April 24, 2025 • 17 mins
Transitioning your business isn’t something that happens overnight — it takes thoughtful planning to make sure everything goes smoothly. In this special episode of The Unshakeables, Ben sits with Adam Frank, Head of Wealth Planning and Advice, at JPMorgan Chase as they break down the steps every business owner should take to prepare for the future, whether passing a business on to a family member, a partner, or selling to a third party. Ben and Adam discuss the importance of setting up a solid succession plan while also managing the financial, legal, and emotional side of transition.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Ruby.
Hi everyone, it's Ben. Over the last couple of seasons
here on The Unshakeables, we've had the chance to hear
from some terrific guests who've shared their journeys to becoming
small business owners successful ones at that, and as I
listen to their stories of grit and determination, I can't
help but wonder how many are thinking ahead to what
(00:25):
happens when it's time to step away. Legacy planning is
something most people don't consider until it's too late, and
by then it can be a tough situation to navigate.
That's why we're dedicating a bonus segment to this topic,
because it's just that important. And to dive into it,
I'm joined by my colleague Adam Frank, who's head of
Wealth Planning and Advice here at JPMorgan Chase. Adam is
(00:50):
an expert in wealth planning and thinks a lot about
things like succession and what to do when you're ready
to move your business on and then what to do
with the funds if you're successful raising funds from that sale.
So we thought we'd have them on just to talk
about that. So Adam, welcome to the show.
Speaker 2 (01:03):
Thanks Ben, thanks for having me it's really.
Speaker 1 (01:05):
Good to have you here. So let me give you
a couple of statistics that I think are relevant to this.
If you survey small business owners across the country, there
is no secret that there's a bit of a silver
tsunami going on. Seventy five percent of all business owners
would like to exit their business within the next decade.
Now that might be that they just want to sell
and monetize and do something else. It might be that
(01:26):
they're getting toward retirement. Age doesn't matter why. There was
a recent survey of three hundred business owners, and it
found that most business owners report having a plan in mind,
but a plan is a very loose definition of what
they have. Only half have a specific and detailed plan.
So this is a huge pressing issue for the economy,
for American society, and for entrepreneurs in particular. And people
(01:47):
do a lot of planning in their personal lives, right
They plan to retire, they hire financial advisors, they have
a wealth plan, they have a retirement plan. Why is
it harder with small businesses? What is it about making
a plan for a succession in your business that makes
it harder.
Speaker 2 (02:03):
Well, I think people think of their business in many
ways as one of their children, and it's something that
they devote a lot of time to, but they don't
often want to think about what happens when I step back,
because it's like stepping back from one of your kids, right.
It's very difficult, I think for business owners who have
developed a business and grown it for so many years
to really think about what that looks like, and people
(02:25):
don't want to talk about it in the same way
that people put off creating a will. I think a
lot of it is avoidance, and then a lot of
it is business owners often don't have a ton of
time to think about their personal finances because they're so
busy focused on the business, whether it's in the growth
phase or nurturing it to grow more. They're constantly thinking
(02:46):
about how can I optimize the business, and they're not
thinking about the business as an asset on their personal
balance sheet and what that means for their retirement if
they have one and so on.
Speaker 1 (02:58):
And now often it's the biggest asset. It is single
biggest assets on their ballance sheet, probably bigger than their house.
Speaker 2 (03:03):
In many cases it is.
Speaker 1 (03:04):
Yeah, so let's talk about the options. I mean, if
a business owner wants to start thinking about succession, what
are the options available right? Because some people say, I
want to pass to my kids, but what if my
kids don't want it. Some people say, you know, I'd
love to sell it, but what if no one's there
to buy it? Is the business even saleable?
Speaker 2 (03:22):
And it isn't always, especially businesses like my dad was
a CPA and he was a one man shop, and
his succession plan was not to die. That was his
succession plan. He wasn't going to die. Everything was going
to be great and he would continue to work forever.
And eventually my brother became an accountant and started helping
my father out, and that became a de facto succession plan.
(03:44):
But it was never a plan. It just was a
succession happened. He had three sons. He was lucky that
one of them wanted to become an account and do that.
