Succession Planning for Women-Owned Businesses: Paving the way for long-term success

or anyone just joining this is the succession for planning succession planning for women-owned business webinar hosted by project equity in partnership with Stratus Wealth Advisors and hosted by Kaiser Permanente and the Women's Business Enterprise Council both Wayback Pacific and we back West so we look forward to getting started here and I'd like to kick this off a little bit by introducing you to what we're going to get into so a couple housekeeping notes before we get started the webinar is being recorded and the recording will be shared with all registrants after the event feel free to introduce yourself and use the chat function to chat with each other I will also be in there answering questions and if you have any questions for the panelists or that you think might be interesting to get answered live at the end we are going to have a q a portion right at the end that you can be able to take advantage of this so looking forward to getting to know wall and having you participate in the Q a portion at the end so please stay tuned and a copy of the slide deck will also be available upon request at the end after the after the webinar has concluded so thank you again for joining us and without further Ado I'd like to introduce you to Rachel Parsons a project manager of this supplier diversity with Kaiser Permanente hi Rachel hi thank you all thank you for so much for joining us welcome everyone welcome to pliers and friends I am Rachel Parsons with Kaiser permanente's impact spending at Kaiser Permanente our mission is to provide high quality affordable health care services and to improve the health of our members and the communities we serve and we understand that access to Economic Opportunity is a major determinant of one's physical and mental health we also know that small businesses like yours are the backbone of the communities we serve they create vital jobs and they keep our local economies healthy that's why Kaiser Permanente is supporting small businesses through various initiatives including the business resiliency through employee ownership initiative in partnership with project equity and the Oberon cooperative these days many business owners are looking for ways to strengthen their businesses retain workers and in some cases sell their companies at Kaiser Permanente we value the continuity of our suppliers and we want to help them be resilient and successful we believe that proactive succession planning the topic of today's webinar can help to retain local jobs and strengthen local economies our partner project equity which is hosting today's webinar and our other presenter Stratus Wealth Advisors specialize in helping successful business owners prepare for a resilient future we are so glad that you've joined us today for this informational webinar thank you so much for being here thank you for everything you do for the health of your employees and for the health of your communities so let's get this started please join me in welcoming Dr Janice green the president and CEO of feedback Pacific take it away Janice first of all I want to thank you all for being here and thank you for having me I will say you may hear a little bit background noise so I'm going to be free but I do want to talk about feedback a little bit when we visit Enterprise National Council it's one of the largest certifying bodies and the most trusted certifying bodies for women-owned businesses we have about 18 000 we have about 18 000 learning businesses certified through US throughout the nation and are we back Pacific we're probably about an uh WBS so if you're not parked or would want to stay abreast nobody because if you follow us on Facebook or social media but we do offer a lot of opportunities for engagement for networking for being um networking with not only corporations but also with others and as she was saying the impact of what we do in our network with this gives acoustic damage to not only to the women's business but to communicate itself because women's businesses always give back more socially and about one of the things that I've noticed over the years haven't worked in in Supply University is that it that's the session planning is critical it's so important because it's part of a business owners strategy it helps ensure continuity and stability it retains institutional knowledge and develops Talent into individuals within the organization a good success is something that every organization should have and it should includes steps to identify potential successors transfer ownership and provide for the business owners retirement additionally it should be regularly reviewed and it should be updated and it would like select the changes in the business environment one of the things I think about this particular webinar that you're going to see is that it will give you the steps to give you the tips to give you resources to those to perform succession plans so I'm happy you're here I am thankful that uh Kaiser has sponsor this event so lean back and enjoy but take notes and I'm glad that everything's going to be available to you because it's not a one-time session it's something that's online thank you so much Dr Green uh wonderful to have you uh welcome us and and it's exciting to be able to speak to the members of the council here so um what I'd like to do is go ahead and introduce our pan list for today first up is Sam Brownell of Stratus Wealth Advisors um myself I'm miyaka Cochran with project Equity playing a little bit of a host today and MC and we also have Hillary Abel one of the founders of project Equity speaking in the second half so I'll let Sam and Hillary speak a little bit more about themselves and what they do without further Ado Sam why don't you take it away and get us started great thanks miaka and I want to say a thank you to project equity and Kaiser Permanente myself this is great and and Dr Green you really teeded up well there for succession planning so thank you for making it easier to get the conversation started and we're looking forward to having a really good robust conversation and it doesn't stop today so if you do have questions there'll be contact information at the end obviously as miyaka said there's a recording so quick introduction I'm Sam Brownell we are a firm that specializes in succession planning for independent business owners the goal being to keep independent businesses independent and particularly if they happen to be women or minority owned by continuing to build wealth outside of your traditional male dominated roles is really really important and so we look holistically and we do everything from valuing the business to putting together the succession plan to trying to figure out how that interacts with your main personal plan and then we can also provide any asset management or personal financial planning that you need but we're really here to answer questions and educate first and foremost so next slide please Megan so