Episode 8 – Upside Insights: Business Succession and Exit Planning with Joseph Seetoo

Are you a business owner looking to retire soon? Don’t miss this webinar on Business Succession and Exit Planning where guest speaker Joseph Seetoo, CFA, CFP®, CEPA, Senior VP of Morton Capital addresses:

Why there is a need for business succession and exit planning

What is exit planning

What you need for a successful business transaction

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Transcript

Jessica: All right, welcome everyone and thank you for joining our Upside Avenue Educational Webinars Series. This series is developed with your input. We surveyed our investors and followers to find out what financial and investment topics everyone is interested in learning about. And then we looked for subject matter experts all over the country who can speak on these topics in hopes of providing you the knowledge and confidence to discover your Upside. So, watch your email and information-for information on our next webinar and we’ll share it on Facebook, Twitter and LinkedIn, as well. So, for today, whether you’re a serial entrepreneur looking to start your next business venture or a business owner looking to retire soon, today’s topic is for you. Our guest speaker today on business succession, an exit planning is a certified exit planning advisor as well as a chartered financial analyst and certified financial planner. He has been helping affluent business owners and high net worth families for 21 years. He earned his black Belt degree in Krav Maga and was also an instructor for nearly a decade. He also successfully completed Sealfit Kokoro Cam 37 in June 2015. Now I had to look up what Sealfit Kokoro was and I kid you not, as I was eating potato chips while I was doing it, I-I found out it was this intense physical and mental training camp modeled after the US Navy SEAL Hell week. I tell you, I put those chips away pretty quick after watching some of the videos about it. So, without further ado, please help me welcome our friend, Joseph Seetoo. Welcome, Joe, So how are you doing? 

Joseph: I’m great, thank you. Thank you for the warm introduction that was funny. Potato chips were good. Delighted to be here with you today. 

Jessica: Thank you for coming and sharing your knowledge with us. 

Joseph: Absolutely. 

Jessica: I’ll turn the time over to you now. 

Joseph: Sure, well, let’s go ahead and dive in and we’re going to talk about a couple of things today that you asked me to cover and really, you know, given the environment that we’re in, we’ve had a huge change in the economy over the last six months, so… but even beyond that, there is a lot of talk and buzz around business succession planning, so, I want to dive into why really there is a need for this right now. We’ll look at really how do we define what exit planning is in business succession planning and introduce the audience to what we would call the value acceleration methodology. It’s a framework by which we can think about how to methodically go about successfully transition our business, whether it’s to other partners, to a strategic buyer, what that looks like and then what are the professionals you really need in order to have a successful transition, and why it’s important to leverage a team of professionals. 

Again, we’re in the midst of an — really — unprecedented generational change, both socially and economically. And really, this was originally speaking more to the fact that when you look at the demographics of our country, right, the baby boomer generation, which is the largest cohort out there while in will soon to be replaced by the Gen–the Millennial generation, they own so much of the assets, and they’re getting to a point now where you know, inevitably, they’re going to need to think about monetizing those assets or retirement as they begin to enter in the next stage of their life. But then again, now with really what you see in the political environment, the social environment. There’s even more factors that are weighing in on-on this change. Let’s talk a little bit about the realities of what our country will be facing over the coming five 10-15 years. There are roughly 6,000,000 businesses, small and middle market businesses nationwide, and it’s estimated that the enterprise value is something in the neighborhood of about $10 trillion in wealth. 2/3 of these businesses are owned by the baby boomer generation. We know that 50% of those baby boomers are now 64 or older. 

