Joan Ridley - You Might Be Ready to Leave, But is Your Business Ready? (H1317)

Time is precious and so are our pets, so time with our pets is extra precious. That's why we started Dutch. Dutch provides 24/7 access to licensed vets with unlimited virtual visits and follow-ups for up to 5 pets. You can message a vet at any time and schedule a video visit the same day. Our vets can even prescribe medication for many ailments, and shipping is always free. With Dutch, you'll get more time with your pets and year-round peace of mind when it comes to their vet care. 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 don't miss our one minute exit coach. of the day on exit coachradio.com. And now here's your host, the exit coach, Bill Black. Welcome back, everyone. Hey, we're going to continue in the same vein. We're going to talk about the fact that you might be ready to leave, but is your business ready? I mean, we always talk about this. There's 3 things that have to line up for a perfect business sale opportunity. The the fact that the market has to be ready, that you have to be ready, and your business has to be ready. And one of the foremost experts on that is joining us today. She's Joan Ridley from Business Wealth Solutions in Dallas, Texas, and she's, she has a wealth of information for us on this. So let's get right into it. Joan, welcome to the show. Well, thanks so much for having me. It's good to talk to you again. Yeah, it's good to talk with you again. It seems like just yesterday we were, we were for our listeners, we were both down at the Exit Planning Institute annual conference in Fort Worth, Texas, not that long ago, and it was a tremendous conference where professionals come to learn more about what's happening in the world of exit planning. And uh and Joan, you're, you're a very prominent member of that group and I'm really looking forward to our discussion today. And tell us a little bit about business wealth solutions and your background. Well, I am a business consultant, and my specialty is ownership transition strategy. So I come from the wealth management side, 20 years working with the state planning, financial planning, so I'm, I'm, I'm pretty much a fanatic about getting that right, but I'm also a certified exo planning advisor, a certified business intermediary, although I have no intention of doing what the brokers and the M&A people do. And I'm a nonpracticing certified financial planner, so we basically help business owners, uh, grow and harvest their, their wealth, and, and I've been doing this for, I guess about 12-13 years now. I like to say I was doing it when it wasn't cool, so, um, that's a and, and unlike a lot of them, um, yes, a lot of these will be third party sales, but But I, I keep my eye on those that are going to sell to employees. We have some that gift to employees, believe it or not, and also those, of course, who want to transfer ownership to the next generation. So we look at all the options before we dive in and make recommendations about how the owner should leave. Yeah, and you know the statistics are that over half of the businesses out there, at least small businesses and medium sized businesses, will not sell to an outsider but rather transition. So it's, it's a very important part, you know, it's easy, it's almost easy to transfer assets, but transferring power and knowledge and all that goes with that can be very challenging and complicated. So what steps does a business owner need to take to prepare for this type of a thing, for a successful business transition? Well, you know, this surprises a lot of people, Bill, but I really believe that whether you are going to transfer ownership to family or to employees or to third party, you still have to go through the same steps because it's about sustainability, it's about having a pleasant relations with your family when it's all done, and in the community as well. But um there are certain things they need to do, and you mentioned with your other color the 33 legs of the stool and and that's, that's really important, but Um, the first thing business owners need to do, I think, is to start thinking like a buyer and a banker, because let's be honest, that's what's going to drive the transaction regardless of what strategy you use. So in in your last call you're saying walk across the street and take a look, and I think that's great advice, but the thing is it's real hard to do that and like we got a new client yesterday and And he said, I want you here because I need to have a fresh set of eyes on what we're doing. And even though they're doing a great job, I could see immediately there were things that we need to tackle. So step back and, and, and look at your business as a banker and a buyer would and And those rules have changed about banking, how they will finance a business, and what worked 5 years ago or before the recession don't work anymore, so they need to know that. But business owners, they all kind of tend to make the same mistakes, and the biggest mistake I think that they assume their company is worth more than it is and Um, that's one of the mistakes I see most often. Um, just because the company is cash flowing well doesn't mean it's worth as much as they think it's worth or as much as it needs to be worth in order for them to have the post-exit lifestyle that they currently enjoy, um. If you'll bear with me, I'm going to share with you a few of the, the common issues that we see. The number one thing is