Selling Your Practice or Business: Life After the Millions

Speaker 1 – 00:00
There is a huge transition of wealth happening right now. We’re in the only time in history where 85% of the wealth
in America is held by people over the age of 65.
Speaker 2 – 00:09
It’s going to take time to sell your business. It could take two to three years to plan it, sell it.
Speaker 1 – 00:14
And then afterwards you have estate planning decisions, you have asset allocation decisions, you have tax
decisions, you have spending decisions, you have charity decisions, gifting decisions. Lifestyle creep is really easy
to happen.
Speaker 3 – 00:27
We have the individual who’s buying everything and then the individual who’s afraid to spend a dime.
Speaker 1 – 00:32
If you don’t spend, you can create more problems for your kids.
Speaker 2 – 00:36
Children inherit a lot of money and a few of them blow it, lose their jobs, and literally go from everything to nothing.
Speaker 1 – 00:42
If this type of planning is not.
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Speaker 3 – 00:44
Done, not only do you have these tax issues, but then you have these regret issues.
Speaker 1 – 00:48
And if you, it’s going to be disaster. We’re going to talk about what business owners go through while they are in
the process of a transition from a sale. So I’m joined by Drew and Jimmy. Jimmy has worked with a lot of business
owner clients over the last 35 years, so tons of experience. And Drew has also 10 plus years of experience working
with business owner clients. So we’re gonna go ahead and dive in. I think just to preface this is a big, I don’t wanna
say issue, but thing that’s going on because we’re in the only time in history where 85% of the wealth in America is
held by people over the age of 65.
Speaker 1 – 01:36
And so what that means for this conversation is there is a huge transition of wealth happening right now,
especially with privately held businesses that the baby boomer generation owns. And this is becoming so common
where private equity comes in, buys a business because the owner wants out, family member takes it over, a
successor takes it over. There’s a lot of things to consider. So Jimmy, what have you seen in your experience
working with clients that are going through a sale and what are some main takeaways?
Speaker 3 – 02:07
Yeah, my main takeaway is obviously, as you stated, this is, you know, a huge event in people’s lives. And, you
know, you have business owners that have worked, you know, decades to build this asset that they’re now, you
know, liquidating and moving away from and from experience. One of the things that I don’t think gets discussed
enough, which we certainly talk with our clients about, is, okay, what’s the next day look like? I’ve spent all this time
Building this, I’ve owned it now I’ve sold it. Oftentimes there’s an employment contract that comes with the sale. So
now I have to come back in to the building that I once owned, that now I’m no longer owner. Sometimes there is no
contract. And now I have to figure out, okay, what’s my day look like today?
Speaker 3 – 02:59
So we spend a lot of time with our clients making sure that they know this is a great thing, it’s a great event, it’s life
changing for your family. But let’s make sure we have a plan for what your next day, week, month, years look like,
because these are successful people and they need to stay sharp. They need to have some purpose. They can’t
just wake up the next day with, you know, a pot of money in their account trying to figure out, okay, what do I do
now?
Speaker 1 – 03:31
Yeah, totally agree, I think. So let’s start with, like, the actual transition. When you have a buyer coming in from my
experience working with clients, that’s. That’s not a fast process. That can be like six months to two years of the
due diligence process. So that alone can be really stressful because you’re trying to agree on evaluation, you’re
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trying to agree on what the payout’s going to happen, what the payout number is, how it’s going to happen. Is it a
cash transaction, a stock transaction? Are you going to be employed? Are you not going to be employed? And then
there’s this kind of not false sense of hope, but you’re also thinking like, this could also not go through. And so all
of a sudden you have a nine figure number shown in front of you, but it could also not happen.
Speaker 1 – 04:12
So that whole period can be very stressful as well. And then once it happens, I think there’s an immediate
aftershock of like, I’m working 80 hours a week. This business that I just operated for however many years was my
whole sense of purpose and identity. I’m friends with everybody that I work with in my office, and now that can
suddenly go away. So, Drew, what’s been your experience as you’ve seen this happen?
