Maximizing Business Value Before the Exit with Jeff Getty

If you’re a business owner, chances are the idea of selling or transitioning your company has crossed your mind. But what does that process actually look like when done well?

In this episode of The Visionaries Show, Mohan and I sit down with Jeff Getty, a longtime M&A advisor who’s worked with countless founders to help them exit on their terms. Jeff brings a straight-shooting perspective on everything from unsolicited offers and strategic buyers to the tax tools most people miss (yes, we’re talking about QSBS).

We unpack the messy middle of ownership transitions: the family dynamics, the missed planning windows, the moments when founders realize they’re negotiating blind. Jeff shares the lessons he’s learned, the traps to avoid, and the strategies that help owners protect the business they’ve spent a lifetime building.

Here’s what we cover:

• Why succession planning matters, even if you think it doesn’t
• What to know about unsolicited offers before jumping at one
• How private equity is shaping today’s M&A landscape
• The role of due diligence before you go to market
• The overlooked tax-saving strategy every founder should know (hint: QSBS)
• Why family dynamics, not finances, derail most transitions
• How storytelling increases perceived business value during a sale

🎧 Tune in now to get clear on how to protect what you’ve built—and make the exit worth it. Learn more about Jeff’s work at www.callanfamilyoffice.com Pick up his book, The Descent Is The Real Climb: Unexpected Truths About Successful Business Transitions, on Amazon: https://amzn.to/4iBY64q

Episode Transcript

(00:01):
All right.
it's now.
Okay.
Welcome to The Visionary Show.
I'm Jen Crow and my co-host...
My name is Mohan Ananda

(00:35):
Okay.
What am I?
Am I branding lead?
I don't know, because I'm editing videos now, so.

(00:55):
Okay.
Hello everyone.
Welcome to the visionary show.
My name is Jen Crowe.
I'm the branding lead of Authority Fusion and here's my co-host.
Mohan Ananda, I run a few companies and I'm interested in knowing more about companies.

(01:19):
Who does what?
Who is doing that?
right?
Yeah, Jen can introduce Jeff.
What's the background of Jeff again?
Jeff Getty.
Can I not mention yet?
Because I want to mention it later.

(01:39):
Jeff Getty, I'm an &A seasoned mergers and acquisitions advisor here with us today.
Here with us today is Jeff Getty, a seasoned M&A advisor.
What's a better way to say it?

(02:02):
Oh, I can say that.
Okay, with Callen Family Office.
Okay, here with us today is Jeff Getty, a seasoned M M&A advisor with Callen FamilyOffice.
Hello Jeff, how are you?
I am great.
Thanks for having me on.
Great.
Hope you hear Jeff.

(02:24):
We're going to talk about Jeff's expertise.
In fact, Jeff has been well versed in wealth management advisory functions for a longtime.
Now, I would like to kind of get our audience know about six areas.

(02:44):
So specifically, you can say anything you want, but the six areas are the number one is
Business ownership transition.
I think you are very well versed in it.
Another area will be business value optimization.

(03:08):
The third, strategic exit options for businesses.
That would be very much in your hand.
Now there is another area is
negotiated unsolicited offers.
That's another area you are really good at it.

(03:30):
Now, how do we do next one, increasing value of the businesses through proper duediligence?
Then the last one I want to know, how do you optimize or minimize tax for businesses?
So if you can cover these six areas in some details, that would be extremely valuable toour audience.

(03:59):
Great, let's do it.
Yeah, let's start with number one, business ownership.
Okay, you guys want to start off with a question or you just want me to jump in?
Yeah, first area is like business ownership transition.

(04:23):
That means somebody wants to sell it or exit.
What kind of steps you would, what are the processes?
What will you do and how do you prepare for
Mmm.
Yeah, so whenever you're starting off with the idea of a, I typically talk about atransition or a transaction.

(04:47):
Transitions would be a change of ownership internally.
So that would be a family member or another key management or employees.
And a transaction would be to a sale to a third party.
At the inception point, both of those processes kind of start.

(05:07):
in the same point and then they diverge rather quickly because the concepts are kind ofdifferent, right?
But they both kind of start at the same point where the owner has made the decision, it istime for whatever reason to move on.
And that can be driven off a lot of different factors.
One would be they just have...

(05:29):
for lack of better word, gotten up one day and decided time has come to move on to thenext stage in life.
That could be driven off of a health issue of themselves, a family member.
It could be driven off of they were just ready to move on to something else.
Or it just could be the point where they have, for example, and then we're gonna get tothis later, gotten a silly offer where the money's so good that it's time to cash out and

(05:54):
move on.
But there's some catalyst, there's some reason why they decided to do something.
And the first step in that process is deciding are we looking internally or externally.
And really a lot of that just comes down to looking at the situation, which is partiallyfinancial, and then partially what's in the best interest of all the stakeholders.

(06:17):
The financial issue is relatively straightforward, typically financially.
Most owners are further ahead to sell to a third party.
It's kind of difficult to get the same level of value out of a business if you're doing aninternal transfer as if you're doing a third party sale.
And usually when I talk to prospects or clients at the inception, I talk about acontinuum.

(06:40):
And if you think about a line, and one far extreme in the line would be a liquidation andthe other extreme would be IPO or initial public offering.
The highest value for business would be an IPO.
The lowest value for a business would be a liquidation.
And then there's different demarcation points along that line as to what relative valueone would get for a business.

(07:03):
Internal transitions would be closer to liquidation.
So transfers to family members wouldn't be as low a value as a liquidation, but they wouldbe closer to liquidation than they would be to IPO.
and sales to third parties to private equity to strategic buyers would be closer to IPO.

(07:25):
So if the decision at the outset is from a business owner, I need to or want to get thehighest value possible, they're going to be leading towards typically, sale to third party
or IPO, right?
So if it's just purely driven off of financials, that's kind of where they're gonna start.
They're gonna be looking more towards third party.

(07:46):
But usually decisions, or typically decisions aren't based off of that.
In my experience, that's not usually where people start.
That's not the majority of the time.
It usually starts with the stakeholder thought process, which is what is it that myself asthe business owner is looking to get for the stakeholders, for myself, for my family
members, and depending on how they feel about the community they reside in, the communitystakeholders?

(08:13):
What is it I want to take out of this deal?
How important is it to me to have my, for example, children involved in the business nextgeneration?
How important is it for me to have that business continue with the same name, the samemanagement team?
How important is that for me to have that business still reside and be a contributorinside the community?

(08:35):
That tends to be a bigger issue in smaller communities, smaller towns where you're theprimary employer than it is in much larger markets.
But that's kind of where that process, that mindset first starts.
And once we start getting to that initial stages of consideration or decision tree of, I'mgoing to go down a particular path, then the owner starts to work through the processes to

(09:01):
get to those next stages in that process.
So for example, if we're going to get on the concept of an internal transition to
Family members, that's typically talking to a estate planning attorney to talk aboutgifting strategies or estate planning strategies to transition that business through a

(09:24):
rigorous tax planning process.
If it's to transition to internal employees or management, we might be talking about anESOP, which would be talking to an ESOP firm, something like that.
If it's a third party sale, we're typically, depending on the size of the business,talking about a business broker or an investment banker.
Things like that.
So we typically start to talk about pulling together that team of advisors who is going todrive the process, so to speak, to get the best possible outcome for the owner.

