[TRANSCRIPT]
0:00:00 - (Doug Jenkins): Coming up next on Chamber amplified.
0:00:02 - (Jason Harris): You know, a lot of times when I'm talking to business owners about succession plan and exit planning, they talk about the responsibility they have to show up every day and be there and be part of the business. But I look at it as if you're a business owner. You also have the responsibility to take care of your business if you don't show up tomorrow.
0:00:24 - (Doug Jenkins): Welcome to the show. I'm Doug Jenkins from the Findlay Hancock County Chamber of Commerce. On each episode of Chamber Amplified, we're examining issues impacting the local business community, whether its employee recruitment and retention, marketing it issues. Its really anything that has the potential to impact your business, both now or in the future. Our goal is to give our members tips each week on at least one way they can improve operations and thrive in the current business environment.
0:00:47 - (Doug Jenkins): So stop me if youve heard this one before, were at a pivotal moment in the economy. I get it. Its a phrase that youve heard a million times. Its almost lost all meaning in an age where every news headline has ramped up to eleven. And I don't say that lightly either, as someone who used to work in the news. But hear me out on this one. This is a very specific example of a massive pivot that's on the horizon and that we need to pay attention to.
0:01:10 - (Doug Jenkins): Teamshares.com estimates that two thirds of small business owners plan to retire in the next two years. That's a big number. What's also a big number is that less than a third of those people have a plan on how to retire and have that business transition in place. Well, it stands to reason that the majority of business owners are likely baby boomers or early Gen Xers, so they're ready to move on to that next of life.
0:01:32 - (Doug Jenkins): Today I'm joined by Jason Harris of equitable advisors to talk about what's going to be a giant shift in wealth and what current business owners need to do to make sure that they're ready to sell. And here's a quick preview. If you're the type of business owner who, you're really the face of your company and you do everything you may need to start rethinking that strategy. We're going to tell you why. I mean, I'm not going to tell you why right now. That's called a tease. You have to listen to the whole episode to find out.
0:01:54 - (Doug Jenkins): Thanks for tuning in. Remember, if you're listening on Apple Podcasts or Spotify, you could rate and review the show. It really does help spread the word now, let's get into it.
0:02:03 - (C): Let's just kind of go to the beginning of this process. When you are talking with a business owner and you know, they're getting close to retiring, and maybe they've told you that they're getting closer to retiring, what are the things that they need to start considering? What's the checklist that they should be going down? And I guess when should they be starting that checklist?
0:02:24 - (Jason Harris): That's a mouthful.
0:02:25 - (C): Good luck with all of those questions.
0:02:27 - (Jason Harris): It is, but I mean, you, you just nailed them all right on the head there. I mean, there is a checklist. We have a quick ten point checklist that says, are you ready to retire? And some of those things on the checklist are, do you have a succession plan in place, meaning specifically around your business? And really they, we think of it as a three legged stool. The first leg is your business. The second leg is kind of your personal finances, and then the third is kind of your exit plan, slash life after your business.
0:03:01 - (Jason Harris): And without that three legged stool, the stool just doesn't sit, it doesn't work properly. So you got to kind of have all three components. So when we're going through that checklist, we like to say you should have a minimum of three years advanced planning, preferably ten years. The ideal situation is you're planning your whole life, the whole time. You own the business. Now, obviously, that's not the, the case for most because most are just trying to figure out how do I grow, how do I market, how do I manage costs.
0:03:31 - (Jason Harris): But no, everybody should be thinking about it three to five years minimum in advance to do it correctly. But that's just not the case. And unfortunately, as some of the data you've seen, we are now approaching, which is going to be one of the largest wealth and ownership transfers in history. We have over 10,000 people turning 65 a day for the next seven years. So there's going to be a lot of ownership change.
0:04:00 - (C): What are the pitfalls for failing to plan for this? Let's say that the example we always use on the podcast is Doug's widgets, home of the finest widgets in Hancock county. Let's say that tomorrow, I've just decided, you know, time to retire, and I don't have that plan in place. What am I going to run into?
0:04:20 - (Jason Harris): So you're going to run into a few things. If you're the sole owner, you're going to run into some estate issues. If you're married, you have children, maybe they're involved in the business, maybe they're not. Chances are, unless your wife is already working at the company, she probably doesn't want to be taking over as CEO of Doug's widgets. Right?
0:04:41 - (C): Right.
0:04:42 - (Jason Harris): So you're going to run into some leadership challenges, you're going to run into some ownership challenges, some estate issues. If you're the breadwinner in this situation, you're the sole earner. A lot of times that can displace the family in an income perspective, if your spouse does not work and they're solely relying on your income, what happens if that's gone tomorrow? You know, a lot of times when I'm talking to business owners about succession plan and exit planning, they talk about the responsibility they have to show up every day and be there and be part of the business.