you'll you'll hear this a lot in the next 15 minutes or 15-20 minutes is start early okay it's this is something that if you come in when you have a health incident or you're just getting sick of running a business it's going to be much much more difficult to transition to business so you have to plan early for this and you have to recognize that your business in many ways is like your body just because you have an ailment somewhere that doesn't mean that you can just isolate that one area you're gonna have to focus on the holistic way that your body functions just like the holistic way your business functions it's operations it's purchasing it's things like strategy it's Finance all these things work together and so what you need to do now is figure out what your business is worth because that's the key it's like going on a hike if you don't know where the trailhead is you really don't know where you're going and so you have to know what your business is worth and then what you have to do is look at that objectively and think okay it's probably not worth what I thought it was what do I go from here and that's where we talk about the three p's right that's predictable processes predictable growth and predictable value right the first two leading to that predictable value the more we can make your business sustainable and predictable that means the more valuable it is the easier it is to transition so next slide please so let's talk a little bit more about some details about why starting early matters first and foremost it's the old don't put all your eggs in one basket make sure you're diversifying the way you're building your net worth okay contribute to retirement plans put money into real estate if that's something that you're interested in invest in other businesses look at other things to do besides just your business because it's great you should invest in your business and you should want to grow your business but it's just one of the assets there and the other thing we're looking at is taxes it's very important down the line to think about what is the net I'm getting out of my business and we'll talk about that later because the gross value is one thing the after tax value is another thing and then finally get the right team of people together it's really really important this is something that most business owners will do once as one shot at this and so make sure you get people that understand how to transition businesses how to Value businesses and how to look at the options right and and not just say if you go to an investment banker they're going to say sell your business to a third party because that's how they get compensated what you need to do is is zoom out and look at some of these other options and then some of them will consider today but it really is about getting some answers to questions so that you don't just add another thing onto your to-do list you're already busy enough next slide please couple statistics here and these change over time every time somebody does a survey it's a little bit different but the key takeaway here is that lots of people think or would like to pass a business on to a younger generation Next Generation especially intra family my kids or somebody else in the family rarely does it happen okay and it's happening less and less you see a lot of these businesses we do nowadays who are around we've got clients that are third fourth fifth generation and they're struggling right now because who do they pass the business on to their kids are off doing something different they moved out of the town that they grew up in and they don't want to come back so it's really important to think about the realities too out there it would be wonderful if you could do an internal succession right you had a key employee who had a kid and you could do something along those lines but it's not as likely as it used to be so just being aware of that opens your mind up to the fact that you need to look farther afield than just the people who are very close to you next slide please so back to what we talked about up top is where do I begin and that's the valuation and and and the objective piece is important business owners by Nature they're hard working you have to be optimistic to run a business because there's so many ups and downs but lots of times that leads people to thought processes such as hey how you doing I'd like to get my business valued great let me tell you tell me a little bit about yourself well you know and then they go through this and then they say the guy across town just sold his business for five million dollars I'm at least as good of a business owner as him so that means my business should be worth 5 million or we hear hey Sam we've been running this business for 35 years okay that doesn't equate to value and so that's something that is really key as you go back to your business and you start looking at your financial statements what are you driving to the bottom line what is your net income and the other thing we look at is something called ebitda right earnings before interest depreciation taxes and amortization and that is a key metric when you look at business valuation what is the net cash flow that my business can create you drive more money to that net cash flow it becomes more valuable to somebody else okay so that's really really key and getting that valuation early means you can get on top of making the business more valuable if you need to because what it comes down to when we tell folks it's it's like selling real estate now you want to have a listing presentation that shows other people how they can make money with the tools you've already developed and if somebody is going to have to come in if if miaka has to come in and make a lot of changes and invest a lot of money in my business he's not gonna he's not paying me for that potential that's something he's going to have to invest in so put those tools in place and more importantly show people how they can use them to make money next slide so I'm going to walk through a couple case studies here that will will hopefully paint a picture in your mind of some things that people do that are mistakes and then how to correct those so that when you're looking at your own business we can do a little bit better and we can be a little bit better prepared next slide please so a little cartoon here to get this case study started take away here don't wait again start early if we're waiting until the owner has a heart attack and then she's coming and going uh-oh what do I do that's an issue we need to work on that we need to get ahead of that things happen health issues happen personal issues happen but planning means that we're prepared for these things as opposed to reacting to them next slide so we'll go through a hypothetical owner profile here and this is we we look at a lot of these right this is this is similar to it to a couple owners we're working with out west women that run very good businesses they've inherited them from an older generation they