Your Business Exit: Monetizing Your Life's Work Webinar
SJS Founder & CEO Scott Savage’s webinar on “Your Business Exit: Monetizing Your Life’s Work“.
Transcript
Good afternoon everyone. I’m Scott Savage from SJS Investment Services. I’m the Founder of SJS. Welcome to today’s webinar on “Your Business Exit: Monetizing Your Life’s Work”. We are really thrilled you could join us today. We’re going to talk about monetizing your life’s work from a business owner’s perspective, what to think about and what to plan for based on some experiences I’ve had - a few ideas we hope to be helpful as you contemplate potentially your exit or what you’ve got up to in selling your business.
I’m gonna share my screen here with you today and get started. So again, “Your Business Exit: Monetizing Your Life’s Work”. We want to be helpful today as you think about what you’re doing and get out ahead of what will probably be the single most important financial transaction of your life. So we will jump right into it here.
Here’s what we are going to cover today. Just a little bit of how we want to start thinking about the exit and the planning. Some of the family dynamics - we all are part of families and often times business transactions put the “fun” in dysfunctional, so we are going to talk about that a little bit. Get into the mind’s side of the financial nitty-gritty. We are going to talk about the heart side as well. As you put your team together - what we are calling the Dream Team - to help you navigate the process. And there is going to be the heart side, your emotions that are a really big part of this process. And then we will give you a little peak as to what comes next after a transaction based on some of our experiences. And we will wrap it all up. Really excited to be here.
Given the world of compliance that we live in, and it’s a very important part of who we are here at SJS, the proverbial disclosure of what we are going to talk about today are just some shared experiences. There are not necessarily any guarantees or anything that you want to necessarily rely on in this presentation in and of itself. We are here to just provide some guidance, ideas, and thoughts. Of course you ought to consult your own tax professionals, legal professionals, and advisors to help you through your process. So we appreciate you understanding that (see Important Disclosure Information at the end of this Transcript).
This is a big deal. The goal of today is to get inside the mind side of preparing for a transaction and for the heart side, and do this on your terms. This is really an important first part of today’s conversation. There’s really two ways to do this. First, you can do this from the perspective of today-forward - making incremental decisions to plan for an exit. I want to challenge you to think a little different when it comes to preparing to sell a business. I would challenge you to think of it from the future-back - so in your mind’s eye, getting down the road say 5 years when you want a transaction to happen, and really getting a clear picture in your mind of what you want that day to be like, what you want to feel like, who’s there, what is that ideal future state. And then we can from there do the planning back to today so that all the steps can happen to get you to that ideal state. If nothing else happens today, that notion of starting with the future and working your way back is to me a really great way to think about preparing your business for sale. So future-back.
Again you want to start with the end in mind. Anyone in the movie business will tell you that for most major motion pictures, the final scene is shot first. I learned that a number of years ago. And then the movie builds toward that final shot. We want you to think about the future and bring it back. And have plenty of options. There are a lot of different ways to go about monetizing or exiting a business. There are pros and cons to each - we will talk about them. To me, it’s really important that you have a really crystal clear idea of what those non-negotiables are in your mind. If you aren’t clear on them, no one else is going to be clear on them. So you have to be really clear yourself, and communicate to your advisors on exactly what the non-negotiables are, and the things you are flexible about.
Fast fact here: 3 in 5 businesses do not have a written business succession plan.[1] As hard as we all work in our businesses, it sure makes a lot of sense to slow down in order to speed up, which is what I think about this process. You have to slow down in order to speed up to make this exit the way you want it to be. So let’s not be one of the 3 in 5 who don’t have a written business succession plan.[1] Let’s be one of the 2 in 5. It can be one page, but write it down.
Managing family dynamics - what a big topic this is. We all have families. That notion of communicating on an ongoing basis well ahead of time. I can’t tell you how many times a person has sold a business and picked up a phone to call their kids to say, “Guess what - we just sold our business to a strategic buyer or a private equity buyer.” One of the kids says, “Gee, I thought we would get a shot at buying the business.” There is often no communication. Starting early is important.
