Jim Muehlhausen - Half Retire

Hi everyone, it's Bill Black, the exit coach from the Exit Coach Radio show. You know, one of the biggest questions I get on the show is what exactly goes into a business exit plan and when should I start creating mine? Well, I always tell people that the best time to start was 5 years ago, but the next best time is now because you never know when you might need it. So we put together a free report that describes what an exit plan is and what you should know. You can get it free by texting Exit plan with no spaces to 44222. That's exit plan to 44222. Again, text exit plan to 44222. Welcome to the Exit Coach Radio show, the show for baby boomer business owners who are looking for cutting edge information as they plan their 3 to 10 year business succession and exit. Every week we interview top professional advisors for their best tips, strategies, and precautions so you can be well planned. And now here's your host, the exit coach Bill Black. Well, welcome. Thanks so much for joining me today. It's always a pleasure to have you with me and you know we talked to a lot of business owners who say. You know, I, I don't know what I would do if I completely left my business. I've kind of, I kind of like the game I play every day. I like, I like the business. I just don't want to do so much of it. And I also, you know, think that I could probably make more money if I stuck with the business just on a part-time basis over time rather than selling it to somebody and paying a bunch of taxes. So if that describes you or you've thought that way, then grab a pen and a pad of paper, get ready to take some notes. I have Jim Muhlhausen, the founder of Half Retire, on the line with me, and we're going to talk about maximizing the value of your business via a strategy called Half retirement. Jim, welcome. It's always a pleasure to have you on the show. Thanks for joining me again. Great to be back, Bill. Jim, I, you know, this is a very different climate business wise that we're seeing, but one thing hasn't changed. Business owners are about a year older than the last time we talked on the phone. Maybe, maybe it's been 6 months. People are aging at all at the same rate, and a lot of people are now finding themselves going, man, business was just pretty easy, but now it's pretty hard again. I really need to think about how to how to get out of some, some or all of this business, and for a lot of them. The solution is, well, you don't need to sell your business, you can just half retire. So you started this group called Half retire. Tell us a little bit about it and what it's all about, and then we'll get into some questions. Well, I started it because I started to see a couple of trends. Trend number one was what you were mentioning before, and that is I don't know what I would do if my activity was playing golf every day or lying in a hammock for 6 hours a day. That's just not the personality of a business owner. They have a lot of their social connections via work, whether it be customers or vendors or employees that are not only employees, they're they're friends. They've worked there a long time. And they're afraid that they'll lose the social connection, the status of being a business owner, you know, you're just a retired person. If you used to own a business, if you own a business, you're still a CEO and you still have the perks that go with it, whether it be, you know, a car or tickets or all the goodies that we tend to include ourselves with. So I think that there's a reluctance of baby boomers to do what our parents did and fully retire. And then secondly, I saw people that had a business that was not unsellable, but it was unsellable to get them to their magic number. Right, yeah, I need to sell this for $2.5 million according to my financial planner and I went to the business broker and they told me it was worth $700,000. Yeah, that's, that's a shock that happens to a lot of business owners because they, they tend to overvalue the business in their heads, right? Well, and then we tend to focus on what we need because we're goal oriented as business owners, which is a great thing, but it's worth, it's worth what it's worth. And so then you have that value gap, and I'm sure you've talked about more than than you care to talk about, but it's real and you go, how do you bridge that? And that's where half retirement comes in that what's what's the old saying, people don't sell businesses for money, they sell them because they're frustrated. And you get to a point where you're like I just don't want to do this daily grind anymore uh and and so the solution of course is to make the merry go round stop by selling it. But what if you could not have that daily grind and keep that income, keep your social connections, all of that, and that's what half tire is all about for people that either need it financially or need it for non-financial reasons, it's there as an option for them. So basically these are for the owners that like you said are saying, you know, I don't know what I'd do with with all of my time back because I've always been working. I've always been again in the game, but if I could If I could get rid of some of the minutia that I deal with and just focus on certain areas that I really like, maybe the reasons why I started the business in the first place, then I think I'd have a happier life and I'd probably come out way ahead financially, I would imagine. I mean someday we always say someday the business owners got to exit at some point, whether, you know, they pass away, get sick, those things can happen, or they kind of get. Too old to be relevant to the business, but there must be millions and millions of businesses