And again, Father Time is sort of undefeated, if you will, and so there will just be this natural progression that these owners need to think through in terms of how to successfully transition this business to-to someone else. 80 to 90% of their net worth is tide up in their businesses, and I’m part of a group called the Exit Planning Institute and they do various surveys and what they have confirmed through numerous surveys in different Metropolitan regions around the United States is that about ¾ of a plan to transition their business over the next 10 years, and likely half will consider it in the next five years. So, again, this is a-a title wave of opportunity that is coming down the line right now. What we do know is historically, though, business succession rates of transitions have actually – they’re not particularly good when you look at the data only 70 to 80%–excuse me, only 20 to 30% of businesses that actually go to market, sell meaning 70 to 80% of them actually don’t. Now that might shock the audience, and I was actually shocked when I first learned this. Only 30% actually survive from a family generational standpoint to the next generation into the second generation. Why is that? We can look at some of the underlying factors and then beyond that, three out of four business owners, when their surveyed actually regret selling their business 12 months after selling. And it’s not typically for financial reasons. What we often see is that because their identity is so tide up in the business. When you think about it for the last 20-30, 40-50 years they put in so much time and energy and effort into building something that their identities attached to it, that if they don’t take the time to think about how they’re going to redefine their identity once they’re no longer part of that business — there’s naturally this sort of whole right that’s inside of them. A void, and, so, it’s important to not only think about the financial aspects of the business aspects, but also what we call the personal aspects. And really again, think about how to redefine yourself once you are no longer the CEO of the company or no longer involved at that level. Taking it to the next level, right? I think everybody understands the idea that having a plan is important, but there’s a big gap between that as a concept mentally and what we actually see in the marketplace in terms of how ready are owners actually when they go to-to do this sort of transition. Various studies show that typically 2/3 of owners don’t know all their available exit options. About 80% of them don’t have a team in place when they get to this point. Most of them don’t have a written plan that they can follow, and about half of them don’t have any plan at all, and so the question becomes, you know why-why is that the case? 

And I think when we look at it, one of the critical areas that in terms of challenges we-we tend to see right, is that maybe they feel trapped. And now what do I mean by that? Typically, as the business continues to grow, it’s generating good income and their lifestyle sort of creeps up with it and the question becomes, right: well, if I’m generating so much income from this asset, how do I replace it right what’s next? Maybe I don’t feel that it’s even urgent that I’m going to, you know, continue to operate at this level for the next 5-10 years, and many are unfortunately misinformed. Beyond that, what we see, and I think this will actually precipitate even further given the economic client, is that 50% of all exits actually are not voluntary. They’re not on the terms and conditions which are ideal for the owner. There are what we call the 5Ds: death, divorce, disagreement, distress, (you can think about the current economic environment) or even disability, and again, my sense is that given the sort of the forces in the marketplace right now with the economy. With tax rates likely changing with regulation, probably changing that if owners don’t do something, these statistics might get worse. And then the next concept I want to talk about is this idea of enterprise value versus income. Many owners, I think you know rightfully so. Focus on the income that they’re driving out of their business. And while that is a is a natural and important function, those who can move up the ladder to focusing on what we call enterprise value, right? Thinking that business is a standalone entity that you can actually transfer to somebody else ultimately is-are the ones those are the owners that have an asset they can monetize and sell. And let me maybe take it a step further in that. Really, taking a step back. The first thing to identify if you’re an owner is do you have what we call a lifestyle business, or do you have a business with true enterprise? Value and I just alluded to it a minute ago. Let me further define this Jessica, a lifestyle business is 1 in which it provides you a good lifestyle. You are the owner of the business, but you’re also the manager, the operator you’re working in, the business on a day to day basis, which is not uncommon, and the challenge is that if you step away from the business that income stream goes down, the business shuts down. The client relationships are all dependent on you and the challenge there is that you really don’t have a business that can be transferred to a buyer. And let’s recall with that actually is: when, when a buyer steps in to look to acquire your business, there essentially buying the future income stream of that business. And if you haven’t set up the structures, the protocols, the infrastructure, the leadership team, the senior management to allow that business to run when you are not there, then a buyer is not going to be willing to pay for those earnings. There’s just simply too much risk, and this is a fundamentally one of the, I think, concepts and owner really needs to understand is that just because they have a business that pays them good income, that doesn’t mean they have an asset they can ultimately transfer to-to a buyer. So, this is one of the most important, you know, I would say first steps that an owner really needs to think through. Do they have it? 

