November 26, 2024 • 36 mins
Welcome to the "Show Me The Way" podcast with David Seitter
In this episode of "Show Me the Way," Dave and guest Terry Staley, an experienced Tax Professional, Certified Exit Planner, and business advisor from MarksNelson, delve into the intricacies of business succession planning and insider transactions. He details the process of crafting financial plans for business owners to transfer ownership internally, often to employees or family members, using cash flow models.
Ep. 59 — Cash Flow Magic: How to Sell Your Business Without Selling to StrangersAccording to Terry, discussing business succession is critical. While owners may only spend a brief time on taxes, their interest perks when it comes to transitioning out of their businesses. Three primary objectives kick off these discussions: understanding the timeline, identifying who the business will transition to, and determining the post-sale financial needs of the owner.
Insider vs. Third-Party SalesThe conversation highlighted two main avenues for business sales: insider and third-party. While third-party sales are often attractive for their high multiples, they can come with strings attached, such as loss of company culture and management freedom. Insider sales, on the other hand, allow owners to maintain legacy and control, providing financial transactions through company cash flow and benefiting both parties.
Crafting the Perfect Transition PlanTerry emphasizes the importance of a comprehensive plan, which begins with a deep fact-finding session. By understanding the dynamics of the business and its stakeholders, Terry’s team models cash flow projections that highlight the most sustainable and beneficial transaction structure. These plans determine the feasibility of transitions and whether value alignments are achieved over a typical period of five to seven years.
Unique Advisory ServicesBeyond his CPA skills, Terry possesses a knack for advisory services, tackling not just the numbers but the emotional and management aspects of succession planning. By assembling a team of key advisors—from financial planners to corporate attorneys—Terry ensures a complete and tailored approach for each client.
Navigating Family Dynamics in Business SalesTerry shares insights on the sensitive nature of family-involved transactions, underscoring the importance of clarity and fairness in estate equity. In his experience, gifting stock to non-business active siblings can sow future discord, and he advocates for financial compensation outside of stock ownership for such family members.
Preparing for the UnexpectedContingency planning is vital, ensuring the business continues seamlessly in events like the sudden departure of a sole owner. A robust succession plan includes buy-sell agreements and ownership transfers to ensure business continuity.
Terry Staley's approach to business succession and insider transactions highlights the need for careful planning and experienced guidance. His message is clear: starting early and developing a thorough plan with the right advisors can mean the difference between a chaotic or a seamless transition.
For business owners interested in securing their legacy through successful succession planning, Terry Staley can be contacted via email at tstaley@mnadvisors.com or on his cell at 816-729-4192.
Whether you're contemplating an insider sale or navigating the complex landscape of business exits, Terry and his team offer a holistic, customized approach to ensure a smooth and successful transition for business owners and their successors.
To reach out to Dave for advice or consultation, please visit www.dav
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Dave (00:00):
Show me the way episode 59, the insider CPA.
Notice, ladies and gentlemen, I'veused a unique term, the insider CPA.
Why?
Because in this episode, we'retalking with Terry Staley of
Marks Nelson CPA about hisinvolvement in helping companies.
With succession plans.
What is going to be so interestingis the dynamics that he brings from
(00:23):
financial side in helping people puttogether financial plans to allow them to
succeed in the sale of their businesses.
Stay tuned
(00:47):
to show me the way a podcast presented bySpencer Fein LLP about business succession
planning, the merger and acquisitionexperience and successful exits.
I am your host, Dave Sider.
Hey, thank you so much forlistening to my podcast.
If you're seeking assistance with yourbusiness dreams, please consider checking
out the various resources I made availableto you at either my LinkedIn page.
(01:12):
My podcast, my Amazon book, QuietPlans, Exciting Results, that is
both in a written and a verbalformat, and my website, davidsider.
com, where you can find quite a bitof content and also access a very
brief survey that will allow youand I to interact at a time of your
(01:33):
choosing to get a better grip on whereyou're at and where you seek to go.
Because we want to support you in yourdreams until next we talk, be safe.
Ladies and gentlemen, joining me ontoday's show is Terry Staley, who I've
worked with on developing strategies fora company seeking methodologies and plans
(01:59):
for business succession and exit planning.
While Terry has a wide ranging practice,I really want him to drill down on his
involvement with insider transactionsand his use of cash flow projections to
help owners in structuring the financialcomponents for the sale of their
stock to employees and family members.
(02:20):
And that's hard for me to saybecause remember, I have a
political science background.
Terry's really educated me somuch on the finances of deals.
Terry, welcome to the show.
Thank you, Dave.
Thank you.
Thanks for having me on.
I am so excited.
Let me ask you to give us a flavorof your background and your early
(02:41):
business experiences so people canget to know the real Terry Staley.
Where were you born?
Where were you raised?
Terry Staley (02:49):
Yeah, I, I, I'm a more or less a lifelong Kansas Citian.
I was born and raised here.
I've had a few years out in Wichita,Kansas, years in Cleveland, Ohio, but I've
been here most of my, most of my life.
I went to Raytown South High School,went to Westminster College, and
then pursued my MBA through theUniversity of Missouri, Kansas City.
(03:10):
I started my career in bankingright out of college, thinking
that was the way to go.
Only to realize that on the completionof my MBA, that a career in public
accounting was an awesome opportunity.
So I was hired by Deloitte Touche,started my career with them, and then
moved on from there after several years.
(03:30):
And then I've been with MarkSnellson now for 31 years.
And so, so yeah, that's whereI am today, Mark Snellson.
Dave (03:38):
Very good.
See, I like doing this becauseI learn things about my
guests I didn't know before.
Didn't know about Westminster, didn'tknow about Wichita, didn't know about
Cleveland, and that you went into banking.
I had no idea, but those have been somepretty good experiences I would imagine.
Was when you were in Cleveland,Wichita, what were you doing there?
(03:58):
Growing up.
My dad was a sales guy and he wasmoving around different places.
Got it.
So, you went to Deloitte andTouche, Deloitte's still out there.
Some of the, it used to be, whatis it, the Big 12 or the Big
8, and then now down to Big 4.
So, as I know with all CPAs, youwind up going into a certain area of
(04:18):
expertise or, or uh, specialization.
Were you on the audit side, at a station?
Where were you?
