right?

Garret (10:29.112)

Well, your shoulders lift back a little bit, right? You hold your head and chin a little bit higher. I was looking for you to say that buzzword pride. I was kind of wondering about the pride and thank you for the whole book getting shafted. No, it's fascinating to me because I'm just all about right now trying to foster engagement, that pride and how as a small business owner. And I think this parlays very nicely into what we're going to be talking about shortly is that engagement, that pride.

Saul Cohen (10:31.375)

Absolutely.

Saul Cohen (10:38.832)

haha

Garret (10:58.132)

of work, how do you foster that in a small organization? And then you can, because you can't build it into a big organization until you get the buy-in from your team. It's such a, you know, a chicken and egg. Let's transition into the present. Why don't you tell me like formally what you do and what your day-to-day looks like and a little bit about the business.

Saul Cohen (11:08.048)

Yeah. Yeah, absolutely.

Saul Cohen (11:23.484)

Okay. Yeah, cool. so I help, essentially I help business owners, know, successful entrepreneurs look after themselves, develop their business and prepare for exit. I say look after themselves because often one of the reasons that I love working for entrepreneurs is that they are so often driven by purpose and they so often want to make a real impact on the world.

And it's amazing to see. But sometimes they do end up getting so caught up in building because that's what they want to do. They want to be building this insane business, incredible organization, making a real change in their societies. But one of the things that I find is often the case is they somewhat neglect themselves early on.

They don't really I think they stop reminding themselves what they're in this for You know, they stop thinking about you know, most entrepreneurs you speak to they go into it for financial flexibility and and more time, right? So really what they want is flexibility over over their time and money and if you fast forward, know, maybe ten years I don't know that many of them have that

And worse, I don't know that many of them are investing in their future and are preparing for what exit looks like. Certainly lots of SME business owners have their heads so in the day to day that they forget about, you know, taking a step back and having a sort of high level view. And my job, the way I see it, is about getting people to take that time out, think about, you know, what does tax planning look like?

strategically, how can we improve your business and what does your exit look like? Because I think that so often people are shocked in a bad way about what their business is really worth. And I think having that conversation earlier on really helps. we are, I am, jumping from calls. mean, today I had a call with someone, you know, a partnership is falling apart, a business partnership falling apart, how to navigate that. Then I had another call about, you know, how to structure a deal.

Saul Cohen (13:43.14)

an acquisition that's about to take place, reviewing due diligence, and then we go back to just standard family tax planning. So it's the whole bag, but really with a focus on growth and moving forward and, as I say, taking a step back and having that high-level view.

Garret (14:02.798)

No, thank you for that. know, again, I was at this conference, 1500 people, lot of high net worth individuals, everybody's in business and met a lot of, I mean, maybe we did call mindset coaches, business coaches, but even though we were, you know, there was a lot of the keynotes were focusing on PE and &A and a lot of the, you know, planning the exit at the beginning. I haven't actually heard of somebody who

really brings the whole package as you're saying here. So that's quite fascinating to me. Why don't we transition into, like I just said, planning the exit at the beginning, because I heard a quote from one of the keynotes and he said, the saddest thing in the world is somebody who works their entire life as a single operator or maybe slightly larger than that. Because I think, I don't know, in North America anyways, there's a stat like 80 something percent of all businesses.

only have one person working, which is the owner. And so the quote was, it's the saddest thing in the world to work on your baby, your entire career, your entire life. And then because you haven't planned properly, you basically, you know, picture the metaphor turning off the lights for the last time. You don't sell, you weren't able to sell, you kind of just had a good job. I can you give some insight on that?

Saul Cohen (15:02.566)

Yeah. Wow.

Saul Cohen (15:25.5)

I mean, that's most businesses, right? That's, you say, it's most businesses, but that's the reason that most businesses don't sell. the truth is, this is kind of what drove me into this idea. So my dad, he was one of those, you know, sole trade businesses. It provided for us in our family for many years. He got ill, had to sell, and he ended up taking a number that was much lower than he believed.

business was worth. And I remember thinking, you know what, actually, he's just been really poorly advised for 25, 30 years in which he was a business owner. And had he have been better advised, he could have had better tax planning, you know, been more tax efficient over that period, use that tax efficiency gain to create a larger portfolio, investment portfolio that meant that he

you know, while he may have had savings, he would have had a much more comfortable retirement. And also he would have been aware of what his business would have been worth earlier on. Because if you're empowered with that information earlier on, you can do something about it. And the thing is, I think it comes back to something that I realized in of myself in recruitment, right? When I came to recruit my first few staff members, I had no idea what I was doing.

And then I really, it was at that point, I really realized it was a really painful time. I'd made so many bad hiring decisions and I realized no one tells you how to be an entrepreneur. Right? No one tells you how to run a business. There's MBAs and stuff and that's all great for high level. No one tells you how to go out and start this thing. And, and, and one of those things, one of the biggest problems with that is that one of the most important things about starting a business is to

think about exiting your business from day one. Because if you fail to plan, you plan to fail. And if you're not, at one day you will exit your business. My personal business coach always says this, he's like, whether by choice or otherwise, one day you will have to exit your business. And if you're not planning for it, you're gonna suffer. And that's just the sad reality.

