October 10, 2024 • 19 mins
In this episode of The Disruptor Podcast, host John Kundtz discusses the challenges and opportunities facing family-owned businesses with guest Lowell Mora, CEO of Impact CFO.
Together, we explore why 50% of family businesses fail after the owner's death and how Lowell's "disruptive" approach can provide invaluable insights on avoiding common pitfalls and ensuring lasting success across generations.
Key Topics Discussed:
- The alarming statistics behind family business failures
- Common mistakes in succession planning
- The importance of early planning and overcoming ego
- Key financial practices often overlooked by family businesses
- The value of fractional CFO services for small to mid-sized companies
Highlights:
- Only 1 in 3 family businesses survive to the second generation, and just 1 in 8 make it to the third
- 40% of family business owners consider themselves financially illiterate, yet 81% handle their own finances
- The benefits of implementing basic financial reporting and budgeting practices
- How to approach succession planning 5-10 years before intended exit
Lowell's Key Advice:
"Check your ego at the door and realize that you're not going to be able to run the business forever. Put a plan in place and say, 'Hey, I'm not gonna be around forever.'"
Deep Dive Opportunities:
Want to unlock the secrets to preserving your family's legacy?
Contact Lowell for a free consultation and access to his 13-week cash flow forecasting template.
- Email Lowell at: Lowell@impactcfo.net
- Visit the Impact CFO website
- Call (847) 212-4081
- And don’t forget to connect on LinkedIn
Comments or Questions? Send us a text
***
Engage, Share, and Connect!
Spread the Word: Valuable insights are best when shared. Share this episode with peers who may benefit from it if you find it insightful.
Your Feedback Matters: How did this episode resonate with you? Share your thoughts, insights, or questions. Your engagement enriches our community.
Stay Updated: Don’t miss out on further insights.
Subscribe: You can listen to our podcast, read our blog posts on Medium, Substack, and LinkedIn, and watch our YouTube channel.
Collaborate with The Disruptor and connect with John Kundtz.
Got a disruptive story to share? We’re scouting for remarkable podcast guests. Nominate a Disruptor.
Thank you for being an integral part of our journey.
Together, let’s redefine the status quo!
Tips are welcomed and appreciated, too!
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Unlocking the Secrets of Multigenerational Business
Success.
Hi everyone, I'm your host,john Kuntz, and welcome to
another edition of the DisruptorPodcast.
For those that are new to ourshow, the Disruptor Series is
your blueprint forgroundbreaking innovation.
(00:21):
We started in December of 2022as a periodic segment of the
Apex podcast.
Our vision was to go beyondconventional wisdom by
confronting the status quo andexposing the raw power of
disruptive thinking.
Today, we talked to Lolo Moro,ceo of Impact CFO, to explore
why there is a 50% yes, 50%bankruptcy rate of family-owned
(00:47):
businesses after the owner'sdeaths.
We will discuss valuable adviceon the pitfalls and mistakes
founders and business ownersmake and how to avoid them.
Welcome to the show, loyal hey,john, thanks for having me.
It's great to have you A bit ofa different approach to my
normal guests, but I think yourtopic is very relevant.
(01:07):
I see this problem of doingsuccession planning on family
owned businesses.
I see it a lot here inNortheast Ohio because we have a
lot of small multi-generationalbusinesses and, unfortunately,
a lot of them fade away afterthe original owner passes away.
Before we get going, if youdon't mind, take a minute or two
(01:29):
and tell us about yourbackground, your education, your
experiences, how did you gethere and you can start anywhere
you want.
Yeah, I like to tell the storyof somebody in my family told me
when I was about 12 years oldthat I should be an accountant.
I was a pretty obedient littleguy and so I kind of said, hey,
yeah, that's pretty cool, Icould deal with numbers.
(01:50):
I grew up lower middle class.
If you were going to go tocollege, you better come out
with a vocation.
So I kind of did that.
I went to Washington Universityin St Louis business degree,
undergraduate accounting,cranked it out there and then
got out of college.
I undergraduate accounting,cranked it out there and then
got out of college.
I'm from Chicago I still livein Chicago moved back to Chicago
(02:11):
, as we all good boys do, andwent to work for in public
accounting, which is what allgood accountants do.
I worked at Arthur Anderson forthree years.
I did not put them out ofbusiness.
I left there in the earlynineties and had nothing to do
with that.
But I quickly found out.
I got a great foundation,learning the keys to accounting
and reviewing things and all ofthat.
But it wasn't that much fun andattractive to me.
(02:31):
So when I left there I went towork for primarily.
For a few years I worked forsome larger publicly traded
companies, grinding my teeth inthe accounting departments,
reviewing, cranking through andmoving along.
