Welcome to the Maximizing Outcomes podcast, brought to you by Jim McGovern and the McGovern Wealth Group. Achieving bigger and better results with money, family, and business isn't about creating a bigger to do list for yourself. It's about who can help you create results without you having to do all the work. Listen as we provide uncommon perspectives, powerful resources, and experienced people that can help you maximize outcomes in your life. Let's get to the show.
If you're a business owner, odds are that nearly 80% of your wealth is locked inside your business. You know, most owners are unprepared when it's time to harvest that wealth and exit the business. So today, we'll discuss how exit planning isn't just about stepping away. It's about unlocking the full potential of your business and building something that can thrive without you. I'm Patrice Sikora, and this is the Maximizing Outcomes podcast with Jim McGovern.
Jim, with 75% of business owners aiming to exit within the next 10 years, why is having a plan in place so crucial? It's a great question, Patrice. And it's it's kind of a shocking number when you think about it, that 75% of owners plan to exit in 10 years. It's a lot of businesses. It's a lot of money in motion.
And and the big thing about exit planning is that it is really crucial for owners, and yet it's often mistaken for something that a business owner does much later when they feel like they're really ready to sell this company or when they're ready to transition it to family members or key people in the in the company. But the reality is everybody listening in and owns a business. I want you to think about exit planning as a value management
system. So it's something that you focus on today to grow the value of the business and drive income from the business. And it it should be integrating with the business owner's objectives. It should be integrating with their personal and
financial objectives. So when it it does become time to exit the company, the owner is gonna have a lot of options to harvest that wealth that's locked up in the business and maximize that wealth as it transitions from the business to their personal balance sheet, but they're able to do it on their timeline and on their terms. So today, we're gonna be talking about what exit planning is, but I also wanna talk about exit planning is not.
I'm gonna talk about the process of value acceleration in the company and why owners have to be not just personally prepared to exit the company, but they have to be emotionally prepared exit the company. And the business itself has to be ready for that transition. So lots to talk about today. That is a lot. That is a lot. So let's start with what exit planning is. We'll get to is not after this, but what is it? Because I think there are some
real misperceptions with the name here. So in your words, what exit planning what what is exit planning, and why do so many business owners misunderstand it? So, yeah, I think that the word exit itself, it sounds like it it's a moment in time, and I'm not ready to exit right now. You know, maybe it's it's 5 years, maybe it's 10 years, maybe it's 20 years from now. So I think the thought is, like, that's something that's on my to do list. I'll
get to that at the very end. But in reality, I want you to think about exit planning as an ongoing process. It's something that is it is really about building the company. It's about protecting the company's value and the cash flow it produces and positioning it so that you could harvest that business value whenever you are ready, which, again, may not be for for quite some time.
So when this is done properly, like I said earlier, it's gonna align the owner's personal financial and business goals. It's going to create a way for the business to be, transferable. Right? Because that value, it only means something if they can really be transferred to somebody else and that company can continue to thrive and succeed without the current owner. And it also has to prepare the business and the owner for all sorts of unexpected life events and business events.
And this is not a complete list, but there's some things we call the 5 d's. And this is what happens if there's a disability? What happens if there's a death? What if there's a divorce? What if there's distress either in the company or in the business owner's personal life? What if there's disagreements? So it's not just about growing the value. We have to protect the value.
And ultimately, it's about increasing the business's attractiveness and the readiness for an ultimate exit, which again could be a sale, but it could also be transitioning it to employees or to family members. So there's a there's a lot that goes into exit plan, but it's it's an ongoing process that really should be starting today. Alright. So that's what exit planning is. What is it not? So it's not about just selling the company
and stepping away all of a sudden. In fact, I think it's it's more challenging when somebody comes to us and and they say, I'm ready to exit the company, like, right this minute. What's worse is when somebody says I have to exit the company right now. There's been a major health event. There's been some circumstance in life that I have to get out of this thing right away. You know, it's like blood in the water.