The other piece of this: often bringing in an outside advisor or consultant is often really important, because some of us are not as good at communicating as we maybe think we are. In my own case, I’m building a 100-year business, but I do have 4 adult children, 2 of them in the business and 2 of them not. I have hired a firm to consult with me and my kids to make sure we are communicating in a way that everyone is heard and can have their opinions. Even though we are not preparing to sell the business, this business will have a succession within my family. We have absolutely hired an advisor to help us, even though that is what I do for a living. It’s very difficult to have that objectivity with your own organization. I’m putting my money where my mouth is, so to speak. I’m suggesting you have a professional’s help, and I’ve done the same thing - a very important part of the process.
People often think that this is all one big financial model, and that selling the business is just all about the money. A wise man used to tell me that it may not be about the money, but it might be about the amount of money. The money side, the mind side, is important. You want to make sure the company passes to those you want it to. However, there is an important component of “Do I have the amount of money I need or I want in order to retire?” We do that in a very detailed way, gathering all of the information that is available and loading it into a software program that can kind of help us simulate the future to the best of our abilities. We plug in all those knowns and then simulate the financial future for the client so that they can understand what are the financial essentials that they have to have in this transaction in order to take care of themselves and their families. And then often it becomes beyond that “What’s my legacy going to be? I have enough money for me, I have enough money for my kids and my grandkids. Beyond that, let’s have a legacy conversation to talk about how I want to make my own little dent in the universe, as Steve Jobs is famously quoted often?”[2]
One of the things we find in this process is some people suffer from what we call “Magical Thinking”. “Magical Thinking” is just not taking the time, or just assuming that if I have a million dollars then I’ll be fine. Well, a million dollars isn’t what is used to be, so we want to make sure that we transcend any “Magical Thinking” and that the financial outcomes that you are assuming are within the realm of possible as we simulate the future. That frankly starts to inform the way that you preserve and protect. When you monetize your life’s work, it’s all then about preserving and protecting - or diversifying your wealth - in the future. Very important points here.
There is a lot of work that needs to go in the front on the financial side of things so that there are no surprises when you get to the end. No one likes surprises, especially if they are negative surprises.
One of these bullet points talks about valuation. Depending on the company, the valuation can be a very formal one by someone who is very adept at doing valuations. Sometimes, it can be as simple as, “Within my industry, what is the range of multiples of cash flow just to give me a sense of what the value of this business might be?”
Taxes are another big component. I think of taxes as a foreign language, and they change constantly. They can be a big part of you structure a transaction. They can swing wildly in how much money you have to pay in taxes based on the way the transaction is structured. That is a very critical part of a transaction as you are weighing the pros and cons of the different ways to exit a business. Everyone likes to talk about retiring, and that means different things to different people.
The Dream Team - this is what I call the most important non-family team you will assemble in your life. There are some best practices for you to think about, because a lot of business people have an attorney, they have someone who does their taxes, and they think, “Well, I’ll just use this team who knows me and - probably most importantly - I’m comfortable with. I don’t have to bear my soul on what I’m uncomfortable with or what I’m afraid of.” But often, that can be a mistake. Your local attorney or your tax-prep person may not have the skill or experience of multiple transactions that are really important.
Making sure that team, financial advisors, depending on the size of the transaction that might be investment bankers, or maybe not that formal. Having that financial advisor, that quarterback that can help lead the process. Certainly an attorney that has a lot of experience in transactions. Tax expert. Depending on the industry and the size of the transaction and complexity involved, there may be environmental attorneys involved. There might be intellectual property expertise required. No two transactions are alike. That’s where the financial advisor can really help you cover that waterfront of making sure that you have the right people on the team playing in the right roles and having the experience to bring that to bear for you. This can take some time and some effort.
Interviewing multiple people is something we really encourage people to do. It’s amazing what you can learn preparing for a transaction by talking to 3, 4, 5 transaction attorneys. Just that process itself can help you with things you didn’t think of or questions to ask. Don’t be afraid to interview multiple attorneys and financial advisors. You are looking for that fit, that experience, that expertise, that teamwork. We say this group has to check their egos at the door and be there for you. If you don’t feel like this person will fit as part of a team, don’t hire them. The Dream Team is a really important of this process as you head down the road.