What I found was that bigcompanies weren't for me because
of the bureaucracy, the lack ofthe ability to be creative and
(02:52):
really get in and touch thebusiness.
Got my MBA at KelloggNorthwestern University in
Evanston here and then I took acareer switch in 95, mid-90s and
started working forfamily-owned businesses.
Most of the businesses havebeen standalone or subsidiaries.
50 to 250 million in sales,manufacturing industrial
(03:12):
products, industrial equipment,after sales.
I like the inventory, the messof manufacturing, so what you
can create with it.
So worked for five or sixdifferent companies and I had
the fortune the last five yearsfull-time CFO.
I've been a CFO for 25 years.
Over the last five years twothird-generation family-owned
businesses in the Chicago area.
(03:33):
I was able to help them as afull-time CFO to successful
exits.
First one we sold to a largepublicly traded company wasn't
my cup of tea.
The second one we sold toprivate equity guys, independent
sponsors and a consortium of afamily office.
Stayed for a bit, tried tofigure out what to do and
decided that wasn't theenvironment I wanted for the
(03:54):
next 5, 10, 15 years.
Not the same shared values andethos that I had.
I ended up starting my own firm.
Starting my own firm, I'mfocusing on helping that small,
mid-to-mid-sized family-ownedbusiness and getting them going
(04:15):
on that transition and exitplanning so they don't end up in
that 50% category.
That's a great pedigree.
Great schools WashU is one ofthose hidden gems that nobody
knows how it really is and howsmart you have to be to get into
it.
Kudos, I don't think I couldget in there today.
We're probably all on the sameboat.
I'm not sure I'd get intoschools.
I was recruited by ArthurAnderson on their consulting
side, or IBM, and I ended upgoing with IBM but both had
great training programs.
(04:35):
Arthur Anderson had that campusin Chicago where they used to
send everybody yeah.
So we had a campus Dallas,texas.
I got to spend my first yearthree weeks at a time in Dallas.
You mentioned 50% bankruptcy.
I've seen families torn apart,estranged.
Here in Northern Ohio we have alot of this, the sort of same
(04:56):
small manufacturing companies.
A lot of them are tier three orfour automobile suppliers or
they've been making widgets foryears.
Again, very much perked myinterest.
There's a lot of pertinence.
Here in the Rust Belt and inthe Midwestern areas, we
transform a lot of thesebusinesses.
(05:17):
What are some common mistakes orpitfalls that small businesses
or mid-sized businesses makewhen they're trying to take this
more traditional approach ofsuccession planning?
The diagnosis or symptoms comebefore they try to do it,
because most businesses don'twant to engage in the discussion
there's typically.
Most of the business I workwith are five to 50 million in
(05:39):
sales run by men who don't wantto deal with not being in charge
or their mortality.
So they ignore it or they justassume that one of their
children is going to come in.
But even when you do that, youhave to plan it.
So the big diagnosis is thereneeds to be some planning.
(06:00):
If you have a family memberthat's going to come in, that
you have to plan that andtransition it.
If you don't have familymembers that are going to come
in, then you need to certainlyplan to put the business in a
position at the right time thatyou can look at an external exit
.
(06:25):
I've never met a business ownerwho thought their business
wasn't worth more than it reallywas in the marketplace.
They love that business andthey think it's great, but
there's a lot of factors.
You have to gauge what thebusiness is worth and take steps
based on what the family ownerwants.
But what I'm finding is that tohave those discussions
sometimes are very, verydifficult.
So if you can find anothertrusted advisor that can help to
(06:46):
get that decision-makingprocess in place, it really
helps.
It sounds very analogous tryingjust to get your financial
plans in line your wills, trust,power of attorney, stuff.
Nobody wants to talk aboutwhat's going to happen when
you're gone.
I had a good friend of mine hada nice little business.
It was a sales consultingbusiness, sales training
(07:07):
business, and he built it up toa pretty decent business.
He could have sold hisfranchise rights and the
business when he decided toretire, but he ignored it.
Slowly but surely the businessstarted dwindling down and he
could live off of it, but hewasn't building value.
When he decided to pull theplug, he basically shut the
(07:30):
doors and went away and he couldhave probably gotten a pretty
decent price for somebody tocome in and buy up his franchise
, especially if it had a goodbook of business.
Yeah, two really interestingthings you said.
Compare it to your estate planwhen you you know you don't have
to have an immense amount ofmoney to put a trust together.
(07:50):
Right, I'm not an expert onthis stuff, but what happens?
A lot, especially when it goes,when something would go to
probate, because if you don'thave a trust goes to probate
takes six months or longer and ahome involved and the deceased
may be able to pay for it, butthe family members may not keep
the maintenance and they end upin foreclosure and lose the
(08:10):
value of that home.
In businesses, as people age andsee it as a hobby or income
stream, they take their foot offthe pedal.
