15. Why Profitable Contractor Businesses Still Struggle to Sell and What Buyers Actually Want

A lot of contractors believe if their business is making money, their business is doing

great.

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But what happens when your business relies on you as the owner?

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Today I am speaking with Mariel from Exit3D Studio.

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We speak about how profitable businesses can still struggle to sell and what are buyers

actually looking for.

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Hey, I'm Shay Toya.

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I've spent more than 10 years in construction.

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working behind the scenes in marketing, hiring, and I've seen how overwhelming it can be

to grow a business.

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That's how we've learned to build a sustainable business using clear systems, strong

communication, and intentional recruiting.

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If you're ready for better hiring, smarter remarketing, and a business that doesn't fall

apart when you step away, welcome to building better contractor businesses.

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Before we jump into this, I want to personally invite you.

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to join our Facebook group where you can ask questions, connect with other contractors.

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Our Facebook group is called Building Better Contractor Businesses.

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You can find that by searching that in Facebook.

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And let's get into this episode.

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So I'm super, super excited to have Mariel Tuttiti, Exit Studio, who is a founder who

actually helps companies exit out to sell.

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I'm very excited to learn more from Mariel.

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How are you doing today, Marielle?

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I'm doing great.

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I'm very glad to be on your show today, Chetoya.

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Yeah, I can tell you a little bit more about what I do, if you want.

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I would love that.

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So I founded Exit3D Studio, which is a growth and exit strategy firm based in New York to

help service-based businesses.

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Especially those who are founder led, prepare for future exit, usually one to five years

before.

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The reason why I'm doing that, it's because I have been on the buyer side all of last

year.

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I was trying to acquire a business.

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I'm part of a buying community and I can bump into the same issues that we're going to

talk about today.

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I'm pretty sure.

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Yes, I am pretty sure we will talk about that today.

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So thank you so much.

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And then could you just tell us a little bit about, you kind of did, but just a little bit

more of how you got into helping businesses prepare for growth and exit.

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Sure.

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still have my French business, but I was only working with, you know, through Zoom with my

client in France.

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It was a program to leverage LinkedIn to get more opportunity.

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opportunities here.

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I am in New York City.

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Why am I still just working with friends?

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So I first thought, okay, maybe it would be easier to buy a business.

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heard about it.

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Let's see.

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So I joined the program with a community I learned all about EBITDA, cashflow, DSCR, like

all those terms.

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P &L, I have been signing more than 100 NDA, I'm pretty sure, to access financials and see

if a deal was the right.

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one for me and I kept bumping into the same issues, especially the last one where I made

an offer.

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I the last one, there's constantly new NDA to sign.

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Like end of last year, I finally got an offer accepted.

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That was so exciting.

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And I got to do the all full due diligence, the financial, operational, digital.

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All those three, I was doing them myself.

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The legal one, I was going to leave it for my lawyer.

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And I realized, I mean, after doing all this analysis, I found out that what was sold to

me and marketed online was not what was going to transfer to me.

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And this was due a lot with the founder dependency and the recurring revenue.

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that they were selling the recurring revenue, it was not recurring revenue, for example.

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And those were too big of a red flag, so I stepped back and created this agency, Exit3D

Studio, to help businesses solve those structural issues like customer and revenue

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concentration, funder dependency, even being prepared for the digital due diligence.

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So when they sell.

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they can really sell and on their, when they go to market, they can really sell and on

their terms, not at a discount or not at all.

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it.

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And so congrats on doing this.

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That's a huge move.

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Congrats on your first, you know, your real first, that first deal that started this, this

journey.

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What are some of the things that you found, especially this, this podcast is towards

contractors.

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So what are some of the things that contractors who are possibly

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thinking about the start to sell their business, what are some of the things that they

should do first before they even, you know, possibly even speak to a company like yours?

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No, they can speak to me like at the very beginning, just they have the idea or they want

to prepare to an eventuality because there is a lot of buyers out there.

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Like in the community, for example, there are thousands.

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Plus just very recently, I mean, as we record, I've just learned that today and I don't

know when this will be published, but the news came like on May 18, 19, that the SBA is

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now going to finance deals up to $10 million.