probably poor financial record keeping. Now from an account standpoint, it may be really, really good, maybe be great from a gap standpoint, but if I look at it from a buyer or a banker's viewpoint, guess what? It doesn't tell me what I need to know about that company. And so we go in and we look at it with fresh eyes and say we're going to change this, this and this, and suddenly the real value in that business pops right out. Also, more than 10% of the revenue is coming from one customer. We've seen some real horror stories there and that's a sad one because it could take a long time to fix that one. And another one is, uh, no contractual recurring revenues. That's a big value driver that having a repeat customer is not the same as a recurring revenue, and they need to understand that that's going to affect their value. Um, and you said earlier the processes are not formally documented in writing. Very important. Those that business under and even management needs to be able to walk out the door tomorrow and whoever comes in is to be able to sit down and see in writing how things are done and never skip a beat. Um, of course the business owner is too depend, um, the business is too dependent on the business owner. I mean that's, that's a tragedy and we see that all the time, um, they kind of get it in their own way sometimes. A big one is no written employment agreements, non competes, non-solicitations. You know, I hear all the time we're in Texas. I hear, well, non-competees don't work in Texas. That is not true and it's not true in many other states. You just have to have the right attorney drafting your document to cross all the T's and dot the I's. Um, and then one that I'm seeing a lot recently is the failure to understand the impact of giving equity or legal ownership to employees without consulting with the right advisers first. You could really mess up a business that way, and I'm seeing because they're making promises they can't keep because they don't know how much they're going to need when they're out of the business, and here they are giving away equity or worse yet. Legal legal interest that's, that's a disaster. So there are 50 value drivers that we analyze, much like a lot of other consultants, and, uh, but these are the ones that come to mind immediately that that we're seeing a lot of. Now I come from wealth management, so naturally I'm going to want that business owner to meet with um. a certified financial planner who's trained to go through certain steps in in their analysis. I want to know, I want to know from a credible source what do you need to net from this business? How dependent are you, um, because without that information you're flying blind. You don't know. What life is going to be like after you leave it from a financial standpoint. So I like to see some good numbers. I like to see um the owner working with the CFP 3 to 5 years before he leaves the business, um, because that'll give us enough time to correct some of those value drivers that will drag down value and address the tax issues. So we need that. And, and of course the third one, as I said, look at that business from the standpoint of a banker. And a and a buyer and we don't know if it's going to be a strategic buyer or a financial buyer, but we better be prepared for what's coming through the door, unsolicited even. So there's sorts of things that we look at. So that's great. So, so, like you said, first, let's see an income map. Let's see what that looks like. So that'll tell us, that'll give us a present value number that you need to. Realize and all of your assets and your business is going to be part of that. So that'll tell us if you could sell today or if you need to employ a lot of these strategies and, and like I just said at the break, anybody can sell their business. It's just a question of what they're going to get for it, but the question is what do you need to get for it and what's it worth in its current state and which of these value drivers do we employ. So you gave us a lot of great A lot of great tips and ideas in there. Now, Joan, what about, you know, the, the transfer of power, the family business situation where, where people are, they're struggling. I mean, it's kind of like it reminds me of you're taking your, your son or daughter out to drive, to learn how to drive, rather, and you're sitting in the passenger seat, but you keep grabbing the wheel. Do you see that a lot? Oh gosh, that's a great analogy. I remember when my dad taught me how to drive, the poor man already had heart issues. Um, I hate him worse, but. But you know, um, it's real hard because the, the founder, that's his baby, and, and he wants to make sure that it's going to be in good hands whether it's with the next generation or the next owner outside the business and, and you can understand how they feel, um. What I do is I'm a big proponent of putting that team together and I will, if I'm working with a family business, I will introduce the idea very quickly of how to that we'd like to bring in a family business advisor. I try to stay away from words that will scare them. Uh, because, well, well, a lot of them they're psychologists, and, and, and they don't want, they don't want to hear those words. The, the advisor doesn't want it known that he's maybe a psychologist. I myself have a background in psychology, but. Um, people are intimidated by that sometimes, but we'll bring in a family business adviser, and he will hear things that it's