have children but none of them are interested and the owner really is the business and that is really important here as we go through this scenario is if the owner is the business and the owner leaves then where does the value go well the value walks out the door so let's take a look at the next slide here so owners always have concerns and that's fine and many of these may be yours your concerns how do I protect the wealth of my family owners care a great deal about their employees I want to keep my employees I want to retain especially nowadays and I would guess that for everybody here one of the things that you talk about quite often is recruiting and retention and and so thinking about that in the context of your operations will help the succession planning piece of it it's establishing a good management team would you ask yourself a question if I could go on vacation and turn off my phone and not look at my email for six weeks what would happen when I came back if the answer isn't the business would still be running fine then it's time to start thinking and putting some processes in place again this is the planning process next slide please so what happens with concerns is if they're not addressed they tend to lead to poor decisions and a lot of these decisions and we see this a lot in particular with independent business owners is I'm going to take on more I'm going to do more stuff well I have to handle the purchasing or I'm going to handle this because we can't invest in that e-commerce or you know maybe I should just shut down the business when I'm ready to go I don't think anybody's ready to take it over and so that type of thinking is very easy to get into so as an owner it's very important to find resources and that could be through somebody like project Equity it could be through somebody like us at Stratus it could be through an organization like we back use those resources to find people who are going through the same challenges because sharing what you're going through can help alleviate a lot of these concerns next slide please because what we don't want to do here is allow these poor decisions to Fester because what happens then is they tend to lead to lower value and less continuity and so as we talked about before start to teach what's in your head what we tell owners a lot of times is write down what are your responsibilities what are you doing on a day-to-day month-to-month quarter to quarter an annual basis and which of these processes are low-hanging fruit what could you potentially pass on well maybe it's not your your top customer who's 15 of your Revenue maybe it's not that relationship yet but maybe it's something like an insurance review I'm involved in the insurance review every year well maybe there's somebody else that can handle that take that off your plate and what we find when we go through this process with owners and we start delegating a little bit more is it makes it more fun to be in the business it's not as stressful you're not working 80 90 hours a week you can spend weekends doing things that you want and so these are really really important things and it makes a difference to a buyer because if I'm coming in and I'm looking at buying a business I'm looking at buying your business and you are the business or there are no defined processes it's going to be really hard for me to tell you that I'm going to pay you a good price for that business because I'm essentially going to have to come in and recreate everything that's not a good idea right so run a Better Business by disseminating that knowledge get everybody pulling in the right direction drive more money to the bottom line ultimately that's what creates value for the business next slide please so case study number two and and this is a challenging one too is as you're an owner it can be very difficult to let go and feel like oh my goodness what happens what happens when I don't have control what happens if I'm not making these big decisions so let's talk about this a little bit next slide please so not everybody in the family is going to want to be in the business just like not every employee is going to want to own the business and that's fine but you have to build a culture where everybody is thinking more or less like an owner because that makes everybody more accountable and helps them to be pulling in the right direction next slide so again let's look at a different profile here this is somebody who started the business and there may be a number of you out there like this who are coming up on that three decade in the business I'd like to transition I'd like to work a little bit less maybe you have children working in the business maybe you don't in this example we're talking about somebody who has multiple children some work in the business some don't again primary point of contact you know what you need to do but it's hard to have these conversations and it's particularly hard when it's internal when we're talking about somebody internal to the organization or your family and so getting started can be very difficult next slide please concerns and and in this case an owner's concern would be a lot of it is around the child or children are they ready do they have enough respect how do I begin to have a discussion with them if there's more than one who should be calling the shots and so these things are really really critical and can take some discussion and like any of these discussions they take time so starting early is your best best bet here next slide please so again don't hide or hang on to these don't feel like you're alone every single business owner that we talk to has concerns is worried about something everything from will my management team be able to handle the operations to will I get paid out to what happens to my customers my clients do employees get fired all of this stuff becomes really really important so don't hold concerns in find somebody to talk to find somebody who has experience or is going through the same thing sharing this makes a big difference and this is something that's really great when you get involved in a network like this is Reach Out right we're not we're not charging by the hour project Equity is not charging by the hours you go to your your your local associations you look at trade groups all these people want to help and so Reach Out see what you can do see what you can learn because as you start to learn things it can alleviate some of these concerns next slide please and this is something that Dr Green talked about up top which is this this concept of sustainability or continuity and and that's really key because what you'll see in a lot of these transitions is that the incoming owner owners is going to want a certain amount of time where the outgoing owner is going to be involved and that's key because there has to be this idea of continuity or sustainability it's not like I can just today leave the business and tomorrow the person that I picked will be running it perfectly and I'll have great relationships