Garret (17:44.418)

Well, when you think of anybody who starts a business, even formally with any kind of education or just somebody who hangs out a shingle and starts cooking, baking something, knitting something, selling a widget, inventing a widget, nobody thinks about all they're thinking about is just eventually making a living, eventually hiring your first employee, eventually being able to make payroll, you know, and what's the end game?

Saul Cohen (18:12.444)

Yeah.

Garret (18:12.557)

I'm going to have a nice living and now I've got my lifestyle. Tell us a little bit about what somebody should be putting into that initial business plan.

Saul Cohen (18:24.294)

So look, I think of it in stages, actually. I think the first 100K is proof of concept. And really, the most important, you don't have a business until you've made 100K. That's in the UK. In the US, it might even be a bit more. But if you can't sell 100,000 pounds of something, then there's no demand. So you need to prove the concept. Once you get out of that stage, it's about, you

having a good offer and thinking about taking that to market. I think my view is that with anything, it's always easier to sell it if you have the customer in mind, right? And whether that's accountancy services or consulting services or anything, if you've got the customer in forefront of your mind, it's much easier to sell that thing. And I think, you

If it's once a quarter, once a year or once a month, I think it's really important for a business owner to take time to make time to take out of their business and think what would someone looking to buy my business want from this business? What's valuable in this business? And that I think helps you construct your strategy. Because if it's the business as a whole that you want to sell, I mean, unless

Unless you've developed some insane technology, the business hasn't got any value until it's making at least half a million pounds in EBITDA. And as I say in the US even more, no, I should say no sizeable value that you might think, no really large multiple. so if you are, if you're, if you're, and it might be that that's not really what you're doing. It might be that what you're doing is you know, you're just going to build a lifestyle business.

Garret (20:10.222)

True. Yeah.

Saul Cohen (20:23.13)

You you've decided that I'm not going to scale this to that kind of level. I'm just going to build something that will make me enough money over the next 20 years that I will be able to live for the rest of my life. I remember the story, my father-in-law actually had a great client. They made a million pounds a year for 20 years in EBITDA off of one client and the client left. And then the business folded. Now you might say it's a bit short-sighted.

Garret (20:43.63)

Okay.

Saul Cohen (20:52.988)

They had so much heavy reliance on one client, impossible business to sell because of the heavy reliance on that one client. Relationship was 100 % between that one client and the owner. But ultimately, the client was advised really well over those 20 years and took that million pounds and developed a huge property portfolio and now lives an absolute life of luxury and doesn't really care that the business isn't there anymore.

because they were conscious of it and they knew what they were doing. So think step one is to know what you're in the game for. To really understand what do I want from this business? What would I want it to sell for? Who would I want it to sell to? What's my ultimate ambition? this is what we always do with clients whenever we sit down and chat to them, we talk to them, we say, you know, what do you really want in five years?

What do you want personally? What do you want from your business? that step one is definitely knowing the answers to those questions. And then step two is taking the steps to get there.

Garret (22:04.418)

You mentioned five years. Some people think longer than that when they're talking about their business. Why did you say five years in particular?

Saul Cohen (22:06.266)

Mm.

Saul Cohen (22:12.476)

I think 30 years ago to talk about a 20-year plan or a 10-year plan, was already a little bit like, we've got this thing called the internet and well, the internet 30 years ago wasn't around actually, but 20 years ago, the internet was coming. It was already a little bit late to start thinking about 10-year, 20-years plans. mean, if you would think what...

how much the world has changed in the past 10 years and extrapolate that out and think, you know, we're in the age of AI now. What's the world going to be like in five years? I almost feel that five years is already a little bit too long. I just don't, I think the pace of change in the world is accelerated to the point where making a 10 year plan is almost useless because the world will be materially different in 10 years.

Garret (23:07.502)

Fascinating because I I'm kind of on my 10-year plan and then I opt like I'm 53 and I mean, what am I gonna do with the what am I gonna do when I grow up? mean, I think I asked that question tongue-in-cheek a little bit because How many pivots do you really have and an entrepreneur is is not really sure what that fuzzy exit really looks like right five years You know, I I'm gonna talk about have you seen the movie trans?

transcendence by I think it's Johnny Depp. It's 10 years old, I think it was 2014. I hadn't seen it until about six months ago. And honestly, it scared the crap out of me. Because essentially, he is on the forefront of AI, he's trying to see if AI can get into consciousness and...

Saul Cohen (23:38.382)

No, I know the movie. I may have seen it and forgotten, but...

Yeah.

Garret (24:00.364)

And then of course, you know, this big evil plot happens and something happens and you know, AI takes over, blah, blah. But you look at what's happening now. I mean, there's some very scary parallels there, like very scary. So when you say five years, I agree 100%. I want to back up just a little bit for my audience. You know, we threw out some things like EBITDA and some multiples of this, that, and whatever. Can we?

Saul Cohen (24:08.698)

Ha ha

Garret (24:29.646)

kind of break that out, because I think what we're going to be talking about when we talk about PE and acquisitions and company valuation, I think the audience will get a lot more if we just define those basics.