And it’s OK if you have a lifestyle business. I’m not saying that that’s necessarily bad, but I think your approach to how you’re either going to do an exit or what your retirement might look like, your lifestyle might look like. Your plan is certainly going to be very different. So, for those who do want to embark upon the idea of actually approaching this in a methodical way, so, as to ultimately to create the best succession plan possible, well, how do you go about that? And one of the things that I’ve learned over the years is something called the value acceleration methodology that is taught by the exit planning Institute, and it is really a proven process and methodology that aligns the business goals. Those personal goals I mentioned earlier and your financial goals, to create a manage value through the business and those are the three legs of the stool. Part of it really is a paradigm shift. It used to be that exit planning was naturally thought of right at the point at which a sale or transfer were to occur, and what we’ve really done is reshifted the paradigm to understand that good business succession planning is really good business strategy, where again, you’re focusing on creating enterprise value. You have a process and a road map to where you want to get to go, and you’re integrating those three legs of the stool. Next is understanding this idea that value in your business is all about transferability, and if you focus on putting in the systems and process to take sort of that tribal knowledge that the owners have in their head from their years of experience in the industry and put-documented create structures around to create processes around it that you can transfer to a buyer, you’re going to be creating enterprise value, you’re going to be de-risking the business an ultimately someone will be paying more for that-those stream of earnings. So, let’s talk a little bit about-about the methodology here. There’s a lot going on in this page. I’m going to break it down and hopefully make it relatively simple for everybody to understand. There are three main gates we call in the process. First is the discovery gate. The next is the preparation gate, and then third is the decide gate. Under the Discovery gate, you are essentially taking a deep dive and trying to ascertain what-what’s the value of the business under its current structure. For many businesses, it actually may make sense to get a formal business valuation done from an independent third party who can come in and objectively look at your business. Additionally, coupled with that, you’re going to want to do an assessment from a personal standpoint, everything from where you are from a family standpoint to is your state plan in place to how are you financially? Are you ready to at a point where you can retire a financial assessment and then within the business you’re going to be looking at an owner readiness assessment and also in attractiveness assessment, which is going to be more qualitative in nature. About the business will be looking at factors like how-how concentrated is your client in revenue base? Do you have the right leadership or management infrastructure team in place? Will talk a little bit more about this in the preparation phase. From there, you can next move into a prioritized action plan, right? And if anyone’s familiar with the EOS operating model or traction, which essentially allows you to create sort of what we call 90 day sprints to tackle two or three critical items, both from the business side and your personal side, that you can tee up to make progress along this front. I’m going to talk a little bit about the ecosystem here because we’re going to talk about the advisors you need to walk through these different gates as we look at the gates to engage through here. But what’s critical is that you know no one advisor can really do this on your own. You certainly need someone to quarterback the process, but it’s, and it’s almost like building your dream house, right? You have a general contractor, and then you typically have subcontractors that you’re using for different aspects of the process. The same idea applies here. You’re going to need a group of collaborative like-minded professionals who all have the common goal of putting the business owner at the center and then they’re working around the business owner to help execute this process.