The sharks smell it, and they're gonna you're you're probably gonna get far less for that company than you could have had you prepared ahead of time. So it's also it's not something that you do just when you're ready to retire. There's a lot of owners that we meet that are saying I'm gonna retire in a year or 2, and I need this value for my company to go to my personal balance sheet so I can retire. Again, your options are gonna be a lot more limited if you wait till that late in the game.
And the other thing is this is not limited to just a a transaction. It's you gotta take a holistic look at this because there's a lot of your life that's tied up in that business. It's what you put your blood, sweat, and tears into for many, many years. It's a big part of who you are. So you have to also start to think about, what am I gonna do next? What's the next chapter of my life gonna look like? And what am I gonna do when I don't have this company? Am I ready for
that? So it's, you know, it's not a transaction. It's about getting your personal life, your financial life, and your business life all on the same page and and positioning you for long term success. No. I think a lot of people don't understand how much importance that is, that has the emotional aspect of it. It's your identity. It's who you are. That's right. Yeah. Any other big misconceptions here that, we need to touch on?
Yeah. The only other thing I wanna add to it is it's just I think ownership really the thing about exit planning is just good solid business strategy. So for example, if you if you had a way to improve the cash flow of your business, when would you want that to happen? Would you wanna wait 10 years for that, or do you wanna do that right now? Yeah. I think every owner listening would say, yeah. If there's a way to improve the cash flow of my business. I'm gonna do it right now.
Same thing if it's the the value of the company. If you could get a much larger multiple for that business, when do you wanna see that become possible, today or in 20 years? We wanna see that now. So that's exit planning. It's it's business strategy. It's it's value management. In fact, if someone's taking notes out there, I think that's something you should write down that exit planning is more about value management than anything else.
Alright. Now you did mention the 5 d's as you call them, death, disability, divorce, distress, disagreement. How does exit planning mitigate these risks? So, yeah, this is this is super, super important because there's a lot that's at stake with the company, and there's a lot of an owner's net worth that's typically tied up in the business.
And you have to have good solid risk management, which we're gonna spend more time on a little bit later, but, you know, these are things that can happen without any warning, but any notice. You could wake up one day and have a massive health issue that came up out of nowhere, and that could really put a dent in the company. So when we talk about these, these 5 d's, again, or death, disability, divorce,
distress, disagreement. You have to have good, solid insurance planning, both in the company and in your personal life. You have to have good legal documentation, whether it's business agreements, whether it's good estate planning, wills and trusts. You have to have documented processes in the company. You yourself or one of your key people could go down at any moment, and who's gonna step into their shoes and continue on in a smooth fashion to fill that role? What about retention planning?
Making sure that your very best people can stick around through some of these 5 d's or other issues that pop up in the company. So it's, it's really hard to get into growing the company and pouring a lot of additional money into the company to to get it to scale, if it could all be taken down. And that value could disappear overnight because these these risks weren't addressed ahead of time. Right. Alright. Here, your your shift in our mindset here, exit planning is smart business strategy.
It's about value management. So walk us through the value acceleration process that your team uses. So there's there's really 5 stages to the value maturity of a company. And where every company really should start is just the very first step, which is identify, and that is conducting a business valuation at the starting point. So, in fact, let me just give you all 5 stages first, and we'll talk about each one individually. So step 1 is to identify. Step 2 is to protect.
Step 3 is to build that company's value. Step 4 is to harvest the wealth that you've created in the business, and step 5 is to manage that wealth. So if we go back to that step 1, like I was saying, is that, you know, you really need to measure what is this company worth right now. That's our starting point. And I would say with most owners we work with, they may see somewhere between 80 to 90% of their net worth is locked up in the value of this company.
So it's not just essential to know what that wealth is right now, but you should be doing valuations every year to measure the progress. So the strategy you are deploying, is it having an having an impact or not? The other part of this is with valuations. A lot of times, owners look at the valuation. They just kinda check the box. Okay. That's the number. Mhmm. There's a lot of hidden value in the business.
