Today's Guest

Jeremy Harbour is the founder and CEO of Unity Group and a globally renowned expert in Mergers & Acquisitions. Unity Group has over two decades of experience and a remarkable track record completing over 150 successful transactions in 11 countries. Jeremy has honed a unique method called agglomeration. This approach involves skillfully pooling together well-managed small businesses, offering them the advantages of going public without sacrificing their distinct company brand and rich culture. Considering that small businesses individually are too volatile to be attractive to most outside investors, Jeremy focuses on crafting small to medium-sized business portfolios with a more manageable risk profile aimed at capturing the attention of wealthy investors. In today’s episode, Jeremy clears up some of the misconceptions about going public, what it takes to go public, and how you can get involved in buying and selling businesses through the Harbour Club. 

Resources Shared

• Jeremy Harbour
• Harbour Club USA 
• Unity Group | LinkedIn
• Thryv
  

Episode Transcript

(Please excuse grammatical errors due to transcription)

Gordon Henry:

Hey, hey. This is Gordon Henry at Winning on Main Street, and today we're lucky to have with us, Jeremy Harbour. Jeremy's a leader in the field of small business mergers and acquisitions. During his career spanning over 30 years, Jeremy has been involved in well over 300 transactions of all types, taking companies, public reverse mergers, hundreds more of transactions. He's now the CEO and founder of the Unity Group, private equity firm that specializes in attracting investments and creating opportunities for small to medium sized businesses, helping them scale. He's also the co-creator of what he calls the agglomeration model, a radical new approach to SME roll-ups, and the extra bonds and innovative way for small companies to finance acquisitions without bank or institutional debt. And he's also the Wall Street Journal bestselling author of Go Do Deals: The Entrepreneur's Guide of Buying and Selling Businesses. What should you, our listeners, get out of this episode? Whether you're contemplating a sale, purchase, merger now or in the future, Jeremy's expertise is something that will help you consider how best to navigate the future for your company. Excited to meet you, Jeremy. So let's dive in.

Jeremy Harbour:

Fantastic. It's a pleasure.

Gordon Henry:

So can you maybe just begin by walking us through your career journey and what led you to where you are today?

Jeremy Harbour:

Yeah, absolutely. So I don't come from that kind of M&A or investment banking kind of background. I grew up in a farm in a rural part of the world. And basically, I could either work on the farm and earn a dollar an hour or I could figure something better out. And so that was the driver initially to become an entrepreneur when I was a kid, was just how to out earn feeding animals for a pound an hour. So yeah, I basically took to selling everything. I saw school as a marketplace rather than an educational facility. It was a captive audience that couldn't run away from me, so I used to go to school and sell stuff every day. But I left school at a younger age to pursue a business that I'd already started, selling watches and jewelry, and other things. That wasn't terribly successful. And I had the kick in the teeth that comes with entrepreneurship from time to time, the hard life lessons that everything isn't as easy as you think it looks from the outside.

And I think that was useful. It taught me a good dose of humility, and it teaches a bit of stoicism, which is essential for the entrepreneurial journey. And I'm kind of glad I got that at a young age because much better to figure that stuff out while you are emotionally a bit more bouncy and able to come back from these things and maybe not so many responsibilities. And then I got into telecoms. And I was in telecoms in the 1990s. And in the 1990s, telecoms around the world was deregulating. Mobile phones were miniaturizing, and the whole marketplace was exploding. There was basically... If you think about it, nobody had a mobile phone. And in a very short space of time, everybody had a mobile phone. In fact, I think the saturation in Europe actually got to the point where it was something like 1.8 phones per head of population.

So it was kind of more than a phone for everybody. So it went really, really crazy. But then what happened is it reached saturation. There's hundreds of thousands of these companies selling phones, and suddenly there's no new customers. And so the only way to get customers was wait for contracts to expire and migrate them over, or basically go and buy a competitor. And so the mergers and acquisitions market started to really heat up as bigger companies started acquiring smaller companies, and the smaller companies started picking up the one man bands, and it was just like a feeding frenzy of mergers and acquisitions. Now, obviously as an entrepreneur, M&A was the furthest thing from my mind. I'd grown up believing there were kind of three things that you could control, and that was your marketing, your sales, and your team. And I figured that everything was around tweaking those three areas to maximize the business.