So, jumping back into gate one, for example, right, I mentioned the idea of maybe needing a valuation expert. Initially, you’re likely going to need to get your CPA involved. Perhaps if you have a financial advisor like somebody in Morton Capital, it’s going to make sense to get them involved your insurance advisor. So, and again, someone is going to need to coordinate making sure that all of these advisors understand where the business owners going that there’s clear communication and that also everyone’s really again rowing and-rowing in the same boat. Once that initial prioritized action plan is set up, the next step is really starting to think through from the business standpoint and the personal standpoint, the things you need to do. From the business side, what I want to talk about is, again, this idea of transferability. There are typically 4-the four Cs we call them, which are somewhat the intangibles of the business that really are critical for de-risking the business and creating the infrastructure that’s needed to transfer it to a buyer. You have your human capital, right? So, this is those who are actually working in your business. Do you have the right HR policies in place? You have them even documented. Your key sales reps, are they in a position where they’re actually generating revenue or is it all depended on the owner. Are there non-disclosures in place to protect the business so that you know if an employee decides they want to leave and become a competitor? That is not likely the right place thing that’s going to occur. Do you have the right compensation structure in place to again continue to have those individuals involved when a new buyer comes in? The structural capital. So, these are the things these are the documented processes and procedures that allow the business to run smoothly. And again, it’s not just in your head as an owner. This allows you to really, again, separate yourself as the you know the manager, an ownership and even the leader you may be wearing multiple hats documenting all the structural processes that allow you to, again, transfer the business to someone else, your client capital your customers, again. Is all the revenue dependent on the owner for driving the revenue to the firm, or do you have a sales process in place? What’s your customer concentration? Is your revenue cyclical? Are there, you know, things that you have in place to protect that revenue? Again, that’s going to be critical from a buyer’s perspective. And then lastly your social capital. This can be both internal, which will be your team culture, right? There’s the old saying that culture eats strategy for breakfast and I do believe in that it’s the inner workings of how your team gels would sort of gets done day-to-day behind the scenes and then also your external social capital.

So, these are areas that owners really need to think about spending sometime in developing forth from the business perspective. So, I tied that up as part of part of this preparation phase here, because once you move into this, this is where you’re taking that prioritized action plan an essentially what I call running a dual track. On the top you’ve got really the personal and financial aspects of the business owner, so again, this could be everything from reviewing your estate plan, looking at your risk management, your insurance, from a cash flow perspective, your needs, and your wants contingency planning if something were to happen to you while you’re going through this process. What risk is the business at and then, again, from a personal standpoint, that life after planning? What is it that is going to give you meaning in life? Is it giving back to the community? For some business owners it’s actually teaching for someone starting a new business. So, again, trying to redefine your identity once that this business is no longer under your ownership and then from a business standpoint, again, some of those four Cs that I talked about, you could see the-put into different trunks in terms of your personnel practices, maybe its leadership and management development at the next level, making sure your financials are in good order. I mean, for most businesses they’re going to need to go through from a buyer’s perspective, a quality of earnings to understand how really good or your financials. Do you have that documented sales process and if your business with inventory orders, inventory management, so, these are just some of the examples of the business preparation that you’re going to likely button up as you’re in the preparation phase from this, then you’ve essentially put yourself in a position where in, you know, again, I would recommend doing these in sort of 90 days sprints, if you will. You can tackle everything at once, so, this is really where understanding and it goes back to that discovery phase of what-what sort of mission critical? And what are the things that maybe, you know, you’re doing OK, now, and that could be planted for a little bit later on? By this point, now you’re ready to, you know, start to begin to think about what is the next step and, you know, as you transition from the preparation phase to the decide phase again. I mentioned they think 80% of owners don’t know their-their available options. There’s everything from family succession for some, and that may be the most likely path and maybe what’s really most important to the family and what owners want to do. Now, tying this back to the estate planning, the valuation that is going to be needed or likely wanted for a family succession plan is going to be much different than what would be needed for a strategic acquisition for a variety of planning reasons. It may be that an employee stock option plan is attractive and this is something that’s actually relatively underutilized. There’s some particularly interesting tax benefits from an ESOP, but there’s what I would say are drawbacks or considerations that need to be thought through, and, so, you would need to bring in an ESOP specialist. But understanding if this is the right path to go down or not requires taking time to evaluate, again, what your long term goals are and how it fits into your master plan. In my case, I was actually part of a management buyout or a generation one to Generation 2 transfer and so that is very common as well, and, again, that will likely take time to implement. This isn’t something that’s going to be just done overnight. At this point, you’re going to make sure you’re getting either an investment banker involved or likely potentially a business broker.