Speaker 2 – 04:35
Yeah, I mean, I think with anything, just having a plan in place and due diligence process of your whole team
working with you throughout this whole transition, because it could get very emotional. There’s ups and downs,
there’s things to unexpect. But to honestly have that plan with your financial advisor, CPA attorney, exit strategy
coach, along the way will keep you kind of within balance.
Speaker 1 – 05:05
Yeah, And I think a lot of these types of people that run a successful business get it to the point where they’re
selling it for a big number. They’re very, you know, they’re type A people. They’re kind of addicted to adrenaline and
you know, the day to day of the almost chaos of the business. And when you strip that away, that can be really
difficult for people to cope with. So Jimmy, what have you seen on those terms?
Speaker 3 – 05:32
I think the biggest takeaway for me is every time there is some type of employment contract that is associated
with the sale, whether it’s 12 months, 24 months, 36 months, I really, if there were 10 examples, I don’t think I have
nine that can say they’ve made it through the entire employment contract. It’s just a different feeling. You know, you
walk into the building, sometimes employees are retained in the transaction and these employees who used to go
to you for these decisions now can’t go. It’s just, it’s an awkward time. So you just want to be prepared for that. But
again, I keep coming back to, you have to have a plan for how you’re going to feel and what you’re going to do with
your time and just staying sharp.
Speaker 3 – 06:20
Because that can get a little dicey if you know, now you’re sitting on a pot of money, you don’t have a purpose. And
now, okay, what do I do with my time now? And do I start chasing ideas that maybe aren’t the best thing for my
financial plan? There’s just, there’s a lot of things that need to be considered.
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Speaker 1 – 06:39
I’ll speak on the employment contract a little bit. I’ve seen basically every situation. Most businesses, the founder,
the leader is very involved. So if you take that person out, there’s a question of will this business even survive. And
so a lot of cases, the buying person, company wants to retain that person. Well, those types of people, they own a
business for a reason. They’re not good employees. And so if they have to come in and report to somebody with a.
Speaker 3 – 07:08
W2 salary, that’s why it’s difficult. I’ve not seen many fulfill the employment gone.
Speaker 1 – 07:15
I’ll tell two stories that I’ve seen. Number one, I had a client, he took a lesser dollar amount on the sale to not be
employed. He had one offer that was like $5 million more to be on as an employee for two years. And he said, this
just won’t work. So he took less money to not be employed. But I’m in the middle of a Transition with one client and
he business sold at the beginning of the year. They retained him. He has a board seat now and he’s working in the
business and he’s in a weird spot. He tells me all the time he knows that he has enough money that he doesn’t
need to be doing this and he’s ready to go on to the next thing in his life.
Speaker 1 – 07:55
But he’s like, I have this weird, I’m in this weird situation where my. He is a 5050 partner and that guy is still the CEO
of the company. So he’s running it. And he’s like, I don’t want to like leave them hanging because I’ve worked with
this guy for 20 years. He’s like one of my best friends. I don’t want to just like walk away because there’s all these
projects that need done. And he’s like, I don’t really know what to do. He’s like, I’ve tried to tell him I want to leave
but like I’m just kind of stuck in here. And he’s like. And he’s in the position where he’s like I don’t really know what
my day to day is going to look like if I quit.
Speaker 3 – 08:27
You know. That’s a really good point. And there’s so many different transact that we can talk about. I have one in
particular where it’s a private equity that’s just rolling up different businesses. So the owner really wanted to keep
some cash off the table and wanted to have equity in the PE firm and wanted a board seat and wanted you know,
that interest him not so much the day to day of the business that he was running, but more okay, now I have an
opportunity to you know, maybe sit globally on this board and watch some roll ups. Now you know, sometimes you
get a little pushback from the PE firm thing. Yeah, that’s not really what we had in mind. So that’s all part that
negotiation. But again anything that can keep you engaged, whatever that looks like is really important.
