When selling your business, it’s the net number that counts. Succession Stories host Laurie Barkman focuses on tax strategies to consider when selling a business and speaks with two colleagues from Wessel & Company, a regional tax and accounting firm in Pennsylvania- Joel Valentine, President and CEO, and Christopher Weir, Partner. Wessel provides corporate tax, business valuations, mergers and acquisitions, and ESOP advisory services. For anyone thinking about selling in the future, the advice is to treat your business like it’s for sale every day. In a transaction, we want to maximize the top number and also maximize after-tax proceeds. After all, it’s the net number that counts.
Listen in to learn more about:
- Ways to minimize the tax burden of selling a business and maximize overall value.
- Strategies to consider when selling a business
- Minimizing post-transaction tax obligations
- Differences bewteen reviewed and audited financials
- How businesses can benefit from ESOPs (Employee Stock Ownership Plans) as an ownership succession planning tool
Show links:
- Wessel & Company website: https://www.wesselcpa.com/
- Complete a Value Builder Business Assessment at MyTransitionScore.com
- Get your copy of “The Business Transition Handbook” on Amazon https://amzn.to/3Hqj2eo
- Decide When to Sell eBook: https://bit.ly/endgame-ebook
- Follow the Succession Stories YouTube Channel
- Connect with Laurie Barkman on LinkedIn: https://www.linkedin.com/in/lauriebarkman/
- Subscribe to The Business Transition Newsletter. Text Transition to +1-646-495-9867
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About Succession Stories Podcast
Succession Stories is an award-winning podcast guiding entrepreneurs from transition to transaction. Hosted by Laurie Barkman, author of “The Business Transition Handbook: How to Avoid Transition Pitfalls and Create Valuable Exit Options.”
Learn more about Laurie’s strategic business transition planning and M&A advisory services by visiting: https://thebusinesstransitionsherpa.com
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SHOW SPONSOR: STONY HILL ADVISORS
Stony Hill Advisors works with owners like you to get ready and maximize value when you’re ready to sell.
Visit www.stonyhilladvisors.com/podcast for a complimentary business valuation.
Transcript
Laurie Barkman:
Joel, Chris, welcome to Succession Stories. I am so glad you’re with me today because you are experts in helping business owners with exits, but also before an exit from a tax advisory and all kinds of smart people on your team. I know we’re gonna have a great conversation, and welcome.
Joel Valentine:
Thank you.
Christopher Weir:
Glad to be here.
Laurie Barkman:
Why don’t we start with Joel? Joel, talk about who Wessel helps, how you do that, and then we’ll get into a little bit more about your story afterwards.
Joel Valentine:
Great. Yes. Thank you. Wessel, the company, was founded in 1958 so we’ve been around for a long time. We have niches in various areas, from government, nonprofit, to commercial entities and throughout Western Pennsylvania, but an area that Chris and I’ve really been really focused on is business valuations and business transition services, from helping companies plan for an ultimate transition and make sure they are in the best spot to maximize value and, and lower their taxes. That’s been a spot that we’ve been very focused on and seen a lot of transactions over the last five years or so.
Laurie Barkman:
You’re the president and CEO of the firm. When you joined the firm, that was not your role, right? You grew with the firm over time, and I think there was a succession story there. Why don’t you tell me about that?
Joel Valentine:
I started first helping clients. A close client I had was going through some succession issues, and we helped them through that but then, also, when I became a partner, I was fortunate enough to be at the right place at the right time, and became a partner in the firm, about 30 years old, and realized that one of the things that the firm had to do was plan for their ultimate succession. That was something that I was a part of, and started planning for, really, from day one of being a partner. We worked on it for probably four or five years softly, and then another three or four years more intensely, until we got to a point where everyone was comfortable with the ultimate plan.
Laurie Barkman:
It took five years, that’s a good amount of time you really thought it through and, and ultimately, as a shareholder, you probably saw things a little bit, I think in a different light for your clients, I’m guessing, because you went through it yourself.
Joel Valentine:
Yeah, it definitely does give perspective, I don’t think so much from an economic standpoint, but the emotional aspects that come along with it is what really helped create perspective when when clients are dealing with those issues, because we were able to see both what the founding partners were going through and what changes we’re going to have to occur, and their lifestyle, and also, what the new regime, if you will, was going to have to plan for and take on and the responsibilities they were going to have to be ready to inherent both financially and just work-wise as well.