So, this is another member of the team that you’ll need to potentially bring in. They’re going to be responsible if you’re doing a strategic or financial acquisition, which is a different type of exit. Or maybe that you’re looking to the-the capital markets. A private market-private equity markets for recapitalization where you’re taking some chips off the table. You’re still an owner, depending on how what percentage you want to take off the table, and perhaps you’re getting a second bite at the apple. Depending on how you structure the deal. And then Lastly, maybe you decide, hey, through this process I’m reinvigorated. I actually don’t want to exit now or I’m going to take back a little bit of my ownership, but I’ve got some of the Generation 2 owners involved and we’re going to rebuild this. We’re going to take this company to the next level, and we’re looking for growth financing.

So, I touched on it here, but I wanted more clearly outline for our audience today again, the way to think about this is your internal options in your external options, sort of internally this is going to be whether it transferring to a family Member, a management buyout and employee stock option plan or transfer to other stakeholders. Those are three of the four options that you could do more internally. If you’re looking for an external liquidation where you’re bringing in an outside buyer. Well, one might actually be liquidating the business, which is going to likely be the least attractive from a valuation standpoint. But depending on the state of the business, that actually might be what is needed, and it is an option. But in terms of succession plan, you’re likely looking at maybe a third party Sale to, again, a strategic buyer or a financial buyer. Perhaps you’re refinancing the business in recapitalizing, and then for some select few there-there is the option of IPO that’s that is one potential here. Uhm? We went through that pretty quickly, Jessica.  

Jessica: No, that’s OK. 

Joseph: We’re right about 25-26 minutes, so that’s hopefully a, you know, a sense of the methodology. There’s a lot more we can dig in here, so let me let me turn it over to you and see if there’s questions I can answer for you.  

Jessica: Yeah, absolutely. I mean, there’s a lot of detail within even just what you’ve presented to us, so please to our audience members: Use the Q&A function. Ask your questions. And while we’re waiting for them to type in their questions, I mean, I do have a couple as well. I mean, when is it a good time to start all of this planning is-is there too early to plan?  

Joseph: You know, I, I really don’t think so, because for several standpoints I’m going to go back here on-where I want to go. So, one was the concept that the-the idea that this is just good business strategy. Many of the concepts are we talk about the 90 day sprints looking at what your goals are, how you can shore up your-your company in various different areas I think is again always a good idea. It’s something that we actually practice here internally at Morton Capital. We are an employee owned firm. We have 11 owners and 51-52 employees and, so, there are practices that we — and we have no intention of selling, you know, anytime soon, which is where I’m going with this. Coupled with the fact that, the-for owners, their lives tend to get progressively more complicated as things occur, right? There’s always a change in in regulation. There’s a change in tax law [unsure of what is said] estate planning limitations are likely going to come down from 11 and a half million per person to be re-sunsetted in 2025 to 5,000,000 and change. And, so, if you’re an owner with ownership of a business that has enterprise value that’s significantly higher than that, and you’re looking at potentially mitigating a state tax. I think planning along the way is critical. Now to answer your question, Jessica: if you think there is a good chance that in the next 3 / 4 / 5 years you want to start to go down this road and you’re going to have some sort of exit, I would say give yourselves, ideally, a minimum of 24 months to go through this process too. That way you are doing it methodically and thoughtfully, and the reason is-is that all too often what I do see is owners will think that I can handle all the personal planning after the fact because they get into a position where maybe there’s an unsolicited offer on the table. Maybe one of their-their partners wants to leave or passes away, and then they’re forced into a position like we said before, that they now almost have to do something and they’re not able to optimally structure from an after tax standpoint from an estate standpoint. I mean, just think about this to: imagine a husband and wife, OK, that, you know, for years have built a business and all that and you know they live nice. Maybe they pull out half a million, a million, whatever you know, amount of income per year and they’re living nice. All of a sudden, there’s a windfall there. Let’s say it’s ten million, $20 million OK, and these were hardworking individuals. They didn’t grow up Ultra wealthy. The change in the family dynamics between just the two of them, now with how they’re going to manage that wealth, right? If it’s just thrust upon them, do you think that that might cause not necessarily tension, but some more challenging conversations in the family dynamic between themselves, maybe the kids? The competing agendas that they might have if they have elderly parents that they’re taking care of, right? So, those conversations need to be synthesized and thought through, I guess is where I’m going. But again, I would give yourselves ideally two years.  