at the at the lower end of the scale, maybe under $10 million in revenues that are perfect candidates for this. What's an indicator that somebody should be thinking about working on their half retired strategy? Well I think some of it is age, right? Unfortunately we're all a year older than we were last year and whether the economy has adversely affected your business. You're still going to be a year older in a year and you're still going to have a little bit less energy. You know, I debated with the publisher of the half tire book, which comes out here on the 14th, about putting in the running times by age, but they told me not to do it. But you know, so they have the top mile times by age. Well, guess what? The top mile times for a 60-year-old are faster than those of a 65 year old. Surprise, surprise. And we're all stuck with that dynamic that uh every year we, we get a little bit more tired, a little bit less energy, and frankly a little bit less willing to put up with the BS. You know, when I was 40, I'll put up with some of that, but today I'm, I'm just not going to put up with that, and that's what gets us to that selling the business because we're frustrated. But this sounds like just a good, a good management strategy anyways. Even if you're younger, you could maybe start another business if you wanted to, if you had the energy to, right? If you could get your business in shape to where you only had to work on it part time, then that frees up your time to do whatever it is that you want to do. But especially we have that baby boomer dynamic that's the median age is around 65 now. So what are some of the ingredients they need to have in place so that this can be a successful strategy? Well, I think that they need to have a desire to get off the grind or to cut back, right? You have to have, you have to have this is there's a six step process to have retire, and we're talking about the first one which is the magnet. You have to have a reason that you want to have retire, and that could be to increase the value of the business so that when you do. Go to sell it. The broker doesn't tell you a number you don't like because it will make your business more valuable. Get it to work without you. Put yourself in the buyer's shoes, right? Business A, the owner says, Well, boy, if I stop showing up here, things just may collapse. And the second one says, Yeah, I haven't walked in the door for 2 years. Which one do you want to buy? The second one, because it's not dependent upon someone that's not going to be around anymore. So if you've got the magnet, it could be anything from, I need to bridge the financial gap to get to retirement. I want to get off the daily grind. I want to make my business more valuable. I just got off the phone with a 40-year-old in your neck of the woods that wants to surf more. He's got a nice business makes really good money. He just doesn't want to work as much. Sure, sure, sure. That, that sounds like a lot of people I know. Now, when, when we talk about the desire, of course that's one ingredient. How about your, who's going to do all the work? Don't you have to have like a well trained and well retained key person or or key group of people? What, what do you need to have as far as personnel for this to work? I think that that's the conventional wisdom and I think that that can work. Uh, I always joke that everybody wants what I lovingly call the mini me plan and I also say that the mini me plan only worked for Austin Powers. You know, there, there is no mini you, OK? You are special. This is not me stroking your ego. No one can do what you can do at your business, and thinking that someone can is ridiculous. They can do some of it, but they're not going to be mini you. It's not going to work. So we have an alternative way that we do it. You can do the mini me plan, but usually the mini me plan fails for a very simple reason that isn't even what I said. It's financial. Think about what I have to pay someone that's of your caliber or close to it. Let's call it 250 $300,000. Well, that comes right out of your pocket. So do you want to cut your income $300,000? Usually the answer is I can't do that. Right, right, not for a small business. That's, that's a huge amount of money. And so you have, uh, you've developed something called, it's called the Picasso plan, right? Or the Picasso, uh, tell me about that. Picasso work, yeah, so, so what we want to do, so I do not believe that you get to have retire via delegation, which was kind of the, the, the traditional everybody, oh yeah, I need to delegate. And I say that's ridiculous because all of us know what delegation is. All of us know how to delegate, and if it was as simple as delegation, why haven't you already done that? Right, and it's because it's impossible and it's impossible because of your Picasso work and your Picasso work is that special stuff that only you can do. But it's only a fraction of what you do. And what happens over time is you have this Picasso work that's incredibly valuable, it's undeleable. That's another thing about have retire, right? I'm not going to tell you never to go back to the business. I still need you there to do your Picasso work. You just don't need to be there 50 hours a week anymore. But other work attaches itself to that Picasso work, and it becomes this tangled up hairball of stress and work that we all have. And if we want to get you half retired, we have to untangle that hairball. You can't just delegate the hair ball. Makes sense. Makes sense. You need to, you need to have most of your work done, but you need to retain those certain, uh, like you said, the Picasso work, Picasso didn't set up the easel and, and, you know, he painted