Standing Out & Growing Your Referral Network, with John Martinka

LinkedIn: https://www.linkedin.com/in/johnmartinka/
Company Website: nokomisadvisory.com
Email: john@johnmartinka.com
Podcast: gddpodcast.buzzsprout.com
Youtube: youtube.com/c/JohnAMartinka/videos

Jason Cutter [00:00:00]:
All right, three, two, one. On today’s episode, I have John Martinka. He is the co founder of Nokomis Advisory Service, a boutique M and A advisory firm. And I’m excited, John, to have you on the show. There’s a lot we’re going to talk about. So glad that you’re here based on what we’ve talked about before.

John Martinka [00:00:21]:
Yeah, glad to be here. Looking forward to it.

Jason Cutter [00:00:24]:
So for the audience tuning in, information will be in the show notes. We’ll share some links at the end. Here’s the things that I love about you is you’re not known as the Escape Artist registered trademark because of the work you do to help clients escape their current situations, which I think about that and it’s a fun way to go. You’re an author, you have five books published. You’ve helped a lot of clients. Your most recent book is called Exit with Style, Grace and More Money. And I just love that in the content of your books and what they’re focused on. And so as we kick this off, I would love to hear kind of let’s start with how you got into brokerage, how you got into this industry, you know, what kind of led to you becoming the Escape artist.

John Martinka [00:01:10]:
Oh, I got into it through serendipity. I was doing something I liked but didn’t love. And I was in a small Rotary Club here in my hometown of Kirkland, Washington. And the guy who was president of the club the year before me, a little bit older and, but not as old as many of the other members in this brand new club. And you know, we hit it off pretty well. And one day he said something along the lines of, I have always thought you’d be good in this business. And one thing led to another. Took a little while to get moving and get going.

John Martinka [00:01:45]:
I mean, you can’t just say, hey, I’m done with what I’m doing. Let’s, let’s do, let’s do something new. Not when you got, you know, four kids at home. And that’s how I got into it. And I like the, the variety. Not the necessarily, you know, you know, you could say the variety of clients or deals, but the variety of what I do during the day, every day. The phone calls, zoom meetings. Mark, Mark.

John Martinka [00:02:12]:
Working on marketing, writing, doing a podcast, analyzing a spreadsheet, analyzing information about a business, negotiating. You can do 15, 20 things in one day, all different. And I don’t have the attention span of the engineer who can work on the same bridge project every day for years.

Jason Cutter [00:02:32]:
Yeah, yeah, you’re you’re not a pulling the same lever for 30 years, Monday through Friday kind of a guy.

John Martinka [00:02:39]:
That’s right.

Jason Cutter [00:02:42]:
So, and then how long ago was that?

John Martinka [00:02:44]:
When.

Jason Cutter [00:02:44]:
When did that happen? In the mid-90s. And then, because I’m curious about this, what was the timeline between the guy at Rotary saying, you would be great at this, to you hanging a shingle or doing whatever it was that made it official, what was that, that gap for you?

John Martinka [00:03:05]:
That’s a good question. I’d have to think back, but I would say probably four to six months.

Jason Cutter [00:03:10]:
Okay.

John Martinka [00:03:11]:
Doesn’t mean there wasn’t some education along the way. Oh, of course it was. Right.

Jason Cutter [00:03:17]:
Yeah.

John Martinka [00:03:18]:
What we’re going to be doing.

Jason Cutter [00:03:20]:
Yeah. What were you doing before then?

John Martinka [00:03:22]:
I was in, I was in a couple. Well, a sales role.

Jason Cutter [00:03:26]:
Yeah.

John Martinka [00:03:27]:
And, you know, unless you’re a superstar salesperson with a great product or something, you’re. You’re sort of stuck.

Jason Cutter [00:03:35]:
Yeah.

John Martinka [00:03:36]:
And so just, you know, I like being on my own and I’ve, you know, I’ve had my daughter working with me now for seven or so years and that’s been rather, rather fun, entertaining, etc. Etc.

Jason Cutter [00:03:50]:
Yeah. So one of the things that struck me when we first spoke was I was talking about business brokers. And then you’re very clear because in your mind you have different terms and definitions you use and what you see a business broker as, and then a intermediary, share, share with the audience. You know, kind of how you break those apart. What, what you see the difference. And maybe it’s a professional tier on your end.

John Martinka [00:04:22]:
Yeah, well, if we start at the top, we have investment bankers and most people listening to this are never going to work with the investment bankers at Goldman Sachs on Wall street or, you know, doing the public company deals and things like that. But then you have your local, regional, even sometimes national investment bankers that are a notch below that. And, you know, they do more than just sell businesses. They will do some debt and restructuring and restructure, financing and things like that. And I consider where we are and a number of my friends in the industry to be what I call intermediaries. We’re not bankers, but then we’re not Main street brokers selling small businesses and tend to be people who understand a little more about businesses and what makes a business what it is and, you know, getting the client ready for sale rather than somebody saying, I want to sell, okay, let’s go to market and then trying to disguise anything that could have been taken care of in six, six months or A year. And, and by the way, I, I have, there are a lot of good brokers out there, a lot of Main street brokers who do a really good job, price things fairly and, but I think what we try to do is offer a, a next level up quasi investment banking. Some people call us a broker, some people call us a banker.

John Martinka [00:06:00]:
I don’t, I don’t change their opinion. That’s just what they want to think.

