Justin Goodbread of Financially Simple: Five Things You Need To Know If You Want To Build, Scale, and Prepare Your Business For a Lucrative Exit

An Interview With Jason Hartman

You need to understand how taxes impact your exit. Many people think that tax planning is something you do after they receive a letter of intent. However, tax planning comes into play — or should — years before making your exit. Having the right tax planner and advisor on your team can help you position yourself for the sale in the most tax-efficient manner.

As a part of our series about “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit, I had the pleasure of interviewing Justin Goodbread.

Justin Goodbread launched his first business when he was 15. Since then, he’s created five businesses and become an award-winning financial educator. Justin is a featured speaker for the Exit Planning Financial Institute, the University of Tennessee, and more. He is the owner of Financially Simple, the portal that educates business owners on how to start, grow, and sell a business for retirement. Justin has been featured in Forbes, Fox News, and Yahoo! Finance for his financial expertise.

Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?

I grew up in Georgia, where I spent as much time as I could outdoors. Being homeschooled, I would work through my curriculum as fast as I could so I could do the things I really wanted to do. This enabled me to start a landscaping business when I was just 16 years old. I grew that business until I was ready to sell it for a profit, just a few years later.

I really thought that was going to be my forever home and my career until I met the love of my life, got married, and moved to Knoxville. Ultimately, my career path took a turn when a friend offered me a signing bonus if I could pass three financial exams within 30 days. He didn’t think it could be done, but I studied day and night and passed all three of the exams. That was my introduction to the world of finance.

Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?

Back when I had my landscaping business, I was working on my aunt’s lawn. On that particular day, we were treating the lawn for insects. So, I grabbed the insecticide and went to work, spraying it over the entire lawn. Unfortunately, I mistakenly grabbed the wrong sprayer. The one I grabbed was filled with RoundUp which, of course, is an herbicide. I ended up killing her entire lawn.

Now, it certainly wasn’t funny at the time, but I get a good chuckle from it now. I ended up having to replace her entire yard. In the end, I learned the value of having proper systems in place. By having systems for marking products and double-checking processes, you can prevent costly mistakes like killing your aunt’s lawn.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

“Whether you think you can or think you can’t, you’re right.” — Henry Ford

This resonates with me because of my children. I want my kids to understand that nobody can keep them from reaching their goals, except for themselves. The mind is a powerful asset but it can also be your greatest liability. If you live with a positive mindset, then all you see are the opportunities you’re looking for.

Ok super. Thank you for all of that. Let’s now shift to the main part of our discussion. Can you tell us a story about how you were able to build a business from scratch, scale and sell it to a bigger firm?

As I said earlier, I began a landscaping business when I was just 16 years old. At first, I was just mowing lawns around the neighborhood. My mom used to always tell me to, “Mind the sight lines,” as I walked out the door. What she meant was to take the time to make sure I really paid attention to detail. If there were grass clippings on the sidewalks or driveways, I made sure to blow them or sweep them off. Basically, if it was in the normal line of sight, I made sure it was perfect.

My clients appreciated this level of service and I saw my business grow, as a result. Eventually, I was doing far more than just cutting grass. I hired a small team of employees to handle the larger area and workload. We were doing everything from weekly lawn maintenance to full-blown landscaping jobs. I had even negotiated contracts with a local nursery to get the best possible rate on plants and sod. By the time I was 19, I was earning six figures and receiving offers from prospective buyers. Ultimately, I decided to sell the company, for a profit, after meeting my wife and making the decision to move to East Tennessee.

Based on your experience, can you share with our readers the “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit”. Please give a story or example for each.

You have to know your wealth gap. Oftentimes, business owners don’t realize how much they spend “through” their business. Once they’ve sold their business, they discover that the amount of money they received isn’t enough, after taxes. So, knowing your wealth gap — the amount of money you need to meet your personal financial goals outside of your business — can make your exit significantly easier.