So one important thing to remember is that all businesses have a range of value based on that company's individual characteristics, based on the industry that they're in. And the shocking thing is is that a lot of businesses cannot sell. And I've heard stats that it's somewhere around 7 of 10 businesses that try to sell can't sell. So that means it doesn't matter what the valuation said. There's no real market value.
There's nobody willing to transact with you to write you a check for that company, which is scary, because a lot of times owners think that, well, that's my retirement plan. I'm gonna sell this company someday, and that's what I'm gonna have to ride off into the sunset. And it doesn't always work out that way. So the other thing I I want people to think about with with this hidden value that's in the company is that, you know, all companies are gonna sell for some range of multiple of earnings.
So where there's some hidden value is that let's just take an example of a of a company that has annual sales of $20,000,000, and maybe they have $2,000,000 of EBITDA. So that's earning before his earnings before interest, depreciation, and amortization. Mhmm. Not to get into the accounting world. I'm not an accountant. I'm not gonna get into all that. But you have a company with 20,000,000 of sales, $2,000,000 of EBITDA, and maybe it could sell for 4 times
EBITDA. So that means that the value of the business might be $8,000,000. So what would happen if the company was able to operate as best in class in the industry? Well, maybe they could take their $2,000,000 of EBITDA, and they could work on getting up close to $4,000,000 of EBITDA. And what if the company could be positioned where it's best in class in the industry, and it it it can command a multiple that's maybe 7 times EBITDA?
Just those two changes, taking EBITDA from 2,000,000 to 4 and getting the EBITDA from 4,000,000 I'm sorry, from 4 times to to 7 times means that that valuation could go from an $8,000,000 value to $28,000,000. So there's a value gap here of potentially $20,000,000 in this example.
That's what I was really referring to is this this hidden value in the company is that you look at some of the efficiencies that could be gained with proper planning, and it could be a staggering difference between the result you would get without proper planning and what you could get with proper planning. So there's a lot that goes into that that step number 1 of, of identify. It's not super complicated, but it starts to get the wheels turning on what the potential for this company is.
And I should think that gets a lot of owners' attention. Makes people excited. Yeah. Jump out of bed in the morning. You know, if I can get this thing from 8 to 28,000,000, I mean, that's that's real money. At least where I'm from, from Pittsburgh. It's real money in Pittsburgh. Alright. Step 2, protect. So step 2 is all about mitigating risks. It's about safeguarding the existing value in the
company. So before you grow and you scale, you've gotta make sure that the current cash flow the business is bringing in, continues under as many circumstances as humanly possible, which in turn helps protect that business value. So you have to look at 2 balance sheets side by side. You have to look at your personal balance sheet and think about what risk do you face over there. You have to look at the business balance sheet, figure out what risk you face in the
in the company, and protect against it. So, again, this is where your insurance planning comes into into the picture. This is where your legal documents come into the picture. And, and this is a bit of a team sport. You know? So it's it's working with your attorney, both your corporate attorney and your personal attorney, to make sure everything from your estate plan to your buy sell agreement to, how you protect your your intellectual capital, you know, what kind of agreements you have
with your employees. Like, there's a lot to to really lock down and make sure that you've you've looked at this risk management holistically. Even things like just financial risks. Like, how much liquidity do you have currently, and how much do you need if, you know, things get a little bit haywire in your personal life or your business life? What about risks with loans that you've taken? What about market risk? So there's a lot that goes into this step.