Jason Cutter [00:06:07]:
So for you then, the level that you operate at and what you see yourself in, your role as the intermediary and how much of that is, you said it’s being involved, helping that business owner in advance. Is it, is it something you’re doing for months, maybe years in advance, helping them set it up for the ones who want to listen?

John Martinka [00:06:29]:
I’m assuming, yeah, we’re, we can get in there. We don’t do, we don’t do consulting, we don’t do fractional C level work. There are people who do that. But I’ll give you an example with someone I’ve worked with before and we’re supposed to start in next month. And he made it clear, I will do what needs to be done. Coach me, hold me accountable, tell me what needs to be done, all of that and I’ll, and I’ll do it.

Jason Cutter [00:07:03]:
Got it. What, what, what do you think or in your experience and, or your gut over all these years, what’s that timeline say that somebody, a business owner would want to start that process but then also get things in order.

John Martinka [00:07:22]:
Right.

Jason Cutter [00:07:22]:
So you said like six months. But you know, and again, I know every business is different, but do you see a good range, a good starting point for somebody as far as leeway?

John Martinka [00:07:32]:
It depends on where they are and what they’ve done.

Jason Cutter [00:07:36]:
Okay, so.

John Martinka [00:07:39]:
The person I just mentioned, we’re going to do a six month project. It can’t, it can be renewable. He feels that in his industry, two to three years from now is the window when he wants to sell and he thinks be a very good window in his industry. Got it. I’ve seen other companies where it’s just a matter of getting the books fixed up so that they make sense and others that it takes longer. We have a client, we, we started working with them and we put everything on hold and said, you have a major problem. You have one customer 63%. And the owner finally listened.

John Martinka [00:08:22]:
And because we had, you know, a buyer come in through the side door and the buyer was just scared to death over that one customer. And they, and the owner, husband and wife, they finally got it and said, yeah, we gotta, we gotta reduce that. We gotta get things back in order because that’s discounting the value. And we’re not. We’re. We’re staying in touch, but we’re not doing anything because the books are in good shape. The, you know, the employee base is pretty good. It’s just they have to diversify that customer base.

John Martinka [00:08:56]:
That’s, you know, that’s one of the big red flags. All buyers look for is customer concentration.

Jason Cutter [00:09:02]:
Yeah, makes sense. And if it’s, if it’s too much, obviously there’s nothing you can do. How often do you see or have you seen business owners who just, they don’t care? They like this guy you’re talking about. Eventually he got the message. How many don’t get the message? How many want to list anyway? How do you handle that? What do you think intermediaries should do? There’s, there’s, there’s a whole bunch in that, that one question.

John Martinka [00:09:30]:
Here’s my analogy that I love to use. Most business owners do not get up one day and say, you know, I think I want to sell my business in the next one, two, three years. So let’s raise the dimmer switch and make it bright and shiny over the whole company. Everything’s ready. They wake up and say, I’m done. Flip the switch, let’s sell. Yeah, And I just saw one of those. Someone asked me to take a look at a business he was thinking of buying, and I.

John Martinka [00:10:02]:
Yeah. And I said, well? He said, yep, they, the broker said, they probably need. I told him they need some time to get things in order. And the guy said, no, I want to sell. Now what’s not making any money? I mean, it’s this business doing 5 to 6 million a year in sales. And after fair market owner salary, it’s making maybe 100 grand. Yeah, it’s not ready. No bank’s gonna finance it for very much at all.

John Martinka [00:10:33]:
No.

Jason Cutter [00:10:34]:
Wow.

John Martinka [00:10:37]:
So.

Jason Cutter [00:10:37]:
And then what do you do in those scenarios if it’s the business owner that’s approaching on that?

John Martinka [00:10:43]:
Well, you lay it out, wish them well. What they have to. What they have to do in a. No, I want to sell it. And I say, look, you, you want 5 million, but your business isn’t going to get 5 million. And here’s the three big reasons why. Yeah, but, but so and so said, I can get 5 or 6 million. Well, they just want to.

John Martinka [00:11:01]:
They just want to hook you and bring you in, and then they’ll, you know, the old thing that the Market will convince them what it’s really worth. But I got the list.

Jason Cutter [00:11:10]:
Yeah.

John Martinka [00:11:11]:
And we, we, we are straight shooters. We tell them what we think it’s going to sell for and does that mean it always sells for that? No, sometimes it’s more. We had a deal earlier this year that we targeted four and a half million with our client in the, in the purchase in our representation agreement and the purchase price was 5, so. Which made him real happy because he agreed 4 and a half was a good number.

Jason Cutter [00:11:40]:
Yeah. What do you think are some of the things that separate good brokers from great brokers and intermediaries?

John Martinka [00:11:51]:
This is, you know the, the term broker, banker, intermediary. Yeah. We’re all doing the same thing at different levels and, and different sophistications. You know, part of it is being an open book. And you see, I see a lot of Main street brokers who put out a one page overview and adjusted financial statements or the worst I ever saw was a guy put out one or two paragraphs and sent last year’s QuickBooks statements. And that’s not doing your client a good service. Yeah, we, yeah, I don’t care if you’re selling a business for 2, 4, 6 or 26 million, you know, you should put out a good, good marketing product. We get told all the time our sim, you know, confidential information memorandum is one of, if not the best they’ve seen.

