Getting Out! What To Do When You're Done.

So you're ready to call it quits.  What should you do when you're a business owner who wants to sell your company?

Truth is most owners see their business as their primary retirement asset.  About 90% need to maximize the sale to have enough for retirement. Yet, most aren't ready for sale, nor are they set up for the owner to step away.

In this episode, we invite Paul Curtiss from EBIT Associates back to discuss what's needed for a successful sale. 

[00:00:06.13] - Alice

Hello. Welcome to Books in the Biz, a podcast that looks at both the financial and operational sides of success. Please welcome our hosts, Dan Paulson and Richard Veltre. Dan is the CEO of Envision Development International, and he works with leaders to increase sales and profits through great cultures with solid operations. Rich is CEO of the Veltre Group. And a financial strategist working with companies to manage their money more effectively. Now on to the Podcast.

[00:00:40.13] - Dan Paulson

Hello. Welcome, everyone. We are back with another episode of Books in the Biz. I am here with my good friend Rich Valtry. Rich, how are you doing today?

[00:00:48.06] - Rich Veltre

I'm doing all right, Dan. How are you?

[00:00:50.09] - Dan Paulson

I'm doing good. I'm doing good. And then we brought along another friend of ours, Paul Curtiss from EBIT Associates. Paul, how are you doing?

[00:00:57.26] - Paul Curtiss

I'm good this morning. I'm good.

[00:00:59.27] - Dan Paulson

Excellent. Glad to have you here because Rich and I have been talking a lot about succession and how you set up your business. In fact, in a couple of weeks, we have a webinar going on. And I think a week or two after that, Paul, you and I are in a roundtable together, and a lot of this is what we're talking about. So I thought it'd be a good idea maybe to hit a high level of what happens when you want out? Because I think we are running into a situation in the near future here where we have a lot of business owners that are in their 50s and 60s going, I don't want to do this anymore. I've done my work for the last 20, 30, 40, 50 plus years, and it's time for me to get out. And this might be a good opportunity maybe to hit on some of those things, because what I find is when they want out, they want out now. And there hasn't been a lot of pre-planning on how they're going to get there. I guess I'll throw this question to you first, Paul. What's your thought on that?

[00:02:00.14] - Paul Curtiss

Yeah, I've been seeing a lot of that, too. Articles coming out in the same where it's a concern that, and it's a pretty high percentage, like 87 % of business owners, either didn't prepare ahead of schedule or did not expect the outcome to be the way it was, or their exit is their retirement plan, and first generation sold it to second generation, second generation paid first generation almost to their death instead of buying it with full cash. And so it was their retirement plan. So it was a retirement plan of second generation and third generation says, Yeah, I see how much you work. I don't know if I want to do that, or I really like this aspect of the business and don't only want to do that in the business. I want to do more of it, whether that's accounting, whether that's engineering, whether that's whatever it is. And now they're like, okay, I guess I have to figure out what to do. Am I going to close my doors? Some people don't even know that they can sell it. So who do I talk to about that? Is that something that can be done?

[00:03:10.21] - Paul Curtiss

Yeah, it's something that can be done. When do I start? Where do I go? What do I need? I get all of these questions from people often, and they're just trying to figure out that, is the sale of your business your retirement plan? Because if it is, we have give ourselves some time. You don't prepare for retirement through the normal means of 401(k)s and savings two years before, well, now, two months before you're ready to be out. You're doing that multiple of years beforehand, not just two, not just five, but hopefully 10. Hopefully you started earlier in life. All of us were told to do that, and very, very, very few did. And so you're like, okay, Okay, now what? And there's just so many aspects that you have to look at in the exit that can affect how much value or how much you get both two separate things from the sale. And so I fully agree. That's my first like, all out there because that's what I hear. That's what I've been told.

[00:04:26.12] - Dan Paulson

So how many people are actually using their business as their retirement plan, do you think?

[00:04:34.01] - Paul Curtiss

Probably more than 90 %. Wow. 85, solid. 80, for sure.

[00:04:40.12] - Rich Veltre

And I was going to say it's got to be a high number.

[00:04:42.17] - Paul Curtiss

It's a very high number. I see it.

[00:04:44.25] - Rich Veltre

I see the same thing. It used to be where everybody was using their house.

[00:04:49.10] - Paul Curtiss

Yeah, right.