and he painted. He uses creativity. Another analogy might be Liberace playing the piano. You think he moved the piano onto the stage? He didn't even need to compose the song that he played in some situations, some he may have, but his gift was performing, not necessarily writers. There's some really great songwriters that none of us have ever heard of. They've written some masterpieces, but the performer always gets the credit. Good point, really good point. So, uh, for, for an owner to work on their Picasso, what are some of the, the preliminary steps? What are some of the first things that they need to do to move towards this strategy of half retirement? Well, the first thing I do is figure out what it is. My experience is what I think my Picasso work is is half right. Uh usually people will bundle it with other things, and it's actually less than what they think it is because they've had a little mini hairball there. Sometimes they think that, oh, that's not that big a deal, and it is. It usually takes someone else like tying a tie with a mirror is much easier than not. If if you have another party helping you follow the steps to get to your Picasso work, then that is helpful. And usually, you know, you've got to sit down and really think about what you do, maybe even keep a time log. We have a time log in the book. Uh, that will help you kind of get down to, OK, what is it that I spend my time doing? because you don't know what you're spending your time doing either. I know you're going, oh yes, I do. No you don't keep a time log. It's, it's not exactly what you think. It's usually 70% of what you think. OK, so really examining what it is that you need to be doing is, is a big area. Now what do you think? With the COVID situation coming into play. Um, do you think a lot more people will be Maybe moving towards a strategy like this as opposed, I mean, obviously people are concerned that I talked to anyways about, well, what's my evaluation going to look like at the end of next year if I get my business valued based on based on a COVID year. So does that, does that put half retire more in the spotlight as far as a strategy for for people in the future, do you think? Well, that's probably a better question for guys like you than guys like me, but I think that you've got, you've got two risks. Risks number one is we're going to take lousy earnings or worse earnings into account as part of the valuation, but at least you can explain those away. If you try to sell it today, you've got all this uncertainty risk, and in my opinion, that uncertainty risk is worse because if you go find our earnings were 50%, I at least know that they weren't negative half. Mhm. Right, right, yeah, well, there's a lot of uncertainty as far as, you know, at first, and I listened to a lot of economists, uh. On the topic and they at first it was like, well this is going to go away by the summer, no problem. Now we're looking at, you know, who knows what is happening. We're seeing a resurge. There's going to be some some changes in that. And of course buyers are looking for buying at a bargain price from tired owners right now. So it's probably not the best time. You probably could find a buyer. It's probably not the best time to sell with all, like you said, with this uncertainty out there and and concern for what might happen in the next several months. Um, so for, for owners that are thinking, you know, well, maybe I should just be getting my business in shape, isn't it, isn't it the same work to get to half retire that it, it is to get to an exit strategy which is to make yourself less and less relevant to the day to day operations of a business? Yeah, there's a big, there's a big overlap there. That's a, that's a portion of the program, you know, there's some mindset work that you have to get into as well. But yeah, you're going to end up, if you, if you do the work for half tire, it's a lot of the same objectives achieved a different way as someone would say tune up this business so that it, you know, is better and easier to sell because it's not as dependent upon you. Right, so if, if someone's doing that work, the, the difference is they're they're not um they're not kind of deluding themselves into thinking they're going to uh do all this work and then um. And then sell the business for a big number and with half retired they're taking maybe a more longer realistic look at what they're going to be doing over the next several years. How important is technology technology and standard operating procedures and all that kind of stuff for a business owner when they're considering how to kind of replace the 80% to 90% of what they do? So I, I like technology personally, so I have a bias, but I certainly understand that, you know, some of our, our members and clients do not have the love of technology that I do. But here, here's my pitch for technology. Technology is a standard operating procedure by definition. I mean, if you use an accounting system that has a whole set of rules built into it. You don't now you don't need to create an SOP because you have software many times. So I'm lazy. I prefer to just buy the software and get the operating system rather than having to, rather than having to create it. But that's another thing that buyers like, right? If you're going to sell your business and you, you hand over whether it be your knowledge base or your, your manual or I'm a big video guy, most of our SOPs are videos and then we just house them. You know, in a searchable warehouse for our employees because it's just easier to create that. But if I can go, Hey, here's how you run our business and here's the container that we use so people can access it and free