(09:54):
That's kind of how that process starts and how we start setting up those milestones toeffectuate the best transition or transaction process for the owner.
So now let me kind of, excellent, that's very, very good.
Now let's say that I want to do the transition.

(10:14):
What steps I should take, how do I plan it, and what are the key specific milestonesbefore I start the process?
So for a transition, so it would a little bit depend on what type of transition.
if you're talking about, for example, transition to family members, that's slightlydifferent than we're talking about transition to employees.

(10:37):
But let's start with family members.
So that would typically start with a hard look internally at who that transition is goingto involve and who that transition is not going to involve.
So for example,
I am married and I'm a father of three children.
In a circumstance like that, it would be highly unusual that all three of my childrenwould have an equal ability to be involved at the same level in the business.

(11:07):
It would also be impossible to have three CEOs to replace me if I were the CEO of thebusiness.
So it's an inward look to some extent to understand, again, this is a transition forfamily.
Who would be the likely heir apparent?
Who would be the likely successor to take over as CEO?
And then is there a role for all the children in that transition, right?

(11:29):
Is there a role for my other two kids?
And if it's not just my kids, is it nieces and nephews?
Is it folks like that?
Like who else is going to be involved in that and what role can they play?
And also if there isn't a clear heir apparent to be the CEO, do I have to find a thirdparty CEO, a management team that can take it on?

(11:49):
and what role do my kids actually play in that next generation of management andownership.
And bear in mind that ownership and management and employees don't necessarily all have tobe the same hat.
So you can have family members have an ownership stake, but don't have to be involved inday-to-day operations.
And you can have family members that are involved in day-to-day operations that don't haveto wear a strategic management hat.

(12:14):
So oftentimes that decision tree is very difficult for
As a parent, to be objective about their relative strengths and weaknesses of theirchildren, I like I said, I'm a parent, it's sometimes hard to think about your kids that
way, but in order to achieve the long-term success of that business, that's typicallywhere you have to start, is look at your family members objectively and decide how can

(12:39):
they actually do this?
What roles can they play?
And in my experience, that tends to be the hardest part because quite frankly,
the tax issues, the transition issues, the documentation issues.
Once you've kind of figured out who goes in what seat, those other parts and pieces andparts are relatively straightforward to do.

(13:01):
And I say that with some experience.
I've been a tax attorney for almost 30 years.
I feel pretty comfortable saying having sat in that seat for a long time, the actualdocumentation, the actual tax strategy work to pull that together is
relatively straightforward with 30 years of experience.
It's the other parts and parcels and pieces of the skill set to deal with the familyissues that tends to be rather difficult.

(13:29):
But then you.
worked with different sizes of businesses between you and Mohan.
You've seen this kind of succession planning happening in like big enterprises, right?
But before, in the early years of your career, I'm sure you've worked with smallerbusinesses.
Now, thinking of succession planning is not only important for big enterprises.

(13:51):
There are small to medium companies that are...
Probably not thinking about it.
They're not even aware that something like this must be done.
Do you have stories from the past, which I know you're dealing with lot of NDAs here, butif you can share some interesting stories where this business didn't think about

(14:13):
succession planning.
And I want to emphasize, I want the audience to realize the importance of planning forthis, planning for exit, no matter what size of business they're running.
Sure, I mean if you work in this field for any length of time you have a wealth ofstories.
You really do, good and bad, right?

(14:33):
And I always tell people that every story is an experience and you either have a successor have a learning experience.
And unfortunately when you're younger and first starting out I think you end up with morelearning experiences than successes because you really don't know what you're taking on
and you don't necessarily understand the pitfalls that you're stepping into.

(14:55):
You know some of the ones that have been that stick in my mind is pretty spectacular Iwouldn't say misses because again, they were learning experiences is not asking the right
questions So a good example of that Would be many years ago.
I had a client who approached me He had been to a ESOP seminar And I have nothing againstESOPs.

(15:22):
I've done plenty of ESOPs in my career
And for those who don't know, ESOP is a fancy acronym for Employee Stock Ownership Plan.
It is a very tax-advantages plan to transition ownership from typically one owner to anext generation of owners in a very tax-advantages manner.
And it falls under ERISA, so it's a qualified plan.

(15:43):
So it has a lot of rules attached to it.
And I didn't ask the central question, which was...
Are you sure you want everyone in the management team and company to own a piece of thebusiness, which is the crux of an ESOP plan, right?
Everybody who's in the business more or less gets a piece of the business.
Now there's ways to adjust ownership so your management team kind of is in control, buteverybody's in it with a piece of it.

(16:09):
It was a very small business, there weren't a ton of employees, but we got pretty far downthis process.
Now in my defense, he had told me this is what he wanted.
He had told me he had been to a seminar, he had already
hired an ESOP firm to do the feasibility study.
He was already fairly far down this path before he talked to me.
But we got pretty close to completion.

(16:31):
And he then suddenly asked the question, well, at the end of the day, my son andson-in-law are going to have a majority stakeholder in this business, right?
They're going to own 51 % of control of the business.
And I said, well, not under this plan.
It's going to be
100 % ESOP company and the ESOP's gonna own it.

(16:55):
Now they'll have a big stakeholder in the ESOP, but no, the ESOP's gonna be in control.
They'll be trustees and they'll be indirectly in control.
And I kind of walked around ESOP works and he said, know, time out, that's not what Iwant.
So we had to do reversal.
We ended up doing a partial ESOP at about 30%.
And we ended up with the son and son-in-law between the two of them owning about 60 % ofthe business, a couple other people owning another piece.

(17:18):
So we were able to pivot and make some changes.
We still had a partially sub, got some nice tax benefits, and we were able to make someadjustments on the fly and make it work out.
But I learned an important lesson that day, right?
Which was, hey, when someone walks in your office door and says, I want this type ofstrategy, there's a couple of threshold questions you should really ask, which is,

(17:41):
you know, hey, for an ESOP, do you really want this?
There's a couple of things, punch list items you should be asking before you go too fardown that path.
So that's a quick example of one of those situations where, hey, you should really askcertain questions before you go too far down the path.
Because unfortunately, the owner thought they knew what they wanted, but they didn't fullydevelop in their mind what an ESOP actually meant, or at least 100 % ESOP actually meant

(18:07):
to them.
Yeah, let me ask you about the value, business value.
You talk about this value optimization.
What are the strategies to maximize the value or is there a kind of a rule of thumb or howdo you determine what real value is?

(18:28):
Wow, that's a very interesting question.
So when we talk about value, value means a couple different things.
let's start with a definition of what we're talking about value.
So value for transition purposes typically is artificially low, right?

(18:52):
Because that's me trying to...
Transfer value to typically next generation.
So like for my children, I would want the value to be depressed artificially low So Ithink the value you're talking about is I'm going to sell my business to a third party So
I want that value to be as high as possible, correct?
So how do we drive value?