Yeah, the interesting
Terry Staley (04:27):
thing about Deloitte is, when I look back, I see that it has
really set the tone for what I do today.
I started on the audits.
The audit side, and I was out oftown 80 percent of the time in these
glorious little towns, like Salinaand Wichita and realizing that that's
not what I really wanted to do.
Nobody ever asked me an audit question.
(04:49):
And so they always ask me tax questions.
And because I had a real advisormentality, even back then.
I desire to pursue a career in tax.
So I moved over to the tax side ofDeloitte, spent a couple of years
there only to realize that the big,the big four, this wasn't, wasn't
a path that I wanted to follow.
(05:09):
So I searched a smallerfirm and it came here.
And then I've been here ever since,but I still have the advisory focused.
And because I was a tax guy,I was an audit guy here.
I was a general all around.
I chose here at Marks Nelson becausethe firm size, everybody did everything.
And that, that led itself also to whatI do today, I can work in all aspects
(05:35):
of public accounting and have a goodknowledge in those areas as we grew
larger and larger, I had to specialize.
And I eventually specialized in taps.
Then in 2015, we were.
We were introduced by the consultants thatwe were engaged with to identify advisory
services that were near and dear to theprofession and that we wanted to take on.
(05:58):
So we had these 90 day game plans andso as I walked out there, I heard about
the presentation on succession planning.
I said, that's it.
That is what I want to do.
I want to help business ownerstransition out of their businesses.
And so I went through business enterpriseInstitute out of Denver, Colorado,
went through their bootcamp, wentthrough all the exploratory classes.
(06:20):
I could find out if this was itand met a lot of people out there.
And I decided that was it.
And I pursued their accreditation, thecertified exit planning, CEXP designation.
Uh, And had to look back that, thatinvolved a lot of coursework, a lot
of books to read, a lot of teststo take, and then the, uh, the
creation of two, an inside sale anda third party sale case that I had
(06:44):
to present through written form.
And so with, with all that experience,I had to present it all to my partners
here and make sure it was a goodinvestment of time and dollars.
And for some reason I, they, they,they approved it and there I went.
And so I've been doingit now for nine years.
And have quite a following out there and alot of good people to work with out there.
(07:06):
Including our clients.
But again, we have some thatare outside of our clientele.
They got revert into usbecause of what we do.
Dave (07:14):
Well, I got to know Terry through a business enterprise institute,
what we call B E I, and actuallyhave called upon him for, for help.
And so I've become familiar with hisquote advisory services, but could you
kind of give a little more color towhat that means from your vantage point?
Advisory services look like asfar as Terry Staley is concerned.
(07:36):
Because I think it's a, I think forpeople listening, it's a little bit
in a very, very positive way unique.
Don't think about thefact that he's a CPA.
Go broader than
Terry Staley (07:47):
that.
So the, the ideal here is to helpbusiness owners solve their problems.
And when you meet with businessowners, what you find is that they
can spend 10 minutes on a tax returnafter that, their eyes glaze over.
But when you start talking aboutsuccession planning and how they
plan on transitioning out of theirbusiness, they are all ears because
(08:09):
they all think about it, they justdon't know what to do with it.
And so when you start introducingthe whole subject and.
And the concept of succession planning,there's three objectives that I discussed
with Ben that we have to understand.
What is your timeline look like?
Who would you like to transitionthe business to ideally?
And three, how much do you needon an after tax basis to step away
(08:33):
and retire like you would like?
And so the first, the firstthing they always tell you is.
My, my employees, they, I gotto sell it to a third party.
My employees have no money.
And I said, well, it's a legacy that youcreated for these last 30, 40, 50 years.
What would you think if Ishowed you how you could do it?
Without selling it to a third partywhere you can take care of all your
(08:55):
employees that you desire to, that youcan maintain your legacy and you can
stay on as long as you want to stay on.
How would, what would you think of that?
And they said, that's a no brainer.
I'd do that any day.
And so when we start opening thatup for them, we always have the
option of selling to a third party.
We always have the optionto possibly create an ESOP.
(09:17):
We always have the option to consider,you know, other methods of transition.
But when you bring this up and mentionthat we can, we can do this through
a pass through entity, such as aS corporation, a partnership, and
that we can use the company's cashflow to pay you for the business.
(09:37):
What would you think about that?
And they said, I mean, obviouslythey're just ecstatic about that.
They're ecstatic about it because.
They don't want to sell to third parties.
They hear all the horror stories outthere, private equity coming in, offering
oftentimes higher multiples, but whatthey lose in the process, the legacy,
(09:59):
they become an employee, they've gotan earn out, they've got all these, all
these constraints on them, and they'venever had that for the past 20, 30,
40 years, they've been their own boss.
And so when we start talking aboutthe pros and cons, Behind these
two options of selling inside orselling outside, they are, they are
(10:19):
all over the selling on the inside.
So as long as we can meettheir financial goals.
I'd say it's generally apretty, pretty successful.
And, uh, I
Dave (10:30):
was going to say you hit the nail on the head.
I have never seen yet a trulydynamic CEO that loves being
an employee for a new company.
I'm undefeated, untied onthis in every instance.
Most of them don't make itthrough the air and out period.
Correct.
Absolutely correct.
(10:50):
Most of them, I don't even think lastmuch beyond a year or two period.
Terry Staley (10:55):
So we always have to prepare them.
Whatever you get up front, you betterassume that's all you're going to get.
And are you going to be happy with that?
Does that meet your financial objectives?
Dave (11:05):
So we talked in general terms, there's an insider
sale and a third party sale.
It seems pretty obvious, butcould you break that down a
little bit for the audience?
Terry Staley (11:14):
Yeah.
A third party sale is, is sellingto somebody on the outside,
not related to your company.
They may be somebody in a similarindustry as you that desires
to acquire you and grow larger.
They may be after your, youremployees, your management team.
And generally that's the case.
They want your management team to be, tobe able to go forward basis with them.
(11:37):
And so, so they can all, and that couldbe a private equity group as well, who's
out there consolidating all similartype companies in the same industry,
rolling them all up and then sevenyears down the, down the way they're
going to package those up and sell themall off to even a larger PV company.
So that all sounds great, but ifyou're after dollars and that's
your objective, but what we, what wetend to be really successful with is
(12:01):
presenting them with the inside saleand that's selling it to family members.