Saul Cohen (24:40.282)

Yeah, okay. where should we start? Should we start with EBITDA? Because that's probably the... Yeah. So, okay. So EBITDA is basically your earnings before interest tax and depreciation. It's basically the earnings of the business before your accountant starts getting clever. And it negates tax. And joking aside, it's the earnings of your business that would be maintained.

Garret (24:44.524)

Yeah, let's start with EBITDA.

Saul Cohen (25:09.89)

that can be is not changeable and constant. For example, your tax rate. My tax rate could always change if I moved the business from, let's say, the UK to the US, my tax rate now changes. It's not constant. My customer base may be constant. The business itself, the inherent business is always constant. So EBITDA strips away all the confusing...

I'd say I'll call it judgmental areas of your business so that it gives you a comparable income that I can use to compare against similar businesses. That's why EBITDA is always used as a comparable measure when looking at businesses to buy. The next thing would really would be adjusted EBITDA and essentially adjusted EBITDA takes out all the special things

that might have happened in that year. So, you if you have a particular one-off event, the adjusted debit that would take that out. But most commonly for SME business owners, let's say you've got a business and it's paying you $300,000 a year or 300,000 pounds, depending where you are. And that's because you're the business owner and you're taking that money out in a multitude of different ways.

because to be tax efficient, dividends, salary, whatever. And if I were to go to market to get a similar level managing director without any disrespect to the business owner, that managing director would be worth 150,000, let's say. And so what adjusted EBITDA would do would be to add back your salary, sorry, away your salary and

Garret (26:57.25)

Yes.

Saul Cohen (27:06.542)

add back the salary of a fair value managing director so that I can get back again to that place of consistent measurement of your business against someone else's.

Garret (27:19.342)

This might sound as I'm teasing or I'm joking, but could part of adjusted EBITDA also be owner comp expenses? And what I mean by that is cars, boats, luxury items. No, but seriously, right? Because I think a lot of small businesses hide those things in there intentionally, unintentionally.

Saul Cohen (27:28.944)

Yeah

Saul Cohen (27:33.519)

Yeah, I mean

Saul Cohen (27:38.812)

Yeah, so it's the whole package, right? Everything that you would take out, right? know, entertainment, you know, as you say, car, whatever it is that you've put through the business that relates to you. We would strip that all out and pretend it didn't happen and add back in a fair value of what a package would look like for an appropriate, you know, CEO or MD at that level.

Garret (28:01.966)

Okay, so when we talk about valuation then, you're talking about multiples, why don't we break that down? you had said, sorry, there's sort of, you had said anything under 500,000 pounds or dollars is looked at differently, or at least that's where the value really starts to come in for acquisition. So maybe give us both scenarios there.

Saul Cohen (28:26.48)

Yeah, I mean, look, the truth is that the real value comes in when you've got more, when there are institutional investors interested. And in the UK, that's around a million pounds EBITDA. So that's where, you you've got some, you can get some much higher multiples at that level. And when I say much higher, I'm talking maybe seven or eight times EBITDA. Potentially above, if there's something really unique about the company.

If you think about it from an investor's mindset as well though, if a company's, if you've got a business making a million pounds EBITDA, you know, it's maybe got revenues of let's say five to 10 million. It's a real business. There's a real enterprise there. You know, it might be different in the US, the numbers, but you know, bear with me. It's a real enterprise there. There's maybe 50 employees. There's a real tangible system process.

Garret (29:22.659)

Well, you've got middle management. You don't just have, you know, somebody that's telling a bunch of minions to do things. You've got a structure, right? Corporate structure.

Saul Cohen (29:25.905)

Yeah.

Saul Cohen (29:30.884)

Exactly. And when we come back to that, what I was saying before, right at the beginning about that PWC model, you know, that's the least risky thing that you could have. So the closer that you are to that sort of PWC model where every employee comes in and they know your way of working and they know how to, you know, be the ultimate employee for your company, the less risky your business is. And if the business is less risky, as an investor, I'm looking

I'm willing to accept a lower rate of return. And so it's just an easier way sometimes I find for business owners who understand investing, but don't necessarily understand buying businesses. It might be an easier way to conceptualize it just in terms of risk and rate of return. So yeah, I think that's really the turning point. Below that, the numbers are very different. The type of buyers that you're getting are really different.

Garret (30:28.078)

What kind of multiples are we talking about?

Saul Cohen (30:30.444)

it can really vary. mean, if I think of profits below 100K, your multiple might not even be at, you know, 1.5, you know, maybe two. Yeah, I mean, the truth is some people think, it's not worth me selling. And I always say, yeah, I mean, look, that's your choice. But most people, as you say, they just turn off the lights. Most businesses don't sell. And so...

Garret (30:41.219)

Yeah.