A lot of businesses that rely on the reputation of
the owner, it's going to be much more difficult to
sell them or even to have a family member succeed,
because not only does the family member have to want
(04:06):
to run the business, be an accountant, owner, dry cleaner,
many times whatever it is, which many times they don't.
They have to be able to like they have to
be capable, and not everybody is capable. And even if
succession in the sense of passing an existing business onto
somebody is successful, the business withers and dies because the
person you've passed it to the only qualification is that
(04:28):
they have your genes, and that's it. You didn't really
think about are they interested, are they capable, and what
if anything can I do to help them be more
successful other than they're my kid and I love them.
Speaker 1 (04:41):
Right, I mean, so, essentially, the three choices are you
shut it down, you pass it on in the family,
or you sell it.
Speaker 2 (04:46):
Or you sell it and selling there are a number
of options with sales. If it's a big enough business
and you have employees who've been with you a long
time and who are good at what they do, you
could potentially sell it to your employees, either through an
employee stock ownership plan, which is like a qualified retirement plan.
It's another way of retaining good employees, or selling it
to a competitor what they call a strategic buyer, right,
(05:07):
somebody who's looking as a strategy to grow, to acquire
competitors or complementary businesses in their industry, or just sell
it to a financial sponsor, somebody who's interested in buying
a business to grow it to make a profit for
themselves or their investors.
Speaker 1 (05:24):
Or you could sell to another entrepreneur, right, wants to
own a business and doesn't want to do corporate life
anymore instead of starting a business, wants to buy a
business exactly.
Speaker 2 (05:32):
And that's a great way in for people on the
buy side who want to be entrepreneurs but don't have
that entrepreneurial idea.
Speaker 1 (05:39):
So let's assume those are there two big options, right,
You either pass it on to family or you sell
it in one of those forms. Let's talk about each
of those. So, first, passing along to family, which can
mean giving it to them, It can mean selling it
to them, it can mean some combination of that. For
business owners out there who really want to do that,
what should they be thinking about?
Speaker 2 (05:57):
Well, as a business owner thinking about transition, you've got
to think about the things that you do for the business.
Customer generation, contract negotiations, sales like you name, operations, right
about everything, compliance. Depending on what business you're in, can
the person or persons you've identified in your family who
you want to pass the business onto, can they do
(06:19):
that can they do all of those jobs, because if
they can't, and again depends on how big the business is.
But if you have a couple of employees, even part time,
think about where your child or family member is really competent.
Think about places where they might be less competent. Think
about how to complement them and accommodate their strengths and opportunities,
(06:43):
maybe with different employees, different people to bring on.
Speaker 1 (06:47):
I always tell people, also, you're probably going to have
to work together, so figure out how you're going to
do that, because the transition is not going to be
one day you waive and you walk out the door.
You're still going to be in a situation for at
least a period of time where you have to work together,
end have Thanksgiving together.
Speaker 2 (07:01):
Yes, exactly. Usually what I see when it's family members,
the business owner's retirement plan is to have their child
buy them out. Over time, their involvement lessons. Year over year,
the child's involvement increases, but there's that payment stream which
substitutes for the salary that they're no longer getting or
that is significantly lower because they're not doing as much work.
(07:24):
That lasts until they qualify for Social Security or their
pension kicks in or whatever it is. They're getting other
streams of income, but it's more often a sale than
a gift.
Speaker 1 (07:36):
So I encourage everyone who's interested in that to get
some expert advice because navigating that through family dynamics can
be challenging.
Speaker 2 (07:43):
It can become very messy. So it's a good idea
to really think that through. And one of the things
that we encourage business owners to do, and I know
you do as well, is really think about putting together
a good team of experts around you as your business grows.
A good accountant, a CPA, a good attorney both a
business attorney and eventually a wealth transfer into state planning attorney,
(08:05):
potentially an insurance person, right, somebody to think about how
the business can be bought or be sold if something
were to happen. So there are a lot of people
who can surround the business owner really help them out.