Business development and growthand things go away.
So that value of that businessgets deteriorated.
When, if you just put a plan inplace and kept it going along
or hired somebody else to helpyou run it, you can reap the
value from it.
(08:31):
When you close the doors, it'sreally scary to me.
What about all the otherstakeholders involved, not only
the family, but the otheremployees, their families,
vendors, everybody else isdisrupted.
It's kind of a scary thing.
I didn't even think about that.
There's a domino effect outsideof the immediate family
employees, their families,suppliers, customers the whole
(08:53):
ecosystem can get turned upsidedown.
What specifics or guidance wouldyou give the founder or an
owner of a family business?
I would say the first thing,and it's really hard to do
because as we all get a littlebit older, it's hard for us.
But first check your ego at thedoor and then realize that
you're not going to be able torun the business forever.
The ideal businesses for me arewhen we can get them with five
(09:15):
to seven to 10 years of runway,so you have options to go into
it.
So the guys my age, mid-50sthat's the perfect time.
Put a plan in place and say,hey, I'm not going to be around
forever.
If I can stay and run this for20 years and I have a
contingency plan, that's great.
But if anybody could predictthe future, we'd be doing other
(09:37):
things to make a lot of money.
Don't ignore the reality ofwhat's going to come.
A lot of business owners Italked to I asked what happens
if you get hit by a bus.
Well, well, we're screwed, I go.
Well, you're 72 years old.
Do you think that there's anypossibility that anything's
going to happen to you?
It's not only passing away,it's disability, as in my wife
(09:58):
will be okay, you have lifeinsurance, but then your family
or your wife is going to have todeal with running this business
.
That's an albatross.
So I say simple things like doyou have key man insurance?
And then I get quizzical looks,changing your mentality on it
and not wanting to have to runthe chauffeur.
It's hard, right, it's hard,we've been worked hard and we
(10:19):
want to be in charge and we wantto do all this stuff Start
talking about, because if youhear about presidents and all
that, they're always talkingabout their legacy.
But if this business youstarted 40 years ago can stay
around for another 40 years, runinto second, third generations,
that's awesome.
Now I have some other reallyinteresting stats.
So one in three, only one inthree businesses make it to the
(10:42):
second generation and only onein eight make it to the third
generation.
Now, if you do some planningand some foresight, you can
really bring those odds down alot, and that's what I'd like to
do.
Rather than these businessesshutting their doors or being
sold to financial owners andsponsors, I'd love to see these
(11:03):
family-owned businesses exist.
Sponsors, I'd love to see thesefamily-owned businesses exist.
What do you believe, though?
Just highlight the benefits oftaking the approach you propose
as part of your fractional CFOservices.
What I do is fairly all of thisis fairly simple.
Most family-owned businesses, ifthey don't have any bank debt,
(11:24):
they don't have any need to haveaudited or published statements
, right?
All they really need is theirtax return, right?
So they're booking transactionsall year.
They're not really looking atanything.
They know at the end of theyear we made a little money,
they could pay their taxes, theycan take some withdrawals.
They don't really know the keydrivers in their business.
So the first thing I say is, hey, do we have financial
(11:47):
statements on a monthly basis?
Sure, well, do you look at them?
No, we never look at them.
Well, let's start looking atthem and make sure they're
accurate.
Usually, these businesses havesomebody recording the
transactions.
If they don't, we can figurethat out and staff the
accounting department.
Do you know what's driving yourmargins?
Do you know any of these things?
They're operating as if well,if I have money in the bank, I
(12:09):
can do stuff.
If I don't, I can't.
Not the way to run a business.
Now, these are smart people.
These are smart people who areexperts or engineers, but
they're not smart at financebecause that's not what they've
been trained in and they haven'thad to do that.
So really it's.
Let's get a handle on where youstand today and I can, in a
pretty quick fashion, assesswhat is the key measure in any
(12:32):
businesses what's your EBITDA,what's your adjusted EBITDA?
We can do that quickly.
We're not going to sell it.
You don't have to get all theoutside valuations and say, hey,
you've got, you got a businessand it's got a half a million
dollar EBITDA you, in a periodof time, can expect again.
There's a lot of factors thatgo into it.
Get a multiple of between threeand seven, let's say five.
(12:53):
This business is worth two anda half million dollars.
Do you want to sell it now?
What do you want to do?
Do you want to grow it to makeyour generational wealth more?
Do you have 10 years left?
What do you want to do?
You have to understand thehistory before you can do
forecasting, budgeting,strategic planning, growth.
Should we borrow money?
Should we not?
I bet 90% of family-ownedbusinesses don't borrow anything
(13:15):
.
If you go into them, they allhave capacity.
They're probably pulling cashout every year.
They have a contingency line ofcredit they never use.