Saul Cohen (30:58.108)

you're going to you've basically got the choice of do you continue for another year? I didn't add Infinitum because you're never willing to sell out for that number or do you just take a six month, you know, profit boost up fund and sell out there and then and that that's for the individual business owner to make. So at the right at the real bottom end, it's really low. I suppose the most common is sort of between that sort of 100, 150

I would say up to about three four hundred thousand the multiple there of EBITDA we're looking maybe at a three to four times multiple and then from I'd say five hundred to sort of a million that's where you've got sort of that five to five to seven multiple the one thing I always tell everyone with

Garret (31:33.356)

of EBITDA.

Saul Cohen (31:55.804)

with valuations is they're really valuable, they're really useful, but as a benchmark. And there's lots of reasons why I might overpay for a business or underpay for a business. And chief among those is if I get really good terms, I'll give you what number you want. that's why I'm always a little bit, the multiples are there or thereabouts at those levels, but

Garret (32:01.454)

Great.

Saul Cohen (32:24.7)

There's lots of reasons for it to change. And the thing is, is that even within those levels, there's a really big difference between, let's say you've got a business of 600,000 pounds EBITDA, there's a really big difference between selling that at a five or four or five times multiple or a seven times multiple. That's 1.2 million pounds between five and seven on exit. And that's really where we come in when we sort of say, look, these are the things.

that you need to do. This is what your finance function needs to look like. Bring someone in to help you with your operations because this is what your operations needs to look like. And that knowledge, well, mean, it's a £1.2 million potentially worth of understanding to really think about that. How do I make my business less risky so that I can get a better multiple on exit?

Garret (33:19.992)

So when we talk about, like I look at my business, property management business, mean, 15 employees, about a, I don't know, might be on track for 1.5 this year. Revenue, sorry, revenue, top line. And then, know, think an average property management company in North America, and this is really, really low, their margin is like 6%.

Saul Cohen (33:34.565)

Revenue or EBITDA?

Cool. Yeah.

Garret (33:47.818)

And the most I think in history, maybe 25, but you we're sitting at around, let's say 15. So when you talk about the buyers, right, and let's even let's switch gears, pretend that we have like a plumber or an electrician or somebody, you know, somebody that might have a couple trucks, couple of employees, maybe they're getting up to a million and then maybe they have a 15 % profit margin. So that's 150.

Saul Cohen (33:53.499)

Okay.

Mmm.

Saul Cohen (34:06.79)

Yeah.

Garret (34:13.748)

And let's just assume for easy math that's 150,000 EBITDA. Because it's small, am I to like, you're getting a smaller multiple, but the type of buyer for that might be another plumber who wants to maybe expand. It won't be an investor, right? It's too small.

Saul Cohen (34:32.186)

right yeah yeah that's exactly right

Garret (34:37.708)

And then if we move on to the sort of 500 to a million, I guess at what point, like an investor, can you try to talk about the investors? Like it's not just like a private investor, we're talking companies. And then I want you to kind of transition into private equity and why they're interested in these types of multiples and margins and things like that.

Saul Cohen (35:04.22)

Okay, cool. Okay, so as you say, at the lower level, you're probably looking at smaller businesses or, you know, people starting to get into the game. You know, I often say right now, anyone who's run a business at a senior level would probably accept that it's easier to buy a business than it is to start one. And so anyone really who's looking to do that would come in at that sort of lower medium level.

Lots of our clients are doing that exact model. They're buying up lots of different similar sized businesses in their industry and then making them, bringing out a of function, so a finance function and a HR function and bringing all those things. you've got like basically a head office and then sort of satellite profit centers. Yeah, so at that level,

In sort of that middle level it probably is going to be if you sell the business you I think actually quite often it's people that you know or you've met in your network and It's going to be to people similar who are in a similar business or a complementary business to you or indeed potentially even your own employees if they're capable and I think that you touched on something there that I actually I just think it's it's worth

noting is that you touched on you've got for example a 15 % margin in relation to the rest of the market maybe has a five and you really great companies have 25. If you have an industry-leading gross margin that tells me as an investor that you have some kind of leverage in the market, something unique about your business and your brand. Now that might be you as a business owner.

Or it might be something about the way in which you work, something that you've developed, something that makes you more efficient than the rest of the market. And that is of inherent value to any other business in that market. Because if you've got something in there that's really cool, they might be able to roll that out across their business. And suddenly, your business acquisition isn't just, they're not just buying your future for cash flows, they're also buying the improvement in their own.

Saul Cohen (37:30.65)

That's where you could really start to see some value at a smaller level. I think as investors get more, I suppose, as the investor gets bigger, as the business gets bigger, so does the investor. And that's when you start to see more institutional investors getting involved or larger businesses making purchases. And it might be a little bit more targeted.

It might be that they're looking to buy a business because they're in the right location or they're in the right space or that they've got certain parameters about them that makes them really attractive. Or some kind of niche that they're working in that makes them really valuable. We always tell our clients, focus on a niche first, go really deep before you go wide, before you cast your net wide. Because if nothing else,

The fact that you've gone so deep into a niche is inherently valuable to someone else who could cost the net wide. And it gives you more options when you come to sell. equity, my view on private equity is that unless you're taking a full exit and leaving 100%, selling 100 % of the business, or you are really, really driven and ready to accept all...

the challenges that a board is going to bring, which most entrepreneurs are not willing to take on, essentially a boss again. Private equity is probably not the way forward and you want to sell out to just a larger organization or an institutional investor of some other sort who's just looking for positive cash flows. Private equity, they want to see a return on their deal. So they're looking for some special source in the deal.

outside of you as a business owner to say that this business is inherently valuable and more than being inherently valuable we can 100x this business in the next three years if we do x, y, z.