(19:13):
How do we make the value as high as possible?
What's really interesting is a threshold issue around value if you have a good tax advisorWhich I'm assuming anyone listening to this or watching this
you have a good tax person.
And if you have a good tax advisor, they've spent every year working on your taxes, tryingto artificially deflate value for tax purposes.

(19:40):
Because the goal of a good tax advisor is to show the least amount of profitability everyyear, so you pay the least amount of tax.
That's businesses that have high value, have a high return.
tend to pay high taxes.
They have a high income, so they pay higher taxes.
So a good tax advisor is depressing profitability, right?

(20:01):
So it shows less profitability, so you pay less tax.
So as a threshold issue, most businesses are designed on an annual ongoing basis to showthe least amount of profitability possible.
just as a setting the stage, so to speak, when you are running your business day in andday out,

(20:22):
you're probably showing your business in the worst light possible to go into a salestransaction because you're showing profitability depressed, which shows value at its
lowest mark.
So just as a starting point, we usually have to start off with, hey, we need to do what'sknown as a recasting or restatement of your financials to take all the good tax planning

(20:49):
that's been done over the years and
undo it for reporting purposes, for financial statement purposes, and pull out all thatplanning and recast those financials to show the highest amount of profitability possible.
So it shows the true value inherent in that business, right?
So that's rule number one in order to show the highest level of value.

(21:11):
So interestingly enough, just as a threshold issue, most business owners are quitesurprised that if they're asked
to share financials, the first thing we would tell them is don't until someone has theability to come in and recast your financials because they need to undo all that work
that's been done first and foremost.
That'll drive some value in and of itself, Mohan, as an outset issue.

(21:33):
Yeah, let me kind of give you my kind of thought.
are basically the valuation is on sometimes a multiplier of a top line revenue or amultiplier of what we call EBITDA, earnings before income tax, depreciation, amortization.

(21:56):
So EBITDA times some number or top line some
depending upon the where you are in the company and what status.
Do you use those type of things or and what would you kind of make some suggestions howone should approach to, especially if you're exiting to sell it to a third party or maybe

(22:20):
even taking a company public.
How will you value that?
So those are two markers that we would definitely look at, but in and of itself, those arenot the definitive markers we would use.
There's a lot of different ways to look at valuation.
Those are two of them.
But let's bear in mind at the end of the day, a business is worth what someone is willingto pay.

(22:45):
And it's simplest answer, right?
We can play around with EBITDA, for example.
We can make adjustments.
We can make adjustments as to what
real revenue is.
We can make adjustments as to multiples for those are just comparisons as to what othercompanies have sold for.
Those are numbers that can be manipulated and people do manipulate them.
That's part of our jobs as M&A advisors as a seller as representing the seller to makeadjustments to those numbers and to put the best light possible.

(23:15):
I tend to look at value in a sales process as much as anything is
telling a story, which sounds overly simplistic, but just run with this for a second.
There's always different methodologies one can use, discounted cash flow, multiples ofEBITDA, top line revenue, know, the things we just talked about, but it's as much as

(23:36):
anything else about telling a story.
Most of the things we just talked about are looking in the past, right?
Trailing indicators of what the business has done up to this point.
To me, what the best indication of value is for a business,
is telling a story to a potential buyer of yes, this is what the business has donehistorically.

(23:56):
But what I'm going to tell you about potential buyer is what the business can do in thefuture with you buyer at the helm, which really comes down to if you buyer can do more
with the business.
So as an example, I'm the seller, I never wanted to

(24:20):
take my business across state lines for whatever reason.
I was happy.
I'm a resident of Pennsylvania.
So I stayed in Pennsylvania because I never wanted to do sales tax across state lines.
But you, Mohan, you're in California and you could buy my business and you could open up abranch or merge it with your businesses in California, Nevada and places out West.
And you could sell my products and goods and services out there and, you know, really rampup that business.

(24:46):
If I can convince you just by buying me,
right, my business, and you could sell more goods and products from my business line outin those markets.
I'm giving you a story that shows an increase in value beyond what I could get out of thatbusiness.
So therefore it's worth more to you.
That's storytelling, right?
How do you know that?
How do you know the, say you're helping a buyer, a seller, a business seller, how do knowtheir intent?

(25:12):
Because you're working with this one other party.
What about the other party?
great question, Jen.
So one of the jobs of an M M&A advisor in this part of the seller, the seller's M M&Aadvisor, is to understand the buyers in the mix and do research on them and to be able to
talk to them and articulate to each different buyer what they're doing.

(25:33):
So when I've been involved in sales processes and we get down to the point where we'retalking to specific buyers,
The internet's a great thing.
You can do a ton of research on them.
If they're a private equity group or strategic buyer, you can look at their strategy.
You can look at past acquisitions.
You can look at what they're doing right now.
And you can fill in those gaps and you can figure out exactly what it is their strategy,what their strategy is.

(25:57):
And then you can kind of figure out what it is they're trying to do.
You can ask them what it is they're trying to do to some extent.
And you can position that sales process, that thought process.
to align with what they're doing.
And then you can kind of back into the financial metrics.
And there's actually software that can help you if you know how to use it, build out amodel to show what, if you make some assumptions, what that valuation would be worth on

(26:26):
their platform.
So you can actually go in and say, based on what we know about your business, Mohan, webelieve on Mohan's platform of his business.
this business is not worth X, it's worth X times two or X times three.
you can, that's part of that negotiation process is to show them what that's worth.
Before you really, you you're going to make a sale or whatever, would you recommend get aprofessional appraiser to go through the valuation process and get some range of values

(27:01):
such that you have an objective internal kind of a measure such that when you talk to abuyer, then you can present that or you don't recommend that?
So I do typically, but understand it's a very specific type of valuation.
It's not an appraisal because appraisal to me is like for gifts and estate tax purposes,which has absolutely no bearing in an M&A process.

(27:27):
We do, we typically, when we work with an investment banker, they will give us the rangeof value of valuation that they believe the business would sell for.
It's a nice demarcation point so we know ballpark what that business should sell for so weknow kind of what we're looking at.
But we don't share it with the marketplace.
That's just for our information only.

(27:48):
So we know basically what we're looking at.
It also gives us some idea strategically if we're to do any tax planning, which we'll getto in a few minutes what kind of numbers we're playing with.
But it's just kind of for our information.
It really has no bearing, in my opinion, in the sales process itself because again,
Depending on where the markets sit and when I say the markets the M&A markets that numbercould be wildly off I mean we've had a lot of circumstances over the years where we see

(28:16):
for example a very wide range where the valuation comes in and the investment banker sayshey this will sell between 30 and 50 million that's an enormous range and it sells for 60
because there was a strategic out there that says I just need to have this business and itshocks all of us and we've seen other circumstances and we see it
think the business is going to go for a lot more.

(28:37):
And then something, and I know we're going get to this as well, something pops up in duediligence that really pushes that value down, which was kind of a surprise on the other
and a kind of a bad surprise.
So nice to have, but in and of itself is not determinative.
It's kind of one of those back pocket things that gives us a ballpark to work off of.
And that's all I would view it as, is a ballpark for us internally.