Laurie Barkman:
Absolutely. Let’s talk a bit about pitfalls to avoid when a business owner is thinking about transitioning their company and hopefully this is done, as you said five years or longer until the day that they’re quote unquote, ready. This is not going to happen overnight, so presuming we have some time to work on these challenges. I thought it’d be great, Chris, maybe you can kick it off here for us. What in your experience working with privately held companies – what’s worked? Well, what’s not worked so well, when it comes to business transition?
Christopher Weir:
Yeah, thanks, Laurie, happy to join you on the podcast. When I think about that question, first and foremost, it’s that upfront planning, it’s not something that you can just turn a light switch on, and say that I want to sell my business within the next six months, that’s, that’s likely not going to happen. It is a process that in the case of our firm, it was a longer process. It’s different for everyone, obviously, but having that runway where you can build your business where you can ensure that your financial house is in order so to speak.
Joel always has a great metaphor when it comes to how a business looks to an outside buyer to a number of prospective buyers. Sometimes–Joey, I’m sure you know what metaphor I’m talking about–when you walk into like an Apple Store, everything’s in its right place, everything looks great, everything’s pristine and that’s how we hope our clients look and are perceived by outside buyers. I think that’s so important just that that trust factor is built whenever or a buyer steps in and asks for audited or reviewed financial statements pre-prepared by a public accounting firm. financial statements that reconcile tax returns that are done appropriately ensuring that all of those due diligence aspects are met and dealt with ahead of time really helps a transition go very smoothly and really, I think, maximizes value in a way, I’m more inclined to pay a premium price at an Apple store that is very well presented, as opposed to a corner wireless phone store and you’re just to go along with that metaphor and take that a little bit further, so I do think that when it comes to ensuring that all of those due diligence items are met and ensures a smooth, quicker process in going through that ultimate transition.
Laurie Barkman:
I like the analogy of going into the house, and everything’s in order versus is a mess, or there’s a smell, they’re not going to get an asking on that company or that house. Let’s talk a little bit about the mechanics of this, what are reviewed financials? What does that mean versus audited financials?
Christopher Weir:
Sure, so, oftentimes, privately held companies will be required by a lender or other stakeholders to receive or obtain what are called audited financial statements, meaning an independent public accounting firm, like Wessel, like others, will issue an opinion that there are no material modifications or material misstatements in the financial statements themselves. Those financial statements follow what’s typically known as generally accepted accounting principles, so that a buyer can look at a certain company’s financial statements and compare that company’s financial performance and liquidity measures and balance sheet to peers in the industry, or other companies, even publicly traded ones, so it ensures that consistent basis with which buyers evaluate target companies, a reviewed set of financial statements.
Our reviews are also provided by certified public accounting firms. However, a review provides what’s known as limited assurance that there are no material modifications so it’s a lower standard of assurance relative to an audit. Of course, there are cost considerations and we need as well but generally speaking, there are different levels of service, and what we find is that there are buyers, whether they’re private equity firms or family offices or strategic buyers, who will require a certain level of financial statements and anticipating what those requirements are, it’s always tough. We’ve worked with clients that had tax returns prepared each year, and they were able to get through the process but it does take a little bit more time to help bridge that understanding with a buyer that we don’t have audited financial statements, although we do have these, whether they’re reviews or tax returns, and here’s the all the underlying support. By the way, we also have a sell-side quality of earnings study that also helps support the underlying financial statements, all of these things go together in helping present a company in the best light possible.
Laurie Barkman:
Can you give a sense of what the characteristics are of a business that would do reviewed financials versus audited? Is it typical for certain industries or size, revenue wise or employee base, something like that?
Joel Valentine:
Usually, the requirements are triggered by their lender, in most cases for small private companies so if they have a certain amount of debt, it’s more common to see an audited financial statement, like say, in a manufacturing company, because they’re likely going to have to finance their equipment, and they have inventory that they likely have a line of credit on so those are the types of entities that you’re likely to, we’re likely to find audited statements than, say, a professional service firm or a doctor’s office or something like that, because there’s just not a lot there. They usually don’t have a lot of debt, that drives audited financial statements so it’s really, in most cases for private businesses, kind of that middle market that we work in, it’s driven by their lender.
