Most business owners will think about selling at some point. But according to today's guest, almost none of them are actually ready when the time comes.
Fred Schnell, Managing Director at Motii, sits down with Graham Morgan, founder of Morgan Shaw Advisory, to talk about what it genuinely takes to build a valuable business; and why so many owners leave money on the table, or miss their window entirely, through a lack of preparation.
Graham has spent a career advising business owners on growth, acquisition, succession planning, and exits. He's also a chair at Vistage, a global leadership coaching program for CEOs and executives across Australia. This conversation is frank, practical, and full of hard-won insight that applies whether you're thinking about selling next year or in a decade.
When Fred asks Graham how often business owners are truly prepared when they first come to him thinking about a sale, the answer is blunt: almost never. Graham estimates fewer than 10% of businesses in the Australian SME market are genuinely exit-ready at any given time.
The reasons aren't always dramatic. Often it comes down to procrastination — owners who have privately acknowledged something needs fixing but haven't gotten around to it. Financial records that tell an incomplete story. Leadership structures that are too dependent on one or two people. Systems that exist only in the owner's head.
"Most businesses are very underprepared. And even just the thought process of how often have they been reviewing their P&Ls, what decisions have they been making from them — you can't suddenly go and fix that two months before you sell."
Graham identifies three areas where he sees the same problems again and again.
The first is procrastination; across financials, people, growth planning, and systems. Owners know what needs to be done. They just haven't done it.
The second is succession; and not just at the owner level. Most buyers are just as concerned about the layer beneath the owner. If revenue depends on one or two key people, or if the leadership team would likely leave when ownership changes, that's a significant risk that will show up in the price.
The third is a misunderstanding of the process itself; both how much effort selling a business actually takes, and how long it takes. The research is consistent: most business sales take 12 to 18 months from start to finish. That surprises almost everyone.
This is one of the most important reframes in the entire conversation. A seller naturally thinks about the business they've built, the years of effort, the numbers they've lived with, the story they know inside out. A buyer is thinking about something else entirely: what will this business deliver for me going forward?
That gap in perspective is where a lot of deals fall apart, or where value gets left on the table. Owners who can demonstrate consistent, predictable future cash flows, not just historical profit, are the ones who command the strongest multiples.
Graham walks through the specific things that move the needle for buyers:
Consistent financials. Not just P&Ls, but balance sheets. Warren Buffett's approach, asking for 10 years of balance sheets and working backwards from there, comes up here. A clean, consistent financial history signals a well-run business.
Low client concentration. A business with 20 clients, each representing 5% of revenue, is a very different risk profile to one with a single major client that accounts for most of its income. The latter will cause sleepless nights for any serious buyer, regardless of how long that relationship has been in place.
A leadership team that can run without the owner. If the owner can take a month in Europe and the business keeps running, that tells a buyer something important. Documented roles, KPIs, succession plans, and performance records at the leadership level all contribute to this.
Clean systems and accurate data. This is where Fred brings the conversation close to Motii's world. A business that can take a buyer into its CRM and show exactly how leads move through the funnel, with real conversion data going back years — can directly support its revenue forecasts. That turns a forecast from a number on a page into something a buyer can actually believe.
Fred asks directly: does having a good CRM in place affect how a business gets valued? Graham's answer is unambiguous, completely.
The reason comes back to future cash flows. If you can show a buyer that when your top-of-funnel looks a certain way in January, you can predict with reasonable accuracy what revenue will drop out the other end 12 months later, and you have years of data to back that up, you've given them the confidence they need to pay full price.
If all you can show is historical financials with no forward-looking pipeline visibility, you're asking a buyer to take a leap of faith.
All information shared in this podcast is general in nature. For tailored advice specific to your business, visit motii.co/playbook and book a momentum call with our team.