Now we are going to flip to the heart side of the transaction. This is something that is a surprise to a lot of people that I have worked with over the years. I really try to get them ready for the emotions, the way they are going to feel through this process, because depending on the complexity, the time, and the transition process to family, private, or strategic buyer, there are a myriad of ups and downs that will inevitably happen in a sale process. I just think it’s really important to let someone know that you are just trying to get ahead of those feelings, so that when they happen, they are not a surprise or a shock. One of the big things that people are surprised to hear is that in their minds at the closing table there is going to be a bunch of stuff I sign and there will be a bunch of money to put in the bank and I’m going to feel great. Honestly, the truth is that like most Olympic gold medal winners, they win the gold medal, they have the award ceremony, and they get up the next morning feeling very down, very depressed, very let down. That preparation in your mind, the excitement of getting to the closing table of the transaction, is often more energizing and exciting than what actually happens. Kind of like the little kid who is so excited for Christmas that as December goes along and Christmas day comes, they are a little let down. It’s a very similar experience for clients of mine who have exited their business and monetized their life’s work.
We like to talk about feelings, and we just want people to know to be ready for them and to have a plan for what you are going to do after the sale. Not just hope, hope things will work out. Hope is not a plan. We think spending time on what’s next is a really healthy thing to do ahead of time.
Speaking of what comes next, I recently read a book by David Brooks called The Second Mountain. I think it’s as good of a read for someone who is getting ready to make that transition. Generally speaking, people spend their entire life or many years building this business. Early in their career they are climbing what David Brooks calls the first mountain. They are climbing, doing all the things that everyone else does, working hard and making sacrifices. They get to the mountaintop, in this case we are talking about getting to that monetization of this life’s work. They get to the mountaintop, sell the business, transition it to their kids, and they wake up the next day and think, “Is that it? Is that what my life is supposed to be about?” David Brooks argues that no, it isn’t. There is a second mountain that’s out there for you that is very different than the first mountain. It’s almost a step-by-step process of helping you understand what your second mountain might be. I won’t do the spoiler’s alert, because it’s a great read and I suggest you read David’s book.[3] The second mountain is much different than the first mountain. I’ll leave it at that.
The whole notion of starting future-back. If you can get 5 years out, if you can get a 5-year head start on this process. Sometimes people don’t have the luxury of time. They might see a window of opportunity. We are in a period of time when private equity is very active in the financial markets. As of 2020, the amount of private equity invested globally is about 7x what it was in 2005.[4] The US makes up about half of the private equity investments in the world these days.[4] There are a lot of private equity firms, and they are chasing companies like yours, so sometimes you don’t have the luxury of this time. You have to compress this process because there may be a too-good-to-be-true offer or someone is going to pay you a multiple that maybe you couldn’t have gotten two years ago, or you may not get 2 years from now.
A cautionary tale on private equity, because a lot of people want to talk about private equity: I have been around a lot of private equity transactions, and certainly private equity can bring money to the table, financial acumen to the table. Many of them tout they bring other qualities to the transaction. In my experience, most private equity firms - beyond the money - they are not adding too much value. If things don’t go as planned after the closing, really their only lever is to change leadership. So if you sell to private equity, if you stay on for a period of time, in my experience that time after the transaction leading your business with a private equity partner can be a much different experience that what it was when it was just you. That doesn’t make it bad necessarily, but I often get the question, “If I have the option between a strategic buyer and a financial / private equity buyer at roughly the same valuation, which would you choose? Which is better for all of my employees who are going to require or need this company to continue to make their living?” Generally speaking - this is not advice - my experience is that the strategic buyer probably has a better shot of maintaining the culture that you have built and growing the business and taking care of your employee base on the margin better than private equity. That is not always the case, but that is a question that I often get.
To wrap things up a little bit, to summarize: future-back - to get in your mind’s eye what you want to do, look like, feel like when you’ve sold your business, and to whom. Work backwards to all the things that you need to do to achieve that vision. And then enjoy the process. Probably for most people, selling a business is a once-in-a-lifetime activity, and if you have a good vision, good plan for how to achieve that vision, understand the financial impact of that decision, and assemble that Dream Team to help you get there and not make any of those big mistakes that you worry about when you lay awake at night staring at the ceiling. Be ready for the emotions inevitably that are going to happen in this process. Get excited for getting to the second mountain and moving on with your life. You are not your business. When you exit that business, finding that second mountain can be a gratifying and energizing time of your life.