And, you know, when I'm going through this, there could be a feeling that it's getting overwhelming. It doesn't mean you have to do all these steps at once. You know, it might be that you start off with just the identity step, which is not a really long exercise, and then you just work on protecting things. And you may be taking a little bit of a break. Right? Then we may get into step 3 a little bit later, which is the build
step. But Mhmm. You know, these are just building blocks in in this this overall exit planning process. Well, how long does this take? So this is a question we get often. It's not like it's a an initial project that we just do one time when we're done. It's really an ongoing thing that never really ends. You may not have to go back and revisit all these
steps all the time. Like, the protection step, if you did it correctly, that may be a quick annual checkup unless there's some some new things that have popped up that warrants some additional time. But if you'd if you'd done the protection side correctly, it tends to stand the test of time unless there's massive changes. And that allows you to put more time and effort into the 3rd step, which is all about building the company value. Mhmm. But, again, this is where you can't put
the cart before the horse. I mean, if you're gonna build the value of the company, you may have to spend a lot of money. You may be borrowing a lot of money because you're trying to grow. You're trying to hire new people. You may be investing in new technology, new equipment. You may be expanding territories. There's a lot that you might be risking in that build step. And if you haven't protected first, I mean, you're you're taking super high risk, and you could be wiped out pretty quickly.
So when you look at the value of a business, it's about 80% of the values tied up in 4 intangible capitals. It's we call the 4 c's. This is your human capital. It's your structural capital. It's your customer capital and the social capital. I'm gonna define what all those mean here in just a couple minutes, but, you know, that's that's where all the the money's tied up in most companies. It's it's really the people and and what you do about your customer base and what you do about your your
best employees. I mean, that that's really what's gonna help drive all this. And, again, you may be taking some risks to really scale and grow. And if you haven't protected, it it could be a could be a pretty rocky road. Alright. So identify, protect, build, and then the fun starts, harvest. And the fun starts, harvest. Right? So it could be that you're not even thinking of exiting the company right now. You're just trying to build a better business.
But you should have checkpoints, whether this is, you know, once a year, maybe it's once every 6 months. You just start to take a step back and say, am I ready to exit? Am I personally ready? Is the business ready? It's probably gonna be the answer is gonna be no for quite a while. But as you start to say, yeah, the company is we're starting to get to a point where it it can run itself. It doesn't depend on me as the owner as much anymore. Maybe it doesn't depend on you at all.
Then you start to shift your thinking on how do you wanna harvest this wealth. Is this something where you're gonna keep this business forever? And maybe you're just gonna hire professional management. You're gonna hire a CEO and a CFO and a COO, and they're really gonna run the company. You still own it, but you're not in there day to day anymore. And that may be a company that can transition, you know, for many generations. Or it could be, no. You want to
really get out of the company. You wanted to sell it. Maybe you wanna sell it to a third party. Well, is that gonna look like you're selling to a private equity firm? Is that gonna be you're selling to a strategic buyer? That's a very different exit than somebody who wants to sell the company or transition the company to those inside the business. So it could be, you know, maybe I wanna gift this company to my children someday. Maybe I wanna sell it to my children.
Maybe I have I have key management in the business that really are prepared and positioned to buy me out someday. Well, what does that deal look like? Should we sell to all employees via an employee stock ownership plan, which is a very powerful plan? In fact, we did an episode I think it was around episode 17 or 18 we did on on, ESOPs is what they're called for short. Very, very powerful exit strategy, very tax advantaged, but, again, very, very different than selling to a third party.
So this harvest stage is where you start to look at what's what's in the best interest of me as the owner, what's best for the culture of this company moving forward, the the employees that have been loyal to me all these years in my family, and and starting to to kinda whittle down to what are the maybe the 2 or 3 best options that are gonna fit what you're what you're trying to do.
And you have to be prepared because sometimes the door you think you're about to walk through closes, and you better be prepared to walk through a different door. Like, I've I've had many owners over the years that thought that they were just gonna transition the company to their kids. And then when they actually talk to the kids about it, they learn that the kids don't want the business. Yeah. And they don't want them to buy the company or, you know, take it over out of loyalty.
And, but meanwhile, they're miserable as adults. They don't wanna be in this company. The other thing I've seen happen with that is that I've seen parents that didn't really plan financially outside of the business. And they now have the kids running the company, and they're paying the kids very little in terms of salaries because the parents are still, you know, extracting all the revenue out of that company to support their lifestyle. And the kids are watching their adult lives pass them by.