Or key members of their management team.
And oftentimes we, we talk about ESOPs.
We haven't had manytakers out for the ESOP.
And so they really liked theidea of their, their close knit
management team or their family.
(12:21):
But those things can createtheir own issues as well.
And those are some of the things wehave to work, work through to assist.
Dave (12:29):
So do you have kind of a, a step by step, a process or
plan you walk people through?
When you're talking about an insider sale.
Terry Staley (12:37):
Absolutely.
So we can model these things out,whether it be for a family member,
because there may be good thingconsiderations with a family member.
So we may want to take a look atthat first and foremost, oftentimes
there's a key members of management.
There may be multiple membersof the management team that they
desire to sell the business to.
(12:58):
And so we really walked in throughwho these people are and, and
what their roles are going to be.
How did you transition what youknow and do to this management team?
Are you, oftentimes the owners apologizefor how few hours they work each
week because they have more or lesstransitioned what they know and do
(13:19):
to the, to the other, other people.
And so they're able to spendless time in the office.
And that's usually a sign of success.
When I hear that, that's, that means alot of the heavy lifting has been done.
If they haven't done any of that, and somuch of their business revolves around
them, that's going to be more difficultfor the transition because we can't lead.
(13:42):
We, we have not transferred the knowledge.
that they have to anyone else.
So, if they want to get out in a periodof a few years or five years, that may
be more difficult than we anticipate.
Dave (13:54):
So, as far as putting it in front of them, I take it that you're using,
and I say this because I've seen, I'veseen the backstage of what Terry does,
but you're using, Various pro formasthat you lay out on Excel spreadsheets,
so to speak, of what it's going totake to get the business transitions.
(14:17):
You're really looking at what youand I would call a cash flow model.
Can you kind of outline whatthat looks like for the audience?
Terry Staley (14:26):
Yeah.
So before we get to the cash flow, whatone of the primary steps or initial steps
we take is we meet with the, the seller.
Okay.
We have to go through a factfinding session with them.
We have to understandtheir goals and objectives.
Who's involved in the company, whoshouldn't be involved in the company.
Just all the ins and outs.
(14:47):
By the time we sit down for these twohours with them, we know more than
most any of the other advisors onthe team that we eventually assemble.
We know more than anyone becausethey have shared their soul with us.
And, uh, you get to that levelwith them and they really see
you as that trusted advisor.
(15:08):
So the, after we obtain all thesegoals and objectives and fact find
and understand what's going onin the company, we start turning
to the creation of our cash flowmodel because valuation is primary.
It really comes down to beinga primary objective here.
And so we've got to obtain fiveyears of accrual basis financial
(15:31):
statements to start the process.
We get there a couple of yearsof tax, we have to understand
what type of entity they have.
Are there any changes we shouldmake to their entity structure?
Oftentimes we find that there are changesto the entity structure that we propose.
What's happened in the past is thatthe prior advisor has more or less
fallen asleep at the wheel to somedegree and hasn't really brought
(15:54):
any new, new thoughts to the table.
So when we start looking at some ofthese things, we had a, one of our
cases involved 80, 000 annual taxsavings just because of how we changed
the ownership of the entity type.
And that was, that wasa hard pill to swallow.
We worked that, worked that out withthe advisor and that he realized the
(16:14):
error of his ways and told us, and toldus simply that he just fell asleep.
And so we asked him to provide thatinformation to the, to the client.
He never did.
And so we had to break the news to theclient and the rest of the history.
We got it all changed and madesome amendments to returns
and got some money back.
So that was pretty significant,significant to be there.
(16:36):
But after we started gettingthe financial statements.
Well, we have to get to is, is notonly net income, but we have to get to
what is called free cashflow, right?
We cashflow is.
Is what can we take out of the businessevery year to distribute out to the owners
of the pass through entity, whether itbe an S corporation or a partnership.
(16:58):
And then with that cash flow, theseller starts receiving some cash
towards his retirement objectivesas we start kicking this, these
distributions out of the company andthe buyer will use his pro rata share.
If he buys 10%, he is getting 10%of the distribution with his 10%.
He is making note paymentsand covering his taxes.
(17:20):
And we do this over a six yearperiod, because we say that a
business is worth five to sevenyears of cashflow that it creates.
And so with that, we determined, weshow, we kind of lay this all out.
And so then we need to start looking athow do you want to sell this business?
You want to sell it in a, in a singlestep, or do you want to, in a more
advantageous ways and sell it in multisteps in mind so that you're riding
(17:44):
the curve up, you can also ride thecurve down as far as value goes.
Well, that's generally not the way itgoes, because everybody's motivated
towards, towards a higher evaluation.
It means a lot to everybody, eventhe new guys coming on board.
Yes.
And so the cashflow model has morphedinto a pretty substantial workbook,
(18:05):
Excel workbook, with many tabs,measuring, calculating, a lot of things.
And a lot of it is proprietary for sure.
But for example, we willlook at a third party offer.
Somebody on the outside that'smade an offer to the company.
We want to make sure that we'recomparing what we calculate as far
(18:26):
as a synergistic value, an insidevalue, versus an outside value.
And reconcile that apples toapples comparison to show them on
an after tax basis what they'rereceiving under each scenario.
And what we often find, Dave, is thateven though the multiple is higher, the
net cash after tax is actually lower.
(18:47):
And so that's when you startwith EBITDA versus net income,
it changes the game a little bit.
And so we just want to make sure theclient is, is well aware of their options.
Dave (18:58):
And I think it's critical to your point, Terry, in any transaction
that they look at it that way.
I mean, a lot of people that cometo me will bring me an LOI and they,
for whatever reason, they haven'tlooked internally and that's okay,
but boy, in a perfect world, you'dlike them to do both considerations
and try to pick the best opportunity.
Although if somebody'sknocking on the door with a big
(19:19):
multiple, it's hard to say no.
Terry Staley (19:23):
Yeah, what they're leaving on the table is the hopes
that the management team had fortaking over the business someday.
As the over gets over, everybodyrealizes, Hey, who's in line?
Who's in line?
I feel like I'm in line to be thesuccessor here or one of them.
Anyway, only to find out I'm notbecause the owner jumped too quick.