[00:04:50.07] - Rich Veltre

Because house values were going up, so they were using that first. Now I've seen it switch because the housing prices having gone up so much, they're not going up as much. I mean, it did during the pandemic, but other than that, the growth wasn't there. So the people are looking for something else as they're out. So the business has become the new focus.

[00:05:16.02] - Paul Curtiss

Yeah. And it's just really interesting to... Well, I'm working with a client right now that we're going to be closing on here in the coming months. We've known them for 10 years. We talked to them five years ago. We started two years ago, and they were an extreme niche company, very, very niche, which becomes a little more challenging. And yet you have a very select group of people who want to buy, and when they want to buy, they are wanting to buy you, right? So it's not a bad thing, but Now we're in the closing process, and they were fortunate enough to have planned in advance enough, because typically my clients, because we go after a strategic equivalent of business that is being sold, we have a tendency to be on the market for less time than a normal broker who just puts it on business buy, sell, and the and wait for phone calls to come in. That takes a year, sometimes a year and a half to two, unless it's in a hot area of either manufacturing or trades or a specific type of business that is easily sellable. But if you have something like the one I have, they do switches inside of very weather-intense products, extremely extreme weather, extreme colds, extreme hots.

[00:07:02.17] - Paul Curtiss

They're all over the country. They're in those extremes. And so that makes it very tricky. But because they planned in such advance, they were ready for this sale to take a little longer than it would normally in our market. And they were okay with that. And because they planned, they were able to turn down six of the 12 people in the first month I should say, two months. We had 12 people interested, and they turned down more than six because they're like, That's not going to be a good fit. Oh, yeah, they do what we do, but that won't fit. They were thinking about their succession plan. They were worried about their 40 plus years of experience in the industry, which gave them the ability to think about it. But if they had not been thinking about it and they had not been preparing a decade ago when we first talked to them, they would have been as well right now. I have another example I could give for that one, too, to somebody who waited too long. But Rich, what have you seen on that side from your clients asking you about, hey, how do I get started?

[00:08:23.01] - Paul Curtiss

When do I get started? What do I do to get started? Do you get those three questions?

[00:08:26.28] - Rich Veltre

I get some I think for me, I've been looking at the... Because I've heard the same comments about what's coming, right? So I've been looking at the demographics of my clientele, the people that I know, and they're approaching that point. They're still somewhat younger, so they're not in the deep into it yet, but you can see the wheels are turning. So I have one that was in a very particular situation that has already started doing the planning. And luckily for him, the family is interested. So he has a son and a son-in-law that are basically running it. And I'm watching. It's actually nice to watch because I'm watching him who's just over maybe 70, and he's starting to relinquish the chain. He had control over everything. So I was sitting there looking at that one saying, I don't know how this one's going to go. And he seems to be really leaning towards, Hey, I got grandkids now. I have this ability to transfer. My sons or whatever have been working with me up to this point. They really know. Let me start transferring some knowledge. So I'm just sitting back with Poppore and watching that one, because that's an enjoyable story to watch, but it's rare.

[00:10:02.06] - Paul Curtiss

It is very rare because that goes to the... I was talking to another individual just in the last few weeks here, and he and I were talking about business owners and what they do and how can they prep and what they need to think about. And the statement came out and it was nice because he turns to me and he goes, you need to write that down. That was really well. The concept of running the business, which is what he was doing, versus owning the business, which is having other people run it. And you just manage the entire spectrum and inject your knowledge into each area and help that area grow and those people in those areas grow so that you can be gone for a week, a month, a quarter, and just call in on a steady basis. It doesn't even have to be consistent. Just a steady basis to see how things are going or set benchmarks or ways that people, when this happens, let me know, and then we can talk within a few days of that time period so that even a fire isn't a fire, right? It teaches them to take ownership of the situation and try and solve it, but make him aware or her aware of the situation that is going on.