Narrator: Motii acknowledges the traditional owners of country throughout Australia. We pay our respects to elders past and present, and acknowledge Aboriginal and Torres Strait Islander peoples as the first peoples of this land. Welcome to the Motii Playbook. If you've ever felt like your systems are technically in place, but somehow still feel chaotic behind the scenes, you're in the right spot. This is where we share what we're seeing, what's working, what's not, and the lessons businesses learn the hard way. Think of it as practical strategies straight from the trenches. Let's dive in.
Fred Schnell: Welcome to the Motii Playbook, one shift, one system, and one measurable improvement. I'm Fred Schnell, I'm the Managing Director here at Motii. And today's topic will certainly resonate with a lot of business owners out there because most business owners will, at some stage, be thinking about selling their business. And so today we'll be talking about what it actually takes to build a successful business, what a truly valuable business looks like, and that most businesses aren't actually ready when the time comes to sell.
Our guest today is Graham Morgan, founder and Managing Director at Morgan Shaw Advisory. Now, Graham and I go back a long way. He's someone I've known for many years and who has had a big influence on how I personally think about business. Graham has spent a big part of his career advising business owners around growth, acquisition, succession planning, and exits. He's also a chair at Vistage, a global leadership coaching program for CEOs and business leaders, where he works closely with executives around Australia. Graham, it is very great to have you with us.
Graham Morgan: Thank you, Fred.
Fred Schnell: For people hearing your name for the first time, do you mind just giving a short version of Morgan Shaw Advisory, the work you do, and the types of businesses that you work with?
Graham Morgan: Yeah, thanks Fred. We typically—in terms of what types of businesses, it doesn't really matter what sector or really what size, within reason. But we tend to work best with businesses that have got some resources, have got some processes, some capabilities, and have the desire to both grow their business and actually to do things in a better way.
It all came about because having bought the best part of 50 or 60 businesses for other people, I kept seeing what business owners were doing wrong, or what they hadn't maybe given enough thought to in advance of selling their business. And so I founded Morgan Shaw Advisory primarily to help people build that value, get really well prepared, so that when it does come time for an exit, which could be many years ahead, they are as ready and as well-structured as they can be to maximise the benefit for them.
Fred Schnell: Sounds good. Thank you so much. So Graham, when a business owner first comes to you thinking about selling their business, how often do you think are they actually ready?
Graham Morgan: Oh, um, the shortest answer which is a bit flippant is, is none. I feel like, I think that, you know, that is a bit of a flippant point—you know, anybody could find something in a business that isn't prepared, even if it is very well prepared. But actually, you know, the truth behind that is that most businesses are very underprepared.
And even if you take one aspect, which might be the financials of the company, it's not just "can they go into their Xero or their accounting system and produce the latest P&L." It's the fact of even just the thought process of how often have they been reviewing those P&Ls? What decisions have they been making off those and their balance sheets? How have they looked at how they categorise their expense? How have they split off their revenue so that it really can tell a proper story and inform management to make great decisions? Now as you can imagine, you can't just suddenly go and fix that two months before you sell a business because the history won't be there for a start. And so these kind of items take a long time to get ready before you sell and typically are not addressed.
Fred Schnell: Mm. Mm. So what do you think are the three biggest blind spots that you tend to see in a business?
Graham Morgan: First of all, the procrastination element of it. Which is, you know, "I'll sort that out, I'll sort that out later." And whether that's to do with the financial preparedness that we just spoke about, whether it's to do with how the people and the leadership are managed, whether it's to do with the concentration, whether it's to do with growth opportunities, strategic plans—it doesn't matter which aspect of all of those things are. Nine out of ten times people have just, they actually probably have thought about it and realised that they maybe should do something about it, they just haven't done it. I think that's the first one. And these aren't in any priority of order, they're just the three.
Fred Schnell: Yep.
Graham Morgan: Without a doubt, succession is one of the biggest issues. And when I say that word, for most people they instantly just think about the owner. And that is a part of it. You know, if you're in your business five days a week doing 50 or 60 hours a week and making the key decisions, then don't be surprised when somebody's buying that business, there's two main concerns really. One is how integral is the owner to the business, which is what most people think of and what gets discussed. But the other point which nobody ever actually says, but is also in the mind of a buyer is, "How hard am I going to have to work if I was running this business? Am I going to have to do 50 or 60 hours a week myself? And they may already have another interest."