Speaker 1 (08:18):
That last one can be really important. We've seen a
couple of businesses where because they didn't do the proper
estate planning and there wasn't any life insurance in place,
they had a liquidity crunch because the business passed to
three siblings, but it needed liquidity to operate. The siblings
couldn't come up with the liquidity without life insurance from
the parent's death. So the business was successful. But a
business without enough liquidity it doesn't matter.
Speaker 2 (08:40):
Right, And having the liquidity that insurance provides allows for buysell.
It allows for the people who are interested in continuing
the business to buy out their siblings who aren't. It
provides that cash to allow them to do.
Speaker 1 (08:51):
That because otherwise they might not have the liquidity.
Speaker 2 (08:53):
Exactly because their biggest asset is the business as well.
Speaker 1 (08:56):
That's right. So let's talk a little bit about selling
a business. I think we should take it in a
couple stages. One is how do you make a business salable?
And we talked a little bit about that, but I
think we should sort of put a few fine points
on it and then talk about, Okay, once you think
you have a saleable business, how far in advance did
you start thinking about it? When you're ready to do it,
how do you do it? I mean, we know, when
you get really big, you hire an investment banker and
(09:17):
you go do that. But that's not how most businesses
in America are sold.
Speaker 2 (09:21):
No, and the people business owners most frequently talk to
their banker where they're if they have a personal financial advisor,
their financial advisor. But those are the two financial professionals
who are usually involved with the business from early stages ongoing,
and so those are usually good people to bring in
in the first step in terms of making the business
saleable and when to think about it. I want to
(09:43):
address the second point first, because I think it's never
too early to think about. The five d's are the
things that usually come into play when somebody doesn't have
a plan. Death, disability, divorce, disagreement distress, financial distress from markets,
and other things. And having the plan you need to
do it in advance of any of those things in
(10:04):
order for it to be effective. So the fifty percent
of business owners who have a specific, detailed plan, I
just wonder how many of them actually have like a
written plan that could be executed if something were to
happen to them.
Speaker 1 (10:17):
I mean, it's just a survey, so it just means
some of us, do you have a plan? It means yeah,
but it might be like yes, in my head, I'm
going to give it to my oldest kid or whatever exactly.
Speaker 2 (10:24):
We've had experiences like that where we had clients who
were the heirs of a business owner who said, don't worry,
I've got it taken care of. It's all set. He
died unexpectedly. It was not all set. He did not
have a plan, and it went to court and it
became very messy among the family. So having the plan
early on getting those key team members around you is critical.
Speaker 1 (10:47):
Can I just interject one thing there, because I know
there are a lot of people listening saying, yeah, but
that was some big business for some rich person, and
that doesn't apply to me. It doesn't matter how big
you are, because if it's your biggest asset, that biggest
asset that could be worth two hundred thousand dollars or
two hundred million dollars, it's still your biggest asset. And
that means it's your kid's biggest inheritance. And it can
get messy.
Speaker 2 (11:07):
Absolutely, And that really applies to It applies to the
person owns the dry cleaner or the plumbing supply shop
or the auto repair like whatever it is. If that's
your asset, that's your asset. In terms of making it saleable,
if you're going to sell it to your employees, you
need to make sure that they can fill all the roles,
and if they can't, you need to make sure that
you bring in management or bring in other people to
support them in selling it to a third party. The
(11:30):
things that are important are making sure that it's an
attractive asset to the third party. So if you're not
paying yourself a salary, but you're taking a dividend from
the company for tax reasons or whatever, the earnings that
you report are going to be artificially inflated, for example,
So you've got to do what's called normalized earnings audited
financial statements, or getting a CPA firm to come and
(11:52):
audit your financial statements and say, yeah, these are right.
These are according to general accepted accounting principles. Here's the earnings,
here's the equity, here's the liabilities, and so forth. Making
sure that your personal assets aren't sort of owned by
the business. Yes. Well, and it's common when I'm talking
to people who are thinking about starting a business, or
(12:14):
to your point earlier, buying a business from an existing entrepreneur,
it's very common for them to say, well, can I
deduct this? Can I deduct that? Yeah, if your spouse
is working in the business, if your kids are working
in the business. You can take tax deductions. People will
run personal expenses through the business, postage their car right
because you need a car for the business, and it
just happens that you need a car for yourself, and
(12:36):
it happens to be the same car. In one case,
there was a business down in Florida that was getting
ready to be sold and we had to tell one
of the co owners that the McLaren needed to not
be owned by the business.