[00:11:22.06] - Paul Curtiss

And that running versus owning, it's like working on or working in your business, right? It's the equivalent, right? And so it's really interesting to see those stories when they happen good. You and I just both mentioned some good stories, and yet I have an owner in the trades that I'm taking the market in the very near future, who I talked with them a few years ago, under two, and they were, like you say, Dan, I'm ready now. They were ready. They were wanting to figure it out. Son decided he wants to exit when owner leaves. And so they both were like, okay, now what do we do? How do we make this happen. And I looked at their books, which is really nice. They had done a valuation, a third-party evaluation before talking to me. We do those also. And it's a really good snapshot to be able to get an idea of what areas need to be focused on, what areas can increase your sale ability, increase your sale price by improving your value, right? Because value is based on really a snapshot in time. And then we're just looking at different areas of money, groupings of of monies, and going, why is that one the way it is?

[00:13:02.23] - Paul Curtiss

Or this dispersion over here, I see you do that on a regular basis. I understand your account is probably telling you to do that for the tax benefit. However, It's like a business owner, if you've ever gone for a mortgage and you didn't have a salary that you could show them that you made over two years, they can't use any of your business income because they don't see it. It's not reported to the government. Well, that ad back was a $300,000 number. You put a multiple of four to that, that raises the value and the sale really nicely, right? And so that's just one aspect. The other that I've seen, same client, they covered all of their employees' insurance costs. It was their equivalent to a pension because they weren't a union shop and aren't a union shop. And so that was challenging because, again, none of that can be changed, because if we change that now within six months of going to market or even two, which is where we're at, we run into the struggle of the next owner. If they want to change it right away, they could lose some employees because that was the benefit.

[00:14:33.13] - Paul Curtiss

You have to slowly over, I was hoping, two years for them to start to change that on a consistent basis. So when next owner came in, if they wanted to make it 50/50, they were at least down to 10 or 20 % instead of 100 % of the business versus the employee. So there's a lot of aspects that people just don't realize are there that can be improved upon to raise their value. So that client is probably going to go from north of six and a half million, seven million at close down to under five because of those two items. That's a big hit on your retirement plan. Yeah. Dan, have you seen many of these? When we're talking to owners?

[00:15:28.24] - Dan Paulson

So the problem What I typically run into, because I'm more on the operations side, is the owner being too involved in their business. So circling back to something you guys were talking about a few minutes ago, I see a very big need for owners to repurpose themselves. So take Rich's example, where he says he's just sitting back and box or bag of popcorn and watching what's going on, it's very clear that the owner has figured out that there's something else he wants to do with his life that is more meaningful than working every day. And now willing to give up some of that control and teach his son's the core of the business so that he can do other things like playing with his grandkids, traveling, whatever it might be. What I tend to find is most owners, they're just tired of the business, but they have no clue what comes after the business is done. So now you're running into this situation where, okay, if I take this away, I'm creating a vacuum. Well, I need to fill that vacuum with something. If they can't figure out what that new hobby is or what that new motivation is, they reengage with their business and don't allow the natural course of learning to take place with either their employees or the next in line or the family member that's supposed to be taking it over.

[00:16:43.26] - Dan Paulson

Those are probably some of the bigger issues that I experience is, okay, I want out. I know I can't be doing what I'm doing today. I just need to figure out how to get out of this, and be able to hand this work off. Well, one of the first things we need to do is, well, what's next for you? What are you going to do after you're no longer worried about the sales every day, or whether or not the numbers are being hit, or whether or not the employees are showing up for work because you haven't empowered anyone else to do that? So how are you going to step back, and what are you going to fill your time with? And Paul, you have brought it up. You can even step back to where you're not working in your business, you're working on your business. You're actually looking at the big picture stuff and just managing from afar, if you will, because you're letting people do the day to day grind that you really need to get away from. And for me, that's probably the biggest thing I tried to address is, first, how do I get you out of your own way?

[00:17:38.12] - Dan Paulson

How do I get this stuff off your plate? How do I teach you how to delegate more effectively to your team and get the results that you're expecting And that too takes time. It doesn't happen in six weeks. It doesn't happen in six months as people would like to think. It happens in a year to two years to three years to really up to five years, depending upon how much stuff that owner is doing. And I find that owners do a lot. And I'd be curious, Paul, to see what... Well, even you, Rich, when you look at an owner of a privately held company, what percentage of work are they actually doing that could or should be handed off to somebody else? What I perceive is, in most cases, it's very high. Their hands are in 80 to 90 % of the business that they really don't need to be that involved in.