I hope today was helpful. I hope that you maybe learned a little bit. I planted a few seeds for you to think about: maybe the future-back, maybe the second mountain, maybe the Dream Team. I encourage you if you have time to read the ebook that I wrote on this topic that we just covered. We are more than happy to answer any questions that you may have. So thanks for being with us today, and we look forward to doing this again soon. Take care.
Important Disclosure Information & Sources:
[1] “Nationwide Survey Finds Majority of Business Owners Don’t Have a Succession Plan”. Nationwide, 07-Feb-2017, prnewswire.com.
[2] “5 memorable quotes from Steve Jobs“. John D. Sutter, 06-Oct-2011, cnn.com.
[3] The Second Mountain: The Quest for a Moral Life. David Brooks, 2019, Random House.
[4] “2021 Preqin Global Private Equity & Venture Capital Report“. Preqin, 04-Feb-2021, preqin.com.
This material is for informational purposes only and does not constitute a complete description of our investment services or performance.
Statements contained in this material that are not statements of historical fact are intended to be and are forward looking statements. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
SJS offers investment advisory services only in states where we are registered, have completed a notice filing or where an exemption or exclusion from such notice filing exists. SJS Investment Services does not provide legal or tax advice. Please contact your legal or tax professionals for specific advice.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Checklist For Selling Your Business
Your process for selling your business will likely include these steps.
By SJS Investment Services Founder & CEO Scott Savage.
Your process for selling your business will likely include the following steps:
Determine the age at which you want to leave the company
This will help set the framework for your plan.
Assess your financial situation and your desired retirement lifestyle
This step will help you determine the cash flow you need for retirement.
Determine the gap between your savings and your desired lifestyle
Ideally, the sale of your company will cover that gap. You’ll need to problem-solve if it won’t.
Decide how you want to transfer the company
Knowing the “how” will help you understand the appropriate steps forward.
Get a valuation of your company
Many people think they can ignore a valuation since the sale is years down the road. However, a valuation is essential. By understanding your present value, you can act to increase the value and get the sale price you need to retire.
Assess and implement the steps you need to increase value
You want to look at factors such as your customer base, systems and processes, and cash flow. We would argue, however, that the most important factor is you - or better yet, the lack of you.
Your buyer will want to know that the company can function without you. Start stepping back from the day-to-day running of your company and give your management team the opportunity to hone their skills. Giving up control may challenge you, but it is essential for maximizing your company’s value.
Review your financial picture
If you have always kept your cash in the business, now is the time to diversify your wealth. Factors outside of your control such as a recession can hurt your company’s bottom line. Diversifying your wealth can help see you through rough times and allow you to adjust your plans from a place of strength rather than weakness.
Review your professional and personal financial picture, including retirement accounts and other investments, insurance, and estate plans.
This step may be difficult as many business owners feel in control of their company’s destiny but not in control of an investment portfolio.
Understand the tax impact
Your tax picture will depend on your company’s structure and the type of sale. You want to understand this picture and implement strategies across all areas of your wealth to reduce the tax impact. The fewer taxes you pay, the more you will have for retirement.
Find a buyer and agree on financing terms
Most agreements allow the seller to purchase the business over time. This can be ideal for both of you, as it will allow for a slower transition out of the company, increase your team’s strength in running the firm, and allow the buyer to avoid an upfront investment they cannot afford. But you may have different plans, and by this point in your journey, you should understand those plans and seek a purchaser who will meet as many of those terms as possible.
Implement the sale
Make sure to communicate with your employees and customers. Provide the pertinent details, and if it’s feasible, make in-person introductions. Both your clients and staff will have questions; be prepared and be transparent. It’s in your best interest that everyone affected by the transition of leadership is prepared.
Retire
Congratulations! If you are wondering what’s next, you can check out this blog post.
To help business owners work through their emotions as well as make better decisions when considering selling their businesses, we wrote an ebook entitled Your Business Exit: Monetizing Your Life’s Work. We explore how your situation can come together - the dollars and the cents, as well as the behavioral - so that you can create a successful business exit.
