Introduction

John: Hello, and welcome to another Expert Insight interview. My name is John Golden from SalesPOP! online sales magazine and Pipeliner CRM, joining you as usual from sunny San Diego. Today I’m delighted to be joined by Gregory Kovsky, who is up in Seattle, Washington. How are you doing, Gregory?

Greg: I am wonderful, John.

John: You’re the president and CEO of International Business Associates (IBA), the Pacific Northwest’s oldest and largest business brokerage firm, founded in 1975. With more than 30 years as an M&A intermediary, you’ve personally facilitated over 300 sales of privately held companies and family businesses, many bundled with commercial real estate, ranging from $1 million to $30 million in enterprise value.

Defining Your Exit Objectives

John: Gregory, if I own a business and I’m thinking about selling it, what should I do from the moment I start thinking about it?

Greg: Great question. The first thing to think about is what you want to achieve. Is it a financial outcome, and do you have a specific value in mind? Is it freedom? We very often work with founders who are ready to do the next thing or want more freedom. Really define your objectives, because you can’t start a journey without a road map.

Separating Emotion From Business Decisions

John: Once people have started that intellectual journey of “I’m going to sell the business,” owners obviously have deep emotional ties to it. There’s a lot wrapped up in that. How do you help them separate the emotion from the practical business decisions they have to make?

Greg: Excellent question. The first thing we do is provide a professional opinion of the value of the business. We look at it from different perspectives: a strategic buyer, a private equity buyer, and a high-net-worth individual who can scale it from where it is and take advantage of the appreciation opportunity.

We also talk with them about what their successor looks like to them. If they have a lot of intellectual property, are they okay with merging and eventually disappearing, or do they value keeping employment for their staff? Do they have concerns about their customers’ well-being? Do they have relationships with vendors who are part of their ecosystem and could be hurt if the business stopped operating, say, in small-town USA, where it’s a foundational employer?

The Human Side of M&A

John: And if you overlook any of those things, they could easily derail the sale of a business.

Greg: Correct. Take employees. They’re extended family. You’ve seen them progress professionally. You’ve watched them get married, have children, and maybe even approach retirement. The last thing a founder ever wants is to go out to their favorite diner and run into a former employee who comes over, gives them the stink eye, and says, “You did great. I was let go three months later, and my family’s in turmoil right now.”

Those are the human sides of M&A. People always focus on the bag of gold. I’m more of a holistic M&A broker. I try to create win-win outcomes and make sure all the appropriate elements are at least considered before decisions are made.

Common Deal-Killing Mistakes in Family Businesses

John: What do you see as the biggest mistakes family business owners make that could kill a really good deal?

Greg: Sometimes they go down the path of an internal sale, either to family members or to employees through an ESOP. I’m a strong believer that employees are often employees for a reason. Not everyone is destined to be the captain of a ship. They may be an amazing CFO or chief marketing officer, but to use a baseball analogy as we head into baseball season, they don’t have all five tools.

If you don’t pay attention to the nickels and dimes, the business can lose profitability and struggle. On the other side, and this is your background, sales cure most ills. If you back away from marketing and from paying your top salespeople, the rainmakers, you may be very profitable for a short period. But in the long term, there will be attrition and probably loss of market share.

John: Those are good points. The idea of a management or employee buyout sounds great, but as you said, the team may not have the skill set or the wherewithal to be successful.

Metrics That Drive Valuation

John: What financial or operational metrics will move the needle on valuation?

Greg: Certainly. The first thing you want is clean financials. They need to pass scrutiny by a buyer, their CPA or CFO, a bank, or investors. Sometimes we recommend taking a year to get your business ready for sale.

The most important financial document is last year’s tax return. If you’re writing off expenses that may be gray, you may want to clear up the picture. It could be season tickets to sports teams where you have great seats but never take a customer, and showing that those had no business purpose may be problematic. Or it could be overpaying family members whose contributions aren’t in line with their pay.

You want to clean up those things because there’s a compounding impact. Say we’re dealing with a five or six multiple of EBITDA at sale. If $100,000 is buried in the financials, you’re potentially giving away half a million dollars of enterprise value. You need to think ahead. Running that $100,000 through the company might save you a third of it in taxes, about $35,000. Personally, I’d rather have half a million than $35,000 in savings. That’s the kind of education we provide.