with everybody that should have started transitioning a long time ago but there may be things that take a little bit more time and it may be more comforting both to the incoming management and owners and to your existing clients if there is some real continuity where somebody sticks around we've done it where we created Emeritus position and maybe somebody gets paid to come in one day a week we've done it in ways where there's some type of earn out tied to making sure that some of these big customers don't leave so that there's a financial incentive in there we've done it in terms of creating a board and this again gets back to this idea of broad-based employee ownership but maybe there's a spot on up on a board so that all that knowledge that the outgoing owner has gained over time doesn't walk out the door okay and this becomes really important regardless of who's going to take over but particularly if you've got internal people you're considering we want to make sure that we're very clear with them we're very upfront especially if they're not going to get a majority stake of the business that they understand why and that they're supported in in the fact that they are a vital part of this organization so what I would say to everybody out there that that bottom bolded point is really important soft skills that's where this stuff goes wrong and we can make the numbers work we can think about the legal stuff that can all be handled the big lift is making sure the operations the strategy the relationships are in a good place so that they can transition next slide please okay let's let's talk about options here and there are there are many and I'm going to highlight a few so let's go to the next slide so there are a number of transition options we've broken them down into two buckets the the key or the the top ones that everybody thinks about are somebody in my family internal or some type of third-party sale right and that could be to a strategic competitor they've probably heard a lot about private Equity Roll-Ups that's not something that we're we're really going to push for because that doesn't a keep the business independent and B you're selling to somebody who is just looking to exit in another three to five years right they've got their own short-term exit timeline and so for most independent business owners who care about their community care about their employees not a great strategy to go in that direction and that gets us to this second column here which is things that are overlooked and Hillary will get into this more in just a few minutes but these are these broad-based employee ownerships this is looking at your Workforce and saying maybe these people are the best option out there because these are the people who know the business the best and maybe there's not one person that can do it but as a cohort they can do a really good job of of running my business and importantly you can still get fair market value there's it's not like you sell to an employee a broad-based employee ownership option and all of a sudden you're having to take a haircut or all of a sudden your business doesn't have to operate by the rules of business anymore these are well-run successful profitable businesses they just have a different ownership model and one that you should be considering next slide let's get back to this concept that I talked about up top about net value right and so everybody should be starting with that valuation right the ABCs appraise your business get that valuation build that succession plan and then calculate your net worth all of this matters because ultimately when you're building net worth it's that after tax after fees value and so you need to think about things when you go through this such as is it all right if I take the business the whole value five million dollars in year One what happens to the taxes what happens if the if it's a stock sale versus an asset sale it's a little bit technical but the taxes are going to be much different stock sale tends to be much more tax efficient than an assets deal and then can the business sustainably support the buyout will the cash flow that you're creating be able to buy out the value of the business or are you going to sync the business and it's not going to be able to reinvest and so again this gets back to that idea of there are some tax advantages for different companies going to a broad-based employee ownership model and that could potentially be tax advantage to the seller and in some instances it could be to the business depending on the entity and depending on what type of option they choose so these are things that everybody really needs to think about and as we move from this now we'll get more into thinking directly about employee broad-based employee ownership so but that I'll let Hillary take it from here wonderful Sam thank you so much and I also want to thank our partners at Kaiser Permanente and we back Pacific and we back West it really is wonderful having an a wealth advisor like you Sam incorporating broad-based employee ownership into this critical education that you're doing about all forms of succession planning so we really value you and um are so grateful for everybody's time today so my name is Hilary Abel I'm one of two co-founders of an organization called project Equity we are a non-profit and we are a leading provider at on a national level of transition services for companies that are pursuing broad-based employee ownership we work with all kinds of Partners as you can tell from this webinar and most importantly we work directly with business owners we talk to hundreds of them every year and help them uh consider whether broad-based employee ownership should be on their succession planning menu so um we have about 25 staff working around the country and um thank you to miyaka and um Megan who's running the show for us today next slide please so is Sam just walked you through there are many options and I see questions coming in about some of them already in the Q a and I'm just going to vary at a very high level share with you that an employee ownership transition Compares really well to the concerns that many business owners have so it's definitely a guarantee that your legacy as a business owner will live on um it's very likely you'll get market value for your company you don't need to take a haircut um and as Sam mentioned there are some tax benefits and of course retention of employees and rewarding employees and really bringing out the best of their ownership capacities as you can see from this chart you know closing down your operation doesn't do any of those things and even selling to a family member um isn't guaranteed to do all of them either although it certainly would continue with your legacy so you're probably asking yourself what is employee ownership anyway uh as as Sam mentioned we use the term broad-based employee ownership to refer to three main kinds main ways that companies can be owned in a broad-based fashion by their employees and as long as a