If you have any questions or want to talk through your potential business exit, please feel free to reach out to us. We have helped many business owners successfully handle the financials as well as the emotions of exiting their businesses, and we would be happy to help you as well.
Important Disclosure Information & Sources:
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Generating Cash Without Selling Your Business Or Investments
I offer two cash-generating ideas in lieu of selling your business or investments that have gone way up in value.
By SJS Investment Services Founder & CEO Scott Savage.
Andrew Carnegie – steel tycoon, philanthropist, and one of the wealthiest businessmen of the 19th century – once commented about creating wealth:[1]
“Put all of your eggs in one basket, and then watch that basket.”
Does that advice surprise you? Many SJS clients have generated their wealth through concentrated bets that began as small investments - often creating their own businesses - and grew over time.[2]
As these investments increase in value, some clients no longer want their individual business concentration risk, and instead want to diversify their investments in order to preserve their wealth for the long-term. They are willing to pay the necessary taxes associated with realizing capital gains from selling a portion of their business.[3]
Conversely, others want strategies that help them generate cash without selling their business - in order to maintain ownership, keep voting authority, avoid associated taxes from selling, or just to wait to implement their estate plan.[4]
My Dad used to tell me, “Scott, there are two ways to get to the top of an oak tree. One, you can climb it. Or two, you can sit on an acorn and wait!”
As business owners, if we sit around waiting for something good to happen to us, we may be in for a long wait! The “trick” that most successful business owners know is we have to get out of our comfort zones and make something happen. So, I offer two cash-generating ideas in lieu of selling your business or investments that have gone way up in value.
Securities-Based Lines of Credit
Securities-based lines of credits (SBLOC), also known as securities-based loans, are becoming an increasingly popular go-to option to allow business owners to generate cash without selling their businesses.[4] When a business owner says they are “recapitalizing” their business, they may be referring to SBLOCs.
Negotiated directly with a bank or other lending institution, SBLOCs are highly customizable; depending on the lender, you can receive an SBLOC up to 50% of the value of your collateral, which is typically valued based on a third-party evaluator. Investments that can serve as collateral include a private business, public stock, and certain derivative holdings.[5]
Depending on the specific terms, potential benefits of SBLOCs include receiving cash without giving up voting authority in your business, lower interest rates than other types of loans, flexible repayment schedules, avoiding capital gains taxes that would result from selling appreciated assets, and not showing up on credit reports.[4] If you work for a publicly-traded company and are required to disclose your holdings, then you may be required to disclose the collateralized loans against that particular security. However, most other loans collateralized against other assets often do not need to be disclosed.[4]
As with any customized loan arrangement, it is critical to thoroughly understand the details ahead of time. The SEC released an Investor Alert in 2015 to help people considering SBLOC loans better evaluate specific details, particularly emphasizing ten questions to ask before taking out an SBLOC:[6]
Many regional and major banks offer SBLOCs. If you are comfortable taking on a loan, paying interest, and using your business or investments as collateral, then an SBLOC may be a good option for you.
Covered Call
If you own large amounts of a publicly-traded stock, you can potentially generate cash by selling a call option on that stock (also known as a covered call). A call option is a derivative contract that enables the holder of the call option to purchase the underlying security at a pre-specified price. By selling a call option, you receive an upfront premium, but if the call option holder decides to exercise the call option, then you may be required to provide the call option holder with the underlying stock, or pay the difference in value between the call option strike price and the current value of the underlying stock.[7] Therefore, a covered call limits your downside as well as limits your upside of your underlying stock holding.
Covered calls are generally only available for larger public stocks. Since call options are relatively expensive to create and trade, they are usually used by larger investors. Because call options typically expire within one year, you would need to sell a call option at least once per year, or use another strategy to generate recurring cash. Additionally, any net income from the covered call as of the call option’s expiration date is subject to the appropriate capital gains (usually short-term) taxes.[8]
Because you may be required to deliver the underlying stock to the counterparty, as well as the complexity and taxes associated with selling call options, we generally advise for investors to only consider covered calls if they need money in the short-term, don’t have other simpler sources of financing, and would be agreeable to selling the security if it reaches an acceptable price.