I had a third party opportunity, notrealizing that he could use his own
(19:47):
cashflow to pay for the business.
Instead, he's thinking about,well, my guys have no money.
They can't pay me for it.
There's no way out.
When we come onto the scene, we show themthe way out and how this can be done.
And so it's exciting.
Dave (20:03):
Yeah, I was going to say, it's, it is, it takes a
little bit of time and energy.
I met with somebody yesterday that'sa perfect candidate for you, I've
just gotten to know, but you know,he's looking five to 10 years out.
I mean, it's perfect.
And so you can startthe process with them.
But the fascination of a physician.
Uh, people calling them constantlysaying, I'm interested in your business.
(20:26):
It's just hard to overcome.
So how do you, how do you slow people downwhen they have those offers coming in?
What are your secrets to say,Hey, let's go inside first?
Terry Staley (20:38):
Well, generally they, they're entertaining one offer at a
time because they're under an LOI.
So oftentimes we get involved whenthere's already an LOI on the table.
And so it's like, okay, but at leastthere's just one to look at at a time.
Right.
Not multiple ones, but sometimes wefight against even the owner themselves,
Dave, because we're talking to theirbuddies and their buddies say in
(21:00):
the same agency, their buddies aresaying, I've been, I've been given
an eight multiple as an offer, right?
And so they're thinking aneight multiple of what they do.
And it's like, we walkedin this one situation.
And I said, I always ask the question,what do you think your business is worth?
Just so I can get a gut check on that.
And he tells me seven, 7 million, nota big number, but it's a big number.
(21:22):
7 million.
And I started looking at his financialstatements and we eventually ran the
financial statements and we had a businessworth about two and a half million.
And so then you got to, you gotto mitigate the differences.
You have to show them, you have towalk through the cashflow analysis
and show them how we came up with it.
And we have to show them that wecannot possibly, the cashflow we
(21:43):
generate, we cannot possibly payfor this company over a reasonable
amount of time to get 7 million.
And he said, and his answerwas, let's just take longer.
And I said, just because youtake longer, it doesn't mean
the company's worth anymore.
I mean, your guys, your guys couldbe looking at it and you know,
it might take them 15 years oftheir life to pay off the debt.
(22:04):
And by that time they're ready to retire.
Or to think about succession.
So it's, it's not workable.
It's gotta be five to seven years cast.
And then you're out andthen you're new long.
Dave (22:16):
But at the same time, and I get this from my old coach,
Dan Taylor, God rest his soul.
If you could make the same amount ofmoney you're making today in about
two thirds, less of a time commitmentto the company, would you do that?
And no one has said no, absolutely.
Everybody wants to do that.
So it speaks, I think, volumes foran insider transfer, needless to say.
Terry Staley (22:39):
So what are you doing?
Thanks, Dave.
All that.
Because oftentimes we get in and we findthe value is not where they need it to be.
And so we have to identify the valuedrivers that they grow value, and we have
to work on those between now and then.
And oftentimes we accomplish thatthrough incentive compensation plans.
But the key management, so if there'sanybody that can drive value, it's
(23:01):
members of key management, because ifthey're motivated to all row in the
same direction to, uh, to achieve, youknow, something that the, to achieve
a, you know, a net income that is overa baseline, the management is willing
to share that increase with them.
And with the piece that's notbeing paid out to them as an
incentive call compensation, itgrows the value of the business.
(23:23):
Absolutely.
And so next thing, you know, we modeledthis all out to show them that after
three, four or five years, this iswhat we look, look to have value at, or
that this is what value will grow by.
So to me, it's a retirementobjectives and even more.
Well,
Dave (23:39):
even then tell me if I'm wrong, if you grow it that way and
the business expanded, there maybe yet another third party oblique
opportunity that comes along.
It takes everybody out.
Absolutely.
Terry Staley (23:50):
And you all, we always factor in the drag
along tag along provisions.
Within these documents saying that ifthe seller has an opportunity with a
third party that comes along, comesdown the road, everybody gets to go.
Everybody gets to sell out that price.
And so that's a win win
Dave (24:08):
for everybody.
So I, I want to set the record straight.
You love insider deals, butyou work on all sorts of deals.
You love insider deals, but youreally helping with business
succession planning as well.
Obviously you're not doing the legal work.
You're doing everything elsethat could come to play.
So you transcend just being a CPA.
That's what I want to leave with people.
(24:28):
You bring a package in to helpthem get to where they want to go.
Terry Staley (24:32):
Yeah, I would say I have more of a business
advisory hat than I do a CPA hat.
I mean, obviously the CPA comes inhandy because of the base it's, it's
given me over all these years, butthe advisory, all the experiences we
have with all these, these varietiesof succession plans, whether it be
a third party or inside has given usthe opportunity to create opportunity
(24:53):
for these sellers, business owners.
Dave (24:55):
So you can see, ladies and gentlemen, what this gentleman and his
team bring to the table is to give you aclear vision of how to take your company
from wherever it is to the ultimate exit,using his financial analysis analysis.
And coming to a point as to what you canexpect from the sale of the company, to
(25:17):
put in your pocket a waterfall, as theysay, at the end of the day, how much money
you're getting and what does that looklike over what period of time, which also
includes a tax analysis, right, Terry?
Terry Staley (25:29):
Yeah, we create tax efficiencies in there
that are quite substantial.
And so I think this is,I think we just offer.
A lot here for the price aspart of our services here today.
We also bring in spouses,significant others.
We bring in the buyers and their spouses.
If need be, we want to make sure thateverybody is aware of how this plan
(25:52):
is going to work, because when youtalk to these buying shareholders, And
most of them are pretty young, they'restill excited at the opportunity that
they're even being asked to the table.
And then when you start laying it out,because they all say they have no money.
When you start laying it all outfor them and how they can do this,
they're just, they're just wowed by it.
And they're so excited about it.
(26:14):
And then you roll out an incentivecompensation plan and it's
like, wow, this is incredible.
I can't wait to tell my,my spouse about this.
I can't wait to tell mysignificant other about this.
The next thing, we're getting phone calls.
They're excited because it, it takestwo or three meetings like this to get
through this for a full understandingof it because there's so much,
(26:34):
there's so much here, but we try tokeep it, keep it simple as possible.