company is at least 30 percent owned by their employees we would broadly consider it an employee-owned company and many will do a partial sale like that and eventually go to majority ownership or even 100 ownership over time but the real difference between this and other forms of you know stock options or management sharing in as owners of a business is that everybody who meets basic criteria of tenure and being of an employee in good standing has the opportunity to become an owner and there are more than 10 million people around the country who are currently employee owners in their underbroad based employee ownership plans I won't go into detail on this but just to give you a quick overview of the three main types of employee ownership the best known one are Employee Stock ownership plans and these are qualified retirement plans that are put into place in the form of a trust and actually own a portion of the business on behalf of the employees so it's actually an indirect share ownership model and there's about 6 000 companies with these in place around the country worker cooperatives are slightly different in that they are always wholly owned by the employee owners and also democratically governed so the employee owners will will elect the board of directors and fill the majority of the seats on the board as well they can be more conventionally managed they don't have to have Collective management they could have traditional management as well but they are democratically governed by those shareholders who are the employees and finally there's this Third Kind which is newer in the United States but very common and and long-standing in the United Kingdom and there's you know a couple of dozen of these at least around the country now in the US and it's becoming more popular and it is a something called employee ownership trusts or Perpetual purpose trust that don't have the same tax advantages as these other forms can but offer a lot of flexibility um and finally one of the things I've been in this field for 20 years and it's been exciting to see a lot of innovation and one of the things that we're seeing more of is mergers and acquisition so for example our other partner in the our partnership with Kaiser Permanente is a group called Oberon Cooperative which is actually a Cooperative holding company that will acquire other businesses and turn them into employee owned companies as part of their cooperative now I want to say a quick word about considerations for micro businesses and by that I mean businesses with fewer than 10 employees because many companies owned owned by women are our micro businesses so it's an important part of this conversation today so it is true that the typical company that transitions to broad-based employee ownership in the way that project Equity does usually has 10 or more employees so so one recommendation if you'd like to pursue this is to focus for some time on growing your business so it so it is at that size if it's not already um on the other hand there are many successful micro businesses that that have transitioned um but it does require a high level of Engagement from all of the employees in a company whereas ideally any employee-owned company has a very strong ownership culture and everybody is engaged but one of the Beauties is that when everybody shares an ownership you don't need everybody to be shouldering the ownership responsibilities in the same way it's very broadly dispersed and so if some people aren't in a state where they can fully embody the mindset of an owner that's okay in larger companies but if you are in a micro business you really want to assess the interest and the skills of your existing staff and to cultivate their leadership which you would do anyway but it comes very critical um for a micro business because when you leave um as the chief cook and bottle washer and all things probably management and leadership in the company if you're a small company you'll be taking a lot of those core competencies with you so you want to be sure that your new small team can can carry those on um so we we do know that many of the micro business transitions that do succeed the owner does stay on for a period of time and in some cases they're actually financing the whole sale now that doesn't need to be the case in most employee ownership Transitions and I'll talk a little bit more about sources of financing but because we know that many women are leading wonderful very small businesses we wanted to touch a bit on this question of micro businesses so the most important question here for all of you today is what are the benefits of broad-based employee ownership to owners who sell their companies so one of course is what we've already said that you can in most cases achieve a market price and you have a ready buyer who's right there a known quantity you don't have to go out and find them in the marketplace they're right there with you um A major advantage is also that when when you are selling to your employees you're not subject to the the whims or the Mandate of say a larger business that might be acquiring your company or a third party buyer who might have more severe constraints or priorities that they are trying to bring about you would retain more influence on the pacing and the timeline of your exit whether you stay you know for a number of years or indefinitely after you sell the company or whether you you know have a fast exit or a slower exit and most important employee ownership enables you to protect your legacy and to preserve that into the future by keeping it in the hands of the people who built the company with you and carrying on your company's culture now we'd like you to hear from a woman who did sell her business to her employees um she's not here with us live today but now young ma is a close partner of project equities her company Proof Bakery um it still is actually a client of project equities we took them through the transition process and are now providing post-transition support and now young is a wonderful spokesperson and as you can see here one of the things that she really emphasizes is that her employees know what it takes to run the business and as she built their leadership as she prepared to exit she really felt confident that they could keep its culture and its amazing products actually Proof Bakery has has won some awards and I can attest that their granola is the best out there so let's go to the next slide and Megan is going to play just a one minute clip of a video of Na young and then we'll continue my name is I'm the selling owner of poop Bakery I think would say in 2010 we started with like about five or six people and now we're around 24 25 and we've been here 10 years I think when I was sort of burdened by running a small business by myself especially during kind of like hard years I think that's kind of when I started to revisit again the idea of work with cooperatives and just you know having that shared sense of responsibility I think it's also important after