Garret (39:40.362)

Okay, so let's again go back to definitions. What is private equity?

Saul Cohen (39:44.346)

Yeah. So private equity is essentially a, I suppose it's a fund. It's a group of business managers, let's call them, financially minded, who are able to invest often other people's money, sometimes their own, into a portfolio of businesses.

and they help run those businesses for a period of time. Depending where they sit on the private equity ladder, they will have a specific niche, a specific size of business that they work with, and they will have processes driven to get the business, let's say, from one million pound EBITDA to 10 million or 20 or 50 million pound EBITDA, and then eventually sell out the business.

That's the private equity model.

Garret (40:43.727)

Okay. And I mean, I've heard stories, I've known, I mean, I've been researching this stuff like crazy because I am going into the home services. See, being a property management company, my particular model is that we don't have in-house maintenance. It's slower. I personally feel it's a conflict of interest for my clients. So we use subcontractors.

Saul Cohen (41:00.144)

Yeah.

Garret (41:12.138)

But we've been around for 25 years. And the next logical thing for me is to maybe open up my own HVC division or buy an existing HVC company or plumbing company and simply run it. So that's why I'm kind of interested. But when you talk about PE and getting to that level and bolting on these portfolio companies and making the mass larger and larger and larger, assuming that the platform

nucleus, if you will, has the infrastructure and the processes to grow like that. There's a concept that's quite interesting and you touched on it, but again, for this is the podcast and I'm trying to educate here. Let's talk about the concept of selling your business, not once, not twice, but three times. What is that? Could you said the board modeling, taking a boss, can we dissect that for the audience?

Saul Cohen (42:06.342)

Yeah, okay. you might have occasionally, you'll have a business owner who appreciates, in fact, I've seen this actually quite recently. They appreciate they've got a great business. They think they've got 10 years left. They're quite happy to work for the next 10 years. They're still got that energy, that entrepreneurial fire. They wanna keep going. And so they start thinking, well, how do I go and...

and blow this thing up, right? You know, I've got a great business. How do I light a fire underneath it and really take it forward? And often what they'll do is they'll start thinking about taking investors. And chief among those, you might have angel type investors who, you know, it's a single individual who's investing an amount of money and maybe bringing a whole host of contacts and experience into the mix.

quite often at the size in which people are looking to make these invest, they're looking to get investment, they're looking for a private equity investor because they know that private equity is really going to light their fire under the bonnet more than anything else. And so they'll go to a private equity investor, assuming the private equity investor is happy, they'll make sure that there is a board in place that's

that the CEO might sit in, but there will be other members. The idea is that the board holds the CEO to account. The board is there to represent the shareholders and advise the management of the business on how and strategically where to move. It can be stifling.

for a lot of business owners. But if there is a values fit and if the entrepreneur is happy with that kind of structure and they are still fired up enough to keep going and keep growing their business, it can be really amazing because the entrepreneur now has a network of people who can help with a lot of the things that entrepreneurs struggle with, recruitment.

Saul Cohen (44:32.954)

marketing, finance, and private equity will come in and they'll basically build out the back office and really push what's special about your business, whatever it is that's special, and they'll take it and fire it across the globe potentially. And so then the owner will then, well, after selling out maybe a portion to private equity,

they'll look for a larger sale at a later point in time, even though will be maybe of instead of having 100 % and selling out 100%, they might be selling 70%, but they're going to sell that 70 for a much higher number because EBITDA has gone through the roof and their multiple will also be higher because the business has grown to the point where it's less risky.

Garret (45:24.046)

Okay, so they've sold it once, but they've kept a share if I can simplify this and then they work the PE firm all of a sudden, you know, maybe the PE firm with this principal founder at the helm is again starting to either require businesses or employees or whatnot marketing is really good. They start to blow up in that one market. So now they're attracting another level of

Saul Cohen (45:27.484)

Yeah.

Garret (45:48.886)

I guess it's PE, because there's several levels of PE. So now the business is gonna be sold a second time. The original founder who has now a smaller stake is going to be rewarded for that because that's the concept of selling twice. Am I correct on that? Okay. And obviously because now your EBITDA is a lot higher and the multiples are a lot higher, you're playing in a different ball game.

Saul Cohen (46:06.0)

Yeah, exactly.

Garret (46:14.786)

you've exited not once, but twice. And at that point you could go for a full exit or maybe you're gonna try to stay on again. But now the playing field is huge. The risks are obviously huge. Now you're answering to a lot more things. Maybe it's public company, who knows, right?

Saul Cohen (46:25.723)

Yes.

Saul Cohen (46:33.914)

Yeah. I mean, did you see that? What's the name of that film? The one with, with about Nike? What's it called? Yeah. No, yeah. Shoe dog. Yeah. Shoe dog.