So the interesting part is tome is that when and I've worked
for businesses where they're bigbusinesses.
We've been pulling money.
Family's taken out dollars ayear it's a $20 million with
their business.
I can't believe that you don'thave some projects or new things
(13:39):
in your company that would havea higher net positive present
value than three or 5% thatyou're getting in the market.
And that's even before you'retrying to take out some debt to
grow.
But a lot of that is thesevestiges in the end of the our
parents, grandparents, who camefrom the depression, and that
(14:01):
was a really tough time.
We're still fighting on that.
That's what I do.
Then we start planning.
Go to the clients.
Do you have a budget?
No, why would I have a budget?
Well, there's a lot of reasonsto have a budget.
Again, a lot of businesses,especially bigger ones, have a
budget because that's how peopleare compensated.
Regardless, you want to have aguideline and a guidepost and in
putting together a budget, youmake some planning for the year
(14:22):
and then you have something tostrive for.
If you're doing $20 million andyou want to grow, hey, let's put
a target out there and say wewant to hit 25 million in sales
this year.
Well, what do we have to do toget there?
Well, we have to hire thesepeople.
We have to put these programsin place.
We have to do this and we do.
Do we not want to do it?
Let's at least have thediscussion.
You can see I get excited aboutthis stuff, I guess, for totally
(14:42):
I can see it.
But I also think that what youjust mentioned, especially some
basic financial and accountingreports and mechanisms, that's
just.
It's a good foundation becauseif you want to or if you need to
do something, that stuffalready.
So if a, if an investor comesin or wants to buy your company
unexpectedly, you don't have tospend six months trying to
(15:05):
recreate three years ofaccounting reports.
You have it, you can show it tothem.
I've seen that the duediligence these companies go
through as part of anacquisition on the buy side when
I was at IBM, and what we madethat company do was grueling and
it was brutal.
So, anyway, very good.
I want to wrap things up, but Ithink you've given us some
(15:28):
great insights on pitfalls andmistakes and what people should
do and some of the benefits.
But I always ask one lastquestion Is there anything I
haven't asked you that you'dlike to share?
One of my favorite statistics isand it's a three-pronged
statistic.
This was a study not done by me, done by Intuit a couple of
years ago, and these are not mywords either.
(15:50):
These are not my words either.
40% of family-owned businesses,business owners, consider
themselves to be financiallyilliterate.
Now, that's not my words, thoseare their words.
And, in turn, 81% offamily-owned business owners
take care of their own finances.
(16:10):
What does that mean?
Roughly 32% of owners, 9million companies in the US.
The finances are being handledby people who don't know what
they're doing.
Now that's causing this endemicof family owned businesses
going bankrupt.
Cfos are expensive, right, guyslike me aren't cheap.
(16:31):
But in the end, if you go outand you hire somebody who's can
do that, and hire them on afractional basis, the value is
immense because you get thatexecutive strategic sounding
board in your business to helpyou.
That makes sense.
You get what you pay for,there's no question.
And what's cool aboutfractional services is it's like
the pay as you go economy we'vecreated.
(16:53):
If I need you for five hours aweek, I get five.
If I need you for 20, I get youfor 20.
If I got a big project and needyou full time, you come in for
a couple of weeks.
This notion of fractionalservices is very valuable.
Can I share one more thing?
So the way that I run mybusiness is I typically like to
(17:15):
have a monthly retainer that'sloosely based on hours, but it's
based on value you're going toget and what the output is.
But a lot of my, a lot of otherpeople doing it make you sign a
six month contract.
I don't have any contracts.
I mean, we put a contracttogether, but all of my stuff is
month to month.
All you have to give me is 30days notice and we're done,
because I'm so confident thatthe value you're going to get
out of our services is there.
And if you come to me and say,hey, we need to do less or we
(17:37):
need to do more, that's what wedo.
So you're exactly right.
That's a good segue into theconclusion here.
So again, I want to thank youfor sharing your insights and
experiences and, if you wouldn'tmind, just let's wrap up on how
can people learn more about youand your fractional CFO
services?
What are your socials?
Where do you hang out?
(18:00):
The best way to reach me is mywebsite, impactcfonet.
Check out my website.
It's a pretty good website andin my website there's several
free offers.
I have a free hour consultation, a free template, a 13-week
cashflow we didn't even get intothat 13-week cashflow
forecasting spreadsheet and ifyou do that, then we can have a
half-hour consultation, freeworking session on that.
So the website's the best.
You can email me directly atLowell, which is L-O-W-E-L-L, at
(18:24):
impactcfonet, and you can alsojust call us directly
1-847-212-4081.
I have a presence on LinkedIn.
If you go to LinkedIn, there'sonly one of me.
That's awesome.
By the way, we always put allthose links into the show notes
so you don't have to takefrantically.