Fred Schnell: Mm. Good point. Yeah.
Graham Morgan: Now they may not say that, but that's certainly what they will be thinking.
Fred Schnell: Yeah.
Graham Morgan: If on the other hand you can show that, "Well I normally go to Europe for, you know, a month every year or two months a year. And sure, you know, I log in and I have my weekly meeting with my team and I check everything's alright, but you know, I've got family over in Europe and that's what I like to do," you just instantly feel that the business is going to be less of a burden to manage.
Fred Schnell: Yeah.
Graham Morgan: But before we move off succession, you know, I mentioned that most people just think about the owner. It is just as critical to think about the leadership team, and even the level underneath that. You know, if it's not the owner, who is the person who's driving the revenue? Who are the revenue generators? Does it come from three or four sources? Does it just come from one person? If it comes from one person, then what happens if they were to leave? And as we know, when ownership changes of a business, the management team is at risk of leaving. And so if there's an over-reliance on that next level down, that will be the second thing.
I think a misunderstanding—which doesn't necessarily affect the outcome directly, but a misunderstanding of, A, how much effort goes into selling a business, not just the preparedness but the whole process. And the second one is how long that takes.
Fred Schnell: Mm.
Graham Morgan: You know, I still feel almost embarrassed when somebody says to me, "How long does it take to sell a business?" And I give them the answer which is, you know, there's a lot of research that backs this up, that it is typically 12 to 18 months to sell most businesses. And you know, when somebody says, "Well break that down for me then, show me why does it take that long? How long does it take to get the materials, how long does it take to go to market?" It's hard to explain why that is the case. Except for, if you imagine a world where the business isn't very well prepared, so you spend a lot longer preparing the business than you think you should. And then particularly at the moment you've got a very challenging market, and so you're entering into a market where people will ask three questions instead of one, there's a nervousness about the economy and so that will make lawyers, accountants, banks just ask lots of extra questions.
Fred Schnell: Mm. Speaking of the process and how long it actually takes to go through that sales process, in very simple terms, do you mind just breaking down what is actually involved in the process of selling a business?
Graham Morgan: Yeah. No, sure. So the first thing that would typically happen is you've got to get all of your information together. And there's a lot of information. And if you think of it, and if I talk about the output of that information, or one of the outputs, then it probably makes sense as to why we need such a thorough evaluation of the business. So simplistically, you know, you've got to get every single piece of information about your business available. That's the first part, and that in itself is a lot. And some people say, "Well why do I need all of that even just before I go and have some conversations?" And it's two reasons.
First of all is that information helps somebody like ourselves produce an Information Memorandum. And an Information Memorandum, or an IM as people talk about it, is a document that has to tell the story of the business that somebody's buying. So if you imagine that you might have been running your business for 20 years, in 20 to 40 pages, whatever the length is and the complexity of the business, we've got to describe enough of that information so that a buyer can say, "Actually, not only am I interested, but I'm interested and I think I'm prepared to put this kind of a value range on it." So you can imagine it's not just a marketing document, it's not just something that tells a story, it also has to cover off the financials, cover off the industry, and also talk about the future, and we'll come onto the future in a moment.
The second thing is, if you find somebody that is really interested in your business, the last thing you want to do is to then go and spend a month or two getting all of the information together and putting it into a structured data room so that you can then answer their questions, because they may just lose interest while you're doing any sales process. So that's the first piece, is you've got to get all of that information together.
Then you produce the Information Memorandum as we spoke about. And in parallel with that, you've also got to start thinking, "Well, who might be the buyers for this business?" Now if you were buying something perhaps, you know, a coffee shop or something, then you could quite legitimately go and market that on any of the multiple sites that there are, and appeal to 12,000 people. And that's probably the best way of looking for your target market. But if you've got a business where you're probably going to sell it to another business owner—and that's how most businesses are sold, that's the main buyers—then you've got to think of a strategic buyer. And what you're really looking for is who could make more money out of my business than I can. And that in itself is quite a skill and an art.