Garret (46:40.768)

Nike. Yeah, Shoe Dog. Well, the Shoe Dog is the book. The movie is air, right? Yeah.

Saul Cohen (46:47.93)

Yeah, that's the one right. What I found really interesting about that film is that you can see personality profiles don't always fit at every stage of the business journey. Yeah, well, I listened to it.

Garret (47:00.058)

Did you read the book? Yeah, I mean, well, I listened to it too, which was actually more entertaining than reading, but the movie didn't even hardly touch on what was in the book. It was fascinating, the personalities, but continue.

Saul Cohen (47:05.755)

Yeah.

Saul Cohen (47:12.655)

Yeah.

Absolutely right and and you can so see certain personality types are more suited to certain stages of the business journey and what I what I tend to find is that business owners once they hit a certain number most SME business owners they just lose the passion. They just

they don't like the fact that they don't know everyone's name anymore and they can't go cavalier anymore and you know their hands are tied behind their back by the board and you know that they just keep getting frustrated by the fact that you know there's no change anymore because there's so much I think activating creative energy at the beginning and everything's really exciting and it's really fun and everything's changing all the time and you have to be dynamic and you keep moving and pivot and find your way and

Business at a certain size, I know the movie actually glorified that a little bit, but generally businesses, once they hit a certain size, too much of that energy, too much of that creativity becomes stifling because what we need in business is simple, repeatable processes. And simple really is beautiful in business. I've seen it time and time again, the simplest businesses.

are the ones that scale fastest and most successfully. And that is hard for most entrepreneurs, definitely for people like me. I love the creative side of business. It's a hard pill to swallow. And I think people fall out of love. going back to your question, I think that most people will sell out. Yeah, if they're still in the game.

Saul Cohen (49:05.476)

and growing with private equity. think most people will say, right, I've done it, I'm done. That's it. I'm just not going to enjoy the next stage in the journey anymore.

Garret (49:15.062)

I just wanted to ask you as a side note here, do you have a hard stop at the top of the hour or do you, I wasn't sure, because we, okay, yeah, just because we had a couple of microphone problems at the beginning, I just wanted to share a story that reminded me. So I have a very good childhood friend actually coming in this weekend because of Thanksgiving. He's down in New York and we're up here in Canada. And so he started working for this.

Saul Cohen (49:21.488)

No, no, I'm good to go, yeah.

Saul Cohen (49:26.256)

That's cool.

Saul Cohen (49:36.849)

Yeah.

Garret (49:40.738)

family company and they did a little bit of almost everything, right? And sort of, you know, not to break confidences or anything, but you kind of have the whole family dynamic. And then the son grows up, not my friend, but you know, the one of the sons that are in the company goes off to business school, comes in, father retires and the son starts to apply more MBA type principles to the business. So here's my friend who's worked for them for about a decade.

And he, at the beginning, it's kind of like just the wild West. He's explaining this to me. think they started out at maybe, I don't know. It was a good size business, right? $20 million or something like that. But as they started to grow 20, 30, 35, 40, 50, and then all of sudden they've sorted between that magic 50 and a hundred million, which is, I mean, it's a different ball game. And he's telling me now that now there's a CFO that was brought in and the CEO and all these C suites, right?

And he's kind of confiding in me like different feelings because, you know, at the very beginning, it's like, okay, go ahead and negotiate this buying deal, go to China and just, you know, get the factory set up, right? And now he said he's being taken over by people with the C-suite titles. And I'm like, well, how do you feel about that? And I thought he was gonna say, well, I feel...

Saul Cohen (50:55.44)

Yeah.

Garret (51:06.104)

Like it's disloyal and it's this and that, whatever. But to the contrary, he said, know, it's the way it is because he goes, when I think back eight years ago, he told me I had no business negotiating a deal like that. He goes, I wasn't qualified. And now these people with their Ivy league educations come in and they know what to do. He goes, sure, I was able to do it, but it was literally by the seat of his pants. And I think just what you were saying there kind of reminded me of that.

Saul Cohen (51:27.952)

Yeah.

Saul Cohen (51:34.693)

You know, there's another point here, right? And that I think is Steve Jobs quote that he says his main thing in Apple at the beginning was to hire five A-star players and that the five A-star players went off. They love working together, right? So they go out and they hire five A-star players more and whatever. And it's an amazing philosophy. But for me, the problem with that long term is that at the beginning,

You know, people like your friend, they're A players, right? You know, it's rare for people to go out and be able to do that. But by definition of the fact that they're A players, that means they sit in the top 5%, 10%. Yeah. And when you scale a business to a certain size, you don't have a choice. The business has become so big that you're going to need to take people in the remaining 95 % of the population.

Garret (52:16.674)

They just get her done. Yeah.

Saul Cohen (52:33.156)

I think that's the point where if you've managed to capture what makes those 5 % so great, you've imbued them into the culture, then that sort of comes out and it trains that the rest, the remaining 95 % and makes them acceptable. there's as I suppose, system processes and culture to...

to keep people together and make sure that people can go out and do their job. But you can't keep having the remaining 95 % acting in the way your friend did because they're just, you know, he might have felt not qualified, but the truth is most people aren't able to do that. They would fall on their face and probably embarrass the business. and your friend is very unique in that he was able to go about that and, you know, deal with that kind of rejection and just keep going and, you know, have that tenacity and, you know,

That power, that flair at the beginning, it's incredibly rare. It's like stardust. Yeah.