employees have helped build the business and have kept it going that they now have a chance to kind of reap the benefits of it I work as a server in front of house and also as an assistant trainer so before we became a worker on Cooperative my biggest fear was that our customers would start looking for our quality to change but that's not been the experience at all people continue every day oh wow you're a Cooperative now that's so cool when did that happen what was it like tell me more there's a lot of so much excitement and what a relief it was thank you Megan um and that young man who you saw shaping the pie crust at the end is a man named Christian Garcia who I had the pleasure of of interviewing together with my young at a convening project Equity recently hosted um and I'd like to to brag about people like Christian because his story is is actually not at all uncommon in in companies that we work with and he went from um you know being kind of a working class kid a son of a son of immigrants and his family kind of hoped he'd become a doctor but it wasn't wasn't the right path for him and he loved the hospitality industry he got in um really liked his work at Proof Bakery and has become a manager and is now a co-owner and actually within just a year of transitioning they had already shared substantial profit with um with their employee owners and Christian spoke in a really excited tone about how he now envisions himself becoming a homeowner and is saving that down payment so it's it's within with it's within reach whereas before it was just a dream so as a nonprofit our mission really is to create quality jobs and wealth building opportunities for uh for business owners and for workers so I love Christian's story for that reason um Young's tips on succession planning really are very much what um uh Sam has already talked you through today but as you can see she did really focus on starting early creating a strong culture developing leadership and also partnering with professionals who can demystify employee ownership and really make the process accessible so just a brief touch on what what our transition process is and other organizations go through similar processes you start by talking to someone like miyaka or his team which is a wonderful group of people who help business owners just learn the basics about employee ownership and and think start to think about how it might fit with with your company and your goals these are free consultations that we offer the first step is always a feasibility assessment and that is really oriented towards understanding whether the company can take on debt to be able to pay you as the selling owner at least a portion and sometimes um yeah usually these are mostly leverage buyouts so we want to look and see will the company remains strong into the future and still Thrive after it's paid off that sale price and if that works for the selling owner and other factors seem to look good there's a whole transition process that we take companies through over the course of about six to 18 months depending on how fast you can move really our team can take you through it in as little as six months and then afterwards we have what we call our our Thrive program which is where we help the new employee owners fully understand their rights and responsibilities as owners and that's adapted to the type of employee ownership that you you implemented there are many sources of financing for these transactions so most people if they if they're open to considering employee ownership will will imagine well I don't think my employees have the money to buy my business and that is usually the case and that's not a problem because there are a number of community development financial institutions even some Community Banks and um and other programs that will provide loans project Equity actually has two such programs that we manage with Partners ourselves so usually we can connect a client of ours with a source of financing so to to wrap up um and actually I'll just I see that question in the chat so I'll just answer that right away um no the financing doesn't go directly to the employees it actually goes um the loan is taken out by the employee-owned business so if you were to become a worker Cooperative like Proof Bakery did that new Cooperative entity would take on the loan and would pay it off to the cdfi um and similarly if you were to just transition within your current current business structure so it's the business really buying itself from the from the selling owner so just to summarize um we encourage you to seek a consultation we'll talk a bit about that in a minute when we wrap up um of course your your profitability and your financials are some of the first things we'll talk with you about um you would want to think about who are your key employees you know you would want to offer in a broad-based employee ownership model the opportunity for everybody who who meets your basic criteria but really also think about key employees who might be leaders in the process and could be part of a transition team or might be someone you bring in been earlier than others if you want to get their input on the process and management transition is a very key part if you do plan to exit or change your role which is is always possible there's a lot of options for how an owner can stay involved when they sell their company to their employees and last but not least because we're mostly women business owners on this call and we have of course the partnership of webec Pacific and we BEC West here we wanted to just briefly say that you would want to consider if you are a certified women-owned business you would want to consider the impact on your certification and for my last slide I'll just speak briefly to that so we we know of a number of examples of companies that have been certified have transitioned to one of several forms of broad-based employee ownership and have maintained their certification um essentially the criteria are the same if your employee owned so your ownership needs to be majority women which means that your employee owners would need to be 51 women qualifying individuals depending what type of certification you're doing um and also the board and and the senior executive leadership would need to also be women so we know that not all women-owned companies have a majority of women employees so it's not guaranteed that you would be able to keep your certification but if you talk to your certifying organization early and sort of start to assess how your fit would would go with uh with the certification criteria it's it's very possible and I will just say as someone who's in this field we're also hoping to hoping to be able to familiarize the certifying organizations um more with with the value of employee ownership and perhaps find ways to make it a little bit easier to um to get through the process but it's very doable we are not experts in certification but others on this call are and if this is something you're considered as a