Take notes.
Connect a little on LinkedIn.
Before we wrap up, I'll give youthe last word.
(18:45):
Yeah, I'm talking directly tofamily owned business owners.
Put a plan in place, fail toplan and plan to fail.
Family-owned business ownersput a plan in place, fail to
plan and plan to fail.
It's not good to leave yourfamily in unfortunate situations
and I can help you.
Thank you for listening.
That's awesome.
We used to use plan to fail orfail to plan a lot at IBM.
So anyway, lowell, have a greatday.
Thank you so much for thisinterview and again, I'm John
(19:09):
Kuntz and thanks for joining usfor this edition of the
Disruptor Podcast.
I'm John Kuntz, and thanks forjoining us for this edition of
the Disruptor Podcast.
Have a great day.
Unlocking the Secrets of Multigenerational Business
Success.
Hi everyone, I'm your host,john Kuntz, and welcome to
another edition of the DisruptorPodcast.
For those that are new to ourshow, the Disruptor Series is
your blueprint forgroundbreaking innovation.
(00:21):
We started in December of 2022as a periodic segment of the
Apex podcast.
Our vision was to go beyondconventional wisdom by
confronting the status quo andexposing the raw power of
disruptive thinking.
Today, we talked to Lolo Moro,ceo of Impact CFO, to explore
why there is a 50% yes, 50%bankruptcy rate of family-owned
(00:47):
businesses after the owner'sdeaths.
We will discuss valuable adviceon the pitfalls and mistakes
founders and business ownersmake and how to avoid them.
Welcome to the show, loyal hey,john, thanks for having me.
It's great to have you A bit ofa different approach to my
normal guests, but I think yourtopic is very relevant.
(01:07):
I see this problem of doingsuccession planning on family
owned businesses.
I see it a lot here inNortheast Ohio because we have a
lot of small multi-generationalbusinesses and, unfortunately,
a lot of them fade away afterthe original owner passes away.
Before we get going, if youdon't mind, take a minute or two
(01:29):
and tell us about yourbackground, your education, your
experiences, how did you gethere and you can start anywhere
you want.
Yeah, I like to tell the storyof somebody in my family told me
when I was about 12 years oldthat I should be an accountant.
I was a pretty obedient littleguy and so I kind of said, hey,
yeah, that's pretty cool, Icould deal with numbers.
(01:50):
I grew up lower middle class.
If you were going to go tocollege, you better come out
with a vocation.
So I kind of did that.
I went to Washington Universityin St Louis business degree,
undergraduate accounting,cranked it out there and then
got out of college.
I undergraduate accounting,cranked it out there and then
got out of college.
I'm from Chicago I still livein Chicago moved back to Chicago
(02:11):
, as we all good boys do, andwent to work for in public
accounting, which is what allgood accountants do.
I worked at Arthur Anderson forthree years.
I did not put them out ofbusiness.
I left there in the earlynineties and had nothing to do
with that.
But I quickly found out.
I got a great foundation,learning the keys to accounting
and reviewing things and all ofthat.
But it wasn't that much fun andattractive to me.
(02:31):
So when I left there I went towork for primarily.
For a few years I worked forsome larger publicly traded
companies, grinding my teeth inthe accounting departments,
reviewing, cranking through andmoving along.
What I found was that bigcompanies weren't for me because
of the bureaucracy, the lack ofthe ability to be creative and
(02:52):
really get in and touch thebusiness.
Got my MBA at KelloggNorthwestern University in
Evanston here and then I took acareer switch in 95, mid-90s and
started working forfamily-owned businesses.
Most of the businesses havebeen standalone or subsidiaries.
50 to 250 million in sales,manufacturing industrial
(03:12):
products, industrial equipment,after sales.
I like the inventory, the messof manufacturing, so what you
can create with it.
So worked for five or sixdifferent companies and I had
the fortune the last five yearsfull-time CFO.
I've been a CFO for 25 years.
Over the last five years twothird-generation family-owned
businesses in the Chicago area.
(03:33):
I was able to help them as afull-time CFO to successful
exits.
First one we sold to a largepublicly traded company wasn't
my cup of tea.
The second one we sold toprivate equity guys, independent
sponsors and a consortium of afamily office.
Stayed for a bit, tried tofigure out what to do and
decided that wasn't theenvironment I wanted for the
(03:54):
next 5, 10, 15 years.
Not the same shared values andethos that I had.
I ended up starting my own firm.
Starting my own firm, I'mfocusing on helping that small,
mid-to-mid-sized family-ownedbusiness and getting them going
(04:15):
on that transition and exitplanning so they don't end up in
that 50% category.
That's a great pedigree.
Great schools WashU is one ofthose hidden gems that nobody
knows how it really is and howsmart you have to be to get into
it.