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So far it was up to five million.

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So they are really opening business buying to even more buyers.

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that way and more businesses that could only be acquired by private equity firms, for

example.

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Now they can also get bought by, um you know, by your operator, I would say.

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Someone ready to step in and take the role of the.

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Got it.

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And so someone who's looking to take that role of the founder.

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And it's great to hear that there's so much possibility.

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for from the SBA loans.

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So I guess what is it that, how is it that you can help them do that?

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Yeah, so I help them prepare.

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For example, we're going to look at how their revenue, like the quality of the revenue, is

it like project based?

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I think for contractors, most of the time we work project by project.

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That means there is not much recurring revenue.

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So we're working on that, like how can we introduce some recurring revenue?

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So when a new buyer step in, they know at least the baseline, what is going to remain with

them.

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Because the project is, I want to give an example here.

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We can say like, does a photograph could be considered a contractor?

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Could we?

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It was really like a photo.

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It was really project-based.

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He had great reference.

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Amazing.

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Like he worked with the biggest brand and he was putting his business for sale for $1

million.

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And when he was generating revenue, it was maybe $800,000 a year or something, $200,000,

$300,000 in EBITDA.

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That was pretty good.

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But the issue.

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And then the broker come like, we can set up a call and explain.

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Basically, the business has been slowing down, no project then.

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This was catastrophic.

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I don't think it's going to sell for one year, no revenue.

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So this is something usually we like to correct first.

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On the other end, if there is a lot of customer concentration, for example, the business

generates $1 million in annual revenue.

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have the annual revenue is made with just three clients or even 20 clients, but three is

like 60 % of the revenue, let's say.

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This is also such a big red flag for a buyer because the client most likely have a strong

relationship with the founder.

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The day the walk out the door, those relationships, are they going to stay or not?

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Probably not.

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So this is also something we're working on at Exit3D Studio to help.

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reduce that dependent on a few clients or even few referral channels.

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If it's only, let's say, another contractor who has a lot of business, they have a super

good lead generation machine, like so much business and they send it to you.

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Same thing.

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You might have 10, 20 projects a year thanks to that person, but that person is your

client.

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So it's just like depending on one referral channel.

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And yeah, all of this needs to be, we work on it as well as everything like the digital

asset of the business.

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So you get the upside, not the buyer who will be most likely redoing the website and all

of this.

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If you prepared this before, you get a better return on your investment instead of a

discount.

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Got it.

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No discount.

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Because they will get a discount.

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Yeah, we want to avoid the discount.

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You know, you did talk about project-based projects and I know a lot of contractors are

project-based.

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So what are some different ways that contractors can move their business so it's not so

much just project-based?

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Like what are some examples like you've seen in the past that has helped them change that

direction?

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Usually it's having some sort of membership or maintenance.

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something that will go year after year.

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Or I could think, let's say, can you give me an example of a typical contractor business?

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Well, let's go ahead and let's use an example of our company.

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We're a low voltage contractor.

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So, you know, we just install a lot of like security cameras, door access controls, stuff

like that.

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So this is what you're doing.

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You do security camera and okay.

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So a way to have more.

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recurring revenue could be.

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For example, enrolling your client in like a yearly contract saying that not only you take

care of the maintenance, but you replace when there's a new technology, a new security

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camera, something new, they just have a free replacement just to be up to date.

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Is that relevant for the security camera?

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I assume yes.

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Or if they, the new law.

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I was speaking to a contractor this morning.

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He was doing a bunch of things, including he was explaining me that the state, you know,

like is going to remove the copper inside the elevator.

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uh

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wire inside the intercom, inside everything, and he has that replacement that is eligible.

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So in case of something like this happen, you also come and replace, you know, all part of

the yearly membership.

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I don't have the exact pricing.

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Can you tell me how much is like a regular installation of a security camera?

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Well, it depends.

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Yeah, like a wrench, some ID.

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And I'm not, no estimator.

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I'll just put a number out there.

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Let's just say a security camera job.