Having systems and processes also helps. Do you have a sales manual? Do you have a current employee manual, or is a third of it about COVID policies that no longer apply? Do you have a vertical management structure rather than a horizontal one, where everyone reports to you and you’re pulling all the key levers? All of those things contribute to getting the maximum value for a business.

John: Because let’s face it, you want your business to be as easy as possible for your target acquirer to buy, whether that’s private equity or someone else. On the financials, that’s a really good point. There’s going to be a lot of due diligence around them, and if an anomaly is spotted early on, it invites even more scrutiny. You’re better off getting things as clean as possible.

Greg: And we’re concerned not only about discretionary expenses like the sports tickets I mentioned, but also nonrecurring expenses. We’re in an AI world right now, and companies are doing AI initiatives to modify their operations. You may have spent money in 2025 and 2026 on that evolution within your company, but that doesn’t mean you’ll have the same level of spending in 2028.

In our case, we’re working on an AI-enabled deal management platform, and we’re very excited about what’s coming down the pipeline. But in the future, it will be fine-tuning the wheel, not creating the wheel.

Realistic Timelines for Selling a Business

John: Another thing people may not be aware of when they decide to sell is the time frame. If you’re a $5 million to $50 million private business, what’s a realistic time frame?

Greg: It generally takes IBA between six and 12 months to sell a business, but that’s not the entire time frame. The buyer is going to negotiate a transition period with executive management, including the owner, to make sure the transfer goes smoothly with minimal turbulence. We commonly see transition periods of three months to three years.

So if you’re 70 years old and want to be retired by 72, you’d better start moving that train, because it won’t happen overnight. It’s not a mic-drop situation. You need to teach a buyer how you’ve done things, set them up for success, and make warm introductions to employees, customers, and vendors.

If you manufacture component parts overseas, for example, you may need to take a trip to that facility to introduce the new owner, maybe before the sale, maybe after. Right now I’m working on the sale of a company that has manufactured component parts in Taiwan for years. How are we going to facilitate that transition? The new owner can’t lose that relationship.

Deal Structure: Cash, Seller Notes, Earnouts, and Retained Equity

John: Those are excellent points, because at the end of the day, those are the parts of the business that generate the value.

I think people also don’t always understand that there are many different ways a deal can be structured, and that can take them by surprise. Ideally, someone would say, “Here you go, Gregory, here’s cash for your business. Have a nice life.” But that doesn’t happen very often. You might have some cash, maybe earnouts, maybe equity. If a private equity company buys it and plans to sell again in three to five years, there’s a whole holding period too. Isn’t it often an issue at the start of conversations that people don’t understand different buyers may have different deal structures in mind?

Greg: Correct, and you gave a good overview. There are a number of deal structure elements. Everyone loves cash, but you need to realize the next circle out is a seller note or an escrow holdback, and a seller needs to understand why that exists.

It usually exists to deal with trailing liability. Say you’re a manufacturing company with some warranty or recall issues. If the previous owner received the money and the benefit from those sales, the new owner shouldn’t have to take a loss to satisfy a customer. Maybe one out of a thousand products has an issue, and it involves replacing a low-cost widget because the supplier had a bad batch. That’s life, but you have labor, materials, shipping, and maybe customer service costs. You need a method to address that, and you want to give the buyer some leverage, either an escrow holdback or a promissory note. That way, if the buyer buys the business and the seller disappears to Hamilton Island in Australia and can’t be found, the buyer can still make good. That’s valuable.

Then you get into the variable elements. That can be an earnout. It could be a larger promissory note with what we call a clawback: if certain thresholds aren’t met, credits are made against the note’s principal. Banks often like that, because they can calculate the maximum debt service at the time of funding, and banks don’t like variable amounts.

There can also be retained equity or profit sharing, and those can end up being very positive. I’ve seen situations where a seller bets on the right racehorse and the second bite of the apple exceeds the first. For example, a private equity firm rolling up businesses in a space buys your business at a five multiple of EBITDA and later sells the whole package at an eight multiple, and your equity share is now calculated at that higher valuation.

But you need to make sure you bet on the right racehorse. We’ve also seen situations, Joann Fabrics for example, where private equity-backed companies haven’t thrived after the sale.

