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Terry Monroe of American Business Brokers & Advisors: “You need to know yourself”

You need to know yourself. What is your tolerance for risk? If risk makes you sweat and gives you a stomachache, chances are you should work for someone else. Maybe you like some risk, but not enough to start a business from scratch. In this case I suggest people buy a franchise, because a franchise […]

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You need to know yourself. What is your tolerance for risk? If risk makes you sweat and gives you a stomachache, chances are you should work for someone else. Maybe you like some risk, but not enough to start a business from scratch. In this case I suggest people buy a franchise, because a franchise has a proven concept and all you have to do is execute the plan and you should be successful.

I personally love the challenge and the risk involved of starting a new business concept. However, I thought Arby’s would be a good restaurant to build from scratch and I didn’t do my due diligence and the restaurant lost money for 6 years before it became profitable.


I had the pleasure of interviewing Terry Monroe, president of American Business Brokers & Advisors and author of Hidden Wealth: The Secret to Getting Top Dollar for Your Business. Monroe has been in the business of establishing, operating, and selling businesses for more than 30 years & owned 40 different businesses and sold over 800 businesses. TerryMonroe.com


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?

Over my career I have owned 40 different businesses and I loved buying and starting businesses. But along the way I discovered I wasn’t a very good operator of those businesses. Some of them made money and some of them didn’t. What I discovered was that I had ADD and enjoyed the challenge and the pursuit of finding businesses for sale and figuring out how to acquire businesses, but after I acquired a business I got bored and didn’t like running the business. Then I discovered the idea of a business broker and I thought that is for me. I am very creative at putting deals together and this way I could get my ADD fix and help people to buy a business they wanted and also help people who were looking to exit their business. If I had not had the experience of owning and operating all the previous businesses, I would not be able to do what I do today.

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?

When I got into the video rental business, I knew nothing about business. After my partner and I had opened several video rental stores the accountant gave us a Profit and Loss statement. I had no idea how to read one, so I showed it to my attorney, and he said Wow, you are making a lot of money. I said where do you see that at. I was clueless on what I was looking at. What I learned was it was ok to be ignorant, because we are all ignorant about certain things, but I wanted to learn and from that experience I was able to teach myself how to read P & L’s and build a business. And from those first few video rental stores I grew the business to 155 stores in 27 states and Canada and a publicly traded company.

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

My favorite life lesson quote is “Businesses and Relationships are both easier to get into than they are to get out of”. Because with both of them you are in the heat of the moment and you think you have to have them only to find out later you ask yourself, what was I thinking and how do I get out of this.

I learned when I am thinking about acquiring or starting another business that I need to do my due diligence and then do more due diligence. I have also learned not to go into something head first, but instead to go into the situation slowly and limit my downside so if everything goes bad I already know what it is going to cost me if the worse would happen.

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?

I love to watch movies and in the early 1980’s I bought a Curtis Mathis video cassette recorder and camera. This was cutting edge technology. The guy who sold me the VCR used to be a college professor and was retired and opened a Curtis Mathis store that sold TV’s & VCR’s & cameras. After I bought the VCR, he was the only one in town who rented VHS movies on tape. His selection consisted of a closet in the old house he ran the store out of. That is how small his selection of movies was. I saw an opportunity in renting movies, but neither one of us wanted a partner. Eventually we decided if we partnered up, we could build a video rental store in another town so not to compete with his store. Together we put some money together (that we borrowed from the bank) so we were using OPM (other peoples money) and built a video rental store in another town. This was 1983 before Blockbuster was invented. The first store we opened was a huge success and started making money. With the money from the first store we opened a second store. Then a 3rd and 4th and 5th. I think after about the 7th store we both decided this was a lot of work, so we decided to start franchising video rental stores instead of doing it ourselves. We knew nothing about franchising, and I read an ad about a company who would franchise your business. Next thing we know we have about a dozen stores of our own and 10 franchises. My partner was twice my age and he decided he wanted out, so I bought him out and now I owned the video rental business and franchise business.