Kudos, I don't think I couldget in there today.
We're probably all on the sameboat.
I'm not sure I'd get intoschools.
I was recruited by ArthurAnderson on their consulting
side, or IBM, and I ended upgoing with IBM but both had
great training programs.
(04:35):
Arthur Anderson had that campusin Chicago where they used to
send everybody yeah.
So we had a campus Dallas,texas.
I got to spend my first yearthree weeks at a time in Dallas.
You mentioned 50% bankruptcy.
I've seen families torn apart,estranged.
Here in Northern Ohio we have alot of this, the sort of same
(04:56):
small manufacturing companies.
A lot of them are tier three orfour automobile suppliers or
they've been making widgets foryears.
Again, very much perked myinterest.
There's a lot of pertinence.
Here in the Rust Belt and inthe Midwestern areas, we
transform a lot of thesebusinesses.
(05:17):
What are some common mistakes orpitfalls that small businesses
or mid-sized businesses makewhen they're trying to take this
more traditional approach ofsuccession planning?
The diagnosis or symptoms comebefore they try to do it,
because most businesses don'twant to engage in the discussion
there's typically.
Most of the business I workwith are five to 50 million in
(05:39):
sales run by men who don't wantto deal with not being in charge
or their mortality.
So they ignore it or they justassume that one of their
children is going to come in.
But even when you do that, youhave to plan it.
So the big diagnosis is thereneeds to be some planning.
(06:00):
If you have a family memberthat's going to come in, that
you have to plan that andtransition it.
If you don't have familymembers that are going to come
in, then you need to certainlyplan to put the business in a
position at the right time thatyou can look at an external exit
.
(06:25):
I've never met a business ownerwho thought their business
wasn't worth more than it reallywas in the marketplace.
They love that business andthey think it's great, but
there's a lot of factors.
You have to gauge what thebusiness is worth and take steps
based on what the family ownerwants.
But what I'm finding is that tohave those discussions
sometimes are very, verydifficult.
So if you can find anothertrusted advisor that can help to
(06:46):
get that decision-makingprocess in place, it really
helps.
It sounds very analogous tryingjust to get your financial
plans in line your wills, trust,power of attorney, stuff.
Nobody wants to talk aboutwhat's going to happen when
you're gone.
I had a good friend of mine hada nice little business.
It was a sales consultingbusiness, sales training
(07:07):
business, and he built it up toa pretty decent business.
He could have sold hisfranchise rights and the
business when he decided toretire, but he ignored it.
Slowly but surely the businessstarted dwindling down and he
could live off of it, but hewasn't building value.
When he decided to pull theplug, he basically shut the
(07:30):
doors and went away and he couldhave probably gotten a pretty
decent price for somebody tocome in and buy up his franchise
, especially if it had a goodbook of business.
Yeah, two really interestingthings you said.
Compare it to your estate planwhen you you know you don't have
to have an immense amount ofmoney to put a trust together.
(07:50):
Right, I'm not an expert onthis stuff, but what happens?
A lot, especially when it goes,when something would go to
probate, because if you don'thave a trust goes to probate
takes six months or longer and ahome involved and the deceased
may be able to pay for it, butthe family members may not keep
the maintenance and they end upin foreclosure and lose the
(08:10):
value of that home.
In businesses, as people age andsee it as a hobby or income
stream, they take their foot offthe pedal.
Business development and growthand things go away.
So that value of that businessgets deteriorated.
When, if you just put a plan inplace and kept it going along
or hired somebody else to helpyou run it, you can reap the
value from it.
(08:31):
When you close the doors, it'sreally scary to me.
What about all the otherstakeholders involved, not only
the family, but the otheremployees, their families,
vendors, everybody else isdisrupted.
It's kind of a scary thing.
I didn't even think about that.
There's a domino effect outsideof the immediate family
employees, their families,suppliers, customers the whole
(08:53):
ecosystem can get turned upsidedown.
What specifics or guidance wouldyou give the founder or an
owner of a family business?
I would say the first thing,and it's really hard to do
because as we all get a littlebit older, it's hard for us.
But first check your ego at thedoor and then realize that
you're not going to be able torun the business forever.
The ideal businesses for me arewhen we can get them with five
(09:15):
to seven to 10 years of runway,so you have options to go into
it.
So the guys my age, mid-50sthat's the perfect time.
Put a plan in place and say,hey, I'm not going to be around
forever.
If I can stay and run this for20 years and I have a
contingency plan, that's great.
But if anybody could predictthe future, we'd be doing other
(09:37):
things to make a lot of money.
Don't ignore the reality ofwhat's going to come.
A lot of business owners Italked to I asked what happens
if you get hit by a bus.
Well, well, we're screwed, I go.
Well, you're 72 years old.
