Vince Mastrovito - Why Do Owners Stay Too Long?

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. 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 442-22. 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. Thanks so much for listening. My next guest has been with us many, many times, Vince Mastrovito, and Vince is from Grand Rapids, Michigan, and the name of his company is Promeus Partners. He began his career in 1989 providing wealth management services to businesses and individuals. And then after 2 decades, decades with Lincoln Financial Group, he built his own firm Prometis Partners. He's been working as an independent succession planning adviser for many years now and works closely with business owners on exit planning strategies, brings his experience and enthusiasm for finding solutions. Pete is a serious exit planner. He's a A certified business exit consultant CBEC, a certified exit planning adviser, CEPA. A certified value builder CVB, and a certified disc plus coach CDVC. So these designations reflect the requisite educational background in Vince's leadership and strong commitment to delivering optimal solutions. He knows what he's talking about. He's got a great website. Grab a pen and a pad of paper because as usual, Vince is going to deliver some great stuff for us. Vince, welcome back. Thank you so much, Bill. It's great to always be on your show and be able to uh share some thoughts and ideas with, uh, you and your listeners. So I really appreciate you having us on the show. Yeah, my, it's always my pleasure. You know, we always get a lot of great comments. There's a lot going on, you know, we started the decade with a lot of business owners saying it's time. I'm putting my hand up. I want to exit, and then we get COVID-19 and civil unrest. The thing is, the clock keeps ticking. People still keep getting older, and some people just stay way too long and that's what we're going to talk about today. Why do owners stay too long? So Vince, what's been going on with you? What kind of clients are you seeing these days? Well, certainly we're seeing a lot of clients who are really trying to figure out what some of their next steps are and what they can do as a business owner to prepare for it, but a lot of times we really see owners that are, that are really not ready and kind of, uh, sweeping under the rug, so to speak, a lot of the things that they really need to be addressing for not only their business but for them personally. Uh, and their families. So we see, we've seen quite a bit in the market. Certainly, COVID-19, uh, changed a lot of things for everybody, uh, across the world and across our footprint, certainly. Uh, but I think certainly the, the business owners that continue to stay focused on building value. And understanding that is the business that has its legacy and to keep moving that forward, are the ones that will kind of manage their way through these types of challenging times and allow themselves to really harvest and manage the, the asset that they had built so much, which is their business. Yeah, you know, I guess, well put some owners look at this as a problem and opportunity um because uh. As we've been discussing throughout interviews today, some of, some owners are seeing huge opportunities as their competitors go out of business, and they're going to pick up extra business as everything comes back. But you know, a lot of them, a lot of business owners are just tired and they're like, here's one more thing that, you know, I wanted to get out. Now this is going to delay it. Um, so let's talk about the topic at hand. Why, why do owners stay too long and is it, is it the fact that they're staying too long or the fact that they're just doing not enough of what they need to be doing? I think there's several reasons why owners stay too long and, and, and certainly one of them could be that they really just love what they do. Um, and so it's really hard, Bill, to argue with someone to convince them or to, to have a discussion with them that they need to stop doing what they really enjoy doing. And so, um, as, as an exit planner, what our responsibilities are is to understand what really drives this business owner, if that is the case. To allow them to understand that at some point, you may not be able to do what you love, and then how can we make sure that we are preparing you in this business for a transition. Other business owners though may just really not know what they want to do. And so they're really just kind of putting blinders on, excuse me, as to not planning at all and just saying, I'll deal with it tomorrow or I'll deal with it next year. I know you and I, Bill, have talked about this in the past, and, you know, 3 out of 5 business owners profoundly regret selling their business a year after they sell because they weren't really sure what they wanted to do with their life. And so now they're kind of stuck with, um, what am I going to do, even though I have some money, I don't really know what to do with my time. And so that kind of creates another dilemma for them. Uh, as to, you know, what do I really want to do next. And so, I think we have a lot of things that we have to consider when we're talking to a business owner to try to understand from their perspective, why is it that they're still there. One thing that we have seen is that when you get to the older baby boomer generations, Is that naturally, the energy of the owner is going to deplete over time, especially starting at or about age 60, then certainly 65, you're gonna have a little bit less energy, 70, and so on and so forth. And what's really happening with the business at this point is many times is the business is going to suffer because it's gonna plateau, the intellectual intelligence within that company is probably going to come to all because We are probably the same age as the business owner, and we have to help the business owner understand how doing exit planning is really going to help that business sustain itself over a period of time, long after they're gone, and how it can also help him or her, and also the employees there, but also the community. Mhm, mhm. OK, so, so we've got the, the owners that are saying, you know, again, mixed bag, there's a lot of different types of situations out there. Some are saying I do this because it's what I've always done. It's, it's been my job. It's been my business, but it's, you know, it's been a job for me too. It's been something to do, um, and some, um, as they get older, kind of lose the the fire in the belly and say I don't want to do this job anymore, but now I feel stuck. And I need the money because I didn't plan in the future. So there's a lot of different things that can come out of this um based on conversations with owners. Vince, what, what are some of the first steps that they