Laurie Barkman:
Okay. Yeah, a lot of the companies that I work with… you mentioned, Chris, that you get tax returns and that’s typically what we are seeing is QuickBooks tax returns not reviewed financials not audited financials. Joel, as a follow up to what you’re saying, a lot of times we’re doing, if you’re doing a business valuation, you might be doing an analysis and taking a look at what some of those add backs are, right, maybe you could explain the difference of maybe what we call a set of financials that are quote unquote, tax-based, where the owner is looking to minimize their annual tax obligation versus GAAP financials.
Joel Valentine:
That all fits together. Of course, the audited statements that Chris referred to are likely going to be a GAAP financial statement but even if you don’t have that audit requirement, and you’re a smaller business, and you want to just work off internally prepared statements, I think it’s important to make sure that you have either an experienced accountant on staff or someone from the outside that has experience in accounting, making sure that your internal books, maybe it’s not a GAAP financial statement with full footnote disclosure, but that everything’s at least recorded consistently, year to year in the same place, you’re capitalizing that certain expenses, then expensing others and things like that.
To your point on the normalization adjustments, oftentimes, small businesses are running things through that maybe a buyer, their benefits for the owner, owner perks, it could be in the form of a salary over and above of what a replacement person might be to replace the time that he or she is working in the business. It could be them running through some dues, golf course dues, things like that, all business expenses that at times are valid business expenses, but maybe not 100% necessary to generate that earnings and also, at times, the small business owners are taking advantage, maybe there’s a personal automobile or something like that, that they’re obviously now have a different motivation, where they were previously motivated to lower net income and lower taxable income, now, all of a sudden, they’re motivated to increase taxable income or not necessarily taxable income, but at least adjusted EBIT or adjusted net profits.
We oftentimes caution folks, particularly those who want to sell. I mean, obviously, you have the IRS concern there, you don’t want to be too aggressive, but also just overall, you can sort of have your cake and eat it too. If you have a plan to sell down the road, you just want to make sure you’re really running your financial statements in a consistent manner that a buyer can get comfortable with, if they see a lot of personal things going through there. Over and above that norm, it’s gonna get harder to get them comfortable with your reporting practices.
Laurie Barkman:
Yeah. 100%. When it comes to exit strategy, a lot of people talk about this big number, “What am I going to sell my company for?” I talk about it, of course, on this show. People need to understand what their financial needs are projected into the future, and then work backwards and try to see if there’s a gap,. What’s your business worth today, and what’s your big number? What do you want to sell for and everything in between? We haven’t focused enough on this show about the net number and I thought it’d be a great opportunity to have that conversation with both of you.
If we talk about the sell price, we want to maximize value? Absolutely. 100%. I do that with clients? And I’m passionate about that as well, but the question to you both is really about this net number, and what are some tax strategies to consider when selling a business? Again, if we have the luxury of time being on our side, and we’re being proactive, what are some things that business owners should start thinking about? Chris, why don’t we start with you?
Christopher Weir:
Sure, no, it’s a great question, as you know, what we always talk about with clients is the devils in the details when it comes to offers and letters of intent that they’re getting for their business. A deal price of, a $20 million deal price paid in cash upfront means a lot, means something, the present value of that is obviously much greater than that same deal price paid, in installments over a five year period of time in the form of a seller note so the transaction structure really impacts those after tax proceeds that you had mentioned, whether it’s a timing consideration, where not all the proceeds are to be received upfront, I’m going to take out a note as a seller, and in doing so, if I am taking out a note and I’m going to be paid over time. I obviously have time and money considerations to deal with.
Our sense of risk that I’m going to ultimately be paid so I should be compensated appropriately for that note, in the form of a higher interest rate over and above, certainly prime. I think whenever we look at seller note interest rates, I think it’s reasonable to expect 7, 8, 9 percent interest, at least on some of those seller notes because of the risk that sellers would be taking on. In terms of structure and the mechanism for payment, I think that really impacts that net number, certainly on a year to year basis, and also on a present value basis and when we think about that’s cash, when we think about after tax proceeds from the sale of the business, that means a lot of different things, depending on the nature of how that transaction is structured.