And then once those two things are ready, you obviously go out to market, you speak to people, you get hopefully two or three interested parties to put non-binding offers down. But that gives us some shape and feel of what might commercially be acceptable. Once we get to a situation where the offer is acceptable, then you go into due diligence. And due diligence, you know, one of my team talks about it, you know, it's the eight weeks of your life you never get back. I think she's probably right. So even if you've got somebody supporting and advising you, every day you've just got multiple questions and—
Fred Schnell: And I think that's both sides right? That's the buyer and the seller who won't get that time back.
Graham Morgan: Well from first-hand experience, you know, when you've been buying a business—if you're selling a business, you just get incredibly frustrated and exhausted about how many times you get asked the same question, albeit in different formats. And you get a bit defensive because, you know, this is your baby, this is a good business, and why are they asking all these difficult questions? If you're a buyer, you're constantly worried about, "What am I missing?" And Fred, you know, you probably had that when, especially when you're getting close to writing the cheque, you think "What have I not asked?"
Fred Schnell: Yeah. No, 100%.
Graham Morgan: So once we've gone through due diligence, obviously the legals have been prepared alongside that, and then there is a piece which, you know, we may cover off again later, which is the most important thing if you're a buyer, and to a point a seller, is thinking about how the transition and the integration of that business is going to go into a new business. And then, you know, in some cases some of the payments could be deferred or they could be at risk, in which case there'll be a process that follows on post the sale.
Fred Schnell: I mean, I still remember you saying to me, "A buyer doesn't buy the history of an organization. The buyer buys the future of the organization." So running me through, what is that kind of saying? What does that kind of mean?
Graham Morgan: To answer your question, I think it's a really good way of framing it, because it goes to the essence of the way that two different people look at a business sale: the buyer and the seller. If you're a seller and you've been running a business for 20 years, not only do you know your business inside out, but you intuitively or naturally will think about the performance of the business historically. Because that is what you've lived and breathed, and that's what's funded your lifestyle, you've gone through your ups and your downs, and those are the numbers you see in your head and they're also what there is evidence that you've prepared.
But if you think about it in a very simplistic way, a buyer isn't buying that. They need to see that so that they can make a judgment, but what they're trying to work out is what is the future cash flows of the business? Because that's what really matters. If I give you a couple of examples which make it clear, and this also goes sometimes I think to when we talk about the multiple and the quality of a business. If you've got a business that might be in traditional manufacturing or might be putting roofing tiles together or they might be producing glass or some traditional business. And if that business has been doing a million dollars of profit for the last 10 years, there or thereabouts, you know, between 950,000 and 1.1 million, you can be pretty clear in your mind that if you bought that business and you didn't mess it up, the chances are it's going to give you there or thereabouts a million dollars a year cash.
If however you're buying something that could be agency creative services that might be much more project-based—and I know a number of your listeners might be in that world too—if a business did $2 million profit three years ago because they had a bumper year, the following year did $1 million, then the next year did 750,000, then it jumped back up to 1.1 million, a buyer's going to go, "Look, I get it's a profitable business, but how do I work out what it's going to deliver for me?" So I think that's the point you've got to think about with future cash flows. So when you're preparing your business, you've got to think about how can I give somebody confidence in the future cash flows of this business.
Fred Schnell: Mm. Makes sense, makes sense. And so in your view, when you're thinking about confidence, and you alluded to that, that the buyers are always kind of cautious about, "Is there something hidden that I missed?" So what are some of the points in your mind that would give a buyer confidence about a business?
Graham Morgan: Yeah, no, I think that's a good thing. So we touched on one, which is if you've got historical P&Ls that look very solid and consistent, even if they're boring, that's a nice thing to have.