Now all of a sudden, there's a guy sitting opposite me, in fact, probably about one a week, sitting opposite me trying to buy my business. So I actually got quite a good education because I kept having these meetings with people that were trying to buy me. So this was my education process. And the thing I figured out really quickly was these guys didn't have any money. I didn't have any money either, so why am I on this side of the desk? I should be on that side of the desk. I should be the one out buying. And that's basically all I did. I went out and started pitching, and that's what it really is, it's pitching, other small mobile phone businesses to come and join me, to come and be acquired. And it took a while. It's kind of chatting up girls in a bar. I guess you get a lot of slaps around the face, and finally you figure out something that works, or it works one time.

And so I did my first deal. And funnily enough, two weeks later, I did my second deal. And within 18 months, I got a group of 12 companies together. We'd gone from a million and a half revenue to 13 and a half million revenue in that 18 months. There was an astonishing baptism of fire that goes on around finance. Because I remember when I did the first deal, I was scraping around to find two and a half thousand dollars, two and a half thousand pounds, it was. But yeah, two and a half grand, I was struggling to find. 18 months later, my payroll was 250 grand a month. So just your whole perception of what is a lot of money and how finance work gets really drastically challenged, and torn apart and rebuilt again. And so it was a fascinating learning process, but it looked very glamorous from the outside.

And people always said, "Wow, that's amazing." And I often used to joke that the only thing worse than having one crappy business is having 12 crappy businesses. So the next big life lesson was selling one. And when I sold one. I figured I was selling it for money. What I hadn't realized is you get all your time back as well. And so that exit is just insanely valuable in terms of the combination of capital and time because the two things entrepreneurs never have is any time and any money. And when you have both together, you can be enormously powerful or enormously dangerous. I'd seen so many people get divorced, become an alcoholic, buy a sports car kind of approach to wealth, but I'd also seen people go on and do things 10 times bigger than they'd ever done before. There's great examples, Elon Musk and many others that went on and did that. They doubled down and did something even bigger.

So yeah, so I kind of vowed to fall into that category. I was very precious about the capital that I created. So I wanted to stick to this idea of doing deals without risking too much capital upfront or being very cautious in capital allocation. Small businesses are very volatile assets. So initially, this was in 2006, so initially I started looking at distressed deals and completely unbeknown to me, the whole world was about to become distressed. We ran into the global financial crisis, and consequently it was a field day for distressed acquisitions. And I think whereas in a normal educational kind of period, you could probably have a meeting every couple of weeks with a distressed company, I was having multiple meetings a day. And so I was very lucky that in that three to four year period, I did dozens and dozens of deals, but also met with a thousand or so companies and learned so much, and learned so much about insolvency, about bankruptcy, about balance sheets, about business rescues, turnarounds, all of that sort of stuff.

So it was an incredibly invaluable education that came out of that period. And then obviously, everything got better, and so we had to move up the food chain and start doing solvent acquisitions and IPOs, and reverse mergers and all of those kind of things. And here I am today.

Gordon Henry:

Terrific. Well, that's a great walkthrough. Thank you for that. So tell us about who you're working with and what are you doing now, today?

Jeremy Harbour:

Today? Right. Well, we're just taking a company called the Final Fight Championship public in the US. This is like the UFC style of business, except they do boxing, kickboxing and mixed martial arts all in one event. It's been going since 2012. They've had some really famous fighters go through their ranks. They're based in Las Vegas. In fact, all the previous shows have been at Caesar's Palace, but they are moving for the new season to a new venue. And yeah, this is actually... Although it's got the Final Fight Championship as the flagship brand out front, it's really a sports media rollup. So we're buying TV production channels, TV channels, YouTubers, and other sports media assets, and a whole bunch of other stuff that's going-

Gordon Henry:

Sounds pretty exciting.

Jeremy Harbour:

So it's effectively like a rollup in the sports media space.

Gordon Henry:

Okay. So this is with the Unity Group. Tell us a little bit about the Unity Group and this philosophy that you have in running the Unity Group.

Jeremy Harbour:

Yeah. Unity Group, originally our tagline used to be really private equity, because it was me. It was really private. And it was more or less like a kind of, I guess a family office for the stuff, the investments that I made, and the things that I did. And the brand came into existence in 1997. We registered it in Singapore in about 2010, something like that. And basically, it was just very, very private. In about 2015, we started to expand into capital markets related stuff. And so what we found is the biggest barrier to entry to taking companies public is advisory fees and professional fees. And so we basically built out a boutique investment bank in terms of our staffing, so legal and finance and investor relations functions, really to mitigate a lot of the cost, and also to control the timeline on these things because a lot of the investment banks charge you a retainer and then take as long as possible to get stuff done.