Garret (53:37.079)

He is rare actually, you're describing them to a T.

Saul Cohen (53:40.89)

Yeah, and that's it, right? Because new businesses, have those people. They go out, they use them. But as businesses grow, we need to take other people on and we need processes. That's why we need processes and culture and all these buzzwords that come from, know, as you say, like these MBA qualifications, right? Because they help us try to bottle up that stardust and sprinkle it over the rest of the business.

Garret (54:07.918)

I love that. What a great analogy. Let's transition towards the end of the interview here. Let's talk about tax. And let's, the accountant wants to talk about tax. He's like, let me add it. No, but in all seriousness, and not from a PE, let's just bring it down to earth a little bit. Small business owner, they've got between 1 million, 2 million gross revenues. Hopefully they've got between 2 500,000 of EBITDA.

Saul Cohen (54:16.325)

Okay.

Garret (54:37.814)

Now they're gonna sell. What are they facing for taxes and how would you counsel them to reduce those taxes, even planning from the beginning for the end?

Saul Cohen (54:47.728)

Yeah, I mean look the truth is so you're well it depends where Where where people are right? So it depends where your listeners are gonna be right in the states the tax laws are different in the UK Generally, there'll be a There'll be a couple of types of taxes that you might face, right? So you might fail face capital gains tax Which well what's called in the UK capital gains tax or some form around the world? Yeah

Garret (55:13.09)

We have that here in Canada. Yeah, sure.

Saul Cohen (55:15.728)

So some form of that around the world, which is essentially a tax on selling an asset, or you might have income tax or some form of income tax. So that's a tax on your salary or dividends. And most taxes will fall into those two categories. Generally, capital gains taxes are lower than income taxes.

What the right answer, as with everything in tax, isn't sort of cut and paste. It really depends on what the strategy is and what the long-term goal is and what people are trying to achieve. For most people, they're not Elon Musk, so they can't take out loans against their options to avoid paying income tax. They have to pay an element of, if they wanted to, for example, buy their own home, they're going to need to take out an element of

that they need to have some significant cash owned personally. And so for some people, particularly people going on the buy and sell journey, it might well be the case that it's really good. Yeah, okay, fine. Go buy this business, own it personally, sell it personally, pay capital gains tax, because that's going to be a relatively cheap rate of extraction of that cash. And then you can go out and buy your house.

But equally, if someone's just looking to make investments and save for the long term and perhaps build generational wealth and a pot of generational assets, there might be other structures that we look to put in place, potentially family trusts and family trusts owning investment portfolios and all of those sort of cool fun stuff. But as you said, as you alluded to earlier on, and it's absolutely right, planning earlier on is cheaper and easier.

Yeah, people often, yeah, often when we have people that starting a business, they say, but it's quite expensive to do it now. I'm always like, yeah, but it'd be more expensive to do it when you've actually got an amount to save. Yeah, absolutely. So yeah, that is the thing with tax planning is it's an investment in your future.

Garret (57:24.802)

and you have to untangle the web and you're in the wrong structure.

Saul Cohen (57:35.898)

But if you really believe that you're on a journey and moving forward and you're to have to pay these taxes, then planning and talking to your advisor as early on as possible is, I mean, yeah, that's going to be, it's going to be the number one thing that's really going to save you because the taxes man, they hurt.

Garret (57:51.48)

Yeah. Let's, again, going back to definitions because I mean, I think the average person understands capital gains from a real estate point of view. This is the investing to win podcast. There's a lot of real estate investors here and capital gains in real estate is fairly easy to conceptualize because you buy an asset for X and you sell it for Y. And I know there's depreciation and things that you can do there. How is

Saul Cohen (58:05.137)

Yeah.

Garret (58:19.886)

capital gains calculated on a business because surely there has to be a value and a gain. I mean, can you give us the 10,000 foot view on that?

Saul Cohen (58:30.062)

Yeah, I mean, generally, if you've started a business from scratch, the, and sell it, well, let's put it this way. If you start a business from scratch and you sell it for a million, then your chargeable gain would be a million. If you, if you, if you bought the shares for let's say 500,000, you know, four or five years ago, and then go on to sell it for 2 million, then your base cost is 500,000 and.

your gain is 1.5, being the difference between the 2 million and the 500,000. Yeah, I mean, that's definitely how it's calculated here. I'd imagine it's similar across the world because these things won't change. But yeah.

Garret (59:10.016)

No, yeah, it is. And that's where you have to depreciate and do things, certain things.