certified business we would be happy to to see if we can support your process and with that I will hand it back to miyaka thank you everybody much Hillary and and thank you Sam as well for a fantastic presentation so we're about to get into our q a portion of the webinar but before we do uh Sam and I wanted to highlight uh something that we do exclusively uh for these webinars and so what we'd like to do is offer a joint consultation so Stratus Wealth Advisors offers a great free consultation to get to know their services and to kind of get some initial feedback on sort of what your goals and and uh aspirations are as well as project Equity we offer free consultation for businesses who are looking to explore employee ownership more whether it's just out of curiosity and wanting to get more information or people who are more seriously considering it for an exit option um but Sam and I have also worked on a way to provide a joint consultation so we'd love for you to take advantage of that you can contact either Sam or myself by email we have access to each other's calendar so if you email one or both of us we can schedule a time where all of us can speak together and so you can get everything in one call both some perspective from uh you know seasoned succession planner with Sam and myself who specializes in employee ownership um so you know one of the things that that we can do also is dig into your timeline right so if you're looking at oh I'm kind of looking a few years out we can help you there or if you're looking for an immediate option or for something soon we can help you no matter where you're at in the journey so again we will this deck will be available by request so anybody who wants to email us um we will send a copy of the deck and you can contact us to speak further as well anything you want to add about that Sam no I think you covered most of it I I would just say that feel feel free to reach out because really everybody has goals every business owner has goals and share those goals because that's the beginning of formulating this plan right if we know what you want to do we can help you game plan for how to get to where you want to be so don't be don't be afraid to reach out yeah grandson's sake okay so uh let's go ahead and shift over to our q a portion we'll answer some questions live between the three of us Sam Hillary and myself um and we'll keep the the Q a function open so if anybody has questions that they're thinking of as we're speaking go ahead and submit them and we'll get to as many as we can we have about nine questions already so thank you all for those who submitted um so I'm going to jump into one that multiple people ask and that is you know what's an average range of valuations is it a multiplier of ibada what is that multiplier one person said I heard it's supposed to be 2.5 times you know gross revenue so Sam love to to get your thoughts on that and then Hillary if you want to speak to the averages within employee ownership as well yeah so so good good question and this is where this is where the Consultants love to say it depends and part of that part of that is is industry specific so that's going to matter part of it matters is as miyaka said that that whole ibadan number that that makes a big difference the stronger that is the stronger the multiple can be but essentially think of your evaluation in in two ways if you're a business that provides some type of tangible product so maybe you're maybe you're in retail or something like that you've got assets and those assets are worth something there's a there's a market value to those assets and then you've got cash flow and that cash flow is worth something to somebody because what I'm ultimately paying for is the future cash flow potential of your business it's a little bit different when you look at a service business because typically a service businesses their assets are their people and so it's more about what is the cash flow that those people can produce in the future and so it's those are important things from that straight from evaluation the second part of it and and this will be a good uh transition here to Hillary and miyaka is what can your business sustain and then what will the the banks or other Institute lending institutions finance and so that can also have an impact on the valuation the ultimate value you get in a sale and I'll say that in an employee ownership sale a third party valuation can be very helpful we often recommend it it's not required in the same way um we we at project equity for example do an in-depth feasibility analysis which is really focused on understanding your business looking back five years and then projecting forward five to nine years um knowing that there's all kinds of assumptions you can't you can't predict the future but we'll do a best case a base case and a worse case um and we'll really be looking as as Sam said at what because this will be a leverage buyout what the company could afford to to pay for itself and and we do believe that that is you know often very similar to what a third-party valuation would do what what it won't do when we say you'll get a you'll get a market value what it won't do is match the price of a strategic buyer um so unusually strategic buyers are willing to pay more than the fair market value because they have some reason why they really want either you to go away as a competitor or they want something that you have so they'll pay about what a otherwise reasonable price would be but um short of that it's usually you know pretty comparable and I will say that I recently heard from a colleague in Wisconsin that they helped a um I think it was about a five person so a micro business a small Manufacturing Company making wood products and then in Wisconsin transitioned to a worker Cooperative a couple of years ago and they have vastly increased profitability and and pay in the time that they have been running the company so you know folks will say the I my employees won't run the company like I do and they won't because you are unique the owner is unique and they have a certain set of skills but sometimes they will be able to bring you know fresh thinking and actually their full efforts to improve the company over time so let's move on to our next question this one is for Sam um this is from Allison who has only one full-time employee and several contractors and hoping to make the one employee an equity partner of some kind and just hoping for some general advice there would love to to hear from you on that Sam yeah that's a good that's a very good question and there are a number of different ways to do this and it partially will depend on what type of entity structure you are you uh C Corp and S Corp are you an LLC but the idea here is to start thinking through what is the reason for making this person an equity partner is this uh retention strategy is this an incentive strategy and then how do we want to bring that person on is this something that we want this person to pay for in full let's say