Whereas if it's your team, you can always prioritize your own work. So you can always decide what needs to be pushed to the front of the queue and what needs to be done urgently. So instead of six months to produce a prospectus, you might be able to do it in five days if everybody really gets down to it. So yeah, we built out that function. And since then, we've probably taken about 150 or so companies public, multiple routes from buying existing public companies and reversing assets into them doing reverse takeovers of vehicles we don't have any involvement or control over, to IPOs, to direct listing. So we've even listed a SPAC, but we listed a European SPAC way before they became really trendy in the news.

So really, it's about attracting institutional capital into the arena of small business. So small businesses kind of get the raw end of the stick in so many areas. They're taxed the most, they get the least help from banks, they get the least help from investors, and yet they are the backbone, the absolute fabric of our society. You are over there in the US. 50% of your GDP comes from companies with less than 50 employees, and it's over 90% of the private sector workforce. So everybody talks about the Walmart and the Amazon type places, but they're a pee in the ocean when it comes to the employment figures.

And the high quality jobs are in SMEs, and so we really do need to look after them. And what's fascinating is when you look at where money is... And by the way, everybody points at rich people and says billionaires are a problem. Billionaires aren't the problem. It's actually institutions. You look at things like the Harvard Alumni Fund, or some of the churches or religious institutions, the top 500 have a trillion dollars under, sorry, yeah, have a trillion dollars under a hundred trillion dollars, sorry, under management. And that $100 trillion with the top 500 asset managers, if you break it down into a pie chart of where they're invested, they have a bigger allocation to Bitcoin than they do to small business. They are in commodities, they're in real estate, they're in stocks, they're in bonds, they're in every asset class known to man, huge amount in derivatives. The derivatives market is insanely big.

And then small business, which is all the people and half the economy, and they have no allocation to it, or such a small allocation that it barely makes any sense. And that allocation mainly comes in the form of VC. And VC mainly comes in the form of a handful of funds that they put money into in Silicon Valley, which again, don't really help people in Missouri or some other suburb or town or city, somewhere else in the country or in the world. And so we basically wanted to fix that. We wanted to figure out, how do we get this a hundred trillion dollars to trickle down into the real economy? Because we've got one economy over here with all the money in, and another economy over here with all the people in it, and it doesn't make a lot of sense. And basically, they should be exposed to small business as an asset class, but small business as an asset class is uninvestible. They're too risky. They're too small. They're too illiquid.

So if you can tackle that problem, if you can control the risk, if you can control the scale, and you can control the liquidity, then they should allocate to it just naturally. The reason they allocate to Bitcoin is because it has the liquidity, it has the scale. They can deploy $100 million dollars into it without batting an eyelid, and they can assess the risk. There's a mathematical algorithm behind it that an analyst can sit down and get his head around and decide on. Whereas a small business where the owner could die or leave, or two customers leave and the business changes dramatically, it's very hard for them to figure out. So basically, we create portfolios of small businesses. So a portfolio of small business now has a more manageable risk profile because some of them could go bust and it doesn't affect the rest of the business. We have scale. Because we're now bigger, we can attract more capital. And we have liquidity listed on capital markets, on public markets, so people can buy and sell the shares.

So the idea is we're not quite there yet, but the goal is to create these large, highly liquid vehicles, basically mini Berkshire Hathaways, if you like, of small businesses, that we can then get institutions to allocate capital to.

Gordon Henry:

Yeah, makes a lot of sense. Fascinating. So are you doing that by vertical? I could invest in the HVAC vertical, or is it by geography? Like you said, Missouri, I could invest in small businesses in Missouri. How is it packaged?

Jeremy Harbour:

Yeah, so we've done some vertical specific deals and we've done a bit of a Berkshire Hathaway type approach as well. So the Berkshire Hathaway type approach has companies in many different sectors. The vertical ones tend to focus in one area. So we have the sports media vertical, we have a franchising vertical, which is all franchisors, we have a few others that focus in that kind of direct sort of vertical approach. But it can be done in so many different ways. I mean, we've specifically focused on English-speaking, English law countries. So we do Australia, New Zealand, the UK, the US Canada as the main jurisdictions. But it works pretty well in any country that has a mature economy, has the demographics that we all share, which is this baby boomer generation that own most of the businesses but need to do something. So yeah, it would translate into some of the non-English speaking places, but we're just lazy. We like speaking English.

Gordon Henry:

Easier. So how does it actually happen where a small business becomes part of your portfolio? Are you out looking for small businesses? Do they come to your website and register, and then you connect with them? How does the rollup occur?