John Martinka [00:12:56]:
No, I’ve written five books so I think the writing comes into play. But we do have it edited. We have company that does layout, design and, and does wordsmithing.

Jason Cutter [00:13:11]:
Got it.

John Martinka [00:13:13]:
That’s at our cost.

Jason Cutter [00:13:13]:
So. Yeah. So the presentation. So you, but you said open book. So there’s some of that which is the marketing and the presentation of it. But I feel like there’s more for that for you being an open book.

John Martinka [00:13:28]:
Yeah, I think it’s not. When we put together a memorandum there’s two sections that you often don’t see. Company weaknesses and buyer concerns. Talk more about that weakness. Could be customer concentration. We got, we got two customers at 18 and 20% each. Disclose it. You know, don’t hide it and, but say here’s why they’re at that level and have been for the last 12 years or something like that.

John Martinka [00:14:07]:
Yeah. A buyer concern may be there’s not a next level management ready to step up.

Jason Cutter [00:14:18]:
Got it. So, so really sharing those things that a smart buyer is going to notice and, or ask about but being upfront and mentioning it first.

John Martinka [00:14:28]:
Yeah.

Jason Cutter [00:14:28]:
My experience is the person who mentions it first is probably going to have the power and control. And if you’re mentioning it as the seller side, they’re going to respect the fact that you’re not hiding anything. I mean, if you’re willing to share that, there’s probably no other mysteries or anything else that they’re going to be surprised by.

John Martinka [00:14:46]:
Right. There are no perfect businesses, There are no perfect deals.

Jason Cutter [00:14:50]:
Nope.

John Martinka [00:14:51]:
No perfect people, no perfect houses. You know, nothing like that. You share the works.

Jason Cutter [00:14:55]:
Yeah, yeah. You’ve got to. And I, and I think that’s important now for you. I know that one of the big things and, and you’ve talked about this. We’ve, we’ve talked about this is education, you know, on, on your side, educating you, educating the seller.

John Martinka [00:15:15]:
Right.

Jason Cutter [00:15:15]:
You’re talking about that kind of ways to help them. You know, what is it that you look for in a owner that you’re going to want to work with that’s.

John Martinka [00:15:23]:
Selling A good, honest person, nice person, you know, good personality.

Jason Cutter [00:15:32]:
Yeah.

John Martinka [00:15:33]:
You know, you tell you, when I walked out on it was a larger deal than we usually do. And I brought in an investment banker friend and we went to meet this guy and he had a manufacturing business and he dealt with a lot of titanium and he made it, he was boasting, well, I take all the titanium in on the weekend to the scrap yard and sell it personally to ink as well into six figures a year on titanium scrap.

Jason Cutter [00:15:59]:
Okay.

John Martinka [00:15:59]:
And we walked out of there and said, if he’s doing that and all the other things, little things that added up, we don’t want to work with him. He’s not, you know, he’s not being honest. He’s going to be dishonest about other things.

Jason Cutter [00:16:13]:
Yeah. And, and where do you see that getting brokers, intermediaries, in trouble where they’re not selective on who they’re working with or they just need the listing. So they don’t care. They look past it and they think, okay, it’s not going to be an issue.

John Martinka [00:16:32]:
I think the biggest thing is, you know, that all encompassing category of add backs. You know, we, you know, this trap we wrote off personal travel, we wrote off my spouse’s car. Even though they don’t work in the business, you know, we go out for dinner, we write it off through the company, even though it’s just, you know, husband and wife or husband, wife and kid or two. And then it just mushrooms. And there’s a story in a couple of my books about a lady who, she had a really nice business and she ran absolutely everything personally through, through the company. Her husband got deathly ill. I mean he was dying and she wanted to move so he could be near his family. And she said, if I had known, I wouldn’t have done this because the things that a buyer is not going to buy into are where I would have got a multiple of earnings on those.

John Martinka [00:17:36]:
So if you sell your, whether you sell your business for four, five or six times earnings, if you wrote off a hundred thousand dollars of stuff that’s not legitimate and a buyer and bank don’t buy into it, that’s 4, 5, 600,000. If they buy into half of it, it’s 2, 250-300-000. It takes a lot of years of that 50 or 100,000 at a income tax bracket. So let’s say a third or so to make up for that multiple, what that multiple gets. And banks, I’ve seen banks getting pretty tight on add backs.

Jason Cutter [00:18:13]:
Which, which is interesting if you think about it because if somebody doesn’t have an exit plan or timeline, they’re not thinking of the long term effects of all those deductions and those things that will be treated as an add back. But if they do, then they know that it’s better to not do that. Right. Like you said, the third in tax savings versus the multiple that they’re going to get, what’s the over, under on how many years is, is that even that one year worth of the tax savings versus what you’re going to get, let alone years of it?

John Martinka [00:18:49]:
Yeah. A buyer told me it’s not one of our deals but they said they took it to one of the mega banks. And one of the first things the banker said is we don’t consider any add backs.

Jason Cutter [00:19:01]:
Ouch.

John Martinka [00:19:03]:
Now other banks will. And there’s a lot of lenders. There’s 2, 000 lenders in this country and most of them do SBA loans or, and conventional and there are many who will ignore that stuff. But it’s, you know, you got to be able to trace it back to what it, where it actually went, not just the fact they deducted it.

Jason Cutter [00:19:23]:
Yeah. Where did that money go? And then is that a valid add back?