The second thing is balance sheets. People always talk about P&Ls a lot, but I remember, you know, Warren Buffett famously saying that, "When I'm buying a business, I don't need to see anything else, just give me 10 years balance sheets and I'll work out what's been going on." Because you can't hide things out of a balance sheet, it will tell you a story. And if you don't understand how to read a balance sheet, don't be shy about that, just get somebody who can read them for you. The history or the story of the company will be there within those balance sheets if you know how to ask for them.
If you go onto some of the more pragmatic things that people can do something about every day, is if you take the client concentration, which is another area that gets talked about a lot. Think of two examples. You know, a business that has got a recurring revenue situation, and let's say they've got 20 clients and they charge them the same monthly fee every month. And they charge them for the work of the month ahead, they send an invoice out on the first of the month and the client has to pay in 14 days. Think of that example, and all of those clients are contracted. So if you think of that example, and also if you think that all of those 20 clients pay exactly the same monthly fee, that means that if you lost a client, you've only lost 5% of your revenue. Your 95% is intact, and if they're in different sectors and they have no relation to each other, if you lost one there's no reason why you'd lose another. So put that as one scenario.
Put as a different scenario, the most extreme example I can probably think of, a $25 million revenue business, been going for a very long time, but had one client and one product. The client was a huge multinational and heavily contracted, but the contract had lapsed three years before. If you're a buyer, which of those two scenarios is going to give you sleepless nights?
Fred Schnell: Yeah. There's alarm bells all over it, right?
Graham Morgan: Correct. And you know, think about people. So if you can show a business—and again some of these things are easier to do than others, your client concentration is a hard one to fix, I understand that sometimes. But if you think of things you can absolutely do, is if you're buying a business and the owner's going to leave, which is probable and it's probably what you want, then you're going to be running that business through the team that's there. And if it's not you, it's your CEO that you've put in or whatever. So if you look at a leadership team, and an owner can say, "Look, here's my top four people in my leadership team. Here's their role descriptions. We have quarterly reviews, we have annual reviews, they are all on KPIs, this is their performance over the last five years. They've all got an individual training, learning and development plan. The reason how we assess it is through the psychometric testing that we get done independently once a year. Here's the training records of what they've all done. These are the areas for growth and improvement. This is their promotion plan. Oh, and by the way, the succession plan for those four are amongst these seven people at the level underneath." Now, if you can show me that story, then I go, "Right, okay. Well I'm pretty confident."
Fred Schnell: Gives me confidence, yeah. Yeah, makes sense. Moving topic to something a bit more technical in a way. You mentioned the valuation, the multiple of an organization, the other term is EBITDA. In very simple terms, how do you value a business? Or what are these two terms, what do they actually mean?
Graham Morgan: Yeah. In your world, and the world of some of your clients, some of this may not be as relevant, but I'll talk about the majority of businesses in Australia are still measured or valued on a multiple of EBITDA. I mean, there's several ways you can value a business. And I would say something like 70 or 80 percent get valued in some shape or form of that. And again, for those who may not think about it, what you call EBITDA is just one of the ways you can look at a profit of a business, it's not a pure figure. A purer way of looking at it is what's your net profit before tax, you know, but it's the same kind of logic.
And for every industry and every size of business, there will be an expected range of what that profit gets multiplied to get to a number. So if we just said for example, that the multiple range of a certain industry is four to six times profit, and the business does a million dollars, then you should expect that your range, the quality of your business, you're going to be worth between four and six million. Now what gives a business a six million valuation compared to four, is all about those qualitative aspects that we've been talking about, your people, your client concentration, etc.
Fred Schnell: Yeah.
Graham Morgan: The other way that businesses typically would get valued, particularly in things like software—which obviously would apply to some of your clients—it can be about the multiple of their recurring revenue. Because the people who buy those kind of businesses are less worried about the costs and the profitability of the business underneath, because they know what that revenue will do in their business model. And that's all they're worried about.
Fred Schnell: Yeah.
Graham Morgan: Because they'll change the shape of the business, so it becomes less relevant. And particularly if people have got long-term recurring revenue that's kind of a legacy that's going to keep rolling over, you know, a bit like a rent book, then people tend to get excited about that, and so they will pay it on a multiple of recurring revenue.