They, at one point, may have been making a decent living, but it hasn't grown in many, many years. Now they have their own cash flow pressures at home, and it's all because the parents are still trying to hang on the company because they're they're afraid they're gonna run out someday. So it it can be rough. Right? So you you've gotta plan ahead, and you have to start to think through multiple exit options. And and like I said earlier, this is
a team sport. So we oftentimes will serve as the quarterback for a lot of these conversations, but it does take other people, like getting your accountant involved, getting your attorney involved, you know, being able to bring in somebody who's an expert in getting into the weeds of the company in terms of, you know, how do you really drive the value and how do we get the people to to perform and working on some of the culture of the business.
So there's some there's people that are that are trained experts in that area, and there's also some transaction advisers. You know, if you're gonna evaluate an ESOP as an option, well, we may need to do a feasibility study to see if that's even gonna be possible. Mhmm. If you're gonna sell to private equity, well, let's start to look at some transaction advisors and some investment bankers that can come in and be part of this process proactively.
So that that harvest stuff, it is fun, but that's also where a lot of the lot of the the work gets done in the number crunching and figuring out, like, how we're really gonna do this. Sounds like some hard decisions get made then. It it's hard decisions, but it it's easier when the company has been positioned correctly. You know, if you look at the company and you say, wow. Our our four c's, our intangible capitals, are all are all great.
We're gonna spend a few more minutes on that, in just a second. And it might be okay. Well, now it's realistic. Now we we are operating best in class. Our revenues are way up. Our customer base is more diverse. Our our key people are incentivized to keep growing this. And now you start to look at, okay, well, is a third party sale really the way we wanna go? Well, if that's the case, the company is in pretty good position. Let's bring in an expert that can that
can take this company to market. Mhmm. Alright. Does this all come into the final stage here of the final of the process here, manage the 5 stages? So this is managing all the wealth that you've extracted post exit, making sure that whatever the next chapter of life looks like, the last thing you have to worry about is the money side of it. So maybe it's you're gonna sell the company, and you're gonna retire right after in the sunset. That's great.
How much money is it gonna take in order to give you that level of financial freedom? What are the risks that you face? How do you manage that wealth? How do you manage taxes, cash flows? And just making sure that you have long term financial security. The other side is that some business owners, that's the last thing they wanna do. That that sounds like cruel, unusual punishment to them to retire. They're they're so active, and they've all they're always thinking.
To them, it's just I'm exiting this company because I'm gonna go into something different. I'm gonna maybe start another company, or maybe I'm gonna get more involved in charity or whatever it is. That's fine. I think just you have to have a clear path as to what you're gonna do because one of the worst things that we've seen happen is owners are so focused on getting this company to this point.
They've never thought about their life after the exit, and then we hear that they are bored out of their minds. Yeah. Yeah. There's only so much golf you can play. You know, there's only so much you can do that's it sounds fun. It's like, what do you mean there's only so much golf I could play? But when every day looks exactly the same and you kinda lose that compass and you lose that that passion and that direction, that's where owners are like. That it's the
biggest regret that I've I've had. I should've never I should've never sold this company. I should've kept it. That kept me going and kept me active and kept me motivated. Now I'm just kinda floundering. So you really gotta start to think through not just the how do you manage the wealth, but how do you manage your life? And it's, it's a big part you should discover before you before you exit that company. Alright. And it all goes into being a human being, which brings us to the next,
question here. You're you're talking about the capitals, the intangible capitals. Got that. People. People is the big thing here. They they are the most important part of a business, but you can't you can't price a person. I mean, it's they're not a piece of equipment. They're not a building. So how do you talk about the people side? What impact how does that impact the company value? So this is like I said earlier, this is 80 to sometimes 90% of the value of the company is tied
up in people. Right. So just let's talk about the people in the business for a minute. This is your your human capital. This is the value of your team. This is the value of your leadership. And one of the biggest challenges that we see owners facing is it's really tough to find top talent. You know, it's it's hard to find really good people that can perform really, really well. So it's it's about recruiting those key people. It's about motivating them.