John: That’s great information. It’s good for business owners to understand that there are different buyers and different deal structures, and there are a lot of elements to consider in finding the right buyer and the right structure. If you’re older, an earnout may or may not be what you want. Maybe a long holding period isn’t something you want. There’s a lot to consider.

Commercial Real Estate, 1031 Exchanges, and Legacy Wealth

John: One last thing I wanted to cover quickly is commercial real estate. If you own your own building and you’re going to sell that as well, what kind of due diligence is involved, and what pitfalls should you look out for?

Greg: Let me take one half step back, and then I’ll go forward. One important collaborative partner in the sale of a business is your wealth advisor, who can provide tax mitigation strategies. That came to mind when we talked about retained stock. You may choose to put that stock in a trust or an entity where your children or grandchildren get the benefit down the line, with tax issues deferred if you’re older.

When we get into real estate, there are strategies like 1031 exchanges, which can defer capital gains taxes. It’s always wonderful to own the real estate, because you control your occupancy. I’ve seen people buy property on the outer ring of a metropolitan area, own it for 20 years, and gain substantially on it.

But say it’s a manufacturing company, which is something I specialize in, and it’s a single-tenant situation. You may not want the risk of keeping that property for passive rental income, because the one thing we can’t sell is the executive management of the ownership. The new owner will be better or worse. So you may want to use a 1031 exchange to take the value of that real estate and put it into, say, an apartment building or a medical office complex, where instead of one tenant you have many. You end up diversifying your risk, and you can hand management over to a professional commercial real estate firm. It can be a wonderful step in building legacy wealth, but you need to think it through.

And as I said about the wealth advisor, you need to build a transaction team: the attorney, the CPA, the wealth advisor, and the M&A intermediary, to make sure you’re properly advised in all of those important areas.

Building the Right Transaction Team

John: Fantastic, Gregory. You’ve shared great information today, but that last point needs to be underlined four or five times. Having the right team matters. This isn’t something you want to attempt on your own, or with less than high-quality expertise around you.

Greg: Exactly. That’s why every broker at my firm also has a real estate license. One thing we offer our clients is comprehensive representation of both the business and the real estate under one umbrella.

The other thing to think about is limiting the number of cooks in the kitchen. The owner needs to realize they own the team, and they need to stay in control, because there will be strong personalities. I’m a strong personality. I’ll give business advice aimed at getting the deal done. The attorney will give advice aimed at mitigating liability. We may not always agree on the right position to take.

Ultimately, the founder, who is likely comfortable with risk because they’re an entrepreneur, may say, “I’m going to do this and lean on my M&A advisor.” In other cases, they may say, “Gregory, I understand what that strategy would achieve, but it’s too much risk for me. I don’t want to carry that much of a seller note or that much of an equity share. I’m going to listen to my attorney and mitigate the risk.” Either way, you want the counsel. You want a flood of ideas and options on the whiteboard, and then you make the choices that are right for you.

John: Absolutely. That’s very well laid out, Gregory. Thank you.

About IBA

John: This has been great. You’ve shared such valuable information and insights. All of Gregory’s information will be below this video. Before we go, Gregory, remind people what you do and what profile of business is the right fit for you.

Greg: Certainly. IBA is a Pacific Northwest-based business brokerage firm with 10 offices throughout Oregon and Washington. We represent the seller side of transactions on a 100% performance-based compensation model, so you don’t pay us a penny unless we sell your business.

We represent technology, education, manufacturing, marine, service businesses, and more: about 20 different industries, with enterprise values from about $1 million up to $30 million. I believe people who have created an income stream of, say, a quarter million a year have succeeded in America, deserve representation, and have something of substance to sell. Some investment banking firms won’t go as low as we will, but I believe someone earning several hundred thousand a year has built something of worth and deserves professional representation.

John: Absolutely. That’s fantastic. And founded in 1975, you’ve got a few years of experience under your belt.

Greg: Exactly. I’ve been doing this for 32 years, and I’m delighted to be the successor to the founder, Bill Osavski. I bought the company from him in 2000 as one of his top-performing brokers, and this is my 26th year at IBA.

John: Fantastic. That’s an amazing achievement. Congratulations. Thank you again, Gregory, and thank you for watching and listening. We’ll see you all again very soon.