Do you think that there's anypossibility that anything's
going to happen to you?
It's not only passing away,it's disability, as in my wife
(09:58):
will be okay, you have lifeinsurance, but then your family
or your wife is going to have todeal with running this business
.
That's an albatross.
So I say simple things like doyou have key man insurance?
And then I get quizzical looks,changing your mentality on it
and not wanting to have to runthe chauffeur.
It's hard, right, it's hard,we've been worked hard and we
(10:19):
want to be in charge and we wantto do all this stuff Start
talking about, because if youhear about presidents and all
that, they're always talkingabout their legacy.
But if this business youstarted 40 years ago can stay
around for another 40 years, runinto second, third generations,
that's awesome.
Now I have some other reallyinteresting stats.
So one in three, only one inthree businesses make it to the
(10:42):
second generation and only onein eight make it to the third
generation.
Now, if you do some planningand some foresight, you can
really bring those odds down alot, and that's what I'd like to
do.
Rather than these businessesshutting their doors or being
sold to financial owners andsponsors, I'd love to see these
(11:03):
family-owned businesses exist.
Sponsors, I'd love to see thesefamily-owned businesses exist.
What do you believe, though?
Just highlight the benefits oftaking the approach you propose
as part of your fractional CFOservices.
What I do is fairly all of thisis fairly simple.
Most family-owned businesses, ifthey don't have any bank debt,
(11:24):
they don't have any need to haveaudited or published statements
, right?
All they really need is theirtax return, right?
So they're booking transactionsall year.
They're not really looking atanything.
They know at the end of theyear we made a little money,
they could pay their taxes, theycan take some withdrawals.
They don't really know the keydrivers in their business.
So the first thing I say is, hey, do we have financial
(11:47):
statements on a monthly basis?
Sure, well, do you look at them?
No, we never look at them.
Well, let's start looking atthem and make sure they're
accurate.
Usually, these businesses havesomebody recording the
transactions.
If they don't, we can figurethat out and staff the
accounting department.
Do you know what's driving yourmargins?
Do you know any of these things?
They're operating as if well,if I have money in the bank, I
(12:09):
can do stuff.
If I don't, I can't.
Not the way to run a business.
Now, these are smart people.
These are smart people who areexperts or engineers, but
they're not smart at financebecause that's not what they've
been trained in and they haven'thad to do that.
So really it's.
Let's get a handle on where youstand today and I can, in a
pretty quick fashion, assesswhat is the key measure in any
(12:32):
businesses what's your EBITDA,what's your adjusted EBITDA?
We can do that quickly.
We're not going to sell it.
You don't have to get all theoutside valuations and say, hey,
you've got, you got a businessand it's got a half a million
dollar EBITDA you, in a periodof time, can expect again.
There's a lot of factors thatgo into it.
Get a multiple of between threeand seven, let's say five.
(12:53):
This business is worth two anda half million dollars.
Do you want to sell it now?
What do you want to do?
Do you want to grow it to makeyour generational wealth more?
Do you have 10 years left?
What do you want to do?
You have to understand thehistory before you can do
forecasting, budgeting,strategic planning, growth.
Should we borrow money?
Should we not?
I bet 90% of family-ownedbusinesses don't borrow anything
(13:15):
.
If you go into them, they allhave capacity.
They're probably pulling cashout every year.
They have a contingency line ofcredit they never use.
So the interesting part is tome is that when and I've worked
for businesses where they're bigbusinesses.
We've been pulling money.
Family's taken out dollars ayear it's a $20 million with
their business.
I can't believe that you don'thave some projects or new things
(13:39):
in your company that would havea higher net positive present
value than three or 5% thatyou're getting in the market.
And that's even before you'retrying to take out some debt to
grow.
But a lot of that is thesevestiges in the end of the our
parents, grandparents, who camefrom the depression, and that
(14:01):
was a really tough time.
We're still fighting on that.
That's what I do.
Then we start planning.
Go to the clients.
Do you have a budget?
No, why would I have a budget?
Well, there's a lot of reasonsto have a budget.
Again, a lot of businesses,especially bigger ones, have a
budget because that's how peopleare compensated.
Regardless, you want to have aguideline and a guidepost and in
putting together a budget, youmake some planning for the year
(14:22):
and then you have something tostrive for.
If you're doing $20 million andyou want to grow, hey, let's put
a target out there and say wewant to hit 25 million in sales
this year.
Well, what do we have to do toget there?
Well, we have to hire thesepeople.
We have to put these programsin place.
We have to do this and we do.
Do we not want to do it?
Let's at least have thediscussion.
You can see I get excited aboutthis stuff, I guess, for totally
(14:42):
I can see it.
But I also think that what youjust mentioned, especially some
basic financial and accountingreports and mechanisms, that's
just.