Speaker 1 (12:46):
He needed to buy it, He needed to buy.
Speaker 2 (12:48):
It from the business, he needed to ensure it. And
it was the expenses of owning that on his personal
balance sheet as opposed to the company's balance sheet were
much higher. He wasn't happy with that news, but eventually
the sale price more than made up for it. But
it's those kinds of things. It's really separating the business
from yourself personally and only having things that legit belong
(13:09):
to the business.
Speaker 1 (13:10):
Okay, And then when you get ready to sell and
you talk to your banker, you talk to your CPA.
Should you be thinking about doing it yourself, Should you
be thinking about using a broker? How should people think
about it?
Speaker 2 (13:20):
It's such a hard question. I think if you've put
a good team together. Your bankers, your attorneys, your insurance
folks like, your team can give you that guidance. In general,
I think people get higher prices if they employ professionals,
people who do this all the time, whether it's a
business broker or an investment banker or like when you
sell your merchant banker. Exactly if you do it, you
(13:41):
could do it yourself. But if you do it the realtor,
generally they know how to stage it, and they have
the people to come and take beautiful photographs and how
to price all of those things. But the more professional
advice you get, I think generally the better the outcome.
Speaker 1 (13:55):
Yeah, I mean, the final piece of advice I would
give people who are selling is that let's go back
to where we started. This is very personal and this
can be emotional for business owners. So if and when
you sell, are you going to stay involved? Very often
a buyer wants you to stay involved for a period
of time. How are you going to feel being involved
but not making decisions because that might happen, In fact,
(14:17):
it's probably going to happen. How do you feel about
not being involved and in fact seeing someone run it away?
You wouldn't you have to make peace with all those
things before you're really ready to sell the business.
Speaker 2 (14:27):
And even I don't want to say even more importantly,
at least as importantly, you need to have something that
you're going to go to or you're going to be unhappy.
And a lot of business owners who sell without having
planned it ahead of time because they got an offer
that was too good to refuse or something else, regret
selling because the business was all they knew. It's a
(14:49):
very emotional thing for a business owner because again it's
like your kid rejecting you. You worked hard in there
for forty years and now they're saying, yeah, thanks, we
don't really need you anymore. You're here, like, let the
new blood finish this up.
Speaker 1 (15:03):
So I'll leave our audience with a somewhat sobering statistic,
which is only thirty percent of businesses successfully pass on
to the next generation, and only twenty percent actually sell.
And those are the ones who have already survived long
enough to either pass on or sell. And the statistics
show very clearly that the ones who make an explicit
plan have better outcomes than the ones who don't.
Speaker 2 (15:24):
And it takes a while to plan because it's thinking
about all these things you don't want to think about.
You can't expect that over a weekend or in a
family vacation you'll just get it all out on paper.
You've really got to think about it. If it's going
to family member, you got to engage them and talk
to them, and so the sooner you start, the better
off you'll be. And for the people who didn't have
(15:45):
a plan, I think the service at sixty three percent
without a plan, thought it was too early, and then
it wasn't and then they selled without a plan, and
presumably if they sold it or transitioned it, it was
successful in that sense, but they probably didn't mac surmize
the value of what they had built and spent so
many years on for either themselves or their family. Because this,
(16:06):
as you say, it's people's biggest asset. It's the legacy
they're leaving to their kids and their grandkids, and you
want that legacy to be as much as you can.
Speaker 1 (16:13):
Adam Frank, thank you for joining so The Unshakeables. I
think that was an important conversation for business owners all
over the country. I hope everyone took something away from it.
And if you own a business, please go out and
make a plan.
Speaker 2 (16:24):
Ben, thanks for having me.
Speaker 1 (16:29):
We do encourage all of our listeners and all of
our clients, frankly to have their set of advisors, and
a banker's only part of that. So I encourage you
to go to Chase dot com slash succession, where you
can find further information on succession planning for small business.
Thanks so much for listening to this episode of The Unshakeables.