Conclusion
There are many ways to generate cash without selling your business, each coming with its own benefits and tradeoffs. SJS has over 26 years of experience helping business owners and high net-worth individuals implement these strategies. If you want to discuss whether any of these strategies are appropriate for you and how you could implement them, please feel free to reach out to us.
Important Disclosure Information & Sources:
[1] “Put All Your Eggs in One Basket, and Then Watch That Basket“. Quote Investigator, 16-Feb-2017, quoteinvestigator.com.
[2] “How People Get Rich Now“. Paul Graham, Apr-2021, paulgraham.com.
[3] “Ways to Cash Out of Your Business”. Laura Lorber, 11-Sep-2008, wsj.com.
[4] “Buy, Borrow, Die: How Rich Americans Live Off Their Paper Wealth”. Rachel Louise Ensign and Richard Rubin, 13-Jul-2021, wsj.com.
[5] “Securities-Based Lending“. Lucas Downey, 26-Aug-2020, investopedia.com.
[6]“Investor Alert: Securities-Backed Lines of Credit“. U.S. Securities and Exchange Commission, 21-Dec-2015, sec.gov.
[7] “The Basics of Covered Calls“. Alan Farley, 20-Apr-2021, investopedia.com.
[8] “Tax implications of covered calls“. The Options Institute At CBOE®, 2013, fidelity.com.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Statements contained in this report that are not statements of historical fact are intended to be and are forward looking statements. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Emotions Of Selling A Business
In our work with business owners, we ask them, “What does your life look like after you sell your business?” Many times, we get a blank look.
By SJS Investment Services Founder & CEO Scott Savage.
In our work with business owners, we ask them, “What does your life look like after you sell your business?” Many times, we get a blank look.
That blank look is understandable. These very busy business owners have their focus in the here and now - on the needs of their families, employees, and customers. They have little time left over to think about tomorrow, and they may even be avoiding it. Change is unnerving, the future is unknown, and it’s more comforting to focus on what seems certain and controllable.
But that future will come, planned or not, and you can help yourself with the change by envisioning your business succession process. By spelling out what you want your future to look like, you can help counter the loss of identity you might feel when you wake up one morning and realize that you don’t have a company to wake up for.
We urge anyone who is planning to exit their business, or who has already exited, to read The Second Mountain by New York Times best-selling author David Brooks. He writes of two metaphorical mountains. The first encompasses what many business owners have pursued, as these are the goals that our culture tells us to focus on - social status, happiness, a nice home, a loving family, great vacations, good food, wonderful friends, and on and on.[1]
But some people get to the top, sell their business, and find it unsatisfying. “Is this it?” they ask themselves. They sense that there must be a more meaningful journey they can take. As Robert Powell once wrote, “Without purpose, many retirees begin to decline. When we ask a pre-retiree what they’ll do when they retire, and they respond with ‘golf,’ it’s a good indicator that they are not prepared.”[2]
The second mountain is where people realize their ego can never be satisfied. They find out they don’t want to be a full-time consumer - they want to be consumed by a moral cause. They realize independence is lonely, and they long for connection, relationships, intimacy, responsibility, and commitment. They seek long-lasting joy rather than temporary happiness.
In our experience, the second-mountain perspective is a helpful way to think about your life when you are still on top of the first mountain!
To help business owners work through their emotions as well as make better decisions when considering selling their businesses, we wrote an ebook entitled Your Business Exit: Monetizing Your Life’s Work. We explore how your situation can come together - the dollars and the cents, as well as the behavioral - so that you can create a successful business exit.
If you have any questions or want to talk through your potential business exit, please feel free to reach out to us. We have helped many business owners successfully handle the financials as well as the emotions of exiting their businesses, and we would be happy to help you as well.
Important Disclosure Information & Sources:
[1] The Second Mountain. David Brooks, 2019, Random House.
[2] “Why you need to have purpose in your daily life even when you retire“. Robert Powell, 26-Dec-2018, USA Today.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Scott Savage Discusses His Book, "Your Business Exit: Monetizing Your Life’s Work"
SJS Investment Services Founder & CEO Scott Savage sat down with the Family Wealth Alliance to discuss insights from his book, "Your Business Exit: Monetizing Your Life’s Work."