The purchase agreement, whether it’s a purchase of a membership, interest or stock, versus a purchase of assets. Typically, there are motivations by buyers to purchase assets, because they’re able to achieve a stepped up basis in those assets and depreciate those assets quickly, therefore, yielding higher tax savings and deductions in those first few years of ownership. Whereas a seller doesn’t necessarily want to sell assets because of certain tax implications and so they’re motivated to sell stock to achieve capital gain treatment on the sale. When we think about after tax proceeds, that could have a very real implication and that difference between the transaction structure of an asset sale versus a stock sale, or an equity purchase sale, could be very meaningful and what we encourage our clients when we’re advising through a process, or, certainly we work with investment bankers, who help with this process and advise, demanding or requiring any way, a buyer to make whole a seller for those adverse tax implications and we find that buyers are very willing to negotiate those aspects of the agreement so it allows our client to be made whole, regardless of transaction structure, on the after tax proceeds, that they initially, has desired so I think deal structure really has a great impact and to your point, deal structure can mean a lot of different things, depending on how that transaction is ultimately structured.
Laurie Barkman:
Yeah, for sure, and I like how you broke down some of the difference there. You mentioned a seller note, people might not know exactly what that means. Can you just explain that a little more deeply?
Christopher Weir:
Sure. Yeah. Oftentimes, a buyer, when they’re looking to purchase a business, the desire for a buyer, certainly is fund the deal with as much senior debt as possible, with a large bank, a large financial institution at the lowest possible rate, and oftentimes, banks may not be willing to lend into 100% finance deal. To fully fund the transaction, they, the buyers may have a requirement that the seller help fund a portion of the purchase price, if I’m selling a business for $10 million, and I’m able to get a banknote for five, and I’m a buyer, I have $2 million of cash that I’m going to put in, I have $3 million to make up in that funding and so I may ask the seller to take out a note for $3 million, that I will I will pay as a buyer, I’ll pay that over time to the seller so that seller has then credit risk has risks, that they may not be paid ultimately so sellers, certainly taking on risk could be rewarding, as well, because oftentimes, those seller note interest rates are rather high.
Joel Valentine
Just to add on to that, I think sometimes when we talk about seller financing with sellers, they think they’re gonna have to come up with that cash and they don’t, they’re able to take a note instead of getting cash up front so it’s not like out of pocket to them. It’s just money they’re gonna get in the future and at times, it really helps bridge the gap to get a deal closed and it can also be used as a form of price preservation, if you will, because if you leave that Know to decide, you’d likely sometimes aren’t going to get the price that you want so that structure really sometimes helps you get the price you want, because otherwise there may not be enough cash flow or collateral to fund at the level that you want for your business.
Laurie Barkman:
Gotcha. Same question to you, Joel, about minimizing the post transaction tax obligation. What are some other strategies that might be employed?
Joel Valentine:
Yes, Chris talked about stock versus assets but I think one of the big things also to consider up front is long term planning, if if the sell price is if the, if some of the proceeds are eventually going to go to your children, you may want to think about gifting some shares to them beforehand, possibly get them into a lower tax bracket, when the sale actually occurs. The other big one is just the entity selection as well, you may want to, if you’re a C Corp, you may want to look at making an S selection to avoid double taxation on an ultimate sale. Really, I think, you know, at the end of the day, it’s just like, if it’s something that you have, at some point in your future, you want to start kicking that can, you know, turn it over a little bit and talk it through with your advisors to make sure things are set up early on, rather than waiting until right before the sale occurs to try to make some of those elections.
One of the things that has just recently came into play with a client I’m working on is if you are a C Corp, and you sell, you could be subject to, you have to sell assets, you could be subject to double taxation but if you make an election to become an S corp, that would go away that double taxation component, but the IRS has put into play what’s called a building gains tax so if you make that election, from a C to an S, you have to wait at least five years before that building gains tax goes away to avoid the double taxation so some of those things are items that you want to address early on so you don’t fall into trouble or not trouble but a challenge when you’re ready to ultimately sell the business.