At the same time, we cover everything.
We cover all, all I's aredotted and T's are crossed.
We want to make sure all the buysell provisions are addressed.
Death, disability, retirement.
What happens if whatever happens?
We want to make sure businesscontinuity is in place.
What happens if you're a sole, sole owner?
(26:57):
And something happens to you, whathappens to your company, your spouse,
who'd been not involved in the businesswhatsoever, all of a sudden owns this
company, what, what, what is that,what are they going to do with it?
And so we have to have first and foremost,these protective measures put in place.
That's why we want to get someof this stock out to some of the
shareholders, even if it was a smallbit upfront, just so that something
(27:18):
happens for continuity purposes.
The company can use company owned lifeinsurance to buy out the owner's spouse.
And then because these other peopleown some shares, they all rise in
value and they ultimately own 100%.
And so now we have a plan going forward.
Dave (27:34):
I think he's found lightning in a bottle, ladies and gentlemen.
Couple of thoughts here, if I may.
Any memorable experiences?
Obviously not.
We're going to keep the namesconfidentially to protect the innocent.
Anything that comes to mindthat you can share with us?
You know, sales
Terry Staley (27:53):
and family members that can create a lot of issues.
Yes.
And so we have one going, the salehappened two years ago and the final piece
of that sales is happening in 26, 1, 1 26.
And so, but it took us a year and ahalf to get through all the issues.
(28:14):
I would get phone calls from bothsides expressing frustration,
expressing emotion, expressing alot of different things because
this isn't how they saw it going.
But we persevered, we got through it, andboth sides are so appreciative of how we
helped them through the difficult times.
(28:37):
And it wasn't just numbers.
Dave (28:38):
Yeah.
Yeah.
No, I was going to say, ladies andgentlemen, who's the last CPA that
you've dealt with that can deal withnumbers, but also the people side that
doesn't exist with everyone doesn'texist with a lot of professionals.
So bring something unique to the table.
What would be the biggest lessonor lessons you would share with the
person on the sell side as they'regoing through this transaction,
(29:02):
be it third party or insider
Terry Staley (29:05):
start the process.
The thing is developing the plan,which is what we assist you with.
We developed a plan and thenimplementation is secondary.
Implementation might not start for fiveyears, but at least the plans in place.
To share one step, I forgot to mentionearlier was we meet and assemble
(29:26):
a team of advisors around you.
We need to work with your CPA.
If we're not your CPA.
We need to work with your banker.
We need to work withyour corporate attorney.
We need to work with your estate attorney.
We need to work with your wealthadvisor, insurance professionals.
So you get all thesepeople around the table.
They're all, they all havetheir homework assignments.
We're the quarterbacks.
We're not, we know enoughand we know quite a bit.
(29:48):
So we're, we're there to make sure it'sdone correctly, but these professionals
all excel in their own space.
And so we want to make sure thatthey are, they are bringing,
bringing their A game as well.
And we know what that looks like.
So we had those expectations.
One other thing when it comes to familysituations that we often have to deal with
is the state equity because they feel likeif they've got multiple kids, they may
(30:13):
have to give some ownership to the othernon business active kids to make it equal.
And that's like, that's the worstthing you could possibly do because
that's just going to cause a lotof infighting amongst the siblings.
Well, we encourage them with islet's take care of the business
active kids with stock ownership.
And then someday they're going to sell,like they're going to be buying the
company from you and with those proceeds,plus your other estate assets, that's
(30:37):
what you can buy it out amongst yourkids in whatever proportion you desire.
Perfect.
And so when they start hearing allthese things, they hear about my friends
gifted the company to his, his kids.
And I often, my, my initial reaction tothat is that's not a very good decision
because the company, if it's valuedcorrectly, it can support the cashflow
(30:59):
to allow you, your kids to buy you outand what they pay for, they appreciate.
And so again, going back to your nonfinancial things, these, this was
just wisdom gained through experience.
That you, you appreciateand value what you pay for.
Dave (31:15):
Right.
Let's flip to the other side.
You're on the buy side helping them.
What would be your advice tothe next buyer you deal with?
Terry Staley (31:24):
Yeah, we've had a couple of those recently where
the buyers actually approached us.
That's a little unusual because wedo have to get the seller involved.
And so we really walkthrough the same things.
And their biggest point ofconsternation is You know, you're
talking to us about a multi step sale.
And so the value rises or falls basedon how the company does over time.
(31:47):
And so I'm a little, they're a littleconcerned about that because the harder
we work, the buyers, the harder they work,the more we've got to pay for the company.
We get that question almost every time.
And so whether, whether the sellersin it or the buyers initiating it,
or whether the sellers initiating themeeting, but what I tell them is that
(32:08):
this template that we're using for thesuccession plan is the same templates
can be used for your transition outthe business to you're going to be
selling out the same way you got in.
And so you're going to beselling along the curve too.
Good call.
And so it's a good opportunity for you.
Yes.
You might be paying it based on theextra work, but hopefully you're, you're
(32:29):
receiving bonuses, incentive comp forwhat you're doing currently to drive
the numbers stronger, but eventually,yes, you will pay more for the company.
Because we generally baseit on a historical look of
how your cash flow has been.
For example, we'll look at anaverage of three years of cash flow.
Keep in mind that that establishesvalue, but we've also got to
(32:51):
look at what's coming ahead.
Because you're going to pay for it withthe cash flow that's coming down the road.
And so if that's, if that'snot keeping pace with what's
happened in the past, we've got tomitigate that valuation downward.
Dave (33:03):
Finally, let me ask you the ultimate question.
What advice would you give to advisors?
very much.
We're dealing with really insidertransactions, really sell side
transactions, and then buy side.
Cause you have to work with other peopleand get them to buy into this approach.
What, what is your advice for them?
Yeah,
Terry Staley (33:23):
I get involved.
And the reason I say get involvedis because so many of them sit
out there on the sidelines.
They don't really feel comfortableputting the whole plan together.
And when we get involved andbring him in, they see, wow,
I really like this experience.
I like working with somebodythat can really drive this.
With, with our business enterpriseinstitute, there's a lot of
(33:46):
professionals there in this organization.
That they just don't feel totallycomfortable handling from start to finish.