Jessica: Great thank you, that was great. I have some more follow up questions on that, but we do have an audience question. Can you talk more about ESOPs? 

Joseph: More about what  

Jessica: Um, ESOPs? Am I pronouncing that right? 

Joseph: Yeah. I would say that I’m not a full expert and I’m knowledgeable about them, but there one of the interesting things with it with an ESOP is, and again, this part of my job would be as a-an exit planning advisor is if that’s really a road we would go down for a client, would be to – I know ESOP specialist, would be to bring them in and educate an owner, but there are attractive from the standpoint that have structured properly, right? Typically, when you sell a business right now, the asset there’s a large capital gains tax that will need to be paid. One of the attractive things about an ESOP is that it can be done in such a way where there is really no tax that has to be paid. Now, there are several big considerations that need to be done. One is, you’re going to need to have a third party, independent trustee, who’s a fiduciary, that essentially manage is the-the plan. The owner transfers the shares into the ESOP, and then there’s typically a bank that’s financing the shares from the next generation of owners (The employees) to buy those shares, and then essentially payout to the owner. From a value standpoint, because you have a third party fiduciary that’s managing that this, now this pool of assets, the valuation will likely be right at fair market value, and that’s certainly fine, but if a strategic buyer, all other things being equal, may pay more than fair market value for the business you might not necessarily get top dollar in an ESOP that you would from, again, a strategic or financial buyer, or maybe even a private equity recapitalization. So, when you look at the sort of spectrum of value that a business is, the ESOP will tend to be sort of right in the middle of those ranges, right? A liquidation would be the lowest right? Again, kind of a strategic or financial advisor would likely be the highest. The ESOP will likely be there in the middle at fair market value. That’s kind of kind of the theory. The other is that typically what you see in an ESOP, from what I understand, is that the owner will need to be involved for several years after, as this-this transition takes place, whereas with some other acquisition or exit options the owner can step away a little bit quicker. So again, it can be a very attractive tool in the toolkit, depending on what the owner wants to do, how they want to be involved. So, it’s certainly one-one worth exploring. 

Jessica: Great thanks, hopefully we’ve answered the question for the audience member. Anyone else have questions while we’re waiting for more questions, I do have some follow up questions on… What, like, we had to speak an Upside-an Upside Insights video recently and you talked more about behavioral investing and the emotions that can influence our investment decisions. Can you talk a little bit more about the emotional preparation related to exit planning? 

Joseph: I think it’s a great question. I think one is that-again, there’s just a tremendous sense of pride and ownership that most business owners feel. I mean, I can say that about being an owner here at Morning Capital and that can, you know? Well, you call someone not to be as objective right about the realities of their business. It’s you know, and – ultimately, I think put them in a position where they are. Their judgment is clouded right about – just ’cause again, it’s something that is yours. You’ve-you will naturally feel like it’s worth more. It’s very common than what a third party might be willing to pay for it, so that’s probably one of the most critical things I think is to-to – and why it’s important to have a team involved, right? Who can? — Who are on your side of the table who want to help you execute on your plan, but they can also write in any healthy relationship, honesty is critical and important and can let the owner know the realities of what they’re is seeing in the market and is it — you know, is there a-is the owners view in line with the realities of what the market will bear at that point in time, both from a-a acquisition standpoint or dollar standpoint, but also from a risk management standpoint. The other thing I would mention is that and by the way, at the end of the day look, I mean the ultimate decision lies with the owner if that is enough value to incentivize them to transfer, so, they’re not giving anything out there. I think that would probably be the most critical piece related to behavioral finance, I would say. 