(29:00):
Mm.
Now let me ask you to kind of go over when you talk about strategic exit option, what arethe strategic exit options that are available?
Yeah, so it depends how you slice and dice things, but you know, the strategic X-drops,which I typically talk about, and I'll work from the kind of the bottom lowest value of

(29:22):
the list to the highest.
I mentioned before a liquidation, which isn't really a strategic X-drops, and that's theworst case scenario where the business really has no value except liquidation of assets.
But the lowest one would be, I really just want to give this or gift this to my kids, myfamily, right?
Nothing wrong with it.

(29:42):
That's a strategic option.
We go through that analysis.
Is this an option you want to pursue, you want to consider?
Then the next one on the list would be a part gift part sale.
And this would typically be for an owner who wants to get it to next generation or tofamily members, but also needs some level of money out of the sale or out of the process

(30:04):
to live off of, right?
So the first one would be, look, I have enough money outside the business.
I can just give the business to family members.
I don't need anything.
I can just give it to them.
The second one would be hey I need to actually take some value out to retire on the liveoff of the third one would be typically a An ESOP that tends to go as far as doing this

(30:26):
based on what I think valuation would typically come in at So that would be an ESOP, whichis the employee stock option plan Then I would typically see a management buyout, which
would be again ESOP would be selling to the entire
company, a management buy-out would be just selling to the management team.
The one after that would typically be a financial buyer, which would be a private equityfirm.

(30:52):
And after that would be a private equity firm on a strategic platform.
And that line is getting very blurred these days.
I think most private equity firms are really that other option with a strategic platform.
Then a pure strategic buyer.
and then the one beyond that is a IPO.
And to put some math around that, if we said a pure private equity buyer would pay $100for that business, a strategic would pay about $120 for the business, an IPO would pay you

(31:26):
about $140.
Going downstream, a management buyout would pay you about $85.
and ESOP would pay you about $75, a part sale, part gift would be about $65, and then agift would be about $50.
That's kind of how I put that math in my head.

(31:48):
And I kind of explained that to clients.
If you're thinking about relative value between those, that's kind of how the math, in myexperience, has worked out for valuation for clients.
That's kind of how that math comes together.
excellent.
That's exactly right.
I totally agree with you.
That's the various types of transition would bring the value to the seller.

(32:10):
In addition to that, there are certain, of course we'll come to that, tax implicationswhen you do, instead of getting a cash, if you're going to get some equity into other
buying institution, you can.
delay the tax payments or you can kind of somehow or other minimize the tax ramificationin some way.

(32:30):
We can talk about it a little bit later.
But that's a very good summary of how do you do the strategic transition.
Jen, you have anything?
And I have three more items to talk about.
Yeah.
well, just over halfway through, so I want to talk about Jeff being an author as well.

(32:51):
So if you can tell us a little bit more about the book you've written, the title is TheDescent is the Real Climb.
I'm very curious.
Why the title?
Yeah, so the title came about because many years ago I was watching a National Geographicspecial.

(33:14):
So there's my plug for Nat Geo, which is something I enjoy watching.
And it was a debate on who made it to the top of Mount Everest first.
And there's probably a lot of people out there who would say, I don't care.
But I happen to be a little bit entranced by this thought process and the debate was whomade it to the top first George Mallory or Sir Edmund Hillary and To a certain extent I

(33:42):
didn't care because my thing was well it matters for historical preference but really tosome extent doesn't matter because what really was important is Who made it to the top
first matters less as to who made it to the top and successfully made it down which isclearly Sir Edmund Hillary
right?
George Mallory, there's pretty good evidence that he made it to the top about 30 yearsbefore Sir Edmund Hillary made it, but he didn't successfully descend down.

(34:11):
And so I watched this thing, this special, and they went through this whole analysis.
And again, it was pretty evident to me that probably George Mallory made it up first, buthe didn't successfully get down.
And then I was thinking about how many business owners I've talked to over the years thathave seen that
ran a very successful business, right?
And just really, really knocked the ball out of the park.

(34:33):
Were very good at what they did, but they were never able to successfully transition ortransact that business.
They could never get it to next generation.
They could never monetize it, right?
And they literally ended up having to sell it for pennies on the dollar, or their familydid, or they just had to work the rest of their life because they ended up with a
lifestyle business.

(34:54):
And I thought,
when I started to work on that book, that this would be a great title to kind of thinkabout, you know, the ability, because so many owners are able to successfully get to the
top, right, like George Mallory, but they can't get down, but you get the fewer ones thatget up to the top and then successfully descend.
So that's the genesis behind the title, is it's a feat to get to the top, no doubt.

(35:18):
But it's even a bigger feat to get to the top and then be able to come back down.
And that's why we celebrate Srebren Hillary
and why most people, unless you're a strange one like me, really don't know who GeorgeMallory was.
That's very smart.
Have you encountered any business at all, even a business that you didn't have to handleyourself that actually just, you know, they just shut down, but with the potential of

(35:47):
maybe making something, making some money out of it?
I mean, sure, I've seen plenty of businesses not make it.
I mean, there's a statistic that floats around.
I've never actually seen attribution as to what this study is based on, but it'sconventional wisdom that about 60 % of businesses, wholesale businesses make it from first

(36:11):
to second generation.
This is not third party sales, this is internal transitions.
And only about 11 % make it to the third generation.
And I believe that's sad to be more or less true because it's just you don't see a lot ofbusinesses making it that many generations.
know, people's mindsets change.

(36:31):
I don't think people are super good at training or teaching successive generations how tomanage businesses.
Ownership gets diluted.
There's a whole bunch of things that happen.
And there's family dynamics.
People are poor at dealing with family dynamics, which is probably the largest singleissue.
When you really dissect, and I have looked at studies on this, what makes businesses failbetween generations has very little to do with tax planning.

(36:58):
That's not typically the issue.
It's the issue, it's everything but that, right?
It's really all the other pieces and parts.
It's keeping too much control at the senior generation.
It's not bringing people along.
I could go on and on because I've seen it.
It's all the challenges we deal with.
Like I said, the tax parts, once we figure out what it is we want to do, pulling togetherthe tax strategy to accomplish it's relatively straightforward.

(37:24):
Before I let Mohan proceed to the last three points, I just want to say this is why youneed to get out there more, Jeff, because I just, there's just one restaurant here that
people loved, owned by at least two, three generations, and they just shut down.
And we ask, because it's a small community here, we ask around, so what happened?
we just retired.
No one would take over.

(37:45):
That's it.
And we love their German cake.
Done.
So anyway, Mohan, may proceed with Aska.
We'll be going through your last three points.
Last three points.
Maybe you may want to explain or enlarge what is this unsolicited negotiating thisunsolicited offer.

(38:07):
Yeah, so it's kind of funny.
You know, the concept of an unsolicited offer is relatively new in my experience.
mean, years ago, and I'm talking when I first got in this business back in the mid 90s, anunsolicited offer was, least in my experience, fairly rare.
It didn't, because it just didn't happen, right?