And so they like to come alongsidepeople like us, people like you, Dave,
who have experience in all aspectsof this to be part of the team.
And they love doing, they, if they'rea wealth advisor, they love bringing
(34:07):
their wealth advisory services,creating a personal financial plan,
understanding what annual cash flowafter tax is going to look like.
Dave (34:14):
Ladies and gentlemen, here's what I wanted to bring to the table, and
Terry answered it perfectly right here.
Most people come in, they get an LOI,or they make a decision about their
company and where they want to go.
And I think Terry would probably agreewith me that most companies are not ready
to be sold when they receive an LOI inthe circumstances I've been involved with.
(34:36):
But what Terry and his teambrings together is a whole plan.
And the significance of the planis to put you back into control of
one of the most important processesyou're ever going to want to have.
As far as your business is concerned,as far as your employee is concerned,
as far as your family is concerned,and as far as the individual who
owns the company is concerned.
(34:57):
It is a package you don'tsee with most professions.
Terry, how do people get a hold of you?
How can they reach you if theywant to know more about Terry
Staley and the Insider CPA?
Terry Staley (35:10):
Yeah, drop me an email at tstaley at inadvisor.
com.
Or give me a call.
My cell 8 9 2.
Love to talk to you.
No obligation meetings
Dave (35:22):
love to do.
I want to tell you theinsider CPA knows it all.
You want to get to know this guy.
You want to get a planthat is yours uniquely.
So you control theoutcome of expectations.
Thank you so much, Terry.
If you're in search of davidsider.
com and schedule a consultation.
(35:42):
Also, make sure to subscribe to the show.
Please rate it.
Leave me a comment on yourfavorite Spotify or Apple Podcasts.
My book, Quiet Plans, excitingresults available on Amazon.
either in a written or verbal format.
And as well, check outmy website, davidsider.
com.
A lot of content, a lotof information there.
(36:04):
And there's also a way for you toaccess an assessment, a quick 16
question survey that would allow usto get together and discuss where
you're at and where you seek to go.
I'm here to help you with your dreams.
Ladies and gentlemen, alot to the place today.
Thanks to Terry Staley.
And ladies and gentlemen, untilI talk to you again, I'm safe.
(36:25):
This
podcast is provided foreducational purposes.
It does not constitute legal adviceand is not intended to establish
an attorney client relationship.
The recommendations contained in thispodcast are not necessarily appropriate
for every individual or business indetermining the best course of action.
(36:47):
Business owners should consultwith a professional on their
distinct circumstances.
Show me the way episode 59, the insider CPA.
Notice, ladies and gentlemen, I'veused a unique term, the insider CPA.
Why?
Because in this episode, we'retalking with Terry Staley of
Marks Nelson CPA about hisinvolvement in helping companies.
With succession plans.
What is going to be so interestingis the dynamics that he brings from
(00:23):
financial side in helping people puttogether financial plans to allow them to
succeed in the sale of their businesses.
Stay tuned
(00:47):
to show me the way a podcast presented bySpencer Fein LLP about business succession
planning, the merger and acquisitionexperience and successful exits.
I am your host, Dave Sider.
Hey, thank you so much forlistening to my podcast.
If you're seeking assistance with yourbusiness dreams, please consider checking
out the various resources I made availableto you at either my LinkedIn page.
(01:12):
My podcast, my Amazon book, QuietPlans, Exciting Results, that is
both in a written and a verbalformat, and my website, davidsider.
com, where you can find quite a bitof content and also access a very
brief survey that will allow youand I to interact at a time of your
(01:33):
choosing to get a better grip on whereyou're at and where you seek to go.
Because we want to support you in yourdreams until next we talk, be safe.
Ladies and gentlemen, joining me ontoday's show is Terry Staley, who I've
worked with on developing strategies fora company seeking methodologies and plans
(01:59):
for business succession and exit planning.
While Terry has a wide ranging practice,I really want him to drill down on his
involvement with insider transactionsand his use of cash flow projections to
help owners in structuring the financialcomponents for the sale of their
stock to employees and family members.
(02:20):
And that's hard for me to saybecause remember, I have a
political science background.
Terry's really educated me somuch on the finances of deals.
Terry, welcome to the show.
Thank you, Dave.
Thank you.
Thanks for having me on.
I am so excited.
Let me ask you to give us a flavorof your background and your early
(02:41):
business experiences so people canget to know the real Terry Staley.
Where were you born?
Where were you raised?
Terry Staley (02:49):
Yeah, I, I, I'm a more or less a lifelong Kansas Citian.
I was born and raised here.
I've had a few years out in Wichita,Kansas, years in Cleveland, Ohio, but I've
been here most of my, most of my life.
I went to Raytown South High School,went to Westminster College, and
then pursued my MBA through theUniversity of Missouri, Kansas City.
(03:10):
I started my career in bankingright out of college, thinking
that was the way to go.
Only to realize that on the completionof my MBA, that a career in public
accounting was an awesome opportunity.
So I was hired by Deloitte Touche,started my career with them, and then
moved on from there after several years.
(03:30):
And then I've been with MarkSnellson now for 31 years.
And so, so yeah, that's whereI am today, Mark Snellson.
Dave (03:38):
Very good.
See, I like doing this becauseI learn things about my
guests I didn't know before.
Didn't know about Westminster, didn'tknow about Wichita, didn't know about
Cleveland, and that you went into banking.
I had no idea, but those have been somepretty good experiences I would imagine.
Was when you were in Cleveland,Wichita, what were you doing there?
(03:58):
Growing up.
My dad was a sales guy and he wasmoving around different places.
Got it.
So, you went to Deloitte andTouche, Deloitte's still out there.
Some of the, it used to be, whatis it, the Big 12 or the Big
8, and then now down to Big 4.
So, as I know with all CPAs, youwind up going into a certain area of
(04:18):
expertise or, or uh, specialization.
Were you on the audit side, at a station?
Where were you?
Yeah, the interesting
Terry Staley (04:27):
thing about Deloitte is, when I look back, I see that it has
really set the tone for what I do today.
I started on the audits.
The audit side, and I was out oftown 80 percent of the time in these
glorious little towns, like Salinaand Wichita and realizing that that's
not what I really wanted to do.
Nobody ever asked me an audit question.
(04:49):
And so they always ask me tax questions.