I knew I needed to grow with more locations, so I got to looking for a quicker way to expand rather than building one store at a time. Now here is where it gets interesting. One day when I was driving around in Missouri, I came across a Wal-Mart Super Center. At the time there was only about a dozen of these stores in the country and it was a new concept Wal-Mart was testing by putting grocery into a Wal-Mart. Since I had already put video rentals in some grocery stores, I decided to call Wal-Mart and see if I could put video rentals into their new Supercenter. I thought what do I have to lose. Well after several calls and being persistent I got someone at Wal-Mart to talk to me and eventually meet with me in Bentonville, AR. To make a long story short from my call to Wal-Mart I managed to end up renting space inside the Wal-Mart’s and grew my stores to a total of 155 stores in 27 states and Canada.

However, along the way I had to deal with venture capitalist that make the people on Shark Tank look like goldfish, because I was running out money due to such rapid expansion and eventually I sold the majority interest of my company to the venture capital people who took the company public and allowed me to sell out.

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.

I like to tell people who are in business or thinking about business that I have screwed everything you can possibly think about in business. You name it and I have done it. When I say this, I am referring to operational issues, finance issues, HR issues and marketing issues. I messed them all up, but from each one I learned what not to do so when the next opportunity came along, I was prepared.

Five things you need to know to build, scale and eventually sell,

First you need to know yourself. What is your tolerance for risk? If risk makes you sweat and gives you a stomachache, chances are you should work for someone else. Maybe you like some risk, but not enough to start a business from scratch. In this case I suggest people buy a franchise, because a franchise has a proven concept and all you have to do is execute the plan and you should be successful.

I personally love the challenge and the risk involved of starting a new business concept. However, I thought Arby’s would be a good restaurant to build from scratch and I didn’t do my due diligence and the restaurant lost money for 6 years before it became profitable.

Second decide what you like to do and pursue a business in that area. Don’t get into the food business if you don’t like preparing food and dealing with a lot of employees and customers. Find a business that fits your personality. If you don’t like to travel, then don’t get into a business that would involve a lot of travel. If you are not a detail person, but like building things stick to what you like and hire the detail person.

Example: I have owned different restaurant concepts from Arby’s, TCBY, Little Caesars, Donut Shop and Dairy Queen to name a few and I was terrible at each one of them, because I don’t like the food business, but I kept trying. I lost money on the majority of them, because I never enjoyed the business. (I am a slow learner too)

Third look for a business that has upside and the possibility of being around for a number of years. For example, you don’t want to be a pioneer and be the first one to try a new concept that you don’t know will work or not, because you feel it in your gut. Chances are you are being delusional.

Too many times I would see a new concept and I would jump in without researching the business and the business would fail. I once invested in a real estate concept called “Assist 2 Sell” it was a good concept, but when the market changed from a sellers’ market to a buyers market the discount brokerage model didn’t work. I also invested in two TCBY (The Country’s Best Yogurt) restaurants. One made money and one didn’t. So, I built a third one and it didn’t make money either and then McDonalds starting selling yogurt and that was the end of my TCBY’s.

The moral of the story is to find a concept that has been around a long time and has a track record of profitability and then see if it would be profitable in the market area you want to implement the concept.

Fourth we want something that is scalable. Either we can open more units, cover a larger geographic area, add more product lines etc. An example in today’s market is the guy who sells “My Pillow” He started out selling a pillow and once he covered as much geographic area as he could with the pillow from one factory he started adding additional products like bed covers, dog pillows etc.

I have owned a convenience store, motel, liquor store and other retail stores and the problem with them is you are restricted to a certain mile radius. If you are in a dense area you can attract a lot of customers, but in order to scale the business you have to add more locations and it is very capital intensive and not all of the units you add are going to be profitable. It doesn’t matter how good you think you are they are not all going to be winners. However, if you are in a service or product business that can be sold over the internet then the world is your customer and there is no end to how much you scale the business with minimal investment.

Fifth always have good books and records. The kiss of death is not having good books and records. Because when it comes time to sell and exit the business you must remember what a buyer is purchasing is a cash flow stream and if you can’t show where the money came from and where it is going you may sell the business, but you will take a discount and we want to get top dollar when we sell.

I know, because when I was preparing my company to go public I had the books and records so messed up we had to pay the accountant Arthur Anderson $400,000 just to get the books cleaned before we could go public. This is called paying tuition and in this case I paid a lot of tuition because of my ineptness and knowledge of bookkeeping.