You need to understand how taxes impact your exit. Many people think that tax planning is something you do after they receive a letter of intent. However, tax planning comes into play — or should — years before making your exit. Having the right tax planner and advisor on your team can help you position yourself for the sale in the most tax-efficient manner.

If you’re focused on scaling your business, you need to break it down into “bite-sized” pieces. I like to look at it from the perspective of 8 key areas: Operations, Planning, Leadership, People, Sales, Marketing, Finance, and Legal. Looking at your business in these smaller sections allows you to focus on the areas that need the most improvement to drive toward your goals.

Next, you need to focus on your value gap. Basically, what is your business value compared to other businesses within the same SIC or NAIC codes. By comparing your business to others in your industry, you can determine whether it’s under or overvalued or even if it’s best-in-class. If it is undervalued, you’ll need to close the gap through systems, processes, and procedures. This is where a value advisor can really help small business owners. On the other hand, if your business is overvalued, it may be time to sell and move on.

Finally, you need to be aware of your profitability gap. When you’re trying to scale your business, you need to know if your profitability is in-line with that of your peers. I often see business owners taking a percentage that isn’t anywhere near the industry standards. Yet they think their business is doing great. In truth, they should probably just get out of business, take their money and invest it into the stock market.

In your experience, is there a difference in approach for building a service-based business versus a product-based business when you have the intent to eventually sell the business? Can you explain?

There is a tremendous difference between building a product-based business versus a service-based one. Consumers can typically see what you’re doing in a product-based business. Likewise, there’s an entirely different management technique when you’re managing such a business. On the other hand, service-based businesses aren’t providing a product that is so easily measured. Oftentimes, customers of a service-based business are relying on systems and processes, rather than a tangible widget.

How does one go about the process of finding a buyer?

If you build your company to be best-in-class, the buyers will find you. As you become greater and greater, you’ll be solicited by competitors, venture capitalists, and strategic partners. However, if you haven’t been solicited, you can go through a broker or a mergers and acquisitions advisor, depending on the size of the business. They will work on the process that I outlined in my first book, The Ultimate Sale, to help you reach your goals.

How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income, or if it is better to go public?

This is a choice that comes down to your individual goals. If you build a business with an exit in mind, then that’s your goal. I know business owners who are terrific at the launch and startup phases of business but just aren’t that great at maintaining them. People in this group would be better served to build toward an exit.

However, some people are great at managing their businesses. If that’s you, then you’re going to manage it for efficiency. You’re basically going to annuitize the business. On the other hand, many people have the dream of building a business to go public. But that is going to require a lot of thought, a long process, and additional capital.

None of these are greater than the other. Each one has their place in the world. But the best way to decide which direction to go with your business is to know what it is that you ultimately want to achieve.

Can you share a few ways that are used to determine a good selling price for the business?

First, you must identify which type of value you’re looking for. There is market value, fair market value, fair value, investment value, strategic value, etc. Each of these utilizes different methods and valuation techniques, and each can yield varying results. Likewise, you may receive different numbers if you have a benchmark appraisal, or informal valuation, than you would with a formal valuation. In most cases, business owners are trying to determine the market value, though.

Informal valuations use measures that are based on wide-ranging criteria, such as multiples of net operating income (NOI) and projections of discounted cash flow. This is especially useful when you’re deciding whether to commit to a transaction. A good example would be when thinking of whether or not you should sell your business. If you want to sell your business for $2MM but your informal valuation says it’s valued between $1MM and $1.5MM, you will probably want to wait until you’re able to grow the value to your desired goal.

Formal valuations, on the other hand, involve an independent expert spending a considerable amount of time exploring your business’s records. They could use several methods to determine the value and often require detailed inventory lists, exhaustive reporting, audited financial statements, among other things.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

Business owners don’t have to be broke when they retire. I am trying to start a movement, making business owners realize their business is an asset that can be transferred to others. Whether that be to their children, employees, or an outside buyer, their business can be a valuable and transferable asset.

Thank you so much for joining us. This was very inspirational.