Jeremy Harbour:

Yeah. So look, I've been buying and selling companies for 20 odd years now, and like I say, done hundreds of transactions. And when I first started, I was doing no money down small businesses, then I did distress deals, then I moved into more solvent deals, and then I started doing stuff in the capital markets space. But I learned so many lessons and so many techniques along the way. It's a shame to let it all kind of rot. And I used to have a lot of people asking me to come and do consulting work for them or come and be a non-exec. And I couldn't think of anything worse, couldn't figure out why on earth I would want to do that. And then I ended up buying a training company that sold these kind of business seminar type things. And I actually disagreed fundamentally with the business model. It's this kind of teach them a little bit, and then constantly upsell. But I liked the idea for solving this problem of, what do I do with this old information, which is still very useful, but not what I'm doing today.

And also, how do I create a community that then could potentially drive deals to me? And so back in 2008, 9, I created a group called the Harbor Club, which is a global network of small to medium business owners and entrepreneurs, generally, who go through a three day program and live events and a few other things to learn how to do what it is that I've done over my career, all of the tactics and the strategies and the deal structures, and all of that stuff, how to source deals, all of that kind of stuff. And then obviously, we get together, we network, we have our own app where we chat, we have events fairly regularly where we get together. But of course, people come across deals that fit our sort of profile. And typically, they can't do stuff in the capital markets because they don't have the 17 people sitting in an office, the lawyers and finance people that we have. So it's easier for them to join venture with us and do the deal together.

So right now, I literally had a pipeline call today, which is our weekly call with my team where we go through all the deals and where they are, the different bits of progress, we have 105 companies in our pipeline right now, small to medium sized businesses across those jurisdictions that I mentioned. And we close, on average, about one a month, although we've actually closed three in the last four weeks. But typically, it's about one a month. And yeah, most of those are joint ventures with people in the Harbour Club community.

Gordon Henry:

Okay. Now, I know you've got this background in sort of no money down deals. And I was looking at your website and it talks about that if you're looking to exit your business or raise funds for your startup idea, this page isn't for you. But if you have goodwill run, profitable small business, and would like to understand how you can keep control over it, yet have the scale and liquidity of a big publicly listed company, then please watch our video. And it sounds like you're not offering an immediate exit. It sounds like you're offering a way to become part of this portfolio that's sort of securitized where maybe there's an eventual exit. How does it work if I'm the guy selling to you?

Jeremy Harbour:

Yeah. So the one thing is you're not selling to us. You're going public. So for a small business to go public is very difficult because there's a lot of costs and a lot of compliance, and a lot of headaches. But when you go public, there's something called materiality. And so the full burden of compliance only falls upon a company that is material to the group. And so materiality is typically set at 20%, so 20% of the revenue or 20% of the profit, or 20% of the staff. But if we have a group of 30, 40 companies, no one in there is material, and so the burden of compliance is a little bit lower. Of course, it's still a big shift from being a private company. There's strict reporting, there's auditing regimes and stuff that you have to go through, but it's a fraction of the cost of going public on your own, and therefore it's possible.

So we provide a mechanism that allows a small business to go public. Now, most people, for some reason, I think it's in our collective consciousness that you go public to raise money or to exit. And actually they're both really bad uses for going public. So I think the whole exit thing comes from 30 years ago. Private equity used to invest in private companies and then take them public, and they would exit at the point that the company went public. And so I think that's why people associate it with an exit. But that was always the PE firm that invested. That was never the owners or the founders because the owners and founders are pretty much tied up in an IPO and can't sell their stock for a period of time. And when they do sell their stock, it's very much frowned upon by investors, like, "Well, why should I invest if the guys that are running it don't believe in it as much as I do?"

So you kind of have to get it out your head that it's a good idea for an exit. It is a great way to create wealth, but we can come onto that separately. And then the other one is raising money. It's a very complex way to raise money. And of course, if you do it in a group structure like I'm talking about, it's very hard to decide who gets diluted and who gets the money. So it's about... With our model, it's quite a bad way to do it. And again, I think it's in the collective consciousness that you raise money because investment banks make their money from raising money. So whenever they would do an IPO, they would always raise money because it's a fee generator for them. Plus, they could get all their mates in below market value and get them all out again with a tiny profit.

So it was a great way of keeping all the star clients happy with you as an investment banker, but it's not really a good way to raise money. But what it is really good for, it's fantastic for credibility with staff, with clients, with potential acquisition targets. It's great because you can create your own currency. You can issue stock, you can issue options, you can issue warrants, you can issue bonds. And you use those as consideration for an acquisition, and they're kind of meaningful. Anyone can give stock in a company, but stock in a public company, it's priced on Bloomberg, it appears in your bank account, it has this aura of liquidity, even if it's perhaps not you're not able to sell it yet. So I think if people are taking a longer view with their business than it's worth doing. And most of the companies that we come across have turned down private equity several times and don't know what to do with the business. They feel like they could punch above their weight, but they're not quite there yet.