It's about making sure that they stay with you through especially a transition, and they can help evolve as as you evolve, as the company evolves. So, you know, there's there's some art and some science to this. You know, one thing that that owners can do is start to look at what's the measurable impact that my key people have on my bottom line, and what can I do to help them drive that bottom line? That's not just good for the company. It's good for the company
cash flow. That also helps drive the value of the business. But if they can be incentivized to stick around for the long haul, it also makes the company a lot more attractive to an outsider that may be coming in to buy the business someday. If I'm afraid that I buy your company and your very best talent, which are responsible for most of your revenue, are all gone the next day, what am I buying? Yeah. You know?
So, in fact, we did an episode about retention bonus planning and deferred compensation planning. It's a really important part of the step. It is that, you know, I've I've gotta keep my best people engaged because they're gonna help me grow the value of this thing. And and there's some unique plans out there that are tailored towards executives or towards just key performing people that, will will do the job.
A lot of times, these deals finance themselves because if the employee performs, perhaps there's significant financial incentive for them to do that. But if they don't perform, then they may not get anything at all. Or if they quit too soon, then they may not get anything at all. So we have some companies that have significant packages they put in place for their very top talent that maybe they don't get anything out of that until they've been with a company for at least 10 years or 15 years.
But when that plan vests and they get a big payout, they might be getting a significant chunk of money coming out to them that is like a we call it a golden handcuff. It's a kind of a carrot that's dangling out in front of them. They say, okay. If I do x, this is what I'm gonna get later on. And it's a very substantial benefit for the right person that can be very motivational.
But it also protects an owner because if they don't perform, if they quit, they go to a competitor, then you may owe that employee nothing at all. So it it starts to align the objectives of the business with the performance of the employee, and it goes well beyond the basic benefits package that almost every employee gets every company. So, that's I'll I'll put in the show notes a link to that other episode. It's
a really, really critical part of this. But that's just one type of of human of of the the people capital you're talking about. This is human capital inside of the company. The other type of of people we have to worry about is the customer capital. What's the strength and the loyalty of your customer base? We see companies that have very loyal customers, but it's a very concentrated customer base. Yeah. Maybe 70% of their revenue is coming from their top 3,
their their top three customers. That's a really that's a really big red flag for a potential buyer in most cases. They say, well, what happens if we lose one of those relationships? And that that company's cash flow could tank in an instant. So And are they there are they loyal to the company, or are they loyal to the owner? That's a great question. Because sometimes it's it's very personality driven. They're loyal to the company, but it's really that owner that's their golfing buddy.
That's maybe a family member. There's there's many relationships where it's like, well, if that person goes, well, we're gonna take our business and walk. That that's where we see companies in many cases that can't sell. But if there's relationships that are contractual Mhmm. They're transferrable. The customer base is very diversified. And, yeah, you no one wants to lose a customer, but there's some businesses where if they lose a few, it's not gonna put a dent into the bottom line.
Yeah. That might be more comfortable from a buyer standpoint. So you have to think about how how entangled are the customers with your business. You know, the the tougher it is to replace that business or the more valuable those services and products are that they maybe can't get anywhere else, the more value the company is gonna be in the eyes of a of a new owner. Now the next thing on the list here, you have social capital. What do you mean by that? So this is the company's culture.
You know, this is the relationships with the stakeholders, and this is what draws people to the company. This is what, not just draws employees, but also draws customers. And this can take a long time to build. So think about think about a company like Google, for example, that's pretty well known for their their culture. Mhmm. You know, and it's something where they've got I think Google still has, like, all this amazing free food when you go. They've got these little sleeping
pods. They've got ping pong tables and pool tables. That's just part of their culture. It's a it's a work hard, play hard kind of a thing, but it's they kinda create this family atmosphere, at least, like, what I've heard from clients of ours that work at Google. That's a very different type of a culture than perhaps a firm that's, suit and tie. It's, you're in the office early. You're staying late. You're just grinding it out. That's just a totally different culture.