tech search it, that gives someone a level of comfort which removes risk and raises the price. Excellent. Yeah, that makes a lot of sense. You know, we talk about SOPs a lot, but like you said, sometimes the operating system is the SOP, the program that you use, making sure that people know how to operate the program so that your business is a series of systems that are operated. Uh, and, uh, uh, work flows are created and and things like, uh, client relationship management packages and software so that people can become familiar with clients. What about the area of sales? Isn't that really hard to uh to uh. You know, to, to not do if if that's part of what you do for the company? I mean, or could that be your Picasso work? Now let's take our 40 year old surfer that that's his Picasso work is kind of landing the whales. But if we break it down, right, think of it like untangling that hairball, you know, there's a little, you know, golf ball in the inside of that hairball that is his Picasso work. We just got to find a way to get to it. You can't, you can't just dive right in. But part of the work that he is doing to land those whales is Picasso work, but there's lots of work that he's doing that isn't. And that's where we either, I'm a big fan of designing it away. I've been absolutely amazed at how much work we can just decide not to do or repurpose. It doesn't even need to be delegated because usually clients constrain us. They go, Hey Jim, what I really want to do is make the exact same amount of money I'm making today, but I want to do 75% less work. Right, well, if if if I delegate it I have to pay. I have to pay to delegate it it's not free. Everybody forgets that sometimes, you know, the only way it's free is that they already worked there and they're underutilized now it's free, but your good people are never underutilized and they're usually the ones you need to delegate to so we're back to square one. So I'm a big fan of, you know, redesigning workflows, deciding if we need to do it at all, cutting frequency. We have a little acronym for this we call it fever, and so we go through the fever process, but I've seen people just go through fever and get rid of half their work. Well, that's pretty huge. That that would be a nice outcome for, for a lot of our listeners is to uh to carve out that work and then, and then if they, if they want to work on their business, that gives them more time to to work on that gives the gift of time uh to increase the amount of time they can work on their business to get to this situation. Now let's talk about, OK, you can half retire, everybody can half retire to some extent for some period of time. What about the backup plan? What if you get sick? What if you pass away? What, what kind of a succession plan do you have to have in place for half retire? Well, it's going to be, it's going to be a lot less painful if you've half retired, but these are definitely two discrete things, you know, and we, we refer to experts like you for that type of thing or attorneys or people that handle that, you know, we're not a group of attorneys and we're not succession planners. What we are are people that, you know, help people half retire, but. Certainly if you know, if you take two business owners that owned, you know, electrical contractors here in Indianapolis where I am, and one of them was half retired and the other was running around with his hair on fire all day, you know, if they both got hit by the same truck, the half retired one is going to be in a much better position to either transition that business to someone. A lot of times we have clients that do a plan that we call hire the buyer. Uh, that will actually hire the person that is, is planning to buy the business from us down the road. We use a formula to buy the business. That's about the closest we come to succession planning, um, and it's a certain kind of business that wants to do that. Usually people want a cash exit. Right, right. Excellent. So with, with all of that, what's a good way for someone to start learning about this notion of half retirement? What's the website they should go to, how should they find out about this so they can really dig into it and figure out if they want to get started? Yeah, absolutely. So they can go to half retire.com. There's a downloadable half retire blueprint that you can get for free on that. There's a couple of webinars that you can attend as well, and of course the book comes out here in a week can change, and there's plenty of good information in that book. It's available anywhere you can buy a book Amazon, Barnes and Noble, etc. So as I go to the website, it's it's half is it half-retire.com, is it not? Uh, no, it's just half retire. Oh my my bad. OK, so just sorry about that, listener. So it's just half retire one word.com. They'll find a link to the book there I take it? Yep, should be in the sidebar obviously with it coming out in a week we're making sure everybody sees it and if you just go to Amazon and type half retire or frankly if you just go to Google and type half retire book, it'll be the first thing that pops up. OK, so listeners, you're exploring strategies. This is definitely one that you should take a look at. I've taken a look at it, it makes a lot of sense. There's a there's a process to this um it's, uh, as Jim says it's not just. The standard advice of delegate. There's a lot to it to understand what half retire is. Go to half retire.com. Jim, thanks so much for joining me once again today. It's always a pleasure to have you on, and I hope you'll come back again and we can pick it up from where we left off today. You bet. Always good talking, Bill. Thank you for listening to Exit Coach Radio.