(38:28):
Most businesses in those days, at least in the lower middle market,
transitioned either to family members or what I would consider a very orderly fashion.
Someone decided they were going to exit and they would decide I'm either going to, like Isaid, transition it to family members or they were going to sell and they picked up the
phone and hired an investment banker or a business broker and went through a process anddid that whole process, which you want me to, I'll talk about what that looks like.

(38:56):
And that's the way things went.
And then something happened in the late 90s.
We saw a growth
in the development of private equity, private equity firms, which really took off.
personally, I think that's been a good thing.
So I don't think private equity is a bad thing.

(39:17):
I deal with a lot of private equity groups.
They get a bad rap.
But that growth of private equity has brought about what I call a little bit, and peoplemight say that this is disparaging and I don't mean it that way, what I call the dialing
for dollars.
where you have people who work inside of private equity firms that are charged with, andthey're typically more on the junior side, who know the types of businesses the firm is

(39:39):
looking to acquire, and they call up potential acquisitions and try to get the owner onthe phone and try to start talking to them, and then try to make an offer, an offer to
purchase the business for a price.
And that's the crux of the unsolicited offer.

(39:59):
So it's a little more complex than that.
But what happens is the owner is not anticipating selling or maybe it's in the back oftheir mind and they get into a conversation with somebody typically from a private equity
group.
And during the course of that conversation, numbers get out, right?
Where the person from the private equity group gets some information from them.

(40:21):
They find out basically what the business is doing.
Typically they get some level financials.
And then the private equity group does some sort of analysis and then comes back with anumber.
And typically that number is something that surprises them a little bit because they'vealways run the business a certain way and they typically never really thought about either

(40:42):
what news they would need to take out of a deal to sell it.
And they never really thought about what the business might be worth to someone else.
So as I describe it, suddenly they're in the middle of a sales process without reeling.
without realizing they were even in a sales process.
And then they're negotiating a deal.

(41:03):
And that's the crux of the unsolicited offer.
And the challenge factor that I see it is they end up negotiating kind of againstthemselves.
So they've already given over financial information without any adjustments.
They've never really thought about what it is they need out of a deal.
They've never gone through the impact.

(41:25):
that it might have to themselves, the other other stakeholders, family members, thingslike that.
They've never done a strategic option analysis.
Is a third party sale really the right choice?
So they've kind of skipped a lot of really important steps.
And unfortunately, they're kind of pretty far down a path with a pretty aggressivepotential buyer.

(41:46):
Right.
And there's, you know, it's kind of hard to undo that.
So it creates a challenge and
Today, I'd say almost 50 % of the deals that we see start with an unsolicited offer.
Now, not all of them are quite that far.

(42:06):
Some of the deals we get or some of the things we see are, hey, the phone rings, hey,Jeff, we started a conversation and this private equity group wants us to send over
financials.
What do you think?
But that's an unsolicited offer.
It just didn't get very far.
So that's okay, that's a little bit easier to deal with.

(42:27):
Some of them are, hey, they put a letter of intent in front of us or a sale agreement,what do you think?
That's a lot further along, that's a lot harder to kind of undo or to get our arms around.
But about 50%, maybe slightly over, that's when we get the first phone call.
They're already kind of down a path of an unsolicited offer and it makes things a littletougher.

(42:49):
It leads to more deal flow, but it definitely makes things a little more challenging as anadvisor to try to get the best outcome possible for clients.
Would you sometimes see unsolicited offer from a strategic customer?
Sure, very frequently.
That usually comes up in a slightly different context.

(43:10):
Again, oversimplification, but where I see this coming up a lot, comes up at theproverbial industry conference where the strategic and the potential acquirer or acquirer
will be at an industry conference.
I always envision this over a drink at the end of the day where they're talking and thestrategic buyer.

(43:32):
is having a drink with them and they say, you know, if you're ever thinking about selling,we'd love to buy your business.
And the person's tired at the end of the day and says, well, sure, I'm always in the moodfor a potential offer.
You know, let's talk.
And then they're off to the races.
And that has actually transpired with clients that I know more frequently than peoplethink, because again, strategic buyers might

(44:01):
personal experience in most industries, what's going on, they are trying to grow.
Organic growth continues to be challenging for a lot of businesses.
So if you can't grow organically, you grow by acquisition.
No different than a lot of big publicly traded companies do.
And some of these strategic purchases are by big publicly traded companies.

(44:21):
And they're looking to grow.
So they grow by acquisitions.
They do it that way.
So that's how a lot of those deals happen.
It's just...
What starts off as it looks like a casual conversation?
I don't think oftentimes it is a casual conversation.
It's very targeted, very methodical, but that's where they start and they start there andthey finish soon thereafter because they throw out a decent size number and then it's off

(44:45):
to the races.
Yeah, generally my experience is if there is a strategic buyer, you get a bettervaluation.
Hmm.
That's, you know, historically I'd say that's right 90 some percent of the time.
The line between the higher value of strategic versus private equity, it's kind oflessened a little bit, but I agree generally, strategic are higher.

(45:11):
Yeah.
And they tend to be, I wouldn't say always easier to deal with, but there's a lot morepure.
In my experience, a lot more pure cash deals than with the private equity groups.
Again, not always, but you're more likely to see a pure cash deal less carry forwardthings like that.
I don't care who answers to this, but why is the valuation higher again in that situation?

(45:36):
Because it's more valuable to them.
The buyer thinks that there is a, it's not like organic growth, they can make two plus twofive.
So they are willing to share the value.
They can make their return on their investment much faster, much faster.
just, they can make up their differential almost, sometimes almost immediately.

(45:58):
The two plus two equals five is a great example.
The private equity groups typically take some time to get their investment back.
The strategics oftentimes can make it back almost overnight.
So they're willing to pay more so they can make that back very quickly.
Now, changing the next area, you said, or you kind of recommend, increasing value throughdue diligence preparation in some fashion.

(46:26):
Kind of walk me through how what needs to be done and what is the steps one has to gothrough.
Yeah, so let's first let's talk a little bit about how due diligence works because I thinkit's really important for people to understand.
So when you go into a sales process, there's the initial negotiation that gets you to aletter of intent, which is really a agreement to move forward into a sales process.

(46:52):
So it's usually gets you an exclusive negotiation where again, I'll use the example Mohan,you're going to buy my business.
We reduce that to a writing.
We agree upon a preliminary
price and really what that is it says I'm not going to accept any more offers, I'm notgoing to negotiate with anybody else and I'm going to allow you to really dig into my

(47:13):
business before you close and that starts what's known as a due diligence process whichlasts depending on the industry and the complexity of the business typically anywhere from
60 to like 120 days where I allow Mohan and his folks, his teammates to come in.
and look at my company, dig through my books, walk the factory line, probably talk to myemployees, talk to my management team, really try to find the skeletons in the closet.

(47:43):
Try to figure out what's inside the business that wasn't obvious when he was negotiatingthe purchase price.
Like you will have a data room set for them so they can go and examine everything theywant to know.
But you would create some kind of an NDA prior to them coming and do the whole duediligence, correct?