[00:18:26.26] - Paul Curtiss

Well, Rich, let me make a quick comment because I've been chomping at the bit to say something that you kept coming back to without people realizing you coming back to. Not only is there a difference between running the business and owning it, working on it versus in it, it also comes down to I've asked. So I work with a revenue cohort of business owners that they grew it big enough that they're too big for the small but too small for the big guy. And so they've worked in it so much and have had their hands on so much that I go to them. So if I'm a buyer, if you're a buyer and you're buying you, are you buying a job? Or are you buying a stream of income and cash flow? Which one is the buyer buying at this point? And then you have to ask them, your top five clients. I'm going to take the top five, your top five clients. Who do they call when they want to buy something? Are they calling you business owner or are they calling someone else who actually has the relationship with them and taken over the actual day to day relationship with them?

[00:19:54.14] - Paul Curtiss

Of course, you're going to know them. They've been your client for 20 years or more. You You schmooze them or you go golfing with them because you've known them that long, whatever it may be. And it's really interesting to see that aspect where people don't realize that they're selling a job. The bigger you get, when you get above that five million mark, no one wants to buy a job. Usually it's somebody wanting to expand, and they're at about the same size you are, you do X, they do Y. So if they had X and Y, they would naturally be able to do Z. So they're trying to build these aspects to grow their business in an area or geographic location, but they're not going to buy you if they're buying you. They want to buy your business. And that was the thing I was chomping at the bit to be able to say. What do you find, Rich?

[00:20:58.02] - Rich Veltre

No, I think that's a big Big problem. Well, I won't call it a problem. I'll call it a disconnect, right? Because there's a lot of people out there now that are talking about what we're talking about. And from the I'm a buyer, their standpoint. They're looking at the same thing. All these people need to transition, and they're looking to transition. They're looking for somebody to buy. But they don't realize that that comment is huge, that all of these business owners were actually working that business business for that long. And the evaluation really can't just be the bottom line. It has to be what's the owner doing? What specific tasks are they? And then it does that fit into what I want to buy? So when you go out and you look at the ETA movement, the entrepreneur through acquisition movement, the courses you can take at Penn and Harvard, and you come out and, hey, I can buy a business using an SBA loan. You're buying a This is that was probably run by a certain person, and you have to replace that person. So the replacement of that person, if it's not you, costs money.

[00:22:11.25] - Rich Veltre

And you want that as the buyer to be reflected in the value. The seller doesn't want it reflected in the value. So the conflict, the conflict is the old owner. It's what were they doing, and what was their cost? So that becomes a bigger factor in the conversation. And part of the reason why you can't do this quickly. This is why you can't get to the end and not be prepared for that conversation, because nine times out of 10, nobody's prepared the seller for it. Buyer comes in and throws it at them, and the seller gets, he's throwing up his hands. This is crazy. So that's the communication part of the deal. It has to do with numbers, but the fact of the surprise is the bigger problem than the numbers themselves.

[00:23:02.23] - Paul Curtiss

Yeah.

[00:23:03.14] - Rich Veltre

It's the shock to the system.

[00:23:05.16] - Paul Curtiss

And with you mentioning numbers, it makes me want to ask you this question of, do you see a difference from a business owner talking to their accountant versus talking to a tax accountant, tax specialist. Do you see that, too? Because I see it all the time.

[00:23:27.18] - Rich Veltre

Or an acquisition specialist. Somebody who's actually worked in the M&A side. Because I've worked in all three. I've worked as a tax accountant. I've worked as just a normal advisor. I've worked as an M&A advisor. And the conversations are entirely different in all three. So people say, well, I'm just going to go call my CPA or I'm going to go talk to my CPA. And you're afraid to say to them, does your CPA know what to tell you? Does the CPA have the experience to be able to actually I'll tell you that? Or as you said in your example, very early, if you go to the tax accountant, the tax accountant doesn't want you to show certain salaries versus distributions, because they have their tax hat on. And the tax hat is the now hat. Tax doesn't talk about future. Tax talks about today. And the owner who's talking to the tax accountant is only worried about, what check do I have to write today? So you You need to talk to that M&A guy who's looking at it from a standpoint of, yes, as you said, pay this $25,000 extra now, because you'll get it back in five years, four or five times bigger than that.

[00:24:45.18] - Rich Veltre

And the only way that it makes sense to go the other way is if you can make more money in that five years with what you're doing today. Doubtful they can do that. Better answer is look at five years from now.