not that I don't hear them, but I have to focus on this, all this other stuff that's going on. So I will let him work with the business owner and his family um to to pull out what are the goals, what are the concerns, what are the fears, and work with those. And if it's large enough business putting together the family business council. Um, because let's be honest, anybody who's ever been in business will tell you. I love my business, but I love my family more, and I want to know at the end of the day that we're going to be able to sit down at Thanksgiving dinner and love each other as much after the transaction as before, and it's not easy. I mean, you can see how they struggle and Who wouldn't with some of the things that they're dealing with. So we bring in that family business adviser who's quite often comes from a family owned business themselves, and I have two in the Dallas area that I work with that I like very much. Who else is on your bench of advisers that you call in on a regular basis? From the from the get-go, we'll bring in a good strong numbers guy because I've got so much else to look at. I just want to look at what he comes up with. Um, so we'll have um a fractional CFO um who will work closely with the CPA, the bookkeeper, and sometimes I'll just say maybe reenter some of the data so we can see what's really profitable about that business. Um, uh, of course we always need an estate planner, a good estate planning attorney, a good um corporate attorney. Um, where I mentioned already the the financial planner and I of course lean toward the CFP but doesn't have to be, um, uh, sometimes the HR people, you know, that poor admin person in the business or HR, whatever his or her label is, it's kind of catch all for a lot of stuff and it's a lot of responsibility and so what we do is we'll bring maybe an HR specialist to maybe do an audit, much like we would a corporate attorney do a corporate audit, a legal audit. Um, they're pretty much the main players. I, I, my team, my own personal team and I function as the business consultants dealing with the value drivers and all, but as we quickly identify, oh ops guys, now there's one if we're trying to maybe the top line is fine, but we're more concerned about the bottom line, we'll bring an operations consultant, somebody, they're a different animal. They're a business consultant, but um. I like, I like the guys who can um immediately start looking for creative ways to reduce expense, um, uh, maybe, maybe raw materials, get those prices down. Um, there are a number of ways they can do it, but also I want them to do an audit of the workflow process to see can the work flow through that business much more efficiently, dropping more dollars to the bottom line, and then I want them to document it on spreadsheets. I want to see the numbers. How is what you're recommending now going to affect my bottom line, so. Um, you can tell about my language bill. I really, I really get invested with my clients. I can tell you do, and I'm sure they're better off for it because you're not trying to do everything. You're you're relying on the professionals, but you're, you're orchestrating all of this work for the good of the business owner, I'm sure, because most owners, like, like you said, the poor HR person that is so busy doing, you know, deal. With problems and issues and employees that they don't have time sometimes to step back and say, hey, what's, what are we missing here? You know what it's like a catch all. It's like a catch-all. I was with one yesterday and I looked at her and I said, I bet your inbox is really full right now with a lot of stuff you never thought you'd be doing. She just rolled her eyeballs. I mean, I know it's true, so anyway, but But yeah, we, we get real involved. I mean, you have to, I think you have to, you have to, if you can't get in your client's shoes and see things from their viewpoint as well as from the outside. I'm not so sure you can help them all that much. You have to understand what they're feeling because it's not all about the numbers and the facts and figures. Well, I think it takes a special kind of person that wants to get involved that much and it also takes a diverse background to be able to understand and be conversant in all the different specialty areas that you're talking about. So it is a very special. And and and professional that can step in and do all that now Joan, let's talk about your experience with business owners after they leave their business because I think a lot of our listeners, you know, a lot of them are saying, OK, I know I need to do this. I know, you know, I'm getting older and it's, it's time to start transitioning, but what's on the other side of this? So let me ask you a question. Are Business owners that you're familiar with happy after they leave their business. Well, I'm so glad you asked that. There's a, there's a statistic out there. It's pretty well documented, but I'll repeat it. 75% of all business owners within 12 months after leaving their businesses are very unhappy. They're sorry they did it. 75%, 75%, and I, I think it's because they learn the facts after the fact. Number one, nobody maybe sits and talks to them or maybe they're not patient enough to talk about what is it going to be like. It's very, it's way beyond. I'm going to golf every day. I'm going to travel every day. Why did you go into business in the first place? Was there something you wanted to do? That it was your passion and you