SJS Investment Services Founder & CEO Scott Savage sat down with The Family Wealth Alliance to discuss insights from his book, "Your Business Exit: Monetizing Your Life’s Work." Watch below!
Transcript:
Tom Livergood: Welcome back to Alliance Talks. I'm Tom Livergood founder and CEO of The Family Wealth Alliance. And I'm joined today by Scott Savage. Scott is founder and CEO of SJS Investments. And they're a new member of the Alliance. We're delighted to have you Scott and happy to have you today on this episode.
Scott Savage: Well, it's a pleasure to join you Tom. I'm really excited to be a part of The Family Wealth Alliance, and we're really looking forward to learning, and contributing, and being part of The Family Wealth team.
Tom Livergood: Well, you're contributing today with this segment. And I think our listeners really neat to hear this. You recently put out an ebook called Your Business Exit: Monetizing Your Life's Work, which is really a terrific resource for clients with a unique take on business succession. And what I call a next chapter. Please tell us a little bit about the book and why you chose to write it, Scott.
Scott Savage: Well, we work with so many business owners and as a business owner myself, I started SJS 25 years ago. And as a business owner myself, I can really empathize with some of the issues and questions that our business owner clients have. And so there's that real connection that I feel to a business owner that we're advising. And so I thought, well, there are some lessons that I think I can bring on behalf of all this experience that I've had advising business owners over the years. And I thought, well, I'll get it out there in the ether. And hopefully help people avoid some of the pitfalls that are often made in this process by people who are generally selling a business one time in their life. And so you get one chance at doing it right.
Tom Livergood: I really liked that last point that you really have one chance to do it and you want to do it right. And I think that resonates more than anything that you've said. There's an interesting component that you've alluded to Scott, and of their resource mentioned in the subtitle, which is how to manage the financials and the emotions so that you can leave on your own terms. Business owners certainly would relate leaving on their own term, but the psychological journey I'd love for you to talk about. Because I wouldn't think that'd be top of mind with business owners as they prepare their deal team, as you've talked. Can you explain why you chose to address that particular aspect?
Scott Savage: Well, it's like the gold medal athlete bit. Wins the gold medal, stands on the podium, goes to bed that night and wakes up the next day, depressed and down. And I've had dozens of experiences of clients that have properly prepared to sell a business, sell a business on their terms financially and wake up the next day, feeling very, very down. And so to me, it's important that just let somebody know ahead of time, hey, look, this is how you're going to feel the day after you closed. And so then when it happens, they know, oh my gosh, this is normal. I'm in a big canoe and I'll get through that. But it's a really big component whether you're selling to family members, or to private equity, or to a strategic buyer. Irrespective when that life's journey kind of comes to an end or is monetized, it's a tough psychological leap that people need to make. And I just thought, gosh, let's give them a heads up about that.
Tom Livergood: Yeah. I think that's really smart. I know that parents can do a similar analogy about getting their kids ready to go to college, right. And it's just so exciting and the buildup and all that, and the selection, you drop them off and you leave and,
Scott Savage: And you're going to cry.
Tom Livergood : You're not happy. Right. No, I get it. Business owners really do go through a lot and you've given a lot of thought and consideration. What's the, maybe the one piece of advice that you would leave with them in preparing for that transition?
Scott Savage: Well, I think in this country, Tom, I'm sure you'll agree that the way to create wealth in our country is still through a very concentrated bet on a certain industry, oftentimes in one geography. So having all your eggs in one basket, and this person has been watching that basket for sometimes decades. But the job is to monetize that basket. The job becomes then to preserve and protect what you've spent your life creating. And it's a very different mindset. You give up a lot of control. A lot of people have a really tough time with that transition of depending on the financial markets to send them their paycheck in the future. So their financial issues, and there are emotional issues, and they're absolutely connected.
Tom Livergood: Yeah. Well, Scott, thanks for sharing. I appreciate your insights. Very grateful that you've joined me on this episode for a discussion about this. If you haven't picked it up, get SJS Investments ebook, Your Business Exit: Monetizing Your Life's Work. You can find it on your screen here. You can go to our resource and SJS's. But you've done great work as a leader at SJS Investments, Scott. And we appreciate you sharing that today. That's all we have time for. Thank you for joining us for another installment of Alliance Talks. Make it a great day.