John Martinka [00:19:30]:
So they’ve already been paid for it. So.

Jason Cutter [00:19:32]:
Yeah. So before we get into the next segment, I’m curious because you’ve written five books, published five books again, the most recent one Exit with Style, Grace and More Money, which I love, focused on the business side, the business owner side. And that’s where you’re targeted. What’s been the biggest value for you from writing and publishing these books because I think about all the brokers out there, all the people who could be creating content that don’t like where, where has this been valuable for you?

John Martinka [00:20:07]:
It just adds a tremendous amount of credibility and respect as an expert and not just with prospective clients, but with referral sources.

Jason Cutter [00:20:18]:
Yeah.

John Martinka [00:20:19]:
And I’ve makes sense give away a lot of books to prospective clients and referral sources. And, you know, I just was at an event last night and one of my attorney friends was talking to some others, says, yeah, I’ve got a stack of his books on the, on my desk to give to people.

Jason Cutter [00:20:36]:
Yeah, yeah, it’s, it, it’s fascinating. I wrote and published my first book. It came out in late 2020, and it was the same thing. It was, you know, I’ve given out a lot of copies. I’ve shared it with a lot of people. It’s, it’s helped with relationships. It’s helped with lots of things. That’s why, you know, I, we work with a lot of brokers and really try to drive them in that direction so they have something that’s, you know, tangible and separates from the other, you know, dozens or hundreds of brokers in their relative area especially.

John Martinka [00:21:08]:
And it’s a lot of good ones and it’s personality. I know who I wouldn’t want to do business with in our, our area. And I know who. If someone said, what do you think about this person? I’d say, you know, I’d give them an A double A plus rating.

Jason Cutter [00:21:27]:
Yeah.

John Martinka [00:21:27]:
Yeah. And it’s just like any industry, real estate investment, wealth management, accounting. There’s, there’s, there’s the good and there’s the bad, and then there’s on the. Well, there’s the bad, the good and the excellent.

Jason Cutter [00:21:43]:
Yeah, I love it. I think that’s great. Well, and then the key is, like you said, allocating that time and resources to the marketing side. How do you put yourself in the excellence category, especially from a marketing. And obviously you got to perform. There is a lot of marketing out there for substandard products. So it’s kind of got to go hand in hand with being able to actually be the broker that goes with that.

John Martinka [00:22:06]:
The ultimate goal is to find the right buyer, and the right buyer is not always the one that offers the most money. I’ve seen a lot of deals where the most money didn’t get the deal because the seller would say something like, that buyer is my buyer. And, and that, you know, the go. When I say the goal is to find the right buyer. The overall goal is for the, the seller to get paid and the buyer to be very successful. The employees be taken care of, the legacy, the built business continue things like that.

Jason Cutter [00:22:45]:
Yeah, I love it. I think that’s great.

John Martinka [00:22:48]:
Right.

Jason Cutter [00:22:49]:
And if that’s the goal from the broker intermediaries perspective, then it changes kind of the dynamics and the action steps and everything involved. Going back to what you said about, you know, open, honest, nice sellers, business owners that you want to work with so that you have a product that somebody’s going to buy and be happy with what they bought.

John Martinka [00:23:14]:
That’s right. And so.

Jason Cutter [00:23:17]:
And grow it. Right. And turn it into something where, you know, hopefully down the road they’re, they’re still very grateful for what they bought. Maybe even seeing you as the broker who made it happen, even though they were on the buyer side, they still see you as a part of that transaction.

John Martinka [00:23:33]:
That’s what you want. I mean, and again, you know, it’s like any industry, the 8020 rule. 80% of people in my industry do a really good job.

Jason Cutter [00:23:41]:
Yeah.

John Martinka [00:23:42]:
And. But you know, you can’t fall into the trap of. I had to tell one of our newer guys, my daughter and I work, we have a couple newer guys that have joined us. I tell them you can’t fall in love with your client and you can’t fall in love with someone on the other side. So we have a deal that’s in due diligence. But prior to that there’s a guy found us, I can’t remember how. And one of our other associates was working with him and he fell in, you know, quote, unquote. Unquote fell in love with him.

John Martinka [00:24:18]:
Yeah. And he had a conversation and the guy sends a list of questions and it’s like this long. And I said I wouldn’t waste my time. This guy’s not going to buy the business and. Oh, but you know, let’s see. And he did need the experience of going through it. Okay. You, you learn from your mistakes.

Jason Cutter [00:24:40]:
Yeah.

John Martinka [00:24:41]:
And you know, a guy had a meeting and with the owners and. Oh yeah, it went really well. They talked a long time and he had more questions and then he finally makes an offer and it’s half of what the business is selling for.

Jason Cutter [00:24:56]:
Oh my God.

John Martinka [00:24:59]:
Wow. He was, he was. Had an accounting background as among other things. And you know, he put too sharp a pencil to it. But you know, I’m going to also share this. There’s a lot of the Internet and social media and everything has created a lot of bad Information and what you see but there are all kinds of these websites and programs and a lot of is buy buy a business with no cash down.

Jason Cutter [00:25:35]:
Yeah.