Speaker 1 – 09:09
I think it’s the same thing with like someone that’s entering retirement or financial dependence like a full stop,
especially if you’re working 80 hours a week, a full stop is generally like pretty detrimental and so terrible. Yeah,
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some sort of like how many.
Speaker 3 – 09:25
Times have we heard, I mean I can’t golf every day.
Speaker 1 – 09:27
Yeah, yeah. So it’s like you have to have some sort of like phase transition period of like I’m still. Whether it’s
working in your business or you find some other Purpose that you can focus on. And I think one thing I’ve seen is
when we’ve had clients that have had the sale, they take a minute to step back and they take this 6, 12, 24 month
period where they aren’t doing anything. It allows them to find like this deeper purpose. A lot of times they start
this business and I’m sure they’re all interested in it. They love the industry they’re in, but at the end of the day, they
start the business to make money and provide for their family.
Speaker 3 – 10:01
Absolutely.
Speaker 1 – 10:01
And so that doesn’t mean that’s not this deep underlying purpose or passion they have. But when they have the
financial security, they can focus, take some time to decompress, think through what they actually care about, and
they find that second endeavor that they’re really passionate about.
Speaker 3 – 10:16
Actually, I was going to ask Drew this because you bring up a good point about family. After the transaction, the
next step is, okay, how do we communicate this? And you know, I’ll hear from business owners, okay, I don’t want
my kids to think, okay, now they’re on easy street and they don’t have to do anything. Drew, when you think about
some of your experiences, how have you advised how to communicate to family? When, how.
Speaker 2 – 10:41
I mean, I always go back to the team approach, especially if something like this happens. I always feel like you
want your state attorney involved to up to make sure you’re updating your wills, legacy planning to talk about that
and maybe even introducing it to some of your family. So, yeah, I always think there should be a team in place to
have a good balance.
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Speaker 1 – 11:06
Jimmy, what are some healthy ways from an estate planning standpoint that you can, because I hear this all the
time from clients is like, I haven’t told anybody how much I even sold for. Other than you as the advisor or the
transaction attorney or the accountant, there’s maybe handful of people that even know and there’s a lot of fear
around. Like, I don’t want my friends and family to know that I just exited for nine figures because then the
relationships are going to change. So from an estate planning standpoint, what are some healthy things that can
be done to introduce the family to money without making them dependent on it.
Speaker 3 – 11:42
Yeah, that’s really good point. I think it comes back to communication and when you want to bring the family into
exactly what has happened, but generally spe you want to be in line with, okay, what are the values of the family
and what do we want to pass on to our kids in terms of, you know, what does this money mean? How can it help
not just our family, but maybe philanthropically, what are we involved in? We talk a lot about building family
foundations and making sure all families are a part of decision making moving forward. So, you know, that’s a way
to bring the family into, you know, what is this newfound life changing wealth.
Speaker 3 – 12:30
But at the same time you want to make sure that, and this is the one thing that, you know, I hear often from clients
as well, boy, I really don’t want to blow this. You know, this is, I’ve worked so hard and it’s interesting guys, because
you could be sitting on nine figures and you get the feeling sometimes that, okay, now I don’t have the paycheck
anymore, now I don’t have my business check. I really, am I going to really blow this?
Speaker 3 – 12:56
And so there’s a lot of discussion from an estate planning standpoint about not only how can we structure this
properly from a tax standpoint, how can we communicate it properly to kids, but moving forward, making sure that
there is a comfort level as to, okay, you know, this is set up properly and you’re going to be able to do whatever you
want to do.