And by joining a public company, they can punch above their weight, they can win bigger contracts. They're still in control, they're still running it, but they've got the potential for this future liquidity. They can see where their value is, and they can see that if they grind this out for another five, six years, they can really maximize that exit value.

Gordon Henry:

So what's in it for you and the Unity Group? So if you do this agglomeration or rollup and you take five, 10, 15 companies public in a vehicle, let's say for example, I think you mentioned sports gaming or something like that, so this thing goes public, where do you make your money?

Jeremy Harbour:

Yeah, I'd love to say I'm a registered charity and I do all this for love and it's God's work, but no, I'm a mercenary. So unfortunately, no, unfortunately we do charge for it, but we never charge fees. We always take public equity. So we sit alongside the business owner in every transaction that we do.

Gordon Henry:

Okay.

Jeremy Harbour:

Typically, we are a shareholder in the vehicle already that these companies are going into, and we'll typically take shares in the company that we're bringing in as well, typically because they do need some work to get them ready to be a public company, so they need to be brought up to code, if you like, in terms of their reporting standards and all the rest of it. So we capitalize that and take an equity stake on the way through. And typically, that doesn't diminish the amount that the business owner is going to receive in stock for their company. It's kind of added on top for the value that we've created.

Gordon Henry:

Okay.

Jeremy Harbour:

So yeah, so we end up being a major shareholder in all of these public companies.

Gordon Henry:

Okay. Now, I mentioned earlier in your book Go Do Deals, you talk about providing entrepreneurs with a method to buy companies without having capital and without borrowing lots of money. So tell us about that. So what's this philosophy of buying companies no money down?

Jeremy Harbour:

Well, it's really funny. I see all the time, lots of people on the internet going, "No, it's not possible. It's impossible. It's all a scam. They're talking crap and everything else," and then another group of people that just go, "Oh, it's LBOs. It's leveraged buyouts." And we don't do leveraged buyouts. I have quite a few people in the Harbour Club community who do. It's a very well trodden path. I think a lot of people just look at the similarities with real estate. And real estate is you stick some money down, you borrow the rest, and you own a company. For me, I don't like doing that with small businesses because small businesses are very volatile asset, and you shouldn't really borrow money to buy a volatile asset. And if you think about it, would you mortgage your house and buy Bitcoin?

Now, there's a segment of your audience that would, but put them aside. You shouldn't. It's not prudent to borrow money and buy volatile asset, and yet people do it all the time with small businesses without really thinking through the fact that if two key staff members leave or two key customers leave, the dynamics of this thing changes enormously. What they tend to look at is if we just sold one more sofa a week, this thing's going to be worth a gazillion dollars. They always look on the upside, but never on the downside. And I guess one of the big lessons I learned in my business career is don't worry about the upside. The upside's the icing on the cake. It's the bonus. If it comes, it's great. Worry about the downside. If you can take an asymmetric bet where you can't lose, then you only leave the opportunity to win, or worst case scenario, waste a bit of time. So yeah, cover that downside on the way in. And so when we look at deal structures with small businesses, we have to factor in on that basis.

Now, small business owners often live in a complete fantasy world. If you look at businesses that are for sale by brokers... And this is one of the reasons why we tell everybody, "Don't buy from brokers. Don't buy businesses that are for sale." If you look at a business being advertised by a broker, it'll be doing a hundred grand of EBIT or EBITDA, and they want 500 grand for it. Now on the face of it, you go, "Okay, well that's a 20% return on capital," but it's a 20% return on capital, on an incredibly volatile asset that might not be there. Now, drill down into that business, and you'll find that that EBITDA is assuming you take away the manager that was running it before, assuming you didn't buy all the... They actually did buy last year. So the first question is ask them for their tax return. How much tax did you pay last year? And I bet you it's not 100 grand. I bet you it's like 15 or 20, the actual cash that business generated, the actual money that it generated. So if it's making...

Let's be generous and say it's making 50 grand. Well, now you're looking at 10 years payback or 10% return on capital for a volatile asset. Well, thanks to the Federal Reserve, you can now get 5% on a US treasury. So your risk-free rate of return is 5%. Why the would you buy a small business for 10%? You'd be better sticking a gun in your mouth and claiming your own life insurance. It's a smarter thing to do. So it just astonishes me that people haven't just walked backwards and said, "Why would this person give me half a million for this business?"