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just say, I'll put, I'll just say a thousand dollars.

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I mean, of course it's like depending on the project, but I'll just, let's just say it's a

thousand dollars.

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And we can just, you can kind of just go from there.

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Okay.

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So like a thousand dollars.

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So it will be one project.

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And so you make $1,000 and then the client is gone.

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You know, instead of that, you say, okay, I'm going to give it to you.

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So the pricing strategy has to be, you know, a fine.

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It could be a bit lower or a bit higher, depending how much more service you want to add

and the length of the contract.

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to stay engaged with you with three years.

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and you do the maintenance, you can do a free replacement.

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Some sort of insurance for them to be, I would say, discussed also with regular clients to

see how they welcome this idea and if they think it's good value for them, if they are all

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in or if that could be a problem.

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Or at least it could be offered as an option.

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the three years.

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Money that you would not get with a one-time job.

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it.

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No, that totally really, that makes sense.

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Yeah.

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That's an example.

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can be super creative with that.

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Yes.

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I'm sure you could get very creative with that.

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And then, so one of the things that, know, kind of looking at kind of the background of

what you.

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kind of do and then, know, of course, factors, you know, many contractors think my

business is making money, so I'm doing okay.

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Why do some profitable businesses still have low value?

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so we talked about the customer concentration or coming from just one channel.

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So this is one example.

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Another one is if the founder is absolutely the person that do everything that do the

project.

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that is the salesperson, every decision in the business has to go through the founder.

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All of this tend to lower the value.

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I would say like an easy way to also correct that could be to document everything.

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So someone else will be able to just get the SOP for example, and just know how we do as

good.

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as the founder, know, like the way, like the exact way the founder wants this to be done.

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I can do it the same way because I have that documentation.

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That's SOP.

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So these are a few examples of what actually cause lower valuation or sometimes it's just

a business impossible to sell and few of the solution to that.

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Got it.

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All right.

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Totally agree with that.

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And so possibly to that contractor who is still in the data days, what do you personally

believe is the first step to start delegating?

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And I know you did mention SOPs, but what is the first step of them delegating so they're

not into the business as much?

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Yeah.

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So first doing a bit of documentation and finding someone to do the job instead of them,

basically, depending what it is.

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If the founder is doing all the, I don't know, the bookkeeping, let's say.

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Okay, let's start there.

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A bookkeeper to take care of that.

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Then it could be answering the phone all day long.

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Okay, maybe we can have an assistant or nowadays some AI voice agent that pick up the call

and have the conversation with the potential client to make the booking, for example.

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Those are some.

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idea because yeah, again, we are in some AI era and there is a lot of things also that can

be built uh to not to replace human at all, but to replace some task because as a founder,

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sometime because I'm one also, you know, like we can be very, we have, we have a lot of

talents.

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We know how to do everything, right?

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Not to do everything, but.

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Doing everything actually is a liability on the business.

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know, the way you want to transfer, if you do everything you haven't thought about

delegation or building some automation or documenting all those things, it's going to be a

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problem.

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Like, the buyer, you know, if you have an experienced buyer, will discount you a lot.

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And he will do it with you once on the business.

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But I think you can totally, you know, do that at a lower cost and get the upside when you

do it before the step.

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Right.

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It's so important.

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I guess, are some, do you have any examples of actual people that you've worked with in

the past who possibly felt guilty for stepping away from the day-to-days?

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Yes.

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Yes.

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Like.

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It's understandable.

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Often, they want to be doing everything like in the client relationship.

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They want to keep that because they think they can only do it so good.

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Other won't be able to say the same thing as them or advise them the same way.

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But with a good delegation, good

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documentation, a bit of a training and definitely good hiring.

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It's possible.

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Or if we decide to automate some, depending what it is.

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But I would say with the client relationship, you probably want a person, but an

automation.

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So you want to hire somebody who can be.

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And this usually it's good because, know, a salesperson or an

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account manager or account executive, depending exactly what is it that you want to

replace you for, that will bring a lot of value to you and you will feel more supported

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and you see you'll be able to do other things that you like and you are really good at.