the company is worth five hundred thousand dollars and you know they want a 20 stake and that's a hundred thousand dollars is that something that they're going to be able to afford there's the option to Grant some interest there and that would be where I if I'm going to Grant some interest to Hillary or to miyaka then they are going to pay taxes on that interest but it's not going to be the full price and within that it's if I'm going to do something like granting am I granting the whole thing now is there some vesting to try to get this person to stick around you know over how many years does that work and then there are questions over over voting you know is this person do we want this person to be involved in decision making or are they just going to be an owner and for example in a in an LLC setup there's something out there called a profits interest which will allow you to provide Equity ownership two employees and there is no transaction cost there's no taxes on the transaction and that person can then participate from whatever the value was on the day of the business if I'm going to give Hillary a 10 of the business today she's going to get or be able to participate at a 10 rate when profits are distributed and if the if the business is ever sold from that whatever the value is to date so whenever she sells her 10 Stakes she's going to get a piece of that upside so there are different ways to do this and so again it really gets back to one of the goals and how do we how do we frame this so that it meets your goals and the goals of the company workers and you know customers all those folks yeah thank you Sam and that that's a really great example of the type of question that would be really um good to take advantage of um Sam's offering to do free consultations because you can cover a lot of ground in just that initial session and you can kind of get into the specific details like Sam was mentioning to get some more specific feedback that could help as well so I'm going to do a couple more myself rapid fire answers because we still have six questions to open and I want to be able to get through them all and I think there are a couple that I can um answer fairly quickly so next up is for employee owned cooperatives or businesses how do the employees usually afford to buy into the company for example they may not have you know 50 or 100 000 so can they work in exchange for partial ownership Etc so a key terminology here that's helpful to to understand is leveraged buyout so as Hillary mentioned in the presentation the company itself is kind of buying itself on behalf of the employees so the company holds a loan and in a Cooperative employees will have a buy-in amount but it's generally a nominal accessible amount it could be two hundred dollars it could be 500 it could be a thousand dollars and even if they don't have that amount of money um they can take that as a paycheck withdrawal so that can actually come out of future paychecks as well so it's very easy and accessible to make this happen um and then in the trust models there's no buy-in the the uh the actual employees don't use their own Capital um just by becoming employees and being employees they have access to the benefits of ownership through the trust so really good question there's some great information about that on our website and happy to talk to you more one-on-one as well so a next one uh really quickly here as well is this is um uh what percentage of employee owned firms are still women owned great question I'm going to pass that over to Hillary and we'll try to keep a few of these pretty short so it can get through them yeah Julie thank you for that question uh I don't know the answer and I suspect that nobody does um it's you know it's a fairly tight-knit community in the employee ownership field and I've been trying to gather stories and examples of women certified women-owned companies that have transitioned um and we don't know of that many so I unfortunately I don't have that information but appreciate the question thank you all right another one is if the kids if my kids don't want my business how does that impact whether the estate tax will impact me Sam do you have any thoughts about that one yeah so and again as miyaka said it's we can take this offline and have a longer conversation but remember it's the owner of the asset that's whose estate it goes to so whoever owns the asset whether it's a business whether it's cash whether it's Investments so that's something to think about when you're doing your estate planning and in particular I'll give you one quick date which is December 31st 2025 that's when the current very high estate tax exemption is going to be cut in half so to do some planning now absolutely so we just have one minute left there are some great um questions here as well and I believe that we can actually still have access to those questions afterwards so if we didn't get your question we'll email you um to answer them and offer a time to chat further um I'm going to answer one uh have one more last one I think this is really great is you know a question for Stratus is what other factors can attract a top buyer such as business reputation industry leadership recognition Etc yeah great great question so generally there are two two or three things the top two would be make sure that whatever you're doing it is top quality and make sure that it is driving money to the bottom line so you are a producer of a very valuable good you're not a commodity producer and that's driving money to your bottom line and then what you need to do is just just make sure that the culture again and Hillary talked about this uh in terms of Proof Bakery but make sure the culture in your organization is really good because people want to buy things that they can really buy into great well thank you so much I just want to give a wonderful thank you um to Rachel Parsons and Kaiser Permanente for partnering with uh project echoing Oberon and this fantastic project of working with employee ownership in your supplier group so thank you so much Rachel uh I want to give a big thank you as well to Dr Green and we back Pacific and we back West for having us speak to this wonderful and highly engaged group of business owners it was just really fantastic to hear all the great questions going on and we sincerely hope that you'll take the time to connect with us further and we'd love to be able to be resources for you wherever you're at in your journey and we look forward to hearing your feedback and and connecting more so thank you again and a reminder that we will be sending out a recording of the video and also a short survey so we'd love to have your feedback if you can take just a minute or two to to um complete the post webinar survey we'd really appreciate it it really helps genuinely uh our work thank you so much and have a wonderful rest of your week thanks miyaka bye everybody thank you everyone take care thank you Megan well done thank you yes talk to you soon talk to you soon bye