0:05:16 - (Jason Harris): But I look at it as if you're a business owner, you also have the responsibility to take care of your business. If you don't show up tomorrow, what happens if you don't come in tomorrow, what happens to the operation? What happens to leadership? What happens to your finances, both the business and personal. So the more they can do on a preparation standpoint for both the business and their personal life, the better off the business and their family will be.
0:05:44 - (C): Not just the business and the family, too. But let's say you've got several employees. They're counting on you to have a good succession plan in place. They want to keep working there and they want to know the doors are going to be open the next day. So there's, there's that aspect of it, too. And I think that, I don't want to overlook that because I think that can be a significant issue and have a wider ripple effect in the community if it's not done properly.
0:06:07 - (Jason Harris): Yeah. Yeah, I agree. And there's two types of owners, and I think this is, this is perfect time to talk about it. So one is the lifestyle owner. That is the owner that lives and breathes the business. They are, they work 24/7 they can't take a day off. The leadership is solely dependent on them that they usually, typically, the relationship with the clients is with the owner. The relationship with the vendors is with the owner.
0:06:38 - (Jason Harris): They tend to have weak leadership because the owner is so involved and almost overbearing. They also tend to have weak plans and culture because their owner is so involved in it. Those are the hardest businesses to transition and sell because if you remove the owner and I'm, say, a third party or I'm an outside investor, I want to buy the Doug's widgets. If I remove Doug. What exactly am I buying? I have no guarantees that all the customers and vendors could leave tomorrow.
0:07:11 - (Jason Harris): About 70% to 80% of those businesses will not sell because of that lifestyle owner. The next is what we call a value creator. That's the guy that could fall off the planet tomorrow, come back in two months and his business didn't skip a beat. They have strong leadership, strong culture, processes and procedures in place. The relationship with the customer and the vendors is with the business. It does not mean the owner is not involved. It doesn't mean the owner doesn't know those people or have some relationship. It just means if the owner is removed, they'll still maintain that those are the ones you get top dollar for. Those are the ones typically getting phone calls because they're best in industry, best in class, and those are the ones that are looking to get acquired.
0:08:02 - (C): That's interesting. How do you transfer some or have someone transition from being that lifestyle owner into the latter category? Because I think it's real hard for someone in that lifestyle ownership model to be like, well, look, I built this company from the ground up. I can't remove myself from it. It's just out of their nature. But then when you start to talk about the dollars and cents and say, there might not be a sale there for you, in the end, maybe that gets people listening.
0:08:27 - (Jason Harris): That's exactly right. It's almost like, you know, it's almost like some, like a lifestyle situation has to happen. And we always talk about when we, you know, being a certified exit planner, one of the things we always talk about is the five ds. They are divorce, death, distress, disagreement, and then typically, you know, disability. Something may happen, but one of those five things typically happens to owner. And most of the time it's that distress or that disagreement. If you're in a partnership, there can be something come up down the road that you end up having a fallout that partners want out. One of the partners wants out or wants to sell.
0:09:07 - (Jason Harris): But how you get a lifestyle owner to transition to that value creator is typically something has happened. They either want to sell the business, they need to sell the business, or they're just burn out to the point they want out. And then it usually comes, we have to move them to that value creator owner through having that conversation. When we actually get a business valuation done and they see that it's not worth what they think it's worth, then we have to usually spend the next two to three years putting them in that position where we bring on new people to kind of take over and learn as that owner transitions.
0:09:44 - (Doug Jenkins): And that feels like a hard conversation.
0:09:46 - (C): To have in the moment, especially if you've dealt with one of the five ds there. It's probably just better to have that plan in place already. That way, when things like that do happen, you're already covered.
0:09:57 - (Jason Harris): Yeah, exactly. And we always look at exit planning, succession planning as any is just your normal stops of procedure. Right. Your normal policies that you would have to your day to day. It doesn't mean you have to exit or transition immediately. It just means when that time comes, that decision will be so much easier because you already know what that's going to look like, who the potential parties involved are going to be.
0:10:26 - (Jason Harris): You've already thought about what is life going to be like after my business? Because we've already started to put some of that in place and we starting to envision it a lot of times. Why business owners tend to struggle to walk away or to sell is. And they end up being in that 70% to 80% that don't sell, end up getting liquidated is because they just never took the time to think about life after their business and actually plan for it.
0:10:53 - (Jason Harris): They kind of just. In fact, I got a call a couple weeks ago from an estate planning attorney who's like, hey, I have a business owner. They're looking to exit. I'm like, great, when are they looking to exit? Next month? Okay, well, that's that. It doesn't usually work well that way. That's where we have to have those tough conversations. Or if they really need to get out, then they end up having to settle for much less than what they want, or it ends up just being a liquidation situation.