[00:24:58.17] - Paul Curtiss

Well, and it's always that multiple, right? People don't realize... Most business owners don't realize that there is this wonderfully glorious thing called a multiple. And it's taking your profit margin or net profit, either one, and multiplying it by two, three, six, eight times, depending on your industry, the average is three to five across the industries. But it becomes this thing of when you take my example, again, the 300 plus thousand in dispersion, and you're telling them, put that back into the business in a couple of different ways. There are ways you can put it into the business so that it can still be a tax benefit for the now, but you want to be able... I had the same gentleman at first go to me and say, yeah, but I'm now going to have to pay an extra And I think it was, I want to say the words only, only, but now I'm going to have to pay an extra $75,000 on that. And I go, yeah, only $75,000. Take 300, multiply it by four, and tell me, would you rather keep 75 now or make 1. 5 later? Where are you at? Well, 1.

[00:26:26.20] - Paul Curtiss

2, right? I'd rather have that problem. And I sent it in- Sometimes the now is pretty compelling, though. I know, right?

[00:26:39.27] - Dan Paulson

You see what's in front of you, the bird in the hand's worth two in the bush, right? Yeah. Always.

[00:26:44.20] - Rich Veltre

They That's what I heard, that old phrase. It also depends on the timing, right? If it's only two years out, they're much more compelled than if it's five or 10 years out. So if I have to pay 75 now, it's going to take me 10 years to get it back? Yeah. I have a problem. I have a problem with that argument. So I'm sorry.

[00:27:05.21] - Paul Curtiss

Yeah, agreed. And so when it's really far out, I will tell them to wean it down, right? So figure out how to take that 300,000 and this year give yourself a salary of 50,000 or even 25,000 and put the other funds somewhere else into your 401(k) because you're close to the retirement age, you're going to be able to get it back in a few years and you still don't have to pay taxes on it in a different way. You're still paying taxes. The government finds a way to tax in some way, shape, or form, right? Yeah. It's very interesting how the more time you have, and I'm sure you'd agree, Rich, the more time you have, the more ability we all have, including their current CPA or the M&A or tax professional CPA, who can talk to their CPA and say, okay, in the bookkeeping and the tax side, start looking for these things and do this. And in three years, we're all going to be happier, right? But at least that's what I've been told, usually, how it works, what I've seen, right? So is that I don't have my CPA. I go to the professionals.

[00:28:31.20] - Paul Curtiss

Thank you. And encourage people. Go talk to Rich.

[00:28:35.17] - Rich Veltre

Go talk to.

[00:28:36.27] - Dan Paulson

There is definitely a lot to cover here. I think it would be good for us to maybe set this up as a monthly where we can focus on one piece at a time because there's multiple facets when it comes to getting ready to sell a business, what the owner needs to do, tax account, M&A, all this stuff. Be interesting break it down into each. And I know we've all got examples of how to do that. But since we're running towards the end of our time here, I think that's where we leave it. So, Paul, how do they get a hold of you if somebody is considering and selling their business? What's the best way to contact you?

[00:29:15.08] - Paul Curtiss

So my phone is... I'm old fashioned. I like the phone. 847-566-0500. And my extension, we've been around long enough. We still have the extensions. 259 instead of the direct. And we just haven't changed it, right? They can go to ebitassociates. Com. Find me there. And my email is pkurtis@ebit, E-B-I-T, associates.com.

[00:29:45.29] - Dan Paulson

Excellent. Good. Rich, how do they get a hold of us over at XCXO?

[00:29:50.23] - Rich Veltre

Email is the best, rich@xcxo.net.

[00:29:52.29] - Dan Paulson

And you can get a hold of me at dan@xcxo.net. And we are here to help you fill those gaps that we're going to talk about in the future where maybe the owner needs some help stepping back and we can get them fractional executives to help with that. I should also mention that we have a webinar coming up. So if you're hearing this in real time, we have a webinar coming up on April 24th, I believe. We're going to be talking more about this succession, and we encourage you to attend that. And then if you are in Milwaukee, you can contact either Paul or I because we are doing a roundtable on business growth and succession. That is coming up on May eighth of 2025. Be sure to check those things out. In the meantime, guys, until we get together again, we're going to let Bob take it away and tell us more about XCXO. Take care, guys.

[00:30:41.20] - Bob

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