said if I had the money I could do this. I'll go in business, get the money, then I can do that. What is that? Because a lot of times that that passion never goes away, it's just forgotten. So they, I, I mean I have one now. I mean she's 77 years old. She's probably one of my very favorite clients and um she's now on a cruise, 42 day cruise in the Mediterranean, and as soon as she gets back we're going to lunch just because I, I just want to talk to her. I, I want to know what was, what is it like now. Um, and she was probably one of the most prepared psychologically, I will say mentally is the word we're supposed to use, but it, it can be very tough. I had one gentleman. I asked him, I said, So what's it like? He said, Tell people they have to be ready physically. And that's the first time I've ever heard that. He said, This is stressful. It's draining going through the process of getting out. Your business and I've done it twice myself, Bill. I can attest to that. He said, Tell them to start eating right, start exercising. Try meditating because they're going to need every resource they can, they can pull up to get through this and be happy on the other side. So it's not just what people in picture as far as You know, first of all, like you said, this exercise of negotiating a deal and getting through a deal is grueling as it is, and remember it might not go through, so you still have to operate and keep your eye on the ball on your business at the same time. You just can't let that go, right? You cannot let it go. And I remember when I went through it, I mean these business owners need to know first of all, you're not going to walk away with millions of dollars of cash from close. You've got escrows. You've got money that's being held behind and to be sure the buyer is sure the company's going to perform, even the best performing company, the owner's going to be asked to hold maybe 10-20% paper. You wouldn't know you're going to get paid. Well my God, what if your business wasn't very bankable to begin with because these value drivers weren't performing? You could be the bank, which means you're holding all the financing. That's very stressful, so. That's why it's so critical to get the right advisor who can kind of help you prepare for what's coming next, you know, prepare you so that it's not such a shock. You know, but they need to be passionate. I mean, I love asking Business centers, so what are you going to do when you're away from this? You're no longer doing this every day. I hear the most heartwarming, heartwarming stories, and, and, and they just open up sometimes that here's what I've always wanted to do. And the very first one I ever asked, this was several years ago, it still, it still pulls in my heartstrings. It was so touching and um. They need that passion, something they're passionate about later. It'll, it'll make them healthier and happier at the end of the day when they're out of the business. There's more to life than running a business. Great stuff, Joan. Thanks very much. We're we're out of time for today, but you gave us so much great information, and I would love to have you back on the show to go deeper into some of these topics next time. We've set a great little groundwork here for for a lot of different interesting discussions. So how can our listeners best get in touch with you? Well, anyone who's listening is welcome to call us. We'll always do a complimentary consultation over the phone if not in person, if they're in North Texas, 214-692-9192 and also go to our website www.bboy Walteram LLC.net. That's BWS LLC.net. They're oh gosh, there's probably 50 articles I've written. They're non-technical, written for the business owner who has a short attention span, so read those, um, but call us and if you want to sign up for our newsletter, you can do that on the website as well. So it's, it's BWS as in business wealth Solutions LLC.net. And again, listeners, do you get the feeling you're listening to someone who knows what they're talking about who has been there and done that? And I can tell you just from from my watching Joan at this exit Planning Institute, she is well known and well respected in the in the nation as one of the Foremost experts. So get in touch with Joe and Joan, thanks so much for joining us. It's been a real pleasure to have you on today. Great. Let's stay in touch and congratulations on what you're doing. It's a tremendous service. Oh, I appreciate that. Thanks very much. All right, we'll be in touch. Bye bye. All right, we're going to take just a short break and come back with another guest, and you don't want to miss this one, so please stay tuned. You're listening to Exit Coachradio.com, the information station for age 50 plus business owners, where we're interviewing over 250 top advisors for their best tips, ideas, and precautions so you can be well planned. We upload new one minute tips every day. Exitcoachradio.com. Come listen for a minute. Thank you for listening to Exit Coach Radio. Time is precious and so are our pets, so time with our pets is extra precious. That's why we started Dutch. Dutch provides 24/7 access to licensed vets with unlimited virtual visits and follow-ups for up to 5 pets. You can message a vet at any time and schedule a video visit the same day. Our vets can even prescribe medication for many ailments, and shipping is always free. With Dutch, you'll get more time with your pets and year-round peace of mind when it comes to their vet care.