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If it's exclusively like the client relationship and everything,

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out, then okay, so find other maybe contractors or just, I don't exactly know how you

would say, maybe an installer for the security camera that will go and do it for you.

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Depends where your strengths are and what you want to keep doing or not, but if the...

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The goal is to sell eventually.

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You should be able to delegate everything because the businesses that have the higher

valuation, that sell at six times EBITDA, they are turnkey businesses.

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That you can have someone stepping in.

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Okay, businesses keep running.

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They are really buying a business, not a job they will need to do.

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Got it.

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No, there's some books that I have read recently that I personally love.

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Are there some books that you've possibly read about delegation or just to kind of start

that process?

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Delegation, let's see, I have some book, probably maybe the effortless one that I have

right there.

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Maybe I read that book.

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I think it is about delegation, effortless from Greg McKeon.

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I also wrote a book that will be published on July 27th and I...

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go and explain all those four structural issues that needs to be corrected with some of

these questions.

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So the book is called The Valuation Gap, What Buyers See That Sellers Miss.

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And at the end of each chapter are set of questions where you can evaluate your business

and know where you stand.

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And at the moment, can snub out yet.

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July 27th, but on my website at exit3dstudio.com slash the dash, how do we say it?

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Slash the dash valuation dash gap.

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You can download the first chapter just to get a feel of it.

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Yeah.

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No, that's very, I'm very excited to, you know, we're nowhere close to selling, but as you

said, you have to prepare for it.

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oh So yes, I think preparing because look, I don't know how, what is your revenue right

now.

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Let's say, let's invent something.

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If it's like a million and your EBITDA is 250,000, just inventing.

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If tomorrow you get a buyer, an excited buyer that want exactly the business that you

have, offer you, I don't know, $3 million for it.

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That's how many years of your EBITDA?

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That's about six.

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Don't you want that money?

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And you just do another business like you've been capable of doing one.

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Can't you do another one?

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You know, like it's something to consider because a lot of, there is a lot of business

buyers uh out there, especially also some employee.

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you know, some people that works in big corporation and that.

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thinking about how they can become an entrepreneur too.

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And one of the way that is sold to them is to buy a business.

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they could be offering, especially they are backed with SB alone, which is, which allow

them to borrow that much money and buy your business.

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it.

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No, that's so awesome.

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You know, these are things that a lot of us owners or a lot of people may not think about.

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What is your personal reason of why people wait so long to sell?

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Well, first of all, I think there are several reasons.

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First, there are some that have been doing that all their life and they just enjoy.

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And this is like a family business, know, they are just enjoy the day to day, just life.

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And they are emotionally attached to it.

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So this could be a reason why they don't want to sell.

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And maybe they even have the son or the cousin like ready to take over the business after

and this is totally fine.

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Though you probably want to give them a business that is as solid as it can be.

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So, you know, they are not getting, you know, the same problem you may have, you know, so

you want to structure also for them.

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This is an example why they might not want to sell.

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Yeah, I know that does make sense.

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don't need to.

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I didn't mean to.

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What were you going to say?

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No, I said just because they don't need to.

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If the son is already working in a business to be the future founder when the dad is

retiring and the grandson is ready for it, yeah, there's no reason to look for another.

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another buyer, know, a buyer that will take over the business.

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But I know that many don't have that.

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The kids don't always want to take the family business.

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They want to work in AI or they want to do movie making or like my son, for example, you

know, so in that case, okay, you can just leave them.

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You have several ways.

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You can just leave.

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You know, let the business die there, just put the key under the door and you're done.

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And a lot do that.

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Or you let a business broker approach you, is going to say, okay, I can sell your

business.

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And you can go that route, but often what they do is they market your business well and

want to buy a step into their.

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make an offer and do their due diligence, this is where they discover all the structural

issues and they either step away, step back.

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They don't want to do it step away or they discount you.

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They discount you a lot.

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Instead of getting your $3 million, they will give you $500,000.

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If you are happy with it, great.

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But if you had planned to go, I don't know, move to Florida, get that great house and live

happily ever after with your $3 million, then $500k is not enough for the dream.