Laurie Barkman:
Yeah, nobody likes surprises and so if you only had the knowledge ahead of time to maybe make that change from a CFO and ask that could make a big difference, I guess a related topic on…we’re talking about tax, right, and so I’d be remiss if I didn’t bring up ESOPs. I have covered this topic on a couple of other Succession Stories episodes and I thought we could just spend a minute or two on it and, Chris, why don’t we come back to you? What’s an ESOP in your experience? Who is a fit? Who’s not, and maybe some reasons why?
Christopher Weir:
Yeah, thanks, Laurie. ESOPs are an exciting tool for succession, and one that we present to all of our clients and some of our clients have gone through ESOP transactions which has been a real success, real success story for them. An ESOP is an employee stock ownership plan. An employee stock ownership plan is very similar to a traditional 401 K plan. The only difference is the ESOP doesn’t own mutual funds and marketable securities, it owns stock in a privately held company, in this case, what we’re talking about.
The ESOP, again, is a qualified plan invested primarily in the employer stock and in an ESOP transaction, what happens is, if I’m a seller, and I’m looking to sell my business to a third party, private equity firm or an industry peer, I may also turn to this qualified plan, this ESOP trust as a potential buyer of my business and the ESOP trust, it could be set up and then pay a seller fair market value for the stock that they choose to sell and so what that does for a seller is it allows them to achieve fair market value for the stock that fair market value is determined by an independent appraisal and signed off by a trustee.
In connection with that transaction, the following the transaction, the ESOP itself is the stockholder, the ESOP trust actually holds the stock and over time, then, following the transaction, those ESOP shares that ESOP value that’s owned by this trust is allocated to the employees over a periodic basis for a certain designated period of time following the transaction. What you’re essentially doing is, over time your employees, those that have helped, a business owner build a business are ultimately getting rewarded, as you know, in theory stockholders, or owners of participation interest in the company.
It’s a really unique way to form a legacy as a business owner and transition that business to the employees, the management that have gotten me to this point, and still achieve fair market value for my shares. The unique aspect of ESOPs, and there are a lot of them, but the one consideration that a lot of business owners have as it relates to ESOPs is the ability to monetize a portion of their stock initially in an initial ESOP transaction, perhaps sell 30 or 40% of the stock to an ESOP and then over time, perhaps even transition to 100% ESOP ownership through a secondary sale down the road so that’s an overview of what an ESOP is and how it’s used as a succession tool for business owners looking to monetize their their interests, in some cases, take some chips off the table, in preparation for a future sale as well.
Laurie Barkman:
And the tax benefit is significant. Right?
Christopher Weir:
It is, yeah. It’s unbelievable the tax benefits that are afforded to ESOP and companies. We have several ESOP owned companies where the ESOP owns all or a portion of the company and for S corporations that are owned by an ESOP to the extent the stock is owned by an ESOP, that portion of taxable income is not subject to any tax for federal or state purposes. If I’m 100% ESOP or an S corp I don’t pay any tax as a 100% ESOP owned company. When we think about what happens in the case of an ESOP, the ESOP is the shareholder, they receive their pro rata share of income, whether that’s 100% interest or 100% of all the income flows to the ESOP. The ESOP gets a K-1 as a tax exempt entity, the ESOP just simply there’s that K-1, they don’t have to deal with it so the tax, the tax implications, post ESOP are tremendous, and Joel, I don’t know if you want to speak about the nature of the ESOP transactions, and how that helps save tax upfront as well.
Joel Valentine:
Yeah, maybe just to give like a real world example, you take a company that was maybe a $10 million enterprise value company, they sell 40%, for $4 million and the buyers now, or the seller now has the $4 million for their 40% in their pocket, the ESOP over the next five to seven years is going to pay the loan back that was hopefully borrowed from the bank so that the sellers could get that funding up front. Oftentimes, and actually more times than not, as we’ve seen it, that this tax savings over that payment of the loan period, the five to seven years that that loan is going to be paid off, more than covers the payment on the loan so you know that the sellers are able to get a liquidity event, get the cash out of the company, not give up the control of the company, and still have the same cash flow that they had prior to the transaction so it’s a win win for all and then really, as we’ve seen them happen, usually, you see a great increase in that enterprise value so that company that was then worth 10 million for 100% is now worth that employees are motivated, they’re working harder. The company’s growing, you’re getting some customer diversity in there, all those things to add value, oftentimes come along with it and the company was worth 10 million is now 10 years down the road worth 20 million so now that initial owner could sell the remaining 60% for you know, $12 million greater than the initial 10 million he was going to get for 100% plus he already got the $4 million from the first liquidity event so it can be a win win for all and there’s just tax savings all along the way, which really works out nicely, not only the tax havens, but coupled that with a motivated workforce to help increase the value of that company. It can really pay dividends.