Speaker 1 – 13:16
Yeah, I totally agree with the values. I think that one healthy exercise is you create a family government’s document
a family charter. And what that would do is doesn’t have to be anything about money, but it’s about values, goals,
really what got you to the point of that wealth and how you can transition that to children. And then from a tactical
standpoint, the worst thing that can happen is you don’t tell them anything and they inherit a ton of money when
they don’t even know about it.
Speaker 1 – 13:44
So I think a healthy thing that can be done is like have some of the conversations around values, but then slowly,
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like through lifetime gifting, through helping them max out their Roth IRAs, slowly introduce them to some of the
money and teach them how to save it safely so they don’t get it all at one time.
Speaker 3 – 14:01
There’s no question there needs to be some ownership from a family standpoint as to this whole transaction and
you know how it moves forward from there. So. And again, it does depend to some extent on how old the kids are.
Yeah, I mean, if we’re talking about, you know, five year olds or middle schoolers, you know that there’s time for
that to breathe. But if we’re talking about, you know, kids in their 20s and 30s who are starting their own families
and oftentimes, and again, I hear this too if there’s not enough communication, the kids don’t know what they need
to plan for and what they don’t need to plan for. So there needs to be that delicate balance of, okay, yeah, this is
what the family has. This is what we’re prepared from mom and dad standpoint to be able to provide. And.
Speaker 3 – 14:46
And then you kind of move forward from there.
Speaker 1 – 14:48
Yeah. And then let’s talk about from a financial standpoint. There’s a lot of. You have freedom financially, but
there’s a lot of stressful decisions in the way of estate planning. Now you have all this money, so it’s. I hear all the
time, I don’t want to mess this up. You have estate planning decisions, you have asset allocation decisions, you
have tax decisions, you have spending decisions, you have charity decisions, gifting decisions. And I think it also
becomes difficult where every. When you have a sale, you can keep it private to a point, but at some point, like,
people are going to know that you sold your business. And so when that happens, like, every single pitch deck gets
thrown on your desk. You have all these opportunities. So what’s been. Let’s start with that.
Speaker 1 – 15:34
What’s been, Jim, in your experience, how do we not over complicate and, like, add too much stress onto a balance
sheet with all these opportunities?
Speaker 3 – 15:44
Now, I think from the standpoint of how we handle it, we want to say in the nicest way possible to our clients, this
is great. You are an expert in this one particular area, which is what your business was. That doesn’t necessarily
mean you’re an expert in everything. So every idea that you have may not result in the same outcome as the sale of
your business. And again, that’s a delicate conversation. But what we’re trying to do is say, let’s be really strategic
now as to how we deploy this money. Because I have seen clients who have exited that have these ideas about
what the next great business is. And we as advisors, very delicately have to push back a little bit there.
Speaker 2 – 16:29
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And I mean, to your point, Jimmy, I think as their clients with you for X amount of years before that transaction,
that’s when you plan the financial plan, you put what they expect from the sale into the plan, and you communicate
before it even happens. So they know going forward. So there’s no kind of confusion when the sale ends. And then,
you know, there could be an explosion. So we’re trying to prevent that.
Speaker 3 – 16:54
Absolutely.
Speaker 1 – 16:54
Yeah. And then another on that point, lifestyle creep is really easy to happen. So, like, one example, I’m thinking of
this Guy was spending, like 15 to 20,000amonth, which is a lot of money to spend a month. But, you know, it’s not
anything crazy. And after the sale, he essentially could spend, after taxes, $200,000 a month and still maintain his
principal and his investments. And just even trying to comprehend and wrap your head around that, like, the. The
term I heard was. He was like, I can’t even believe that this is my life on a. On, like, a piece of software. Like, this is
ridiculous. And so when you. When you hear that as you know someone, that you’ve. You’ve almost watched your
spending as you’re doing this business, and now you’re like, well, I could spend all of this money.
Speaker 1 – 17:43
And what can happen is people start to do that, and then you look around a couple months, and you’re like, what is
going on? I have a house, a car. I have all this stuff now in my life that’s, like, almost more complicated. So it’s
really like reining in and being intentional about what are your goals, what are your values, what brings you joy and
fulfillment, and how do we allocate our spending on those things instead of just being reactive to what’s coming
across my desk.