And because I had a real advisormentality, even back then.
I desire to pursue a career in tax.
So I moved over to the tax side ofDeloitte, spent a couple of years
there only to realize that the big,the big four, this wasn't, wasn't
a path that I wanted to follow.
(05:09):
So I searched a smallerfirm and it came here.
And then I've been here ever since,but I still have the advisory focused.
And because I was a tax guy,I was an audit guy here.
I was a general all around.
I chose here at Marks Nelson becausethe firm size, everybody did everything.
And that, that led itself also to whatI do today, I can work in all aspects
(05:35):
of public accounting and have a goodknowledge in those areas as we grew
larger and larger, I had to specialize.
And I eventually specialized in taps.
Then in 2015, we were.
We were introduced by the consultants thatwe were engaged with to identify advisory
services that were near and dear to theprofession and that we wanted to take on.
(05:58):
So we had these 90 day game plans andso as I walked out there, I heard about
the presentation on succession planning.
I said, that's it.
That is what I want to do.
I want to help business ownerstransition out of their businesses.
And so I went through business enterpriseInstitute out of Denver, Colorado,
went through their bootcamp, wentthrough all the exploratory classes.
(06:20):
I could find out if this was itand met a lot of people out there.
And I decided that was it.
And I pursued their accreditation, thecertified exit planning, CEXP designation.
Uh, And had to look back that, thatinvolved a lot of coursework, a lot
of books to read, a lot of teststo take, and then the, uh, the
creation of two, an inside sale anda third party sale case that I had
(06:44):
to present through written form.
And so with, with all that experience,I had to present it all to my partners
here and make sure it was a goodinvestment of time and dollars.
And for some reason I, they, they,they approved it and there I went.
And so I've been doingit now for nine years.
And have quite a following out there and alot of good people to work with out there.
(07:06):
Including our clients.
But again, we have some thatare outside of our clientele.
They got revert into usbecause of what we do.
Dave (07:14):
Well, I got to know Terry through a business enterprise institute,
what we call B E I, and actuallyhave called upon him for, for help.
And so I've become familiar with hisquote advisory services, but could you
kind of give a little more color towhat that means from your vantage point?
Advisory services look like asfar as Terry Staley is concerned.
(07:36):
Because I think it's a, I think forpeople listening, it's a little bit
in a very, very positive way unique.
Don't think about thefact that he's a CPA.
Go broader than
Terry Staley (07:47):
that.
So the, the ideal here is to helpbusiness owners solve their problems.
And when you meet with businessowners, what you find is that they
can spend 10 minutes on a tax returnafter that, their eyes glaze over.
But when you start talking aboutsuccession planning and how they
plan on transitioning out of theirbusiness, they are all ears because
(08:09):
they all think about it, they justdon't know what to do with it.
And so when you start introducingthe whole subject and.
And the concept of succession planning,there's three objectives that I discussed
with Ben that we have to understand.
What is your timeline look like?
Who would you like to transitionthe business to ideally?
And three, how much do you needon an after tax basis to step away
(08:33):
and retire like you would like?
And so the first, the firstthing they always tell you is.
My, my employees, they, I gotto sell it to a third party.
My employees have no money.
And I said, well, it's a legacy that youcreated for these last 30, 40, 50 years.
What would you think if Ishowed you how you could do it?
Without selling it to a third partywhere you can take care of all your
(08:55):
employees that you desire to, that youcan maintain your legacy and you can
stay on as long as you want to stay on.
How would, what would you think of that?
And they said, that's a no brainer.
I'd do that any day.
And so when we start opening thatup for them, we always have the
option of selling to a third party.
We always have the optionto possibly create an ESOP.
(09:17):
We always have the option to consider,you know, other methods of transition.
But when you bring this up and mentionthat we can, we can do this through
a pass through entity, such as aS corporation, a partnership, and
that we can use the company's cashflow to pay you for the business.
(09:37):
What would you think about that?
And they said, I mean, obviouslythey're just ecstatic about that.
They're ecstatic about it because.
They don't want to sell to third parties.
They hear all the horror stories outthere, private equity coming in, offering
oftentimes higher multiples, but whatthey lose in the process, the legacy,
(09:59):
they become an employee, they've gotan earn out, they've got all these, all
these constraints on them, and they'venever had that for the past 20, 30,
40 years, they've been their own boss.
And so when we start talking aboutthe pros and cons, Behind these
two options of selling inside orselling outside, they are, they are
(10:19):
all over the selling on the inside.
So as long as we can meettheir financial goals.
I'd say it's generally apretty, pretty successful.
And, uh, I
Dave (10:30):
was going to say you hit the nail on the head.
I have never seen yet a trulydynamic CEO that loves being
an employee for a new company.
I'm undefeated, untied onthis in every instance.
Most of them don't make itthrough the air and out period.
Correct.
Absolutely correct.
(10:50):
Most of them, I don't even think lastmuch beyond a year or two period.
Terry Staley (10:55):
So we always have to prepare them.
Whatever you get up front, you betterassume that's all you're going to get.
And are you going to be happy with that?
Does that meet your financial objectives?
Dave (11:05):
So we talked in general terms, there's an insider
sale and a third party sale.
It seems pretty obvious, butcould you break that down a
little bit for the audience?
Terry Staley (11:14):
Yeah.
A third party sale is, is sellingto somebody on the outside,
not related to your company.
They may be somebody in a similarindustry as you that desires
to acquire you and grow larger.
They may be after your, youremployees, your management team.
And generally that's the case.
They want your management team to be, tobe able to go forward basis with them.
(11:37):
And so, so they can all, and that couldbe a private equity group as well, who's
out there consolidating all similartype companies in the same industry,
rolling them all up and then sevenyears down the, down the way they're
going to package those up and sell themall off to even a larger PV company.
So that all sounds great, but ifyou're after dollars and that's
your objective, but what we, what wetend to be really successful with is
(12:01):
presenting them with the inside saleand that's selling it to family members.
Or key members of their management team.
And oftentimes we, we talk about ESOPs.
We haven't had manytakers out for the ESOP.
And so they really liked theidea of their, their close knit
management team or their family.
(12:21):
But those things can createtheir own issues as well.
And those are some of the things wehave to work, work through to assist.