Laurie Barkman:
Yeah, absolutely a ballpark percentage. I know it’s not an exact number but let’s say like 30% annual tax savings roughly.
Joel Valentine:
Exactly correct.
Laurie Barkman:
That’s a big number. Let me let me pick your brain a little bit here and your experience for both of you. There’s companies that could be a fit for an ESOP and ones that might not be a fit so it could be based on different criteria, revenue, number of employees, etc, who in your experience would be a potential fit?
Christopher Weir:
When we think about ideal ESOP candidates, we generally like or generally hope that a company has one owner that’s looking to monetize their interests and sell to an ESOP. Certainly we want to be sure that that company itself has reasonably predictable and stable cash flows. Oftentimes very challenging for ESOPs when you have unpredictable cash flows that in in one year, could be a million dollars in the next year, the business loses two million. We can have,
that sort of fluctuation and cash flows, because it makes one, it makes valuation very challenging and it also makes the debt service could be a challenge as well, because the company is in theory buying itself through raising debt financing to pay to the owner on behalf of the ESOP. Predictable stable cash flows, at least, 20 to 30 employees, meaning we have an adequate payroll base over which those ESOP shares over time get allocated, because ESOPs do run into an issue or a challenge when you have too few people that are actually participating in an ESOP. Much like getting a qualified plan, there are certain requirements that need to be met so that there are one or two people that are benefiting more so to speak then than othersTo have a stable, healthy employee base and a strong management team certainly, I think, that’s obviously important. That’s important for any seller, but certainly an ESOP transaction. That’s critical.
Laurie Barkman:
What have you seen Joel?
Joel Valentine:
Chris covered it well, but I think one of the things you also have to consider is some diversity in the age group of your workforce. If you have everyone that’s going to retire, looking to liquidate or cash in on the ESOP, at the same time, that could create a hurdle for the company down the road so you want to make sure there’s some balance in the age of the demographics of your employee base.
Laurie Barkman:
Yeah, so from a cash flow standpoint, I think what I’ve come to hear and understand is typically, ESOP businesses are a million in EBITDA or bigger. Is that fair?
Joel Valentine:
It is. It’s costly to do a transaction so you’re gonna have, of course, the upfront time, but then on an ongoing basis, you’re going to need a record keeper, you’re going to need an annual valuation, you’re going to add some complexities to your financial reporting likely need the audited financial statements that Chris talked about before at least a very strong GAAP-based financial statement for the valuator to us so you kind of have to get to a point that million dollar starts to make sense where there’s enough value that you’re going to get for the ESOP, and therefore, tax savings to cover some of the costs that are inherent in such a transaction.
Laurie Barkman:
What industries are you seeing ESOPs used most commonly?
Joel Valentine:
We’ve seen them in all types of industries. We’ve seen manufacturing and industries. They’re very common in professional services, particularly engineering firms, they seem to work really well. I think that it’s, it works well. When your workforce understands. When you have a workforce that understands the value of putting away for retirement and saving some money for retirement and would be motivated by having ownership and measuring results and seeing the value of the company grow. I think it works if you have an educated workforce, and that’s oftentimes part of the process is educating your employees about the ESOP plan and how it all fits. together and how what they do day to day can help increase the value of the company and ultimately the value of their own shares.
Laurie Barkman:
Gotcha. Chris, what do you see as some of the biggest challenges facing business owners and how can they address them and then Joel, same questions, I’m gonna come to you so don’t don’t go anywhere. All right, Chris, why don’t we start with you on that one?