Speaker 3 – 18:06
Yeah. To amplify Drew’s point, it does come back to a plan. We were talking to a client yesterday who is about a
year removed from an exit, and there’s significant dollars in his account. He actually said this yesterday. I look at
that number, and I still don’t really believe it. Yeah.
Speaker 1 – 18:24
Yeah.
Speaker 3 – 18:24
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I don’t think it’s really. I look at it. That’s great, but that’s not really real. Let’s go back to real life. And we’re like, no,
that’s real, and it’s a part of your life now. So let’s make sure that we plan appropriately. That can also go the other
way, Jayma, where you can have families that are so used to maybe that $15,000 a month spend that they’re
terrified to spend anymore. So we try and find that balance for our clients, which is, you can spend more. You have
a little more time now. It’s okay. This isn’t going to be terrible. So we have the. The individual who’s buying
everything, and then the individual who’s afraid to spend a dime. We try and meet in the middle there a little bit.
Speaker 1 – 19:15
I think. What. To that point, if you don’t spend, you’re going to create. You can create more problems for your kids,
because if you don’t spend anywhere close to what you could you’re just creating this massive nest egg of money.
And if you don’t do have these conversations, playing with your kids, they’re going to get an astronomical amount
of money that they’re not going to know what to do.
Speaker 3 – 19:36
So true. I mean, not only do you have these tax issues, but then you have these regret issues, which is, oh, I could
have done this, but I never did.
Speaker 1 – 19:43
Yeah, yeah.
Speaker 2 – 19:44
And I’ve seen from my end, too, you know, children inherit a lot of money and a few of them blow it.
Speaker 1 – 19:51
Many of them blow it.
Speaker 2 – 19:53
And lose their jobs and literally go from everything to nothing. Yeah, it’s. It’s scary to see.
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Speaker 1 – 20:00
The statistic is like money wealth passing to the. The first generation. So kids is. I think it’s 70% of that’s gone. And
then by the third generation, so their kids, like 90% of it’s gone. And so that just. I mean, we’re in this period in
America where there’s this big wealth transition. And if this type of planning is not done, those are the statistics,
and that’s by probability what’s going to happen. The money’s going to get blown. So one other thing I want to
highlight is, so let’s say we have someone that comes into a large sum of money. How we actually can tactically
allocate this from an asset allocation standpoint where they’re putting their money. And I usually like to think about
it, I kind of draw a line down the middle if I’m on a whiteboard.
Speaker 1 – 20:42
If we have personal balance sheet that’s going to support your life and your spending, let’s figure out what that
number needs to be and what spending needs to be, what your goals are. Then we have on the other side of the
line, what we would call a state legacy out of your estate. And if you don’t put anything on that right side of the line,
the IRS takes 40% over a certain number. You’re gonna pay a lot in taxes, sort of figure out what that number is,
and then figure out how to transition money into this other side, which is out of your estate, into trust. And so that’s
kind of how we would build that intention. You know, if someone’s gonna spend, we’ll just make numbers up.
Speaker 1 – 21:16
If someone wants to spend $400,000 a year after taxes, they probably need 10 to $12 million liquid that they can
spend anything above that. We have to do plan and get that out of your estate to avoid a bu. And so those are kind
of the conversations when I make sure Goals are secured first, and that plays into two private investments,
business interests. Let’s take that 10 to 12 in that scenario, secure your life and then what you do with the rest of it,
not do whatever you want, because we’ve seen some really reckless decisions. But that gives you the latitude to
make some of these riskier bets, knowing that all of your goals are already secured.