John Martinka [00:25:35]:
And you know it’s too good to be true. I’ve got a book on my bookshelf over here from probably the 70s. Someone gave it to me and it’s, I think it’s buying a buy a business with no cash. And it what I’ve come to realize, yes you can do that. You can buy a lousy business with no cash down. But if it’s a good business the seller controls the deal. Yeah business is making its 10, 15, 20, whatever percent profit for the industry or above average and has no big warts like customer concentration, supplier dominance, you know, key employee who could walk at any time or even owner dependencies not is negligent that seller controls the deal, not the buyer. And yet these workshops and mastermind groups we had someone else look at the same business and I talked to the lady before and I said well I think this business is going to sell for X.

John Martinka [00:26:32]:
And she says well that’s a lot more than three times earnings. I said yeah, this is a manufacturing business doing 7,8 million a year in sales. It’s not going to sell for three times earnings.

Jason Cutter [00:26:46]:
No, no. Well it’s interesting too because I think of the equivalent in the real estate space which is all the you know, buy houses, no money down, get seller financing, get creative financing things that and your point is exactly correct. You can buy messed up house that needs a lot of work in all kinds of creative ways. Yeah, it’s perfect house in the neighborhood that’s desirable. Then unless that seller has a serious problem that they need cash for right away, you’re not getting it for a steel. It’s going to take a lot of work to find those deals in general because there’s not going to be public deals.

John Martinka [00:27:25]:
Jason, to digress real quickly on the real estate thing, I had a client, I did five projects with him where almost sold the business when he got, he got, he got hacked for ransomware. Why did he get hacked? His managed service provider got hacked and all that Managed service providers, clients login information was stolen. He, the deal fell apart because he really, he ended up it cost him $500,000 most of them in fines for having released sensitive information from all kinds of different state governments. So but in, in working with him one of the things, one of their many services was having a quote unquote lockbox service. So if I sell you a piece of property directly there’s no bank that the money would come from you to the lockbox and then into my account and I would do all of the paperwork and everything else. I’m amazed how many of those they had. Because you talk about it. Unless it’s.

John Martinka [00:28:30]:
Yeah, no need for cash, whatever. There’s a lot of properties were sold by seller. I’m sure it got them a higher price and a higher interest rate. And with real estate, it’s a lot easier than business because it’s, it’s hard to run a piece of real estate into the ground. Yeah. You can still stuff all over it.

Jason Cutter [00:28:50]:
Yeah.

John Martinka [00:28:51]:
But most people don’t, don’t do that where they’re living a meth lab or something else.

Jason Cutter [00:28:55]:
Yeah.

John Martinka [00:28:56]:
You got to still screen your buy. But in business you can destroy that business pretty quickly.

Jason Cutter [00:29:02]:
Yeah, Yep. Yeah, for sure. It’s totally different than a physical asset that, you know, is hard to mess up. That even if you do mess it up, there’s still something left, you know, with some, with some bones and some structure. So let’s move into the next segment, which I’m very excited about. This is the broker growth tips. These are your things that you say. I, I originally when I had the idea for the show, I wanted to call them hacks.

Jason Cutter [00:29:32]:
I don’t really hacks feel like it’s like a short term thing where you’re trying to game the system.

John Martinka [00:29:37]:
Yeah.

Jason Cutter [00:29:37]:
I think it’s really about these, these marketing tips. The things that you know where you know over your years experience and also seeing other brokers who have come and maybe gone from the industry, you know what works to grow a partner pipeline, to grow referrals, to grow listings. So what do you have on your list? What’s the first one on your list? Maybe not number one, but the first.

John Martinka [00:29:58]:
Talk about five of them.

Jason Cutter [00:30:00]:
Yeah, let’s go through all.

John Martinka [00:30:02]:
First one, do great work.

Jason Cutter [00:30:04]:
Okay.

John Martinka [00:30:05]:
Do really good work. From your initial presentation to your marketing materials to how you treat buyers and your client and keep things moving. Do great work. It applies to any kind of advisory work, legal, accounting, consulting, I t selling businesses. IT do great work. And what happens when you do great work where your referrals go up because people see how you do it. You know, I have a call on in two days from now when we’re recording this with a pretty major local accounting firm, you know, a couple hundred employees in a major law firm introducing us to a joint client. And I’ve worked with both of them, most recently on a deal with the law.

John Martinka [00:30:53]:
This particular lawyer, although I Worked at the law firm for 20 years and they see how you do work and say, we want to, we want you to help our clients. So do great work. And I can also tell you I got a referral for a deal from a. Another intermediary. She was retiring. It was the last thing she had. It had been hurt. Business been hurt by Covid.

John Martinka [00:31:16]:
She wanted to play with her grandkids and she turned it over to us and you know, she’ll get a referral fee. But she knew the quality of work. Yeah.

Jason Cutter [00:31:29]:
And, and I think what’s really important about that, and I know this to be true, is that in this day and age, and it’s not even just generational, it’s just in this day and age, there’s very few people who put in effort and there’s very few that put in great work and make sure they’re doing quality. And so it’s really not hard to stand out. I mean it takes some focus and intention. Yes, I do great work, but you could probably be very successful just based on that one thing. If you just do great work, you’re gonna stand out above most people in any industry. We’re talking about business brokers. But that true, that holds true for basically anything. You, you just do a great job.

Jason Cutter [00:32:09]:
You’re gonna, you’re gonna pass everybody.

John Martinka [00:32:12]:
Yeah.

Jason Cutter [00:32:12]:
Like you’re gonna leave them in the dust. So I love that. Number one, do great work.