(48:08):
Yeah, in a very imperfect analogy, I'd say selling a business is kind of like selling ahouse, right?
People walk through, they take a look, somebody makes an offer, you go back and forth, youagree upon a price, and then you bring in someone to do an inspection, right?
And they're gonna dig around and find the stuff a typical buyer wouldn't see just walkingthrough.

(48:32):
It's not perfect, but it's similar enough, right?
And at the end of that due diligence process, then Mohan's team goes back to him and says,here's the list of stuff we found.
And then Mohan shares that with me and says, OK, because of these things I found, here'swhat I'm changing my offer to.
So he has the ability based on what he found to, I guess technically he could increase theoffer.

(48:59):
I've never actually seen that.
Or reduce the offer.
Mohan's question was about is what can one do as a seller?
So again, go back to me.
What could I do as a seller before I negotiate in the sales process with Mohan, beforeletter of intent to be prepared for due diligence so I don't get a negotiated reduction,

(49:24):
right?
So we call that a pre-due diligence process.
I've heard it called different things, but.
What we do is we work with clients long before the company goes up on the market, right?
So this is well before there's any sort of sales process and we are hired to come in andpretend we're buying.

(49:50):
you're going to sell a house, you get a contractor first and come and say, the review it,see where things are, and let's fix it, and everything is in place.
And then you initiate that.
So there is some similarity to that.
More like staging the house, getting it ready for...
hard staging.

(50:10):
That's a good analogy.
But also, I talk about a concept called cognitive dissonance, which I love fancy wordsonce in a while.
But I use the example of years ago, my wife and I were selling a house and there was acabinet door in our kitchen that there was a hinge that was broken.
And I knew it was broken.
My wife knew it was broken.
But we got to a point where we both didn't see it anymore.

(50:34):
And right before we list the house, a realtor came through and said, you have to fix thehinge on that door because any buyer is going to walk in and they're going to see that.
And then they're going to wonder what else is broken in this house you haven't fixed.
And it wasn't like we didn't know it was broken.
We just didn't see it anymore.
And that's cognitive dissonance.
So to a certain extent, the pre-dealt deal process is to have someone come in and see theobvious stuff.

(50:57):
It's not just the stuff you don't know about, right?
Which would be the contractor.
It's the stuff you do know about.
You just don't see.
Right?
So it is staging.
It's doing a deep dive is to try to find everything they could possibly see to eitherfigure out is it something we identify and is worth fixing or something we just want to

(51:20):
disclose and put a good face on it.
And here's why that there's a difference between the two.
If we find something in pre due diligence, that's going to cost us $50,000 to fix.
but is going to increase the sales price by $5 million, that's something we're going tofix, right?

(51:41):
If it's something that's going to cost us $5 million to fix, but is only going to put$50,000 in purchase price or sales price, we're not going to fix that.
But what we will do is we'll disclose it during the sales process so we don't pay for itin due diligence.
So sometimes it's just about telling the right story about the issue.

(52:03):
So we might say during the negotiations, hey, Mohan, we have this issue inside thebusiness.
We want you to know about it before you make the offer, right?
But here's why it's not that big of an issue.
So what does that do?
Well, it prevents Mohan from coming back in due diligence and saying, you never told meabout this, so therefore I'm gonna reduce my purchase price after due diligence.

(52:28):
So there's a little bit of art from what you do with the pre-due diligence information.
Sometimes you fix it, sometimes you just disclose it, and sometimes you try to dosomething in between, which is to put lipstick on it, right?
It's a little bit of an art form there, how you deal with it, but it all comes down to,you know, it's a trying to put value or trying to at least make sure you're not reducing

(52:54):
value by what's in
the skeleton requires it, so to speak.
This art you're talking about is another book of yours.
telling you, it's not straightforward.
You talked a lot about lot of things you do that's not as straightforward as just gettingthe multiplier of EBITDA or revenue.

(53:16):
It's just great.
I tell people that there's something to be said about experience and some gray hair.
I think there is as much as I hated to hear that when I was in my 20s and starting out.
There's something to be said for it.
You do learn a lot over the years and along the way.

(53:36):
unfortunately or fortunately for me at this point, experience counts in this business.
You get to see a lot, you learn a lot, right?
And there's only so much you can take from textbooks and
and things like that.
You just learn a lot by just doing.
And I've never kept track of how many transactions and transitions I've worked on.
Hundreds and hundreds and hundreds, I don't even know.

(53:59):
And again, I've learned more from the ones that didn't go smoothly than the ones that didgo smoothly.
And by the way, very few have gone completely smoothly.
Almost all of them have had some hiccups.
That's why I always recommend or advise if they're thinking of selling a business, beforeyou do anything, get a strategic advisor so that that person can kind of go through the

(54:23):
overall strategies and with their experience of doing, you can actually add significantvalue to the business.
So that's a process one should take.
In fact, everybody, like I've done some exit, a fairly big exit, we have strategic advisorcoming and doing all the preparatory work and obviously that has increased the value.

(54:48):
Everybody should do that, no question about it.
Anyway, last subject I want to bring up.
I mean, it's a very generic.
tax optimization for business.
How would you attack or what type of things or what are the minimum things people shoulddo to maximize the benefit?
Yeah.

(55:09):
So now we're actually talking about the subject that I like the best.
So I technically I started my my career as a tax attorney.
So I have a law degree and a master's degree in tax and thought I would spend my entirecareer as a tax attorney.

(55:33):
I guess technically I still am.
But I've branched out a little bit.
But I love taxes, I live and breathe them, and this is my favorite part of theconversation.
So thanks for, I love saving it for last.
Yeah, so let's start off with how I view taxes, right?

(55:53):
And then we'll get into some details.
But we talk about what we call the tax trilogy.
And that's the easiest way to start this off so I can paint a very good picture forpeople.
Most tax mindsets start and stop with a viewpoint of, hey, this is what you're going toowe on your transaction, right?

(56:21):
Like I'm going to sell my business and they go to their accountant or their tax advisorand they look at it and they say, okay, if you sell for X, you owe Y in taxes.
And
If they have a good estate planner, they will tell them you should transfer 10 % of thebusiness to a trust for your kids benefit before you sell.
And that's where things start and stop.

(56:42):
And I say that and it sounds really critical, but this is what I see the vast majority ofthe time.
That's just what I see.
And for me, that's a shame because I really truly believe taxes in a transaction are atleast in large part, very discretionary how much you pay.
So what is the tax trilogy?

(57:04):
Well, it's viewing taxes, three distinct taxes over three distinct timeframes.
So let's talk about the taxes you're faced with.
Number one is the federal income or capital gains tax.
Number two is state income taxes.
And number three is the federal and I guess state transfer tax system.

(57:24):
So estate taxes, inheritance taxes, things like that.
Over the same timeframes, you have
pre-sale tax planning, you have during the transaction tax planning, and then you havepost transaction or transition tax planning.
If you're not looking at three different types of taxes over those three distincttimeframes, I can guarantee you, you're leaving something on the table.