If you liked this episode, please rate and review it.
I'm Ben Walter and this is The Unshakeables from Chase
(16:52):
for Business and Ruby Studio from iHeartMedia. We'll see you
back here soon
Ruby.
Hi everyone, it's Ben. Over the last couple of seasons
here on The Unshakeables, we've had the chance to hear
from some terrific guests who've shared their journeys to becoming
small business owners successful ones at that, and as I
listen to their stories of grit and determination, I can't
help but wonder how many are thinking ahead to what
(00:25):
happens when it's time to step away. Legacy planning is
something most people don't consider until it's too late, and
by then it can be a tough situation to navigate.
That's why we're dedicating a bonus segment to this topic,
because it's just that important. And to dive into it,
I'm joined by my colleague Adam Frank, who's head of
Wealth Planning and Advice here at JPMorgan Chase. Adam is
(00:50):
an expert in wealth planning and thinks a lot about
things like succession and what to do when you're ready
to move your business on and then what to do
with the funds if you're successful raising funds from that sale.
So we thought we'd have them on just to talk
about that. So Adam, welcome to the show.
Speaker 2 (01:03):
Thanks Ben, thanks for having me it's really.
Speaker 1 (01:05):
Good to have you here. So let me give you
a couple of statistics that I think are relevant to this.
If you survey small business owners across the country, there
is no secret that there's a bit of a silver
tsunami going on. Seventy five percent of all business owners
would like to exit their business within the next decade.
Now that might be that they just want to sell
and monetize and do something else. It might be that
(01:26):
they're getting toward retirement. Age doesn't matter why. There was
a recent survey of three hundred business owners, and it
found that most business owners report having a plan in mind,
but a plan is a very loose definition of what
they have. Only half have a specific and detailed plan.
So this is a huge pressing issue for the economy,
for American society, and for entrepreneurs in particular. And people
(01:47):
do a lot of planning in their personal lives, right
They plan to retire, they hire financial advisors, they have
a wealth plan, they have a retirement plan. Why is
it harder with small businesses? What is it about making
a plan for a succession in your business that makes
it harder.
Speaker 2 (02:03):
Well, I think people think of their business in many
ways as one of their children, and it's something that
they devote a lot of time to, but they don't
often want to think about what happens when I step back,
because it's like stepping back from one of your kids, right.
It's very difficult, I think for business owners who have
developed a business and grown it for so many years
to really think about what that looks like, and people
(02:25):
don't want to talk about it in the same way
that people put off creating a will. I think a
lot of it is avoidance, and then a lot of
it is business owners often don't have a ton of
time to think about their personal finances because they're so
busy focused on the business, whether it's in the growth
phase or nurturing it to grow more. They're constantly thinking
(02:46):
about how can I optimize the business, and they're not
thinking about the business as an asset on their personal
balance sheet and what that means for their retirement if
they have one and so on.
Speaker 1 (02:58):
And now often it's the biggest asset. It is single
biggest assets on their ballance sheet, probably bigger than their house.
Speaker 2 (03:03):
In many cases it is.
Speaker 1 (03:04):
Yeah, so let's talk about the options. I mean, if
a business owner wants to start thinking about succession, what
are the options available right? Because some people say, I
want to pass to my kids, but what if my
kids don't want it. Some people say, you know, I'd
love to sell it, but what if no one's there
to buy it? Is the business even saleable?
Speaker 2 (03:22):
And it isn't always, especially businesses like my dad was
a CPA and he was a one man shop, and
his succession plan was not to die. That was his
succession plan. He wasn't going to die. Everything was going
to be great and he would continue to work forever.
And eventually my brother became an accountant and started helping
my father out, and that became a de facto succession plan.
(03:44):
But it was never a plan. It just was a
succession happened. He had three sons. He was lucky that
one of them wanted to become an account and do that.
A lot of businesses that rely on the reputation of
the owner, it's going to be much more difficult to
sell them or even to have a family member succeed,
because not only does the family member have to want
(04:06):
to run the business, be an accountant, owner, dry cleaner,
many times whatever it is, which many times they don't.