John Martinka [00:32:17]:
Okay. Marketing. You know, there’s statistics that say anyone in an advisory role should be spent, should is and should be spending a quarter to a third or even more of their time marketing. And that’s why it’s tough. You know, you get people who are in hourly billing. Hourly. Well, in marketing I’m not generating any revenue. Well, if you’re charging for your value, you could get it done in five hours instead of 15 that you have to bill for and you’d have more time to do other things, including marketing.

John Martinka [00:32:54]:
And marketing is, you know, it’s how do you bring people towards you? Not do not chasing them. And it’s. You’ve written books. I’ve written five books. It’s being on podcasts, it’s speaking, it’s sending out newsletter, it’s writing articles, it’s always having stuff on your blog. It’s going to networking meetings, one on one groups, hosting events, all that just to make people wear you, to bring people to you.

Jason Cutter [00:33:22]:
I love it. Always be marketing. And it is fascinating if you think of that 25 to 33% to a third of the Time Marketing.

John Martinka [00:33:31]:
Yeah.

Jason Cutter [00:33:31]:
The challenges that I see is that brokers, especially if they don’t have systems in place, they get busy in transactions, something works, they get a listing or a couple listings and then everything else goes out the window.

John Martinka [00:33:43]:
Yeah. Or I’ve seen it where there’s an. They’re part of a, of a company with a num. Quite a few people and the company brings in the business. And then what happens if you’re not with that company? What happens if the owner of that company gets hit by a, by a truck and they’re the marketing machine?

Jason Cutter [00:34:08]:
Or, or the, the owner stops investing in marketing or the marketing stops working.

John Martinka [00:34:14]:
Yeah, right.

Jason Cutter [00:34:15]:
That avenue or that mode could just no longer be effective. And then. And then what?

John Martinka [00:34:23]:
Yeah, you’re right.

Jason Cutter [00:34:24]:
That’s, that’s, that’s interesting. Okay, so always be marketing. It used to be always be closing abc in this case here, I think always be marketing. I think most brokers that I engage with, at least the ones I talk to, there’s many out there that I don’t talk to, but they’re good in the room, they’re good at the sales, they’re good at the transaction, they’re good at building trust. It’s just the marketing side. It’s the other piece that, that they’re struggling with.

John Martinka [00:34:49]:
Okay, well, let’s tie that into number three. And number three is this is specifically for selling businesses. It could be real estate or other things.

Jason Cutter [00:34:58]:
Sure.

John Martinka [00:34:58]:
Don’t put lipstick on the pig.

Jason Cutter [00:35:01]:
Okay.

John Martinka [00:35:02]:
And it means if, if the owner says, I want X million and you say it’s worth, you know, you think it’s worth 2 million x. But look, we can, we can adjust the financials to show that it’s really worth X. It’s because. And that’s when you’re adding back everything, including the kitchen sink and you know, adding back the whole owner’s salary. When everyone, everyone knows banks and business appraisers will always put in a fair market salary. They were not going to say it’s discretionary. It makes the number look. Or I saw one from someone the other day.

John Martinka [00:35:39]:
Not. And you know, this is a business doing. What’s the one I mentioned before? Doing 5 or 6 million a year in sales. And they adjusted the owner’s salary to 35 grand.

Jason Cutter [00:35:50]:
Wow.

John Martinka [00:35:50]:
That’s under minimum wage where I live. Right. So if you’re doing your marketing correctly, you don’t have to settle for the best of the worst and put lipstick on it.

Jason Cutter [00:36:05]:
Yeah, yeah. Which, which then goes back to what we talked about in the first part when we were kind of talking about the industry as a whole, which. There’s no perfect business, there’s no perfect scenario, there’s no perfect anything. And so you just gotta call it like it is. Because generally what’s going to happen, at some point somebody’s going to ask the right question or they’re going to figure it out. Or if they do buy the business without asking the right question and then they find out later what they ended up buying, they’re going to destroy your reputation in the area.

John Martinka [00:36:33]:
They’re going to say, you should have told me that. Well, you didn’t ask about it, but you had a right, you had an issue, you didn’t disclose it. Right.

Jason Cutter [00:36:41]:
And while they might be right legally about what you had to, to, to share and disclose, that’s not going to matter when they go online and they start telling people or sharing or. Yeah, you know, word gets out to the referral partners, you thought they could.

John Martinka [00:36:57]:
They could trust you. Or if the owner shares, I say the broker won’t do this, the intermediary won’t do this. But the owner only shares is asked a question, they share the tip of the iceberg. Yeah, yeah, I answered the question. You didn’t answer the complete question.

Jason Cutter [00:37:16]:
Yeah, that’s not truthful. That’s not the full truth. So number three is don’t put lipstick on a pig. All right, what’s number four on your list?

John Martinka [00:37:27]:
It’s got to be a win win deal. It absolutely has to be win win. You know, this is not politics where you have a winner or loser in every election. This is not a zero sum game. The economy is not zero sum. Right. The economy can grow for everybody. If I win in the economy, it means others are going to win.

John Martinka [00:37:48]:
In this deal, both sides have to win. You know, the buyer, the seller, the lender, all have to win.

Jason Cutter [00:37:56]:
Got it? Okay. And where do you balance that as a business broker, intermediary, whose client is the seller. So you have a specific client that you’re specifically working for. How do you balance that? Probably going back to the work with open, honest people. Don’t put lipstick on the pig.