Christopher Weir:
Biggest challenge facing business owners particularly looking at succession, I’m sure, business owners are, obviously, there’s an emotion behind their ownership interest so giving up that control can be I’m sure that emotional component is a large challenge to get over, a large hurdle but in terms of in terms of challenging challenges, I think it’s, like, having ensuring that you’re doing all of the right things up front, whether it’s educating yourself and all of these different options that business owners have in terms of succession, and how to transition business, working with the the different advisors, ensuring that you have the team behind you, to help ensure that when the transaction ultimately does, does happen, and you’re ready to pull the trigger, and sign the purchase agreement, that you are, in fact, ready, and that you’re not going to second guess yourself and second guess the price, did I have the right advisors? Did you know, is this the right price? I think it all comes back down to preparation, understanding how businesses are valued, or am I getting an annual valuation? Am I monitoring these like adjustments to EBITDA or an earnings that we had talked about earlier in the podcast? Do I have the right legal advisors? Do I have the right investment bank to have the right accountants, all of these things play into it? I think can help provide selling business owners with some level of assurance that they’re doing the right thing.
Laurie Barkman:
Gotcha. And how about for you Joel?
Joel Valentine:
I never thought I would have said this, maybe 10 years ago but I think lately, one of the biggest challenges I’m seeing in transactions is just generational differences in the style of how the employees work. Oftentimes, you have the founder, or the patriarch, or matriarch of the enterprise that used to work 80 hours a week and that’s just how business gets done and if their successor, whether it be a child or you know, a manager coming up through the ranks, may not be willing to put that same type of dedication that they had into the business. Quite frankly, maybe they don’t need to work 80 hours a week either because they can take advantage of technology and other resources and, and things like that. Oftentimes, it’s bridging that gap of just the generational differences between the founder or the patriarch or matriarch and the successor and I think that getting those done and getting those on the table early and making sure that there’s trust between the folks there ultimately can overcome that but having that trust level up front is most important.
Laurie Barkman:
Yeah, absolutely. Trust is super important. Guys, we’ve spent so much good quality time together today, I want to start to wind down and as I ask all my guests on the show, if there’s a favorite quote that inspires you that you’d like to share and Chris, let me ask you first if you have one.
Christopher Weir:
Yeah. Laurie, you put me on the spot. I did think about this a little bit, but something, a quote that I always like, and it’s something that I try and instill in my kids, even I’m going to read it, it’s 10 things that requires zero talents, being on time, work ethic, effort, energy, body language, passion, doing extra being prepared, being coachable, and attitude, I think, those are things that I wish I could adhere to on a daily basis. I think that’s something that helps me hopefully inspire my kids. That’s one thing that I was thinking about and I think I was thinking about that recently because I coach my son’s fifth grade basketball team and those are some of the values that me and some of the other coaches are trying to instill in us boys
Laurie Barkman:
I love it. I love it. That’s great. Joel, what about for you?
Joel Valentine:
I think from a business standpoint and particularly it lines up with what we’re talking about here is, is really treating your business like it’s for sale every day and even though it’s not as long as you’re treating it like, it’s that getting it ready like that Apple Store that Chris previously talked about, making sure you everything’s polished off, you have the agreements in place you have, when people come in, it’s a nice storefront, you have customer diversity, and just really showcasing your talents every day, and you’re always on stage. Whether you are for sale or not, just try to treat every day as if your business is for sale, and it’ll help you add value to your ongoing journey along the way.
Laurie Barkman:
I love it. If people want to get in touch with you both, what’s a great way to reach out and connect?
Joel Valentine:
Our phone number; Chris and I both, is 814-536-7864. An email is joelvalentine@wesselcpa.com. Chris, if you want to give your email?
Christopher Weir:
Yeah, certainly, my email address is cweir@wesselcpa.com. You can also find us obviously through our email or through our website but Joe and I are on there along with really all of the other partners and team members that we have at our firm, you know, across our offices throughout Western PA.
Laurie Barkman:
Of course, both of you. Thank you so much for being with me on Succession Stories today. It was a really insightful conversation. I appreciate both of you so much.
Joel Valentine & Christopher Weir:
Thank you for having us, Laurie.
Thanks, Laurie.
Laurie Barkman:
Awesome. Thank you, listeners. Listeners, thank you so much for your support. Catch Succession Stories on your favorite podcast player or YouTube, and subscribe to the show! If you want to maximize the value of your business and plan for future transition, reach out to me for a complimentary assessment at meetlauriebarkman.com. Join me next time for more insights from transition to transaction. Until then…here’s to your success.