It's a good foundation becauseif you want to or if you need to
do something, that stuffalready.
So if a, if an investor comesin or wants to buy your company
unexpectedly, you don't have tospend six months trying to
(15:05):
recreate three years ofaccounting reports.
You have it, you can show it tothem.
I've seen that the duediligence these companies go
through as part of anacquisition on the buy side when
I was at IBM, and what we madethat company do was grueling and
it was brutal.
So, anyway, very good.
I want to wrap things up, but Ithink you've given us some
(15:28):
great insights on pitfalls andmistakes and what people should
do and some of the benefits.
But I always ask one lastquestion Is there anything I
haven't asked you that you'dlike to share?
One of my favorite statistics isand it's a three-pronged
statistic.
This was a study not done by me, done by Intuit a couple of
years ago, and these are not mywords either.
(15:50):
These are not my words either.
40% of family-owned businesses,business owners, consider
themselves to be financiallyilliterate.
Now, that's not my words, thoseare their words.
And, in turn, 81% offamily-owned business owners
take care of their own finances.
(16:10):
What does that mean?
Roughly 32% of owners, 9million companies in the US.
The finances are being handledby people who don't know what
they're doing.
Now that's causing this endemicof family owned businesses
going bankrupt.
Cfos are expensive, right, guyslike me aren't cheap.
(16:31):
But in the end, if you go outand you hire somebody who's can
do that, and hire them on afractional basis, the value is
immense because you get thatexecutive strategic sounding
board in your business to helpyou.
That makes sense.
You get what you pay for,there's no question.
And what's cool aboutfractional services is it's like
the pay as you go economy we'vecreated.
(16:53):
If I need you for five hours aweek, I get five.
If I need you for 20, I get youfor 20.
If I got a big project and needyou full time, you come in for
a couple of weeks.
This notion of fractionalservices is very valuable.
Can I share one more thing?
So the way that I run mybusiness is I typically like to
(17:15):
have a monthly retainer that'sloosely based on hours, but it's
based on value you're going toget and what the output is.
But a lot of my, a lot of otherpeople doing it make you sign a
six month contract.
I don't have any contracts.
I mean, we put a contracttogether, but all of my stuff is
month to month.
All you have to give me is 30days notice and we're done,
because I'm so confident thatthe value you're going to get
out of our services is there.
And if you come to me and say,hey, we need to do less or we
(17:37):
need to do more, that's what wedo.
So you're exactly right.
That's a good segue into theconclusion here.
So again, I want to thank youfor sharing your insights and
experiences and, if you wouldn'tmind, just let's wrap up on how
can people learn more about youand your fractional CFO
services?
What are your socials?
Where do you hang out?
(18:00):
The best way to reach me is mywebsite, impactcfonet.
Check out my website.
It's a pretty good website andin my website there's several
free offers.
I have a free hour consultation, a free template, a 13-week
cashflow we didn't even get intothat 13-week cashflow
forecasting spreadsheet and ifyou do that, then we can have a
half-hour consultation, freeworking session on that.
So the website's the best.
You can email me directly atLowell, which is L-O-W-E-L-L, at
(18:24):
impactcfonet, and you can alsojust call us directly
1-847-212-4081.
I have a presence on LinkedIn.
If you go to LinkedIn, there'sonly one of me.
That's awesome.
By the way, we always put allthose links into the show notes
so you don't have to takefrantically.
Take notes.
Connect a little on LinkedIn.
Before we wrap up, I'll give youthe last word.
(18:45):
Yeah, I'm talking directly tofamily owned business owners.
Put a plan in place, fail toplan and plan to fail.
Family-owned business ownersput a plan in place, fail to
plan and plan to fail.
It's not good to leave yourfamily in unfortunate situations
and I can help you.
Thank you for listening.
That's awesome.
We used to use plan to fail orfail to plan a lot at IBM.
So anyway, lowell, have a greatday.
Thank you so much for thisinterview and again, I'm John
(19:09):
Kuntz and thanks for joining usfor this edition of the
Disruptor Podcast.
I'm John Kuntz, and thanks forjoining us for this edition of
the Disruptor Podcast.
Have a great day.
Popular Podcasts
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.
Boysober
Have you ever wondered what life might be like if you stopped worrying about being wanted, and focused on understanding what you actually want? That was the question Hope Woodard asked herself after a string of situationships inspired her to take a break from sex and dating. She went "boysober," a personal concept that sparked a global movement among women looking to prioritize themselves over men. Now, Hope is looking to expand the ways we explore our relationship to relationships. Taking a bold, unfiltered look into modern love, romance, and self-discovery, Boysober will dive into messy stories about dating, sex, love, friendship, and breaking generational patterns—all with humor, vulnerability, and a fresh perspective.
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