John Martinka [00:38:18]:
Yeah, you got to make sure you’re, if you’re selling a business, you have to make sure your client is willing to sell for a. What is a fair market price and it’s it. If the, if they’re selling because they have figured out from their financial Advisor they need 10 million less taxes and closing costs to retire and live a, you know, a certain lifestyle and it’s worth 7 million. You have to make them aware of that or you. Why work with them? Because it’s not going to happen.

Jason Cutter [00:38:52]:
Yeah, makes sense. And then what about a fifth one? I feel like we’re escalating. They’re all adding on. They’re all layers on top of each other.

John Martinka [00:39:03]:
Well, yeah, it’s the SoFi. It’s this one for fifth one has to do with sophistication. Especially if people in this industry want to work with larger deals and more sophisticated buyers. It’s understand the balance sheet and working capital. The I have accountant friends who will tell me, yeah, the profit and loss can easily be manipulated over a certain time period. It’s hard to manipulate the balance sheet over because it’s the history of the company for a long time. And tell, you know, it tells you if you, you know, without looking at a accounts receivable or payables agent, it tells you how much are they carrying in receivables compared to sales or payables. Excuse me, Payables compared to, you know, cost of goods sold and whatever else gets paid over time.

John Martinka [00:39:59]:
Not, not things like payroll or utilities. And then you know, how much, how much cash are they keeping and how much equity do they have or is the owner bleeding the company? What about capital expenditures? Well, they’ve had the same, you know, gross 500,000 of tangible furniture, fixtures, equipment, vehicles for the last five years. What does that mean? Well, right away you think they’re probably going to have to start spending money on those things which if you buy it, you’re going to be spending money on it. So anticipated capital expenditures, not just depreciation. So if you understand those things and especially working capital. Working capital is the fuel that drives the business day to day and it should be included in the price and working capital not being cash necessarily, but generally receivables and inventory, less payables and accrued. Liabilities. In a simple definition, of course, if it’s manufacturing or construction, you have work in process.

John Martinka [00:41:05]:
But working capital is an asset just like the machines and the invent when the inventory is part of it. The ne. The machines and the vehicles and all of that stuff.

Jason Cutter [00:41:15]:
Yeah.

John Martinka [00:41:16]:
And more sophisticated buyer you have, the more they’re going to insist on working capital.

Jason Cutter [00:41:22]:
Yeah. And so taking from that you’re selling a sophisticated business. You need to make sure as the one that’s involved with that transaction that you’re sophisticated, you understand those things or you’re probably not going to be able to play at that level. Play, play that game.

John Martinka [00:41:40]:
Yeah, you’re right. Or it’s going to be very frustrating, especially if someone goes to a client and says, well, you know, you’re going to sell your business for 5 million and you’re going to keep all the cash and all the receivables. You’ll pay off the bills. And then a sophisticated buyer comes in and says, I need working capital.

Jason Cutter [00:41:58]:
That money’s mine. Yeah, yeah. And that’s our deal where you had.

John Martinka [00:42:04]:
A pro every, every hundred dollars matters.

Jason Cutter [00:42:09]:
Yeah.

John Martinka [00:42:10]:
If we’re talking deals in that lower middle market, you know, from around 5 to 15, 20 sophisticated buyers going to insist on working capital.

Jason Cutter [00:42:20]:
All right, so out of these five tips, these five things, if you had to pick one, is there anyone that you could pick out of these five children as your favorite child?

John Martinka [00:42:32]:
Do great work.

Jason Cutter [00:42:33]:
Yeah, I figured you would say that.

John Martinka [00:42:36]:
Yeah. If you’re doing great work, it makes the marketing easier. You don’t have, it makes the other ones. You don’t have to put the lipstick on the pig because you’re getting good referrals and you’re, you’re, by doing great work, you are putting together win win deals.

Jason Cutter [00:42:52]:
Yeah.

John Martinka [00:42:53]:
You want, you want the buyer to consider referring you when you hear someone is for sale, not just your client, but the other side.

Jason Cutter [00:43:03]:
Yeah. Makes sense. I love it. Ultimately do great work. All right, let’s get into the final segment here. So this is the deal that got away. Lessons from the lost deal. You’ve been doing this for some time.

Jason Cutter [00:43:16]:
You’ve seen some deals, you’ve seen someone’s get away from you. Probably maybe on the team, maybe other brokers. I know sometimes it’s hard to nail down one. I love this segment because there’s always lessons to be learned. Maybe cautionary tale for other brokers out there if they want to learn from people’s mistakes. Usually, you know, like you said earlier about new brokers, they got to learn, they got to learn their hard way falling down themselves. No matter how many tell each times you tell them, what have you got? What is one that jumps out is.

John Martinka [00:43:44]:
Like, yeah, the, the loss knowing your buyer. And if you’ve got to the size where you’re getting interest from private equity firms, don’t, don’t sell to private equity if you don’t want to see the business flipped and resold in five to seven years. And we lost a deal because there were three younger family members. Each of the owners had a son and there was a son in law and there might even been a nephew involved. And one owner especially said no, I’m. You’re going to sell this thing in five years? What, what am I, what are the kids going to do? They didn’t understand that when it’s sold the second time that next level of management is even more important and more desired. But he couldn’t get through his head and he just said they’re going to sell it in five or seven years. My kid, my nephew, my son in law, my partner’s kid, etc.