Fred Schnell: Okay, makes sense. Makes sense. Let's change gears a little bit, and let's bring it a bit closer to my world here at Motii. So one thing I experienced personally when I was going through the acquisition process with Motii was how powerful it was to look at a business with strong technology systems and an ecosystem that actually works. The data that sits behind it and the complete visibility across the entire business, right? To use your words, it certainly gave me a lot of confidence.
Graham Morgan: Yeah.
Fred Schnell: Now, I mean, obviously I did acquire a software consulting business, so you would actually hope that the systems are quite spot on. But now thinking about some other industries, some manufacturing businesses, construction businesses—in your perspective, how important do you think for these businesses is it to have clean data and proper systems in place?
Graham Morgan: Oh, great question. Well to me, it's the other part of the—there's lots of pieces to the puzzle, but one of the other key parts to the puzzle. If you think about what clients get concerned about, and this ease of running a business, right? And you don't know how your buyer, where they're going to be. You don't know if they're going to be a hands-on person, if they're going to be a hands-off person, how capable they are. But if you can imagine that you're the buyer, and a bit like I gave that example of people, if you can say to them, "Look, when we talk about the future cash flows, you put a forecast in that says, look, over the next three years, I'm forecasting the revenue to be A, B, and C."
Fred Schnell: Yeah.
Graham Morgan: And quite often, you know, people say, "Well, you know, that's all very well, how do I believe that and get comfort about it?" And if you then take them into your CRM, for example, or your pipeline or whatever you want to call it. And if you can show people and say, "We review this—no client contact, either current or prospect, is dealt with outside of this system. Everything is entered in." And you show them the detail of the notes, and you show them how you manage prospects, and you show them how you manage current clients, and you show them how you manage lapsed clients. And then you show them that there's a daily, or a two-daily, or a weekly review, and once a month you do a more detailed review, and once a quarter you do a strategic review. If that can be shown and demonstrated, and the data is accurate, and you can then show them in history and say, "Look, when our top of funnel is ten million dollars, as it was in January 2023, we can show you how that tracks through over the next year to drop to be a three-million-dollar revenue drop out the bottom of the funnel."
Fred Schnell: Yeah. Obviously you would have the conversion rate and everything, you can actually demonstrate that. Yep.
Graham Morgan: And if you can show that, then you can really show somebody future cash flows. And I can't think of anything more—if you can prove it, I think it is one of the most critical things. But you can only prove it with data, and accuracy of systems and processes.
Fred Schnell: Okay. And so, I mean, selfishly, so we always say the CRM is kind of the backbone of the business and should be kind of the single source of truth. So, do you think having a good CRM in place is actually going to influence how a business is going to be valued?
Graham Morgan: Completely. I mean, no doubt at all. Primarily because of that whole point, which is the thing that they're going to pay you for is future cash flows. And the more certainty you can give them about those future cash flows is what's going to encourage them to pay the money.
Fred Schnell: Gotcha.
Graham Morgan: If you go to the other extreme, if you think of it the other way, if all you can show somebody is historical financials, and you can't show them any future pipeline process or backbone or system, you're then asking them to take a judgment that they can do whatever you do that's stuck in your head.
Fred Schnell: Yeah, makes sense, makes sense. And so what about a business that is doing incredibly well operationally, and everything lives in the business owner's head, you know, relationships, knowledge, history, decision-making, literally everything. How does that stack up when it comes time to sell?
Graham Morgan: Well, I think at times like this it's almost better sometimes to kind of put a personal view on it. If you've bought a business, Fred, and you know, I look at them all the time. And a question I always ask when I'm buying for somebody else is, would I buy it? You know, if this was my money, would I buy it? And if it was like you described, and I didn't get comfort that I could see it in systems or structure or process, or all three really, and if it was in a buyer's head, or they were the key people doing it, I'd just walk away. It wouldn't matter how profitable the business was, and it wouldn't matter how cheap it was, I'd walk away.