And one's not right and one's not wrong. They're just very different. But if I'm in the tech space and I'm looking at a company that, like Google, has all these cool perks and all this fun social stuff that goes on outside of the office hours, versus other company that does none of that, I might be like, yeah. I'll just take the job at Google. You know? So this is something that you just have to look at. What makes the company unique, not just for the people that work there,
but other stakeholders, customers. And and, you know, how do you kinda bottle that up? How do you feel that? How do you grow it? Is it where it needs to be, or or should it be going in a different direction? But social capital, I think, is a little bit underestimated in many cases, and it's a really important part of this overall exit planning process. And and then you have structural capital.
So structural capital, this is the, unique processes of the company, the systems that they use, perhaps technology. This is what's gonna ensure the operational efficient efficiency of the business. So you have to document this stuff. A lot of times, what goes on day to day is tied up in people's heads, And it makes perfect sense to those who've been with the company for quite a while. When you bring somebody new in from the outside, it doesn't make any sense to them.
So we don't want the knowledge and the processes that drive this company to be stuck in people's heads so that when the talent leaves, well, there goes your business system. So it's it's getting owners to start to document everything they possibly can. So this stuff starts to become more plug and play over time. And, again, this is something where there are consultants out there that specialize in that area. They can help you put all this
from an idea. You you can create pen to paper at this point. But this is getting all that know how that makes that company unique, documented, so that's you can start to scale the business. Alright. You kinda touched on this before, Jim, but what do you say to an owner who thinks it's too early to plan for an exit? So there's it's never too early. It can definitely be too late, but it's never too
early. So I I think that owners that that are starting to think about when should I do this, I would say start now. And it it's good business strategy, and it's something you do every year. It's ongoing. It's never gonna stop, just like, you know, any other business plan that you're doing right now. Again, transition your thinking from exit planning to value management and value enhancement planning. And that I think that's, that's a good way to approach this.
It's to think of it as value enhancement and value management. Yeah. And then you also mentioned the emotional and the personal readiness. This is critical. I don't think people understand just how how big a role this plays for anyone who's retiring, but especially if you're selling your business and that business has been your life, your little baby. Yeah. So I I give a quick example. So I just talked to somebody today who retired last summer, and they said that, it's been hard. Yeah.
It's been really hard. And they say it's it's it's odd the way it's hard because you dream about this your entire life. Then you'll retire someday, and you picture yourself, you know, maybe playing golf, and you're on the beach, and you're, you know, in a boat, whatever it is. But then you get there. It doesn't work out that way. You know? And they're like, you just don't realize how much time you spent working, and now that time is all gone. You're like, what do you do?
So, fortunately, this individual sprung into action quickly. He's like, I started getting very involved in the community. You know, I'm in different clubs and organizations and involved with charities, so I'm I'm keeping busy that way. But it was a struggle there for a while that I just wasn't really prepared for. I just thought it'd be the dream come true that every day looks like Saturday, except I got pretty bored pretty quick. Not likely he was able to able able to fill his time.
But, Yeah. I think you have to really start to look at emotionally, like, what is gonna be next? What are you gonna do with your time? Are you personally ready for that? We don't want you to be bored. You also have to look at the emotions of are there any financial gaps that you face? And what's it really gonna take to exit and not worry about money anymore? Because there's nothing worse than stressing about your business, exiting, and then stressing about money afterwards.
Thinking, well, if you're in your business still and cash flow is hurting, well, you have ways to deal with that. Take on new customers, adjust prices, cut costs, whatever. You have some levers you can pull to start to adjust cash flows. When you're retired, there's only so many levers left to pull. And it can't be that if you exit the company with a fraction of what you should have, there's not many strategies we can deploy that can make it feel like you sold the company for 4 or 5 times
the amount that you got. So, yeah, I think you have to really be diligent with your financial preparation and have a good, solid financial plan leading up to that exit. And, again, it's gotta align the personal goals with your financial goals and the ultimate business goals. What were some of the most common regrets that you've heard? I mean, yes. People saying, you know, I don't know what to do with myself. But what else are they saying?