So how do you approach this? Well, the vendor has to share some of the risk with you. They have to accept some level of vendor finance, some level of earnout, or provide some assets that you can leverage, or something in the transaction that enables you to de-risk. And a great example... I'll give you an example. We have 15 deal structures in the Harbour Club, and they're all different and they all use different ways of approaching things, but one that's really popular in the community is called WIBO, work in buy out. And the concept is you've run a business for 20 years, you're thinking about selling it, you want a million dollars for it. Everybody wants a million dollars, it's the magic number, but nobody's buying it. You can't quite figure out how to get there. What you'll probably find is that that business is unsellable because the accounts aren't set up right, the systems aren't set up right, the nanny and the driver are being paid for, and the school fees are being paid for out of the company.

There's a whole bunch of other mess going on in there. So basically with the WIBO, what we do is we offer to fix the business up to get it into a sellable state in exchange for an equity stake in the business. So you take a 20% stake, plus a retainer every month while you're working in the business, to fix it up and get it looking right, give it a data room, get the accounts in shape, get all the accounting treatment set up correctly, get the information memorandum drawn up so that it actually becomes sellable. And then at the end of that process, you help put the business up for sale. Now, when they put it up for sale, what you'll find is that a whole bunch of people will offer to buy the business on a deferred basis. And the business owner will be faced with a guy in off the street paying you over five years or you offering to match that deal, and also buy the balance of him.

But paying over five years and because you've just done something you said you were going to do, you've just fixed a load of problems, made the business look great, and you're already a 20% shareholder, you are in poll position. You're the trusted person to sell the balance of the 80% of the company to. Or alternatively, if you wanted to get an SBA loan, I don't advocate this, I always say don't do the leverage, do the vendor finance, but if you wanted to get an SBA loan, typically to do an SBA loan for a million, you'd need to stick 200 grand in yourself. But if you're a 20% shareholder of the business, it now becomes a management buyout instead of a leverage buyout. And as a management buyout, you don't need to invest the 20%. You already own it. So they will lend you a hundred percent of the balance of the business.

So you get a no money down acquisition on the balance. So it's this idea of doing a two stage acquisition where you solve a problem and take a stake, and then you go back and buy the rest of it later. And it's a really simple model. We have one guy that did 27 of these deals in about nine months with different businesses. So if you really go for, it's actually... There are so many people that need this. There are so many businesses that are run by 70 plus year olds that can't be running them in five years time that don't particularly want to sell on a vendor finance to somebody they don't know, like, and trust. So you can create that knowledge and likability and trust by working with them, and adding genuine value for them in exchange for equity. And then you either sell it together, in which case you get paid out field 20% or you buy the rest of them.

Gordon Henry:

Yeah, fantastic. I want to push down on one of the things you said because I think it's such an important point, that business owners usually have this idea, "I want to sell, I want to get out, I want to monetize at some point," but they haven't taken the steps necessary to make the business saleable. And you went through that list very quickly, and I was wondering, what do you think are the key three, four things that business owners need to be thinking about if they want to eventually sell in terms of getting their business in shape, just like you would stage a house for a house sale?

Jeremy Harbour:

Yeah. So look, the first thing is big, big is beautiful. The larger the business, the wider the audience to purchase. So if you imagine all of the businesses in the world, or all the businesses in the US, let's say, it's like a pyramid. You've got the big ones at the top. There's very few of them. And you've got the small ones at the bottom. There's loads of them. And then if you look at the universe of buyers, it's an upside down pyramid. The buyers at the bottom, there's hardly any. And the buyers at the top, there's loads. So the further up that pyramid you can go, the bigger you can get. So bizarrely, a very easy way to accelerate a sale is by merging with somebody, even if it's a virtual merger. So you create a holding company that you both sit under and you sell together, because selling a $3 million business is hard. Selling a $6 million business is a little less hard, selling a $10 million business is starting to get easier, and 20 million plus, and it's bordering on easy.

So scale is a really big driver for interest in your business. So that's one thing to consider. The second one is your redundancy. You need to make sure that you are not key to the business, or else you're going to be stuck in the business for a period of time or have a high degree of the consideration linked to you, which means you have to demonstrate there are systems and processes other people can follow if they're taking over the business. And you need the second in commands in the business to be able to confidently tell the buyer that you're not involved and that they hardly ever see you because that really helps with the transaction.