(57:51):
Just hands down, if you're not looking at it from that approach, you're leaving somethingon the table.
And by the way, to put some metrics around this, here's what you're looking at as far asrates go.
The federal, at least 20%.
The state depends where you live.
It's as low as zero.
If you happen to live in Texas or Florida, Mohan, you're California, so I know you've gotto be in double digits.

(58:16):
And then, know, federal transfer taxes, they bounce a little bit, but they're about 40 %now.
And for inheritance taxes, they run sometimes as high as 10 or 15%.
Right?
So these are big numbers.
These really eat into profitability on a sale process.
So let's, I could talk for taxes about hours, let's hit a couple different high points.

(58:39):
Tax strategy work really should start long before you're even thinking about going intomarket for transaction.
If you are thinking, I might want to do something in three years, now's the time to startthinking about taxes.
Because as you're thinking about strategic options, you're

(59:00):
tax strategy will be somewhat dictated about what you're doing.
And what in the world do I mean by that?
Well, if you're gonna sell to a third party, your tax strategy's gonna look materiallydifferent than if you're gonna give the business to your kids.
It's just gonna be very different mindset.
It's gonna be a very different toolkit.
Now having said that, I don't always run into clients who are 100 % certain what they'regonna do.

(59:27):
So there are some things you can do that would work to some extent for either strategy.
And then as you get closer in time to an action point of which path you're going down,then you can pull the trigger doing different things.
But suffice it to say, usually about a year before someone goes down a particular, beforethey pull the trigger one way or the other, they should know which path they're going

(59:52):
down, but they should at least be thinking about it two or three years in advance.
Okay, I just need to start thinking about.
How is my business owned?
How is it structured?
Is everything held in one entity and why is it held in one entity?
Right?
Does it make sense to spin off the real estate from the operating business if that's anoption?

(01:00:12):
Does it make sense that I'm an LLC versus something else or a C Corp versus an S Corp?
And by the way, as an owner, you might not know why you're one of these entities, but youshould be asking that question why you're one of those entities.
I usually start with potential clients with clients with, okay, you shared with me theinformation on your corporate structure and your ownership stack and everything else.

(01:00:37):
I don't usually ask him why it's this way.
I just look at it and start digging into it and then get on the phone with their corporateattorney and say, okay, why is it this way?
I don't expect the client to know that.
I want to talk to their advisors to why it's that way and start thinking about ways torestack things, right?
So we start.
devolving into different tax strategies.

(01:01:00):
Then we start looking at what movement parts, like what are the long-term goals andobjectives of the client?
Is it really everything is about they want to put as much money in their pocket or do theywant to enrich some family members at the same time?
And there's no judgment call here.
I could care less what their goals and objectives are.
I just need to know what they are.

(01:01:21):
Are they interested in benefiting a charity or not?
What is it short term, medium term, long term?
Then as we get closer in time to, let's stick with transaction for a second.
What is the likely structure of a transaction?
Is it an S-corp?
And if it's an S-corp, is it likely to be sold to a private equity group?

(01:01:45):
Because if it is, that typically dictates a very specific type of structure.
That's typically, and I don't want to go down a deep dive here, but that's typically to bea sub-chapter F reorg.
which has a very specific type of tax treatment, which leads to a very specific type oftax planning we would do.
If it's a seek work, we go down an entirely different path, right?

(01:02:07):
So like there's certain things we would do and not do.
Is it likely to be an asset sale versus a stock sale?
Because again, as we start getting closer in time to the transaction, starts to dictatewhich mindset, which strategies we're going to deploy, what's on the menu, what's on the
table.
Then,
when we actually get into closer to a deal.
So that's all pre-sale planning.

(01:02:29):
So we pull together these structures and strategies up to the point in time when we go tomarket.
Then when we're at market and we start to really crystallize what this deal is going tolook like, here's the actual math, here's the actual numbers, then we start getting into
things like potential purchase price allocation, different types of deal structures, carryforward in the deal, things like that.

(01:02:53):
things that we're going to be able to do from a tax planning perspective to make certainelections to help advise the investment banker in the negotiations, right?
Because there's going to be different answers when the buyer comes back and says, hey, wewant to structure the deal this way.
The investment banker might not care because it's not material to them.

(01:03:16):
It could be an enormous difference from a tax perspective.
And by the way,
Investment bankers shouldn't know the difference and probably wouldn't care right?
They're not going to advise you on that and Then the last piece would be once the dealcloses the post sale work two points one is From that point in time to the end of the year

(01:03:38):
you have cleanup for that year's tax return And then you have after that year thesubsequent tax planning right all the things you're going to do after that
These are how you one must dissect these things.
Now, my goal is when I sit down with a client is the average tax rate nationwide in myexperience, again, I've done deals in 43 states.

(01:04:05):
So I think I've got a pretty good handle with the average tax rate would look like over mycareer is about 30%.
Now tax rates ebb and flow in different states and everything.
But my experience is about if there's no tax planning, people tend to pay around 30%.
I like simple math, so let's just say that's about a third.
So about a third of your sales price will go to taxes, whether it's state, local, federal,that's where it gets.

(01:04:28):
If we have some time, like don't call me the day before you sell, the day before thecleanage action closes, we have a little bit of time, we can typically get that number
under 20 % without too much pain and torture.
So about a third of the tax rate we can shave off without a lot of trouble.
If you give me a little more time and you want to get a little more creative and you'rewilling to wait for some of that money, right?

(01:04:53):
We just want to create some strategies, some structures and things like that.
We can get it under 20, we can get it to around 15.
If you really want to create a creative, we can get underneath that.
So it's really a question of how creative you want to be and how much time you want tospend.
We can really whittle away the tax rate.
It really depends on some factors, but again, it's just how.
much leash and how much time are you willing to give someone like myself, whether it's meor some other tax advisers really good at this space.

(01:05:21):
If they're good, they should be able to help you with this.
There's a lot of tools in the toolkit.
And I know that I was asked before to talk a little about QSBS and I'm happy to get intothat.
But before I do, there anything I didn't talk about Mohan and John before I talk aboutQSBS for a moment?
no, that's very good.
That's the one I wanted to ask you was tollboad two, which is, you know, gives a lot ofsmall business.

(01:05:46):
Of course, big business, they don't benefit, but many of the people, I don't know,everybody takes advantage of that.
Whether people don't know, and that would be a very good thing to at least highlight how.
that could be used or when they should start thinking and in fact how really attractivethat is.

(01:06:09):
Maybe you may want to shed some light on that.
Yeah, so if you've never heard of 1202, don't feel bad.
1202 has been around since 1993, but it really didn't start becoming a big thing until2017 with that tax act when the corporate tax rate dropped pretty substantially.

(01:06:32):
1202 was created to encourage investment in small businesses in the United States.
It has a very strict set of parameters around it.
So Section 1202 is also known as QSBS, Qualified Small Business Stock.
The qualification requirements are it is a C corporation, a domestic C corporation, Ishould start with that, that is not an excluded business, which would typically be like

(01:06:58):
service businesses, no law firms, RIAs, things like that.
And the asset value of the business, not valuation, the asset value of the business has tobe
under $50 million when it's initially qualified.
There's a few other requirements, but let's just run with that for a second.