I I think it's just not thinking through what they would do post exit is the number one thing that we hear. And the other thing is by not planning ahead, the exit paths are very limited. And sometimes it's after the fact. It's like, had I only known this ahead of time, this is what I would have done differently.
Like, I've I've had owners that have sold companies to third parties that said, I I had no idea what an employee stock ownership plan was, and I've learned about it since I sold my company, and I wish I could go back in time and do it over again. I've I've heard people that thought that, you know, I I thought I had to sell to a third party because I just didn't think my key people could afford to buy me out. I didn't know the financing that was available.
I didn't know different ways to structure the deal. You know, and they're like, wow. I sold to a company that came in, totally changed the culture, got rid of a lot of my people. And while I'm out and I'm okay, that company in the community is just not the same anymore. Had I only known how to prepare for this, I would have I would have exited differently. So that that's kinda like that
Monday morning quarterback kind of a feel. But if you've planned ahead of time, you were well aware of all your options ahead of time, and you you chose the one that was the best fit for everybody. Alright. Taking it all together here. For someone who's just starting to think about exit planning, what are the first steps they should take today? So I I think it's just like anything else. Just take a baby step. You have to get started somewhere. And I think sitting down and looking at
the value of the company, wait. What does the value of the company look like now? What's the cash flow business today? What does your personal financial balance sheet look like? And just start to to get a game plan together of, you know, what's it really gonna take in order for you to live the life that you want on your terms? What kind of money is it gonna take? And start to build a lot of times, I'll start with a personal financial planning with a business owner first to get a sense of forget
the business value for a minute. Based on what you're doing personally, what's the trajectory that you're on outside of the outside of the business? And then you start to see the gap it's gonna take of what do you have to extract from the company someday in order to close this gap, because there's always a gap. And I think that's a really easy place to start as you start to put together the risk management plan next, and then we start to work on the on the build factor after that. So it's
it's just a couple of baby steps. It's not overwhelming. I think some owners think this is gonna be this long drawn out process. A lot of times these conversations can happen, like, an hour or 2 at a time, and that's about it. And then just having kind of a rhythm that you're able to to stay with this framework, and it might be every 90 days is a checkpoint.
And there's gonna be some homework, things you have to do with your teams, things you have to do, personally with your finances, things you have to do with your your legal team or your accountant. I mean, it's it's just little checkpoints along the way. And before you know it, you turn around and say, wow. We've made a ton of progress, and we've had fun doing it. So it's not a process that's boring or it's you don't see the results right away. A lot of the stuff, you start to check
the boxes off pretty quickly going, wow. We're accomplishing a lot very, very quickly. There's a lot of momentum going, and and owners are excited. They're they're charged up by it. Excellent. Well, Jim, how can business owners reach you if they haven't already started planning? And even if they have started planning, just to touch base with you and say, am I doing this right? Am I covering my basis? Yeah. So a couple of suggestions I would
make. You know, one would be you can reach out to us directly on our website, which is mcgovernwealth.com. There's a contact us button. You can also email us info at mcgovernwealth.com. But it could be something as simple as if you haven't done a business valuation before, we can do a business valuation for you and just see what is the company worth roughly today, and then we can do a risk assessment for you as well. And start to get a sense of, okay, where are the holes? Where are the gaps?
And and what are some of the areas you should be putting your attention to first? And at that point, you start to get a sense of is a more comprehensive exit planning process appropriate, or should it really be just let's look at a couple components of this overall plan and focus on that. It's kind of a little silo first before we get into the bigger picture planning. But it all starts with an initial conversation. Blocking off an hour or so to have a conversation
is, is usually well worth your time. Alright. All you business owners, you heard this. Plan so you can exit on your terms. Follow this podcast, maximizing outcomes to know when a new episode is ready for you. And, of course, please share with others. Thanks for being with us. Thanks for listening to the maximizing outcomes podcast brought to you by Jim McGovern and the McGovern Wealth Group. Be sure to follow the show to be notified when new episodes become available.
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