Speaker 3 – 21:53
Yeah, great point. And again, coming back to the meeting we had yesterday with our client, we called that first
analysis, the non negotiable. What do you and your spouse need to live the life that you want to live? And then you
go over here on this side of the ledger, okay, now we have family. We want to make sure the government isn’t, you
know, in our pockets for 40%. But there’s also other ways in which you can protect the asset for the kids down the
road through trust, which you know, can be, hey, let’s make sure that there’s this corpus of money and trust for our
kids. But we want to protect from bad business partners down the road, potentially bad marriage outcomes down
the road. There’s a lot of powerful things in the trust document that can protect that second and third generation.
Speaker 2 – 22:34
Yeah, I think this takes time too, in multiple meetings to come across because there is all a lot at once. So having
that solid communication really helps the client.
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Speaker 1 – 22:45
I think to create some sort, you have to have trusted people that are going to be able to, like, you’re not going to be
here forever. And if you do everything yourself and you die, it’s going to be a disaster. So you brought this up earlier,
Drew. Have that advisory board, we’ll say, and so if were to look at that, what types of people should you have
sitting at that table that can help you make these decisions now and then after.
Speaker 2 – 23:09
Yeah, I mean, I think your spouse, your cpa, your financial advisor, your estate attorney. I would even hire an exit
strategy coach to, you know, to deal with your emotions along the way. And it’s going to take time to sell your
business. I mean, it could take two to three years to plan it, sell it, and then afterwards. So that’s what I would have.
Anywhere else that you’d include?
Speaker 1 – 23:35
No, I think, yeah, state planning attorney, cpa, financial advisor, spouse, obviously. And then, Jimmy, I’ll let you
speak on this. Having someone that you trust as a trustee or a trust protector, executor of a state, investment,
manager of your trust, whatever the term, and how you want to structure this. But what have you found, like the
importance and how do people make those Decisions on who’s actually going to help manage this. Yeah.
Speaker 3 – 23:59
And again, depends on the situation. If we’re talking about younger kids, the discussion oftentimes is, I mean, I
hope my kids turn out well, but, you know, they’re. They’re six and seven. I don’t know what, you know, the next 20
years is going to bring. So need to make sure somebody is looking over this to make sure, to Drew’s point, we don’t
want to be sitting here 30 years from now, and now there’s nothing. And again, it does come back to being very
thoughtful about the entirety of the plan. So it is important to make sure that, and I keep coming back to the
patriarch, whoever is the person responsible for this business and this exit, to make sure that they feel comfortable
with how this is going to play out over future generations because they have an opportunity to really create
generational wealth.
Speaker 3 – 24:54
If we’re talking about a business owner who has started this is not somebody who inherited, you know, significant
dollars. This is somebody who started a business, built it up and exited in a tremendous way. There are
opportunities to have generational wealth here. If, if planned appropr.
Speaker 1 – 25:13
I think we’ll kind of try to sum this up. I think a couple of takeaways. You know, number one, get really intentional
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with your goals and values and make decisions based on those. Number two, come up with decision making
frameworks of like, I’m going to say no to 95% of what people throw at me and I’m not going to make a decision
that doesn’t align with those goals and values. Think about the legacy and how you want this to impact your kids
and what, how you want it to positively impact them, not negatively impact them. Set up an advisory board. Have
people there to help you and have these conversations with the loved ones around you so it’s not a surprise.
Speaker 3 – 25:51
Just get out of the house the next day. Just get out of that. Don’t, don’t wake up and get on the computer and
figure out, what am I going to do now? Get out of the house and keep your mind sharp.
Speaker 1 – 26:01
Yeah. Anything to add?
Speaker 2 – 26:02
Either of you enjoy retirement?
Speaker 1 – 26:04
Yeah. Yeah. Try to make it more. Try to make it less stressful.
Speaker 3 – 26:08
Maybe play golf every day. I don’t know.
Speaker 1 – 26:09
Yeah, Whatever you like to do, go for it.
Speaker 3 – 26:11
That could be a little more frustrating that.