(01:07:18):
And if you were an investor or you started that business and it qualified at the time youinvested in it, you can exclude up to $10 million in gain per the greater of $10 million
in gain per taxpayer or

(01:07:40):
10 times your basis in the investment when you sell that interest in the business.
So it's a two-part test.
So the easy way to describe it would be an example.
If I invested in a business, let's say, and you have to order for five years.

(01:08:00):
So the reason why it's become bigger, 2017 the tax law changed, became much moreattractive, five years from 2017, 2022.
We saw a big uptick in 1202 and it's even increasing more.
There's a lot of PE groups that invest only in section 1202 companies.
So we see a lot of PE investments are now starting to qualify for 1202.

(01:08:22):
For what it's worth about 50%, 60 % of my time is with PE funds right now, structuringtheir, helping them with their exits from 1202 and their investors.
But anyway, I digress.
So let's use my example.
I invested in a company that qualified and the business was sold and my personal gain was$10 million.

(01:08:51):
That following year when it comes time to file my taxes, I mark that on my return.
My accountant technically would mark it on my return as it qualified for 1202 and eventhough there was a $10 million gain, I paid zero tax on that gain because
to the state tax, don't you?
It's not an estate tax savings, this is purely an income tax savings, that's correct.

(01:09:15):
Well, actually, interestingly enough, 45 states follow the federal rules.
So in 45 states, you get the exact same treatment, and the five states that don't followthe federal rules, you typically, and I say typically because it's not necessarily a slam
dunk, you can move.
that interest into a trust in a jurisdiction that does follow the QSPS rules and you canavoid your home state taxation.

(01:09:42):
So you typically can have QSPS qualify for state income taxes as well if you know whatyou're doing.
So QSPS can be a complete elimination of both state and federal tax if you know whatyou're doing.
You also have the ability to create multiple taxpayers for QSPS purposes.

(01:10:02):
So it's not uncommon.
that people who invest in QSBS and that investment really takes off, that they will dosome transferring of their interest.
We've had some success with owners and investors who have, for example, again, I'm marriedso I can do this, who will, they'll take their ownership interest and they'll say, okay,

(01:10:25):
I'm gonna move part of the ownership interest to my wife.
That's another $10 million.
And by the way, I have,
Like I said, three kids, could create trust for each of my kids.
That's another three taxpayers.
So now I'm at 50 million in exclusion.
And then could probably create another trust for my entire family.

(01:10:46):
That's six.
So I could exclude $60 million in gain pretty easily without any trouble, without any bigconflict from the IRS.
So this, in my opinion, is one of the most powerful provisions available in the InternalRevenue Code today.
and isn't particularly controversial, unlike a lot of other tax strategies that tend tohave a lot of, I want to say issues, up to questions like how far can you push this?

(01:11:12):
And is it really available?
This is clearly in the code.
This is one of those things that as of the law stands today, it's so straightforward andit's shocking to me how few people take advantage of it.
There are ways that it can be disqualified, but it's actually kind of hard to disqualify.
But most people don't understand these rules particularly well.

(01:11:35):
And it's really a shame.
We run into a lot of clients who over the years haven't taken advantage of it because theyjust didn't know how it worked.
A lot of tax advisors don't know how it works.
the tax preparing people don't know that.
Yeah, it's really common.

(01:11:55):
we actually, myself and one of my colleagues, we run what we call a master's class,particularly for PE and VC funds.
And we do this for all over the country because, like I said, a lot of VC and PE fundsspecifically structure their funds to invest in QSBS companies.
and we come into their shareholder meetings and we do an hour long class on QSBS and howit works.

(01:12:23):
And I'm shocked because almost every investor knows QSBS exists, but very few of them knowhow to take advantage of it.
They know it exists, they know what the general rules are, but they've never had theopportunity to take advantage of it.
So they're quite appreciative of the fact that, this works.
So it's a really powerful provision.

(01:12:44):
I could talk for at least an hour on QSBS, but hopefully you get the basic flavor of it.
if you invested in a C corporation or you're invested in private equity or venturecapital, you should ask the question, does this qualify for QSBS or does it look like it
qualifies for QSBS?
And if it does,

(01:13:04):
Let me interject here and say, our viewers who are watching, if there is anybody who wantsto know more about it, they can certainly reach us, but is it okay if they reach you and
say that maybe you need to advise us or something?
So we should make that available to our viewers because there's a tremendous opportunityfor people to take advantage of that.

(01:13:33):
provision which is some or other many don't really take advantage of it.
I don't know why, but mostly they don't know.
So this could be an opportunity we should extend and they can call us as well as Jeff.
I'm happy to take those phone calls.
Yeah, they're more than welcome to reach out to me.

(01:13:53):
I'm happy to talk with them and tell them how this all works.
Yeah, that's fine.
I'm more than happy to reach out and I'm more than happy to do what I've done in the past,which is if it's a fund or coming in and talk to a group.
To me, it's an education issue and education usually leads at some point to opportunityfor me.

(01:14:15):
So I'm happy to do it.
I do these all over the country.
We'll make sure to add your information when we publish the podcast along the transcriptat the bottom.
Yeah.
Okay.
Wow.
I just learned a lot today.
And while we're having a little commercial, Mohan's probably talking to Reggie right now.

(01:14:38):
I just want to say the three things, the three takeaways.
Mohan, I just want to catch you up.
I just want to say the three takeaways I got from this interview.
Number one is regarding the tax savings coming from QSB as everybody should take, I mean,everybody who needed to take advantage of that.

(01:15:00):
Turns out not many people know about it.
Number two is if you are considering, of course, if you have a business, you shoulddefinitely consider planning for your exit because nobody lives forever.
Either you transition it to another owner or to your children, to your family, to youremployees, right?
You have to really consider hiring an M&A advisor because if you're still listening rightnow, you can tell that it's not.

(01:15:28):
It's not an easy process.
It's complex, but it shouldn't be scary.
Now, if you're still, your business is still thriving, you're just planning for thesuccession planning slowly, you're not ready to hire an M&A advisor, buy his book, you're
gonna learn a lot.
No, no, that's a very good point.
Actually, our viewers certainly should contact Jeff, or they can contact us and we canconnect and we can provide the right type of, because every business owner should have as

(01:15:59):
much knowledge as possible, and the way you can do it, get the right people to talk to.
or they can attend Visionaries Roundtable with three glasses of wine.
We're gonna look much better.
Exactly.
So thank you very much, Jeff.
It's a wonderful conversation.

(01:16:20):
We learned a lot, or I learned a lot.
And yeah, it's a pleasure to talk to you.
And I'm sure we'll have more conversations with you.
Yeah, well thank you so much.
really enjoyed it.
I really appreciate the time and always a pleasure to see you both.
Thanks a lot.
all right, there you have it.

(01:16:41):
We'll see you again in our next episode.
I'm your host, Jen Crowe, and my co-host.
Moanananda.
Thanks again.
Have a great day, everyone.