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?

Absolutely there is a difference. Generally, a product-based business is capital intensive and you have a good chance of losing a lot of money whereby the service business is easier and cheaper to get into. I recommend that most people start out in the service business, because they can learn all of the aspects of business in how to sell, operate and take care of finances without a lot of risk and still make a lot of money. Chances are someone starting out in business is going to mess things up in the beginning and it is better to learn making small mistakes rather than making big expensive mistakes.

All businesses will be sold eventually. Either the one who started the business will sell the business or his successors or relatives will sell the business. There are very few businesses that don’t sell. So, you should approach every business like you are going to own it forever and then when the right opportunity comes along you will be ready to sell.

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

When it comes time to find a buyer it is not as hard as one would think. The problem becomes in finding the right buyer who has the money and will pay top dollar for what you have created. Depending on the size of the business you may want to use a business broker or an investment banker and let them be the market maker and find the right buyer. I am a big proponent of using an intermediary when selling a business. Not because I am one, because I use an intermediary when I sell my real estate or businesses, but because it is almost impossible to sell your own stuff and get top dollar. Generally business owners are very good at what they do and selling businesses is not their expertise just as you and I trying to operate someone’s business. Chances are we both have the ability to run someone else’s business, but it would take time and that is the same reason you don’t want to sell your own business, because you are only going to do it once and you don’t need to be practicing on your business. That is why you hire professionals. It the same reason that sports stars and celebrities hire managers and that is to get them the most money.

But before a business owner even thinks about selling their business, they MUST find out what it is worth first. The worst thing you can do is decide to sell your business and not know what it is worth. Find a business valuation company or a knowledgeable broker in your industry and find out what it is worth first. You maybe surprised either way as to what it is worth.

Only after you know what the business is worth should the process of looking for a buyer begin. (PS there are several other things that need to happen too before you go looking for a buyer).

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?

Having done all three I will give you my opinion. I would build the business like I was going to keep it forever as long as the industry I was in had a positive future and continue to grow the business and continue to make it more profitable until I got tired of doing what I was doing. Finding a business that will pay you a residual income generally involves you depending on someone else to perform and you are making money while they operate instead of you and if you are a control freak like most operators are you don’t like that. Going public is only good if you want liquidity. Because unless you like dealing with a lot of regulation and accountants then I wouldn’t suggest it.

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

Every business in every industry has a different valuation model. Some are valued on gross sales and some are valued on assets and some are valued on net sales with different multiples applied to them. But all businesses are valued on cash flow. The goal is to get a positive cash flow stream of income with an upward trend every year. It doesn’t have to be a huge increase every year, but if a business shows an increase in net profit every year and is in an industry that is growing the business will bring top dollar. For example, I was in the video rental business during its heyday and you would not want to be in the video rental business with Netflix and video streaming today. Nor would you want to be in a business that Amazon is in and expanding its footprint and is selling at an aggressive price point.

The best way to determine what a business is worth is to first be able to produce 3 years of good clean profit and loss statements and make sure there are no personal expenses in them. With 3 years of clean P & L’s then you can find other businesses through the association you may belong to or through a business valuation service to find out what multiples are being paid for your industry. Do not go to your accountant and ask them what your business is worth, because they don’t work in your industry and cannot give you the correct answer. They can give you the numbers but the price and valuation for what businesses are being sold for in your industry.

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. 🙂

Since I like business. Building businesses and helping people to get into business and being able to support themselves and their family I would like to share with more people all of the mistakes I have made in business in hopes they don’t make the same mistakes and suffer the same grief I had to many nights.

I would like to help more people get educated about how businesses works in its most simple form. They say some of the most successful entrepreneurs started out as paper boys or girls where they had to sell their papers, collect the money and make everything balance out at the end of the day. Being a paper boy was the only training I had in business. I especially believe learning how to operate a business is one of the most satisfying things you can do in life so that you can take care of yourself and your family. I have sold dozens of businesses to people who have extensive education and degrees and lost their jobs and ended up buying a business to support themselves and their family. I truly believe and live my life on the premise that “If it is to be, it is up to me”.

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

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