Fred Schnell: Wow. And you've got nothing to base your decision on.
Graham Morgan: Well, you know, what you're gambling—and it is a gamble—is you're gambling that you can do their job better than they do. And they've had 20 years doing it.
Fred Schnell: And they've got 10, 20 years of experience, right, doing it, so...
Graham Morgan: You know, and for all I know, they could be getting their business from the golf club, or from some other avenue that is not accessible to me.
Fred Schnell: Yeah, makes sense. So in your view, like, if you think about the Australian SME market, how many do you think are actually, generally ready to exit?
Graham Morgan: Zero.
Fred Schnell: Wow. And why, why do you think that is?
Graham Morgan: Again, look, it's back to that point I made earlier on. It is a bit flippant, there's some very, very good businesses that really don't need a lot of tidying up before they go to the market. But percentage-wise, we'd probably be talking less than 10%.
Fred Schnell: Wow.
Graham Morgan: Most businesses need quite a bit of work doing before they go to market. And mainly because of, even if they've been running a really good business, and if you go back to the example you gave about the CRM being the backbone of the business, even if they've done a good job of that, a lot of them still can't show how that's going to be realistically translated into a three-year forecast going forward.
Fred Schnell: Right. Okay.
Graham Morgan: Because, to go back to your point, you've got to have had a methodology and a process that shows if the top of the funnel on January the 23rd looks like this, 6, 9, 12, 18 months later this is how it plays out, and they review that and they have a record for that.
Fred Schnell: Yeah, yeah. Makes sense. And so, let's just assume they've done everything right, yeah? So good systems, strong team, clean data, everything works, right? Is there still the possibility that the owner still doesn't get the outcome he or she is looking for?
Graham Morgan: Yeah, you know, it can be a bit cruel sometimes. It can be a tough thing. I mean, outside of, you know, becoming a parent, getting married, divorced, buying and selling houses, you know, for some people this is bigger than all of those things. Um, and for some it still ranks there, it's in the top four or five things that's going to happen in their lives. And if you imagine what you're doing, it's an incredibly complicated sales process. It is not like selling a house. It is far more complicated.
Fred Schnell: Yeah.
Graham Morgan: For no other reason, you're buying living beings, you know, and you've got employees, and you've got customers and suppliers. And especially at the moment, you can sometimes just hit a market when it's bad. And at the moment, it's challenging because not only have you got, you know, high inflation which puts some challenges on people raising money, you've also got a situation of this global uncertainty because of what's going on in the Middle East. You've got supply chain issues that people still haven't quite worked out how they're all going to play through, and then on top of that you've got things like, I don't want to call it just AI, but business automation. And so some people are looking at businesses going, "I don't know if that industry is going to be the same in four years' time." And that's why when you think about the multiple and the future cash flows, it's so important to understand that concept. Because if somebody is saying, for example, if somebody's paying a five times multiple for your profit of your business, at the very least, they want to know that over the next five years you're going to trade at least as well as you have. And if they did that, they'd still be out of pocket because of interest rates and legal costs and everything else. So you're asking them to be able to take a calculated risk that in five to ten years' time, your business is still going to be a profitable operating company.
Fred Schnell: Mm. Mm.
Graham Morgan: Again, if you think of different industries, if AI is probably not going to change the fact that people will need to re-roof their house or their apartment block. But AI might well change how the accounting industry works. And so if you were buying an accounting firm compared to a roofing firm, I'm not saying you shouldn't buy an accounting firm, but you're going to have different worries and concerns. And sometimes you could just be hitting the market at the wrong time.
Fred Schnell: Yeah, no, makes sense. Do you think there's also, and that's, I know the answer I think, do you think there's also a bit of a gap sometimes between what the business owner is expecting for his or her business and what the market is actually willing to pay for it?