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So these are the two options and kind of, I know I had a third one.

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And the third one was to prepare to exit at a higher valuation and do it.

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as early as possible because you don't know when you'll be doing an offer.

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Yeah, you don't know.

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As I say, I am part of a buying community and I know they are teaching us, okay, we can

find businesses for sale online on various websites, but we should also look for

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off-market deal and just reach out and say, okay, I'm interested.

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So it's always good to get prepared before because you can prepare the financial,

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The P &L, like six months before, make it look good, put some head back.

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This is what brokers do.

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And I have nothing against brokers at all.

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They are doing their job.

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But then ah everything else, the customer concentration is still there.

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The funder dependency is still there.

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Buyers, for them, it's important to them.

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And they have the choice.

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If you look online, there are so many businesses for sale.

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So if one has

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too much risk because those are risk.

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They will just keep looking and maybe not even buying because they don't find a business

that she is safe to own and lead.

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And that's what I was thinking as well is that when you sell it to a family member, it's

going to be discounted.

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No, think I would assume even family member, you just give the business.

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No, you don't even sell it at all.

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Just saying, what do you think?

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Yeah.

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No, I totally.

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could be sold.

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mean, yeah, why not?

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Yeah.

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No, it is kind of.

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be like a friend, family price.

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It would be different.

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Right.

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And it's kind of an example of our construction business because before the actual owner

owned it, it was owned by his father.

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So that's a real true example of kind of what happened to us as well.

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so you bought a business?

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Yes, through, well, through his father.

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but that's great.

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So you've been through the journey of business buying.

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That's very interesting.

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husband actually bought the business from his dad.

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Okay.

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So you're, it's right, your topic.

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Perfect topic.

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And so when people are looking to work with you, I know you have your book.

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Can you just kind of share kind of how that would work?

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To work with me?

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Yeah.

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So usually what we do first is we get on a call together.

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I do a business valuation diagnostic to understand where the business is today.

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ah You know, how concentrated is it?

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How funder dependent is it?

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How the digital asset, all of that revenue quality predictability also we discussing and

all of that.

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And then I see where you want to go, how soon you want to sell.

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And I can recommend one of the three programs that I have that help either have the

foundation, the minimum foundation to have a business that not too reliant on you.

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Then another one, if you really want to grow before, you know, so I have that second one.

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have, you get the foundation and the growth.

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And the third one is really to be exit ready.

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Like, okay, you you want to sell, you also get my address.

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We, you get everything from the first two programs.

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Plus this one, we just doubled on everything that work and, um, you get.

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You know, the perfect, and they can also potentially even put you in contact with some

buyers since I am part of the.

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a community of people looking to buy, so can put you also in contact.

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And I don't take, you know, like a percentage of the sale on that.

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It's more like a complimentary.

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Got it.

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No, that is pretty cool.

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This has been a wonderful topic so far.

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Is there anything else that you would like to share with us?

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Like last word also, but it's been great.

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And I'm sure you built a

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create business and the question is not should you sell it but more what about just

getting prepared in case this happens and also it will make your life much easier in so

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many ways because we work a lot on the founder dependency and the predictable revenue so

everything will be more smooth I would say even just to run the business if you keep

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running it after

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working together.

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But I say for now as a first introduction, like my book, The Valuation Gap, coming out on

Amazon.

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July 27th is the first step.

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It's great.

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Or if you want to talk and book the business valuation, this is on my website.

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the card.

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That was going to be my next question.

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How can more people connect with you?

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I will say on LinkedIn.

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LinkedIn is my main social media channel, like feel free to find me, so Muriel Tuati.

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Should I spell it for the podcast?

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So it would be LinkedIn.com slash E-M, no, I-M slash M-U-R-I-E-L-T-O-U-A-T-I and you can

send me a contact request or follow me but contact request is good.

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I like to, so we can talk from there and I can see what you post and, you know, just

engage with you.

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Well, Mariel, that was amazing.

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I learned a lot, so thank you.

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You are awesome and we will talk soon.

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Thank you, Chetoya.

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It was great doing this interview with