Then there's the accounting treatment stuff. Most businesses present their accounts in the most tax efficient manner. The most tax efficient manner is often showing the least profit. So look at your recognition of revenue, your recognition of costs, and do it and optimize it to generate the most profit, and clean up any that you've got sitting in there that shouldn't be there, so personal expenses and other things that have been run through the company. Get an audit, even if you don't need an audit, an order to sign off on your accounts gives a high degree of comfort to a potential buyer. Go online and Google due diligence questionnaire, get a due diligence questionnaire, and just create a Dropbox or a Google Docs that contains all of that information. So each question is a folder. Each folder has that stuff and all your insurance certificates, certificates of incorporation, memorandum and articles of association, all of that stuff.

 Contracts with customers, contracts with suppliers, contracts with employees, make sure you've got them for a start because lots of people have half the staff they've got contracts with and half of them they didn't bother or whatever. Make sure all of that stuff is up together and all in one place so that when somebody is interested, they can sign an NDA and get access to that straight away. Invest a little bit of money in an information memorandum. An information memorandum is you have an executive summary, which is a one page summary of it, but then the information memorandum is a bit like a school project, so it should have the competitor analysis, the regional kind of total addressable market and all of that kind of MBA type student. In fact, an MBA student's, probably the perfect person to write it, although I guess nowadays, probably an AI could do it.

And obviously, then the stuff that's very specific to your business, like the breakdown of your customers by whatever sector, by size, by how long they've been with you, all of these kind of details, if you have all of that stuff together, the data room, the information memorandum, the accounts in a good form, immediately you're in the top 1% of any transaction anybody will look at, immediately. And then the other thing is to consider the deal structure. Everybody's got this idea, "It's got to be $3 million, it's got to be a check or cash. I'm not going to take any kind of structure." You have to be ready to engage with some sort of deal structure. Particularly if you can get a competitor to buy you, why not give them some deferred payment options with a lien over their business if they don't pay you? Why wouldn't you have a popup buying a much bigger company if they failed to pay you?

And yeah, bear in mind, you're going to have to do that to get the business sold there. I know there's one born every day, but you're very lucky if you can find them.

Gordon Henry:

Terrific. Very helpful list. You once said you don't make money running a business, you make money selling a business, so you obviously have made the decision to be in the M&A field. If it's somebody who's enjoys running the business, should they stay running the business or should they be focused on selling the business?

Jeremy Harbour:

Yeah, no, I think it depends what their goals are. Look, ultimately, I think most people, when they get into, I would say broadly entrepreneurship, whatever form that takes, I think we do it because we want some degree of freedom. We want either time freedom or financial freedom, or both. The problem is a startup takes away all of your money and all of your time. And when the business gets bigger, it doesn't necessarily get an awful lot better in that department. So you can really work your nuts off. And while a business is growing, you actually can't take a lot of cash out. So you might, you can take 30 grand a year out of your business, or 50 grand a year out of your business. But if you sold it, you could get like a million bucks. Well, if you've got a million bucks, you might be able to get to get 100 grand or 200 grand from investing that million bucks, which means you're already six times better off than you were and you have all your time.

And with all your time, you can go into another one, or buy a company, or do something else. And so creating the financial freedom and time freedom through creating capital events, I think is a really key stepping stone as an entrepreneur.

Now, of course, if you absolutely love it, if this is the thing that makes you want to get up every morning, of course don't kill the goose and get rid of it, but show me an entrepreneur 10 years in that still loves that thing like they're first born, and I'll show you a maniac.

Gordon Henry:

Very funny. We're going to take a quick break, be back in 30 seconds with more from Jeremy Harbor. Don't go anywhere.

Speaker 2:

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Gordon Henry:

And we're back with Jeremy Harbour. Fascinating conversation about buying and selling businesses, and what are the best ways to do it from a structural perspective. Really interesting. Obviously, fascinating career you've had, Jeremy, what is next for Jeremy Harbor and the Unity Group? Where do you see this going in over the next few years?

Jeremy Harbour:

Yeah, so our primary kind of goal at the moment is this idea of democratizing wealth. So we want to create small business as an asset class so that we attract institutional capital into small business. And that effectively creates trickle down. It pushes capital down into every town, city, village in the world where small businesses operate. We genuinely believe that the change agents in society are small business owners. When they make money, they solve problems. If their local community has a problem with drugs or homelessness, or cancer or whatever it is, they tend to go and solve some of those problems. And even if they don't solve some of those problems, they create an economic wake that you just don't get with second and third generation wealth. So the first generation, they build a big house, they buy nice cars, they fly around in helicopters, they buy nice jewelry. It creates artisanal jobs, it creates lots of employment and lots of trickle down.