Saul Cohen (59:16.572)

Yeah, but what is interesting is that across the world and will change is that there'll be particular reliefs that will work on the middle grounds, right? So in the UK, we used to have it, it used to be much more attractive, but it still exists now to a much smaller extent. We used to have entrepreneurs relief or business asset disposal relief as they used to call it, or they currently call it, which was a relief on the first 10 million of chargeable gain.

of chargeable gain and it meant that the first 10 million of gain that you made was only taxed at 10%. Yeah, I mean, that's subsequently been reduced to the first million and now the tax gain is almost negligible. yeah, I mean, it's a shame because that was a fantastic way to really encourage entrepreneurship or I should say actually reward rather than encourage entrepreneurship. But I mean, you know, without getting too political.

Garret (59:51.79)

Great.

Saul Cohen (01:00:14.862)

If you really believe that entrepreneurs are the people who affect positive change in the world as I do, I think it's a shame not to reward those people for the hard work they put in. Yeah.

Garret (01:00:23.672)

Touche, I agree. So let's put a bow on this.

Sort of, I know you told a little bit about your business. Maybe give a plug for yourself. I'm gonna put your contact information to the show notes. But what do you bring? I mean, just sort of in a 30 second pitch, if you will, why would somebody, or why should they contact you?

Saul Cohen (01:00:50.812)

I think there's two real reasons to think that. I'm saying the first is that if you've ever had the gut feel that you're just not planning for the future enough or that you listen to this podcast and you thought, wow, I wonder if I've, have I planned for my business, for my retirement, for what it looks like after I sell my business? Is my business ready for sale?

Yeah, definitely reach out. We speak to loads of businesses about that and what they can be doing to increase their valuations and just get an understanding of what your value is even worth. Even if you're not going to reach out to me, just find out from someone what the value of your business is today. Don't spend a fortune on it. Just get a rough idea. Yeah, mean, avoid business brokers that don't take commission only.

because I think that's a recipe for disaster. But find out from someone that you can trust what your business is worth, because if it's bad news, you'd prefer to get that early on and you can do something about it. The other side of the coin will be people who really, they're looking forward to grow, they're excited, they're fired up. They've still got that entrepreneurial drive. They wanna go for the next five, 10 years and...

They're thinking potentially about making an acquisition to make that happen or, you know, they're thinking about what their strategic options are. Again, you know, we speak to people all day long about those sort of options. I actually spoke to someone the other day who's looking to import coffee into the UK and was thinking about buying businesses to sort of expedite that. And we sort of discussed them. Actually, do you know what might be even better would be for you to be a franchisee?

well, franchisor, I should say. And let's just set up a franchise around your model. you're going to be able to if what you're trying to do is sell coffee, that's going be much easier than buying businesses. So, yeah, I mean, we're always happy to have and love having strategic conversations. So any of those two sides of the coin, whatever you fall on, if you want to reach out, please do.

Garret (01:03:07.646)

Awesome, awesome. Thank you for that. Well, this has been great. I always finish by asking the same question to each guest because I always get a different unique answer and I want to hear what you have to say. So Saul, this is the Investing to Win podcast. How do you define success and what does winning look like for you?

Saul Cohen (01:03:18.748)

Cool. Yeah.

Saul Cohen (01:03:27.82)

wow, it's such a powerful question, I love that. How do I define success? I think for me success is being conscious about the journey that you're taking in life and enjoying the journey rather than a destination, know, and looking to and being in touch with your real reason for being and your reason for living.

and living that journey. And if you're living that, then in my view, that's success. I think that's what brings us happiness. I think that's what brings fulfillment. I think if you've got that, that's real success. And if you have that, whatever it may be, then I don't think you even care about winning because I think it's yeah, right. Yeah. Yeah. Yeah. I mean, but what I mean by you don't care about winning is you certainly don't care about

Garret (01:04:15.448)

Well, you are winning. Yeah, you are winning in that case, right?

Saul Cohen (01:04:22.67)

other people's perception of whether you're winning or losing or where you are on the ladder. know, just one quick story, you know, had a conversation with a friend recently and he was saying to me is that, you know, people in society, they define everyone by, you know, whether you've bought a house and have you got married and have you had kids and those are the standard of all things. Those things are just not for me. And I was like, well, if you're happy with where your life is, why do you care? And that's what I mean when I say, you know, you don't care if you're winning or not.

Absolutely, you're winning if you have that you're happy internally for sure you're winning but

Garret (01:04:57.646)

You know, everybody has their own measuring stick and this whole fake it till you make it stuff. It's just Or yeah, the journey is more important or sorry The destination is more important than the journey is if you win a lottery and that's the destination right and you've got all this money But you didn't earn your way to do it I'm sure there's some stat there that will indicate that that money is very quickly going to disappear versus somebody who

Saul Cohen (01:05:00.443)

Yeah.

Garret (01:05:27.106)

who takes the failure and the success and the failure and the failure and the failure and then more success to finally get there, you do appreciate it more and you're gonna be more fulfilled.

Saul Cohen (01:05:35.27)

Yeah, absolutely, absolutely either.

Garret (01:05:38.764)

Wonderful. Well, great place to stop. Thank you so much for hanging out with me for the last hour. And I know our listeners are going to get tons of value from this.

Saul Cohen (01:05:47.068)

Great, I hope so too and it's been an absolute pleasure. Thank you so much for having me on. Great.

Garret (01:05:50.894)

You're very welcome. Thank you.