should be doing as early as possible to determine whether they need to stay there or whether they should be doing something else with their life? Well, Bill, I think what they really should be doing is they should be talking to their team of advisors, certainly their CPA, their attorney, um, they should be talking to their wealth manager to have a really good idea first and foremost. What position are they in financially? Meaning, what would happen if the business owner could not work any longer if they were to come down with an illness that they weren't supposed, they wouldn't, would not be able to work, is what type of financial situation are they in if they had to kind of do a fire sale. But I also need to think that they need to have some really healthy conversations. As to what this business is really worth, what opportunities it has to go forward, and how dependent is the owner upon with from the equity in the business, so that they can have a better plan to move to that next phase of their lives. And so those are some of the first conversations I think every business owner should have with their people. OK, so that requires some um valuation work, um, what's the business worth and financial planning work. Well, what do I need it to be worth? What do I need to get out of this kind of a projection into the future? Those are two very important early steps it sounds like. Well, sure, and then let's think about it. So if you take a look at a business, it's gonna have a potentially 3 different values to the business. So we've talked in the past about transferable value in previous conversations, Bill. But I think what we need to really take a look at is what is the business worth at this particular moment from the outside looking in. And so when a, when a business goes to market, we know statistically across the country that out of every 10 businesses that go up for sale, only about 2 of them are really going to sell. So if only 2 of them really sell, that tells us that it's going to take some work by the business owner and the business and the people with inside the business to really be able to make sure that this business is really ready to go and that business owner needs to understand what have other businesses within my industry sold for. So what is the historical values of these businesses and try to gauge yourself against your industry peers so that you know that your financials are towards the top of the best in class in that area, your intellectual capital, your human capital, those types of things are all put in place, so You can maximize the value of this business, so it's identifying your value as a baseline, protecting that value, and then knowing what your opportunities are, and then match that up with the runway that you have as a business owner to say how much of that do I really want to capture and what is my time frame to get there. That's a really good point now. Again, I want to reiterate that to listeners because we hear a lot from business owners that say, well, based on what my friend sold his business for, I think my business is worth this. Or I've heard companies in my industry sell for this. Well, they might be talking about very different situations or very different management structures or even types and sizes of companies that are selling for higher multiples, but your point was, hey, only 2 out of 10 businesses, if that. Sell that go to a business broker and say here's my price. It's, it's a tough go even at when you have people trying to sell your business, and I've talked to a lot of brokers, as have youts that have said I turn away, you know, that's, I turn away 9 out of 10 people because I don't want to waste my time. It's going to take a year of my time to sell this business and the owner's unrealistic about their price. So getting realistic about your price is, is. A huge first step. I really do. I think that there, there has to be, um, some very real, um, expectations to, to prepare that business owner, um, for what they're about to, you know, open themselves up to a tremendous amount of potential scrutiny, um, in the business when you have due diligence done on that. And I just think, um, that the owner, that we always say this, and it sounds like a broken record. The owner has put in a tremendous amount of money, time, and sweat equity into that business over a 2030, 40, 50 year, whatever that time frame is, period of time. Doesn't it make sense that since you have gone that far out on the limb, doesn't it make sense for you, your company, and your family to make sure that you capitalize and you pull as much of that equity out and are compensated for all the work that you have put into to maximize that value? And I think it's a pretty straightforward process to do. Unfortunately, not all business owners feel that way, and I understand that it's not going to be 100% across the board, but the serious business owners will always notice that, and they will know that they need to do that work and they need that team of people to put together so that they, they can help that owner get to the finish line. And when those business owners do that, then those are the ones that we really read about and hear about that have had great success stories, whereas the other ones that really don't do any planning are in a sense really going to kind of flounder around and come up with a much lesser amount for their business than what they probably could have got, they're probably gonna put themselves in a position where they pay more income taxes. Um, on the, on the proceeds from, uh, the sale, and they're also probably gonna be limited on the structure of the deal that they're gonna have to work with. So when you start working with business owners and and you create, you help them create valuation estimates with your practice, right, Vince, right, right. And so when you look at that, yeah, yeah. Go ahead. Go ahead, Bill, sorry, yep. No, I was gonna say, so, so when you create that, so you help them look at what may be a a stock sale, an asset-based sale and a liquidation value would be. Were those the three values that you were talking about earlier? Yeah, you're going to always look at an asset sale, stock sale, and a liquidation sale, and then of course when you're looking at any of those, you can tie in some of the other things like how much of the business could have goodwill. So even if you're doing an asset sale, um, how much of that business could be categorize as goodwill, so working with the CPA. We can take a look to say, OK, how much could we realistically capture as goodwill, because then that money comes back to them at capital gain rates, whereas the asset sales is gonna come back to them at ordinary income. And so, I think that's where it's going to help them, because when you're talking about the financial planning piece of