As soon as it starts getting inherited, everyone's scared of losing it. And so consequently, the capital gets locked away in these hot sandy places and never finds its way back into the general economy. And so this is our real goal, is to liberate capital, get it into the real economy where everybody lives and democratize wealth.

Gordon Henry:

Yeah. Well, that's a great mission. I'm glad to hear that. And as you say, badly needed I know here in the US. And sounds like you're in Britain. Where are you based out of?

Jeremy Harbour:

I'm British. I spent 12 years living in Singapore, in Southeast Asia. Now for most Americans, they always ask me what part of China Singapore is in, but it's a separate country. And I now live in Dubai,-

Gordon Henry:

Okay. Yeah.

Jeremy Harbour:

... in the UAE. Obviously, I'm European, so we spend the summers in Europe, but the rest of the year, but here in Dubai.

Gordon Henry:

Okay, interesting. Was that for business reasons you were in Dubai or-

Jeremy Harbour:

So basically, I always say that as an adult, the one decision we can make is where we live, and it really does come down to the old Benjamin Franklin balance sheet, advantages and disadvantages. And when you are picking somewhere to live... I have a young family. I have an 8-year-old and a 6-year-old, so things that are important for me are safety, crime, schools, tax obviously appears on there, weather, facilities, restaurants, places to take the kids to go and play, all of those kind of things. And so actually, it comes down to quite a small number of countries now. And Dubai has one of the lowest crime rates in the world, one of the lowest murder rates in the world, incredibly modern, beautiful schools and facilities, beautiful Marina right next to us here, some of the best restaurants in the world, incredible airlines that can fly you everywhere. Emirates Airline is here. Etihad Airlines is an hour away. We're about 10 minutes from a private jet airport.

It's a really well connected little hub here. And tomorrow, I have a meeting in Milan, in Italy, so I will do a bunch of meetings here in the morning, and then I'm on a plane in the afternoon. I have dinner in Milan, I have three meetings the next day, and then I'm back here for a lunchtime meeting on Friday. So the connectivity here is just fantastic. And yeah, it works really well.

Gordon Henry:

Very interesting. Glad I asked you about that because I had no idea. Well, I want to thank you for-

Jeremy Harbour:

By the way, you know how much time your American spend doing taxes? All of my American friends, when I talk to them, 50% of the conversation is about business and 50% is about tax. And you speak in this kind of code, like, "Oh, I did a 413 and then I got a 216. And then I was able to offset my whatever." We don't have any capital gains tax. We don't have any income tax. We don't have to do a tax return. Yeah. For us, it's zero part of our conversation, and yet we have amazing healthcare, amazing roads, amazing facilities. There's taxes, but they're taxes you kind of... You don't have to fill out a form to pay them. It's a tax on your property. It's a tax on the food and the drinks that you buy. It's a tax on consumption, predominantly.

Gordon Henry:

Fascinating.

Jeremy Harbour:

When you drive too fast here, it just bills you to your credit card. So every time you go through a camera, it's $150. So if you go to the airport in a Lamborghini at 160 miles an hour, you just pay like $1,000 dollars in fines, and then you get on your plane, but there's no other recourse.

Gordon Henry:

Crazy. Well, Jeremy, I want to thank you for coming on the show. This has been a fascinating conversation, and I'm sure our listeners will get a lot out of it. By the way, if somebody wants to get in touch with you, maybe be considered for your program, where should they go?

Jeremy Harbour:

Yeah, just hit me up on social media. So I'm Jeremy Harbour. It's spelled the British Way. So we stick a U in Harbour just to confuse people. It's H-A-R-B-O-U-R.

Gordon Henry:

Okay.

Jeremy Harbour:

But Jeremy Harbour on Instagram. It's the blue tick. So it's the only one. If it hasn't got a blue tick, they'll just try and sell you crypto or something. So go for the one with the blue tick. Then, yeah, Twitter or LinkedIn, and just hit me up there. We're always publishing loads of free content and stuff as well, so... Oh, YouTube, the Harbour Club on YouTube, you can watch load, you can go down a rabbit hole of content there as well.

Gordon Henry:

Fascinating. Okay, well hopefully people get in touch with you. And again, thanks for coming on the show. I want to thank our producer, Tim Alleman and coordinators Diette Barnett and Daniel Huddleston. And if you enjoyed this podcast, please tell your colleagues, friends, and family to subscribe, and please leave us five star review. Really appreciate it. It helps us on the ranking. Small Business runs better on Thryv. Get a free demo at thryv.com/pod and check out our new free product command center at thryv.com. Until next time, make it a great week.

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