Important Disclosure Information:
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Statements contained in this video that are not statements of historical fact are intended to be and are forward looking statements. Forward looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
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Suggested Reading
When To Sell Your Business
If you don’t know whether you want to sell your business or how you would go about selling your business, we recommend starting with the following steps.
By SJS Investment Services Founder & CEO Scott Savage.
Not as excited about “work” these days? Feeling the “whisper of discontent”? Daydreaming (or having nightmares) about the next chapter of your life?
You know it’s time, or getting there. You built a successful enterprise, waking up every day determined to make your company better than the day before. Determined to make yourself a better leader than the day before. The struggle, the competition, the ability to prove yourself - you relished it.
But now something else is arising. You’re thinking of retirement or perhaps a new passion project, an encore career, the life of an expat - and ever so slightly, day by day, the call is growing. You know you can’t ignore it much longer, even if you’re tempted to.
And you are tempted to ignore it because what does a life transition like this mean? It means big change. It means something new you haven’t defined yet - and the letting go of the company you built with your hands.
In my nearly three decades of helping business owners with their finances, I have learned that one of the most difficult decisions for a business owner is deciding if and when to sell their business. Each business owner approaches this decision differently: Some meticulously plan their exits while others don’t plan at all.
Unfortunately, most business owners do not adequately prepare for their exit. In a 2017 study by Nationwide, 3 in 5 small business owners do not have a business succession plan in place.[1] We think that not having an exit plan in place is a mistake, for yourself, your family, and the employees of your business.
If you don’t know whether you want to sell your business or how you would go about selling your business, we recommend starting with the following steps.
Assess Your Options
The first step is deciding how you want to exit. How do you want to pass on your company? Your decision will help shape the course of your plan.
You can:
Transfer it to family members
Design an internal sale to an employee or employees
Sell it to a third party
Weigh The Pros And Cons
Each decision has its pros and cons that you’ll need to consider. For example, if you’d like to sell the company to family members, first make sure you have a family member who wants to take the reins and has the competence to do so (you’d be surprised that many potential heirs apparent don’t). The family member may also lack the ability to finance the price you need, calling for creative solutions if you are set on this path.
But passing a business within a family - and to some extent, to employees - can mean that the values you founded your company on will be honored and live on after. Your company’s community service, its local focus, its commitment to customers - you have less control of the legacy once the company is in the hands of a third party.
This is the time to do some soul searching. How do you envision the company being passed on? What factors are you flexible on? What is non-negotiable for you? Will it still be non-negotiable if it means you receive less money?
Get A Financial Advisor’s Expertise
Consider fleshing out this question of “When and how will I exit?” with an experienced financial advisor. Your advisor can help you understand the financial impacts so you can decide on the exit that leaves you feeling good about your company’s new owners and the financial future for you and your family.
Additional Due Diligence
After considering the above, if you still can’t shake the feeling that some time soon may be the time for you to exit your business, we recommend for you to do additional due diligence, including:
Determine the age at which you want to leave the business.
Assess your financial situation and your desired retirement lifestyle.
Determine the gap between your savings and your desired lifestyle.
Decide how you want to transfer the business.
Get a valuation of your business.
Assess and implement the steps you need to increase your business' value.
Review your financial picture.
Understand the tax impact: Particularly now, Congress is debating a change in tax and estate rules that could have a HUGE impact on the design of your exit.[2]
Conclusion
Determining when to sell a business is a difficult decision for most business owners. To help business owners make better decisions for both themselves and their business, we wrote an ebook entitled Your Business Exit: Monetizing Your Life’s Work. We explore how your situation can come together - the dollars and the cents, as well as the behavioral - so that you can create a successful business exit.
If you have any questions or want to talk through your potential business exit strategy, please feel free to reach out to us. We have helped dozens of business owners successfully exit their businesses, and we would be happy to help you as well.
Important Disclosure Information & Sources:
[1] “Nationwide Survey Finds Majority of Business Owners Don’t Have a Succession Plan”. Nationwide, 07-Feb-2017, prnewswire.com.
[2] “How the Wealthy Are Trying to Anticipate Biden’s Tax Increases“. Paul Sullivan, 06-May-2021, nytimes.com.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.