0:11:25 - (C): So those are the things to consider on your business owner side.
0:11:28 - (Doug Jenkins): But like you said at the beginning.
0:11:29 - (C): Of this, this is going to lead to one of the biggest wealth transfers in history as these businesses sell. If you are someone who's looking at investing or buying a business, what should you be doing now to prepare for that?
0:11:44 - (Jason Harris): If you're looking to take over a business, yeah, yeah. If you're looking to buy one, you need to first identify what, what industry do you want to be in? It could either be something that is going to be active, something that's going to be passive. Maybe you're just going to be an investor in it, somebody else is going to run it. You really have to start identifying your criteria. You also have to start thinking about, is this going to be my main source of income, my secondary source of income?
0:12:12 - (Jason Harris): Something I may want to do in retirement, there's a lot of franchises and things out there that you can buy and own now, not even be involved with the day to day, but eventually take over as a second career or second job. So you really need to start identifying what makes you happy, what inspires you, maybe what is your passion? What would you really want to do, say, if you're not in love with what you're doing today, what would that next career look like? Or what would your passion really want to be if you could walk away tomorrow and then maybe that's something you want to get invested in.
0:12:47 - (Doug Jenkins): When you talk to people who are.
0:12:48 - (C): Planning to sell their business, how often does their business's legacy in the community come up? Because I think one thing that we've started to see, and I think this is a nationwide thing that we're seeing, is that locally owned businesses and operated businesses are being sold, but they'll get sold to a national or regional conglomerate and they lose that connection with the community after that happens.
0:13:12 - (C): Are there discussions about that in the, in the process?
0:13:15 - (Jason Harris): Oh, absolutely. We always mention in community charitable givings, a lot of times when you're talking about estate planning, if their estate is rather large, a lot of times they will be involved in the community as well as some, maybe some charities or organizations that they want to donate some, some portion of their income or estate to. At some point, some of that could come from the business. So absolutely. That's a big topic.
0:13:41 - (Jason Harris): And it's also, it's, it's come up in situations where they want to know if they're, if it's not going to be a family owned business where it's being passed on, what is that next owners going to be? Their involvement in the community, because that may be a part, if they're part of the local chamber, they want to make sure that that next owner has that kind of community focus.
0:14:04 - (C): How big of a discussion is this in your industry right now?
0:14:08 - (Jason Harris): It's really big because some of the stats we talked about in the beginning, right, that just how big this ownership transfer is going to be. And because most owners have maybe 80 plus percent of their wealth is tied up into the business, how are they going to extract that? The only way to do that is by selling their business or transitioning their business. So it's one of two things that's going to happen.
0:14:34 - (Jason Harris): Either they're going to end up selling for maybe an amount that they're not wanting to sell for or not prepared to sell for, or they're going to end up having to work longer if they're not properly succession planning and exit planning.
0:14:48 - (C): So if people would like to learn more about this subject, or maybe they'd like to talk to you about it, what's the best way to go about doing that?
0:14:55 - (Jason Harris): Two ways they can reach me. One is either via my website, which is Jason Harris fa.com, or they can just contact me at my office 419-531-7131.
0:15:09 - (C): All right, Jason, we appreciate your time on the podcast today.
0:15:12 - (Jason Harris): Yeah, thanks, Doug. Appreciate the time as well.
0:15:18 - (Doug Jenkins): Big thanks to Jason for joining us once again. Now he's going to be one of several speakers that we have on this topic at the November fresh brewed business here in Findlay. Certainly it's a big topic of conversation. We're going to have more discussion about it in the future, both here on the podcast and through other Chamber of commerce programming. In fact, I talked to Pat Sadowski from Eastman and Smith about this topic and some other aspects of it several episodes ago. Might have even been a couple of.
0:15:41 - (C): Years ago at this point.
0:15:42 - (Doug Jenkins): I'm going to link to that previous episode in today's show notes if you want to listen to that. Chamber Amplified is a free podcast for the community thanks to the investment of members from the Findlay Hancock County Chamber of Commerce. Because of our robust membership, we're able to focus on providing timely information to the Findlay and Hancock county business community, run leadership programs for adults and teenagers, and be an advocate for the area while also providing tools to help local businesses succeed.
0:16:06 - (Doug Jenkins): If that sounds like something you'd like to be a part of or supporting, just let me know and we can talk about how an investment in the chamber not only helps strengthen your business, but strengthens the community as a whole. That'll do it for this week's episode. If you have ideas for topics we should cover in the future, just send me an email dashenkinsindleyhancockchamber.com thanks again for listening. We'll see you next time on chamber amplified from the Findlay Hancock County Chamber of Commerce.