Jessica: Perfect thanks Joe. So, what-what can owners do to help possibly increase the value of their business for a buyer? Like, what would a buyer look favorably upon? 

Joseph: Yeah, I think again it really comes down to this. This preparation phase, right? And from a business standpoint number one: it’s de-risking the business. Then again, from a buyer’s perspective right, there are naturally looking at: OK, here’s a stream of income, right? That’s coming in from the business. How risky is that stream of income? Is it dependent on the owner 100% or-or one key person? And if that person goes away, what happens to that revenue stream? So, all other things being equal, if I have a diversified revenue stream that’s related to the earnings and we can de-risk that income stream whether, again, it’s from a sales point of view from an operational point of view, from a legal standpoint point of view. All those things are going to be critical, and that’s why when you’re doing the discovery phase and coming up with that prioritized action plan, it’s important to look at the business first from a de-risking standpoint, and then to look to what are the things from an additional incremental value, add standpoint to increase the valuation. Oftentimes for many owners, if they simply focus on de-risking that is enough to drive up the multiple or the value from a-from a buyer’s perspective.  

Jessica: Thank you. 

Joseph: I mean, I can certainly talk more about that if you want to set that good for now. 

Jessica: It’s good for me. What about the audience? Do you guys want to hear more about that? Let’s see. Yes, please.  

Joseph: OK. So, let’s take this a step further. I think we talked about revenue. Let’s talk about management, right? The, again, if you don’t have the right sort of management in place, who is able to manage the business, even if the on-even if the buyer who’s coming in isn’t necessarily going to be operating the business on a day to day. Maybe like the prior owner was. What are the structures again in place from a management perspective of the existing management team to keep them there? So again, are they incentivized to stick around? Is the culture healthy for them? Are they empowered on a day to day basis or is there a competitor that might attract them away. Is the right incentive plan in place to keep that management team in place? Is their career path thing for them to move up the ladder, right? If I’m a mid-tier manager I’m doing a great job, but I want to get up to being more of a senior manager. Do I see the ability to move up within the company? Right? Now, it may not be that those career path things are in place so that these structures are in place, but identifying that ahead of time ahead of the transaction and getting it in place. What does it do? It de-risks the business from a buyer standpoint, right? Maybe it gives you a strategic edge. Maybe it gives you the ability to attract talent in your industry that’s different from others. So again, there’s-there’s just so many different things. I mean, from a financial standpoint, this is a very common one you see with business owners. Many of them run their personal financials. Their, you know, their-their Country Club expense or travel expense, their cell phone bills, through the business like their own Piggy Bank and this is problematic from 2 standpoints. Certainly, the things that they justifiably, really should be running through the business they should, right? If it’s a true legitimate business expense. But if it’s not, then the challenge becomes that it dilutes the quality of the earnings and the true financial performance of the business. And that’s something that a buyer certainly you gotta get cleaned up before you get that in front of a buyer. The other thing from an owner standpoint is that if I’m running my personal expenses through the business, right, and perhaps I’m getting some benefit of a tax deduction or just from a cash flow standpoint, I don’t see it coming out of my checking account when I no longer have the business, right, and now I’m retired, and I’ve got X amount of money in my investment portfolio — How do I really know how much I need to live on and if I’m 60 or 70 and I’m living into my 90s, how have I planned for the next 10-20 years of my life? This is where, as a financial planner, we really dig deep and do a lifetime cash flow plan ahead of time. So that we can quantify what we need in terms of present value from the actual sale of the business, right, to have a successful financial plan, personally. It also puts our owners are much better negotiating position to have a real number when they were sitting at the table so that they don’t have sellers remorse, or that they don’t get cold feet at the last minute after everyone’s done all the hard work and there at the one inch line and think, well, hey I really need X on the reality maybe you actually need more or perhaps maybe you need less and if less is fine and that’s where the deal is at then there’s no reason not to go through in less. There’s just something in their mind they think. Hey, I really gotta get a certain number but they haven’t done the homework. Haven’t sharpened the pencil. They’re never going to know. 