Graham Morgan: Yes. And um, if you forget the emotion about it first of all, but it is highly emotional, because for a lot of people, apart from the fact obviously people, you know, there's a couple of reasons. First of all, it's probable that people will need the amount of money they sell their business for for whatever's coming next in their lives. Whether that's retirement, whether that's to go and fund another business, whether it's to help the kids buy a house, it's an important output. And so for most people, it needs to be the best number it can be. So you've got that emotion or a driver that goes behind it.
The second one is, because people don't always truly understand all aspects of their business, particularly through the eyes of a buyer, they will have a view of value that is probably not that scientific, and it is certainly not through the eyes of a buyer, it's through the eyes of a seller. And so they look at everything with optimism, whereas a buyer's looking at everything with pessimism. And again, these are, you know, these are extreme views, but these are the probable views. So I think you've got that issue. And then there is a bit of an ego issue too, where, you know, people just think about all the great work I've done, and it's a fantastic business, and therefore it should be worth X. And the reality is a buyer will just not look at it that way. So yes, there is nearly always a gap on expectation.
Fred Schnell: I mean, I can I can imagine, right? You mentioned that business that has one big client, or one big, yeah, you know, and it's been going for 20 odd years or whatever it is, right? For the business owner itself, it's not a risk, because, "Come on, I've been doing this for 20 odd years, it works."
Graham Morgan: Correct.
Fred Schnell: But for a buyer, there's like alarm clocks, alarm bells everywhere, right? Yeah, no, I get that. Just even if you take something like your leadership team, right? You might have worked with your top three or four people for 10, 15 years. And they may have never said to you that they're going to leave. And they obviously haven't left, because they've been with you. But you have no idea that two of them might have in their mind, "Oh, Fred's getting a bit older now, and when he sells, I'm just going, I'm done."
Graham Morgan: Leaving. Yeah.
Fred Schnell: And they never have told you as the seller. But the buyer is obviously very worried about it.
Graham Morgan: Yeah, no, good point. Good point.
Fred Schnell: All right. Look Graham, I've got one final question for you, Graham. So if a business owner is listening to this right now and they recognize their business in this conversation, what is the one shift in thinking you would hope they take away from today's session?
Graham Morgan: I might answer that with two things, but it's the combination of the two that gives me the poetic license to do it, I think. I mean, we've talked a lot about preparation, and I think that's critical. It's the way you think, I think, is what I'm trying to get people to do. So on one hand, you've got to think that you may have no choice but to sell your business in three months' time. Whether that's through your own ill health, death, injury...
Fred Schnell: Mm.
Graham Morgan: Whatever. And therefore, because you actually don't know when that might be. And it could be a positive story, somebody could knock on your door that are the perfect buyer, you know they're the perfect buyer, it's just come at the wrong time, but you just think to yourself, "This might be my one chance." You've got to be almost ready all the time. So imagine that you've only got 12 weeks to get your business ready, what would you do?
And then on the flip of that, you've got to imagine you've got to run it forever. You know, you may not sell it. You've got to keep making the decisions that show growth, because even if you think you're selling it, you've still got to be showing somebody it's growing. And so, I think the thing I'm asking you to do is to take these opposite thoughts, which is: how do I make sure I'm ready so if I have to sell it in 12 weeks' time I can? And the opposite of, how do I make sure this business runs forever? And it is the combination of that thinking that I think is what you've got to keep in your mind. And there will be contradictions as you think about that.
Fred Schnell: Yeah. Graham, really appreciate your time and your insights today. And for anyone listening who wants to learn more about Graham and Morgan Shaw Advisory, we'll include the contact details in our show notes. I hope everyone enjoyed today's episode, I certainly did. All episodes of the Motii Playbook can be found on our website, motii.co/playbook. Thanks for listening, everyone. Thank you, Graham, for being part of this session. I really, really enjoyed that one.
Graham Morgan: You're welcome. Thanks, Fred. Have a great day.
Fred Schnell: You too. Thank you.
Narrator: That's it for another episode of the Motii Playbook: one shift, one system, one measurable improvement. All information shared in this podcast is general in nature. For tailored advice specific to your business, visit motii.co/playbook and book a momentum call.
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