They have to be able to like they have to
be capable, and not everybody is capable. And even if
succession in the sense of passing an existing business onto
somebody is successful, the business withers and dies because the
person you've passed it to the only qualification is that
(04:28):
they have your genes, and that's it. You didn't really
think about are they interested, are they capable, and what
if anything can I do to help them be more
successful other than they're my kid and I love them.
Speaker 1 (04:41):
Right, I mean, so, essentially, the three choices are you
shut it down, you pass it on in the family,
or you sell it.
Speaker 2 (04:46):
Or you sell it and selling there are a number
of options with sales. If it's a big enough business
and you have employees who've been with you a long
time and who are good at what they do, you
could potentially sell it to your employees, either through an
employee stock ownership plan, which is like a qualified retirement plan.
It's another way of retaining good employees, or selling it
to a competitor what they call a strategic buyer, right,
(05:07):
somebody who's looking as a strategy to grow, to acquire
competitors or complementary businesses in their industry, or just sell
it to a financial sponsor, somebody who's interested in buying
a business to grow it to make a profit for
themselves or their investors.
Speaker 1 (05:24):
Or you could sell to another entrepreneur, right, wants to
own a business and doesn't want to do corporate life
anymore instead of starting a business, wants to buy a
business exactly.
Speaker 2 (05:32):
And that's a great way in for people on the
buy side who want to be entrepreneurs but don't have
that entrepreneurial idea.
Speaker 1 (05:39):
So let's assume those are there two big options, right,
You either pass it on to family or you sell
it in one of those forms. Let's talk about each
of those. So, first, passing along to family, which can
mean giving it to them, It can mean selling it
to them, it can mean some combination of that. For
business owners out there who really want to do that,
what should they be thinking about?
Speaker 2 (05:57):
Well, as a business owner thinking about transition, you've got
to think about the things that you do for the business.
Customer generation, contract negotiations, sales like you name, operations, right
about everything, compliance. Depending on what business you're in, can
the person or persons you've identified in your family who
you want to pass the business onto, can they do
(06:19):
that can they do all of those jobs, because if
they can't, and again depends on how big the business is.
But if you have a couple of employees, even part time,
think about where your child or family member is really competent.
Think about places where they might be less competent. Think
about how to complement them and accommodate their strengths and opportunities,
(06:43):
maybe with different employees, different people to bring on.
Speaker 1 (06:47):
I always tell people, also, you're probably going to have
to work together, so figure out how you're going to
do that, because the transition is not going to be
one day you waive and you walk out the door.
You're still going to be in a situation for at
least a period of time where you have to work together,
end have Thanksgiving together.
Speaker 2 (07:01):
Yes, exactly. Usually what I see when it's family members,
the business owner's retirement plan is to have their child
buy them out. Over time, their involvement lessons. Year over year,
the child's involvement increases, but there's that payment stream which
substitutes for the salary that they're no longer getting or
that is significantly lower because they're not doing as much work.
(07:24):
That lasts until they qualify for Social Security or their
pension kicks in or whatever it is. They're getting other
streams of income, but it's more often a sale than
a gift.
Speaker 1 (07:36):
So I encourage everyone who's interested in that to get
some expert advice because navigating that through family dynamics can
be challenging.
Speaker 2 (07:43):
It can become very messy. So it's a good idea
to really think that through. And one of the things
that we encourage business owners to do, and I know
you do as well, is really think about putting together
a good team of experts around you as your business grows.
A good accountant, a CPA, a good attorney both a
business attorney and eventually a wealth transfer into state planning attorney,
(08:05):
potentially an insurance person, right, somebody to think about how
the business can be bought or be sold if something
were to happen. So there are a lot of people
who can surround the business owner really help them out.
Speaker 1 (08:18):
That last one can be really important. We've seen a
couple of businesses where because they didn't do the proper
estate planning and there wasn't any life insurance in place,
they had a liquidity crunch because the business passed to
three siblings, but it needed liquidity to operate. The siblings
couldn't come up with the liquidity without life insurance from
the parent's death. So the business was successful. But a
business without enough liquidity it doesn't matter.
Speaker 2 (08:40):
Right, And having the liquidity that insurance provides allows for buysell.