Jessica: Right, does anybody else in the audience have any more questions before we-we wrap it up? OK–Oh. So, one listener says: will you share this slide deck so I can see what was discussed earlier? Yes, we’re actually going to also send you the webinar link as well, so, you get all of the information that goes with the-the different slides that that he’s in-that Joe has been showing so, and Joe would you be OK to – 

Joseph: Yeah. 

Jessica: Share-share your slides and I can send it out to our listeners. 

Joseph: Sure, one comment I do want to make, maybe just gonna end on is this and that is-you’re asking the question about time and I think it’s important that owners understand this and that is when you get to the point that you’ve got an offer on the table, right? Let’s assume it’s from an outside-we’re not doing a family succession. This is a-an external transfer to a buyer, right? They’re going to come in with a whole list of due diligence questions, and they’re going to tackle all these things that we talked about here. Right, and even then some right? I mean, again, they’re going to-they’re going to ask you to kind of get naked if you will. They want to see underneath the covers. You know, excuse my analogy, but it’s true where they really want to get underneath the covers there and see exactly how the business operates and-and get the inner workings of it to move forward in the transaction. Now, the reason I bring this up is twofold. One is that from a time perspective, here you are, you’re running the business. you’re already working a full time job more than a full time job running the business. Just on a day to day basis, now you’re going to have another hat you’re going to be wearing which is managing the due diligence process. And even if you have a great team around you that you can delegate a lot of this work to, whether their internal/external, the reality is-is that from an owner standpoint, it’s like another full time job and this can go on for months. You know three months, six months, a year, and it is exhausting. So where bringing this full circle, the more of this you’ve done ahead of time and also understanding that when you get into this this period that this is just sort of, you know, this is the natural progression of what it’s like to actually go through a business succession plan. It’s, you know, being forewarned is important in understanding this is, you know what you’re going to be dealing with. 

Jessica: No, that’s a great point to leave on. I mean, it does sound like there is a lot of work to be put towards the planning and the decisions made, but I think just even educating ourselves to-to realize: hey, set expectations it is going to be hard work, it’ll be able to actually a little bit easier because you’re expecting it.  

Joseph: Yeah, you got-you’re managing expectations exactly. 

Jessica: Exactly. Any other questions. OK, well thank you Joe for sharing your knowledge and expertise with us and helping our listeners be better prepared for this big milestone in their lives. We would love to have you speak again and perhaps maybe even share some stories of your Sealfit experience and thank you to our listeners for joining us. If you’d like to contact, Joe will share his contact information on the screen. I think it’s the last slide. There we go-yeah, so, if you have any additional questions about what we covered today, please feel free to reach out to Joe. Also let us know how helpful this content was by taking the short survey at the end of today’s session and also let us know if there’s other financial or investment topics you like us to cover, because we’ll find subject matter experts like Joe who can speak on these topics because at Upside Avenue we really want to help you live your Upside. So, watch your email for next month’s Webinar and follow us on our social media, Facebook, Twitter, LinkedIn and Instagram for the latest industry news and insights. So, with Upside Avenue, you can help-we can help you discover your Upside through our public non-traded REIT, you can enjoy the benefits of real estate investing for as little as $2000 and you can visit our website upsideavenue.com. Send us an email or call us anytime with questions. Thank you Joe, again, thank you for joining us.  

Joseph: Thank you, Jessica. This was great. 

Jessica: Perfect. Everybody, stay safe and we’ll see you next time. Bye now. 

Joseph: Bye. 

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