John Martinka [00:44:43]:
Are all going to be out of jobs and it collapsed. So if you, if you are worried about it being resold, don’t sell to private equity.

Jason Cutter [00:44:56]:
Got it?

John Martinka [00:44:57]:
And now that may cut your options if you’re a large enough business.

Jason Cutter [00:45:03]:
Yeah, because. And what I hear you saying is that with private equity it’s pretty sure that it’s going to happen. Right. You can plan on that. And if that upsets the current owner, don’t do it now. Doesn’t mean any other buyer isn’t going to turn around and flip it. But that’s an unknown that nobody’s really going to know. Private equity, you mostly know if there’s.

John Martinka [00:45:26]:
A fund, it’s got a life. And if you, you buy, if they buy your business four years into their 10 year fund, they’re going to start selling it five years later so they can close the fund out at 10.

Jason Cutter [00:45:44]:
Makes sense. And you know, for owners, they, it’s some of the legacy, some of the employees, some of the brand they’ve built. Yeah, no, I think that’s, I think that’s interesting. That’s a, that’s an interesting thing that now more than ever it’s becoming more widespread where private equity, especially in some industries where they’re just trying to roll up a lot of different businesses all over the country. And so you’re going to see that more and more.

John Martinka [00:46:12]:
And you have different levels of private equal equity, Jason. You know, the traditional big private equity, not Wall street private equity, but middle market, lower middle markets, we don’t want anything earning less than $5 million a year. And then there’s, all of a sudden there’s ones at 3 million, 2 million. Now you have people saying we’re micro pe, might not be a fund, but they’ve collected some money, their own money, friends and family, etc, and there’s different levels. But when you get into that level of true private equity where they raised a fund. That’s what I was talking about.

Jason Cutter [00:46:43]:
Yeah, makes sense. Well, it’s good to know. It’s good for brokers to be aware. They haven’t experienced that already. Just obviously be sensitive and understanding that makes sense and just be aware and, you know, just, just face that when it comes. So before we close out, before I get some final advice for you from you, for the audience, for people tuning in, just a reminder what we do here, what we focus on, so that everyone kind of knows the, the purpose and point of business broker growth. Our goal is to equip brokers with modern marketing systems and do a lot of the things that John was talking about with the content, the authority, the referral partners and all those strategies helping people get into more rooms. So amazing people like John can do great work once in the room.

Jason Cutter [00:47:29]:
And I appreciate everything that John has built on his end. And that’s really what we strive to do for the right brokers who are looking for those opportunities and really focus on what they do best. So, John, as we close out here, what is the one tip if you had one piece of advice for winning more listings and referrals and you can’t use anything that you’ve already said, what would it be?

John Martinka [00:47:54]:
That’s a good question.

Jason Cutter [00:47:57]:
I know you want to say do great work. So you can’t use that one.

John Martinka [00:47:59]:
Yeah, I’m not going to say that I would. So what’s the one thing that would.

Jason Cutter [00:48:07]:
Help besides more listings and referrals. Yeah, yeah.

John Martinka [00:48:12]:
Is refer to others. Okay. Who are good potential referral sources for you.

Jason Cutter [00:48:23]:
Okay. What do you mean by that?

John Martinka [00:48:25]:
Specifically means refer. If you, if you meet an attorney and they work in the buy, sell, M and a world and you meet someone who does something else and they say, yeah, we need to meet more attorneys, refer them to them. Even if it’s a referral or it’s a potent, not just a potential client. You know, we met a company that does some very advanced tax strategies, much more than what CPAs do. And I, we’ve referred them to probably half a dozen people who have been very grateful because they didn’t know there were things like this. Well, they’re going to think of us in the same way. Not just other service providers, but also for clients.

Jason Cutter [00:49:15]:
I love it. And I think the big thing I take away from that, which I think is always important, we work with all of our clients this way. And it’s also just how I, maybe it’s how I was raised, is to give first.

John Martinka [00:49:25]:
Right.

Jason Cutter [00:49:26]:
If you can be a good referral source for people, they’re going to appreciate that because most people just have their hand out and they’re trying to take referrals or take business need it for themselves. If you can be a giver, you set yourself apart, just like your books and just like all that other stuff. So I think that’s great. I appreciate you sharing that and you being on the show. For people who want to find out more about what you’re doing, maybe check out your books, check out your, your company contact you, they can find you on LinkedIn. So. And all of these will be in the show notes. For anyone tuning in but John Martinka on LinkedIn can also go to the Nakoma advisoradvisory.com website or email john@johnmartinka.com Again, John, thanks for being here, sharing all this and being willing to share what you’re doing and then fundamentally because you’re all about win, win, doing great work.

Jason Cutter [00:50:19]:
So thank you, John.

John Martinka [00:50:20]:
Yeah, thanks for having me on and.

Jason Cutter [00:50:23]:
For everyone tuning in, appreciate you being here, especially in this first season of the podcast, having a lot of fun with conversations like John, sharing as much as we can to elevate just the, the industry as a whole, moving everybody away or the people we can anyway, moving away from the used car brokers out there who are just, you know, listing things and doing whatever they want and going for the intermediaries, the professionals, people like John. So thank you for tuning in. Appreciate you being here. And until next time, stop hoping for deals and start growing your pipeline.