It allows for the people who are interested in continuing
the business to buy out their siblings who aren't. It
provides that cash to allow them to do.
Speaker 1 (08:51):
That because otherwise they might not have the liquidity.
Speaker 2 (08:53):
Exactly because their biggest asset is the business as well.
Speaker 1 (08:56):
That's right. So let's talk a little bit about selling
a business. I think we should take it in a
couple stages. One is how do you make a business salable?
And we talked a little bit about that, but I
think we should sort of put a few fine points
on it and then talk about, Okay, once you think
you have a saleable business, how far in advance did
you start thinking about it? When you're ready to do it,
how do you do it? I mean, we know, when
you get really big, you hire an investment banker and
(09:17):
you go do that. But that's not how most businesses
in America are sold.
Speaker 2 (09:21):
No, and the people business owners most frequently talk to
their banker where they're if they have a personal financial advisor,
their financial advisor. But those are the two financial professionals
who are usually involved with the business from early stages ongoing,
and so those are usually good people to bring in
in the first step in terms of making the business
saleable and when to think about it. I want to
(09:43):
address the second point first, because I think it's never
too early to think about. The five d's are the
things that usually come into play when somebody doesn't have
a plan. Death, disability, divorce, disagreement distress, financial distress from markets,
and other things. And having the plan you need to
do it in advance of any of those things in
(10:04):
order for it to be effective. So the fifty percent
of business owners who have a specific, detailed plan, I
just wonder how many of them actually have like a
written plan that could be executed if something were to
happen to them.
Speaker 1 (10:17):
I mean, it's just a survey, so it just means
some of us, do you have a plan? It means yeah,
but it might be like yes, in my head, I'm
going to give it to my oldest kid or whatever exactly.
Speaker 2 (10:24):
We've had experiences like that where we had clients who
were the heirs of a business owner who said, don't worry,
I've got it taken care of. It's all set. He
died unexpectedly. It was not all set. He did not
have a plan, and it went to court and it
became very messy among the family. So having the plan
early on getting those key team members around you is critical.
Speaker 1 (10:47):
Can I just interject one thing there, because I know
there are a lot of people listening saying, yeah, but
that was some big business for some rich person, and
that doesn't apply to me. It doesn't matter how big
you are, because if it's your biggest asset, that biggest
asset that could be worth two hundred thousand dollars or
two hundred million dollars, it's still your biggest asset. And
that means it's your kid's biggest inheritance. And it can
get messy.
Speaker 2 (11:07):
Absolutely, And that really applies to It applies to the
person owns the dry cleaner or the plumbing supply shop
or the auto repair like whatever it is. If that's
your asset, that's your asset. In terms of making it saleable,
if you're going to sell it to your employees, you
need to make sure that they can fill all the roles,
and if they can't, you need to make sure that
you bring in management or bring in other people to
support them in selling it to a third party. The
(11:30):
things that are important are making sure that it's an
attractive asset to the third party. So if you're not
paying yourself a salary, but you're taking a dividend from
the company for tax reasons or whatever, the earnings that
you report are going to be artificially inflated, for example,
So you've got to do what's called normalized earnings audited
financial statements, or getting a CPA firm to come and
(11:52):
audit your financial statements and say, yeah, these are right.
These are according to general accepted accounting principles. Here's the earnings,
here's the equity, here's the liabilities, and so forth. Making
sure that your personal assets aren't sort of owned by
the business. Yes. Well, and it's common when I'm talking
to people who are thinking about starting a business, or
(12:14):
to your point earlier, buying a business from an existing entrepreneur,
it's very common for them to say, well, can I
deduct this? Can I deduct that? Yeah, if your spouse
is working in the business, if your kids are working
in the business. You can take tax deductions. People will
run personal expenses through the business, postage their car right
because you need a car for the business, and it
just happens that you need a car for yourself, and
(12:36):
it happens to be the same car. In one case,
there was a business down in Florida that was getting
ready to be sold and we had to tell one
of the co owners that the McLaren needed to not
be owned by the business.
Speaker 1 (12:46):
He needed to buy it, He needed to buy.