it, when we bring in the wealth manager to do their work, we have to work together as a team. To find out what is the impact of the net proceeds that the owner gets, and how does that help him or her sustain or increase their current lifestyle. OK, so in a lot of those cases, so what we've covered so far is that the valuation, the understanding of those, those values are very important, what the business is worth based on certain exit paths and what you need it to be worth based on your financial situation. And what happens when the business value and the needs don't match up, the business is not worth enough. Does that then dictates kind of a new role for that business owner in their final years of owning the business, right, to drive that value. Yeah, so now you're kind of at a crossroads, right? As an owner, it's like, OK, well, now I have to decide is, uh, I'm only gonna get uh 60% of the value that I originally thought that I've had in my head. Um, so I either have to reduce my cost of living in retirement, may not really want to do that, maybe be willing to do some of it, but not that much, um, or I have to find a way to increase the value of the business more so that I can get more value out of it, and what does that really look like? So how long would it take me to go from, let's say, Um, a 60%, um, value to get closer to 80% or 85% of the value that I thought. And now there's some things that we could do from a tax perspective, maybe to reduce some of the tax liability that would allow them to still get closer to that objective. So those are always going to be difficult decisions for an owner to make. Having the right team in place is always going to help them have those sounding boards to be able to um answer those questions. And of course, of course, most importantly, Bill, we have talked about this many, many times on your show. The earlier that the business owner starts, the easier it is to fix that gap. Yes, yeah, like a lot of things in life, um, when you, when you start early enough, you, you have a lot more flexibility and a lot more time for certain strategies to take hold, for instance, retaining key employees so that the, the retention matters. I call it glue in the seat. The glue's got to harden for the key employee to stick around. And again driving that value creating those strategies, those standard operating procedures, all of the stuff that you need to do to make a business more valuable and transferable. Vince, you, you have, I'm looking at your website, it's for listeners. It's Promitis, P R O M E T I Sars.com. You have a great blog, a lot of great information on your knowledge center and your resources. What would you say is the first thing that you asked business owners uh to to to do if they want to talk to you or get involved with um exit planning? Well, the first thing that I really try to do is just make sure, uh, is to have a conversation with the business owners about what is it that you're really trying to accomplish. What what is it that you really want to do and what is your time frame in which you want to do it in? Um, because in many cases, we not, we may not be able to help them if the expectations are too unrealistic. And I think for the business owner and certainly for, uh, for companies like us, is we need to have a really, really good idea of what those expectations are and what maybe the business owner has done in the past. Uh, in order we, so that we can get them again to that finish line as to where they really want to go. So I would say that would really be the first type of conversation that we like to have with the business owner. Yeah, it's really getting to know what's what that owner's goals and expectations are. And again, back to our main topic of why do owners stay too long. Sometimes it's just because they, they love their business, but a lot of times they just don't know what else they might want to do in life. Have you found that to be true, and do you have any success stories for people that have figured out something different to do so that they could exit properly? Yeah, um, I, I think that's a great question, Bill. um, certainly when we, when we do see that, you really have to, you really have to shift your conversation with the owner and really challenge them. And I know, um, I always ask owners, uh, at the, at the very beginning of any of our engagements, is I need your permission to challenge you, uh, and push back on you to make sure that you are really saying what you're saying. Um, and, and so when a business owner has to go down that road, where they're really not sure, I think it's really having a series of conversations to really find out what do they do with their day. Like what, and really, and that can take several meetings to do that, and really try to find out what makes them happy. And sometimes you really have to go as far as talking to their spouse or significant other, and sometimes even talking to their kids to try to find out what some of their passions are outside of work, to kind of help them understand what that next phase of their life looks like, so that they're happy when they make their decision and very content with that. Yeah, it's a great point. It's, I think one question that People like to ponder on is what did you always want to be when you were a kid. Now maybe you wanted to be a firefighter and you're a little old to be a firefighter, but maybe you can do some volunteer work in and around that that area or be of service. There's a lot of opportunities out there, and I think helping people find those opportunities in a more fulfilling life has been a mission of even huge organizations like AARP. They have a whole site, part of their site called Life Reimagined. To help people understand what's out there these days. Uh, you don't have to be the, the golf starter or the greeter at Walmart to have a rich and fulfilling life post, uh, retirement, but, uh, It's always interesting to talk with you, Vince. I always love to hear about the tips. The website is Prometis Partners.com. A lot of great resources there. Vince is a terrific and knowledgeable exit planner. He was the 2019 Member of the Year for the Exit Planning Institute, and you don't just get that by going to meetings, Vince, so I know you've been very involved with exit planning, and you will continue to do so, and I look forward to the next time that we speak, which will be in a couple weeks, I believe. Yeah, thanks again, Bill. I really, again, I really appreciate speaking with you and your listeners. Really, uh, thank you so much for, for having us on your show. I really appreciate it. Thank you and thanks for listening everyone. I hope you enjoyed the show today. Look forward to the next time you tune into Exo Coach Radio. Thursdays at 10:00 a.m. Pacific. 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.