Speaker 2 (12:48):
It from the business, he needed to ensure it. And
it was the expenses of owning that on his personal
balance sheet as opposed to the company's balance sheet were
much higher. He wasn't happy with that news, but eventually
the sale price more than made up for it. But
it's those kinds of things. It's really separating the business
from yourself personally and only having things that legit belong
(13:09):
to the business.
Speaker 1 (13:10):
Okay, And then when you get ready to sell and
you talk to your banker, you talk to your CPA.
Should you be thinking about doing it yourself, Should you
be thinking about using a broker? How should people think
about it?
Speaker 2 (13:20):
It's such a hard question. I think if you've put
a good team together. Your bankers, your attorneys, your insurance
folks like, your team can give you that guidance. In general,
I think people get higher prices if they employ professionals,
people who do this all the time, whether it's a
business broker or an investment banker or like when you
sell your merchant banker. Exactly if you do it, you
(13:41):
could do it yourself. But if you do it the realtor,
generally they know how to stage it, and they have
the people to come and take beautiful photographs and how
to price all of those things. But the more professional
advice you get, I think generally the better the outcome.
Speaker 1 (13:55):
Yeah, I mean, the final piece of advice I would
give people who are selling is that let's go back
to where we started. This is very personal and this
can be emotional for business owners. So if and when
you sell, are you going to stay involved? Very often
a buyer wants you to stay involved for a period
of time. How are you going to feel being involved
but not making decisions because that might happen, In fact,
(14:17):
it's probably going to happen. How do you feel about
not being involved and in fact seeing someone run it away?
You wouldn't you have to make peace with all those
things before you're really ready to sell the business.
Speaker 2 (14:27):
And even I don't want to say even more importantly,
at least as importantly, you need to have something that
you're going to go to or you're going to be unhappy.
And a lot of business owners who sell without having
planned it ahead of time because they got an offer
that was too good to refuse or something else, regret
selling because the business was all they knew. It's a
(14:49):
very emotional thing for a business owner because again it's
like your kid rejecting you. You worked hard in there
for forty years and now they're saying, yeah, thanks, we
don't really need you anymore. You're here, like, let the
new blood finish this up.
Speaker 1 (15:03):
So I'll leave our audience with a somewhat sobering statistic,
which is only thirty percent of businesses successfully pass on
to the next generation, and only twenty percent actually sell.
And those are the ones who have already survived long
enough to either pass on or sell. And the statistics
show very clearly that the ones who make an explicit
plan have better outcomes than the ones who don't.
Speaker 2 (15:24):
And it takes a while to plan because it's thinking
about all these things you don't want to think about.
You can't expect that over a weekend or in a
family vacation you'll just get it all out on paper.
You've really got to think about it. If it's going
to family member, you got to engage them and talk
to them, and so the sooner you start, the better
off you'll be. And for the people who didn't have
(15:45):
a plan, I think the service at sixty three percent
without a plan, thought it was too early, and then
it wasn't and then they selled without a plan, and
presumably if they sold it or transitioned it, it was
successful in that sense, but they probably didn't mac surmize
the value of what they had built and spent so
many years on for either themselves or their family. Because this,
(16:06):
as you say, it's people's biggest asset. It's the legacy
they're leaving to their kids and their grandkids, and you
want that legacy to be as much as you can.
Speaker 1 (16:13):
Adam Frank, thank you for joining so The Unshakeables. I
think that was an important conversation for business owners all
over the country. I hope everyone took something away from it.
And if you own a business, please go out and
make a plan.
Speaker 2 (16:24):
Ben, thanks for having me.
Speaker 1 (16:29):
We do encourage all of our listeners and all of
our clients, frankly to have their set of advisors, and
a banker's only part of that. So I encourage you
to go to Chase dot com slash succession, where you
can find further information on succession planning for small business.
Thanks so much for listening to this episode of The Unshakeables.
If you liked this episode, please rate and review it.
I'm Ben Walter and this is The Unshakeables from Chase
(16:52):
for Business and Ruby Studio from iHeartMedia. We'll see you
back here soon
Hosts And Creators
Ben Walter
Kathleen Griffith
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com