Dave (12:29):
So do you have kind of a, a step by step, a process or
plan you walk people through?
When you're talking about an insider sale.
Terry Staley (12:37):
Absolutely.
So we can model these things out,whether it be for a family member,
because there may be good thingconsiderations with a family member.
So we may want to take a look atthat first and foremost, oftentimes
there's a key members of management.
There may be multiple membersof the management team that they
desire to sell the business to.
(12:58):
And so we really walked in throughwho these people are and, and
what their roles are going to be.
How did you transition what youknow and do to this management team?
Are you, oftentimes the owners apologizefor how few hours they work each
week because they have more or lesstransitioned what they know and do
(13:19):
to the, to the other, other people.
And so they're able to spendless time in the office.
And that's usually a sign of success.
When I hear that, that's, that means alot of the heavy lifting has been done.
If they haven't done any of that, and somuch of their business revolves around
them, that's going to be more difficultfor the transition because we can't lead.
(13:42):
We, we have not transferred the knowledge.
that they have to anyone else.
So, if they want to get out in a periodof a few years or five years, that may
be more difficult than we anticipate.
Dave (13:54):
So, as far as putting it in front of them, I take it that you're using,
and I say this because I've seen, I'veseen the backstage of what Terry does,
but you're using, Various pro formasthat you lay out on Excel spreadsheets,
so to speak, of what it's going totake to get the business transitions.
(14:17):
You're really looking at what youand I would call a cash flow model.
Can you kind of outline whatthat looks like for the audience?
Terry Staley (14:26):
Yeah.
So before we get to the cash flow, whatone of the primary steps or initial steps
we take is we meet with the, the seller.
Okay.
We have to go through a factfinding session with them.
We have to understandtheir goals and objectives.
Who's involved in the company, whoshouldn't be involved in the company.
Just all the ins and outs.
(14:47):
By the time we sit down for these twohours with them, we know more than
most any of the other advisors onthe team that we eventually assemble.
We know more than anyone becausethey have shared their soul with us.
And, uh, you get to that levelwith them and they really see
you as that trusted advisor.
(15:08):
So the, after we obtain all thesegoals and objectives and fact find
and understand what's going onin the company, we start turning
to the creation of our cash flowmodel because valuation is primary.
It really comes down to beinga primary objective here.
And so we've got to obtain fiveyears of accrual basis financial
(15:31):
statements to start the process.
We get there a couple of yearsof tax, we have to understand
what type of entity they have.
Are there any changes we shouldmake to their entity structure?
Oftentimes we find that there are changesto the entity structure that we propose.
What's happened in the past is thatthe prior advisor has more or less
fallen asleep at the wheel to somedegree and hasn't really brought
(15:54):
any new, new thoughts to the table.
So when we start looking at some ofthese things, we had a, one of our
cases involved 80, 000 annual taxsavings just because of how we changed
the ownership of the entity type.
And that was, that wasa hard pill to swallow.
We worked that, worked that out withthe advisor and that he realized the
(16:14):
error of his ways and told us, and toldus simply that he just fell asleep.
And so we asked him to provide thatinformation to the, to the client.
He never did.
And so we had to break the news to theclient and the rest of the history.
We got it all changed and madesome amendments to returns
and got some money back.
So that was pretty significant,significant to be there.
(16:36):
But after we started gettingthe financial statements.
Well, we have to get to is, is notonly net income, but we have to get to
what is called free cashflow, right?
We cashflow is.
Is what can we take out of the businessevery year to distribute out to the owners
of the pass through entity, whether itbe an S corporation or a partnership.
(16:58):
And then with that cash flow, theseller starts receiving some cash
towards his retirement objectivesas we start kicking this, these
distributions out of the company andthe buyer will use his pro rata share.
If he buys 10%, he is getting 10%of the distribution with his 10%.
He is making note paymentsand covering his taxes.
(17:20):
And we do this over a six yearperiod, because we say that a
business is worth five to sevenyears of cashflow that it creates.
And so with that, we determined, weshow, we kind of lay this all out.
And so then we need to start looking athow do you want to sell this business?
You want to sell it in a, in a singlestep, or do you want to, in a more
advantageous ways and sell it in multisteps in mind so that you're riding
(17:44):
the curve up, you can also ride thecurve down as far as value goes.
Well, that's generally not the way itgoes, because everybody's motivated
towards, towards a higher evaluation.
It means a lot to everybody, eventhe new guys coming on board.
Yes.
And so the cashflow model has morphedinto a pretty substantial workbook,
(18:05):
Excel workbook, with many tabs,measuring, calculating, a lot of things.
And a lot of it is proprietary for sure.
But for example, we willlook at a third party offer.
Somebody on the outside that'smade an offer to the company.
We want to make sure that we'recomparing what we calculate as far
(18:26):
as a synergistic value, an insidevalue, versus an outside value.
And reconcile that apples toapples comparison to show them on
an after tax basis what they'rereceiving under each scenario.
And what we often find, Dave, is thateven though the multiple is higher, the
net cash after tax is actually lower.
(18:47):
And so that's when you startwith EBITDA versus net income,
it changes the game a little bit.
And so we just want to make sure theclient is, is well aware of their options.
Dave (18:58):
And I think it's critical to your point, Terry, in any transaction
that they look at it that way.
I mean, a lot of people that cometo me will bring me an LOI and they,
for whatever reason, they haven'tlooked internally and that's okay,
but boy, in a perfect world, you'dlike them to do both considerations
and try to pick the best opportunity.
Although if somebody'sknocking on the door with a big
(19:19):
multiple, it's hard to say no.
Terry Staley (19:23):
Yeah, what they're leaving on the table is the hopes
that the management team had fortaking over the business someday.
As the over gets over, everybodyrealizes, Hey, who's in line?
Who's in line?
I feel like I'm in line to be thesuccessor here or one of them.
Anyway, only to find out I'm notbecause the owner jumped too quick.
I had a third party opportunity, notrealizing that he could use his own
(19:47):
cashflow to pay for the business.
Instead, he's thinking about,well, my guys have no money.
They can't pay me for it.
There's no way out.
When we come onto the scene, we show themthe way out and how this can be done.
And so it's exciting.
Dave (20:03):
Yeah, I was going to say, it's, it is, it takes a
little bit of time and energy.
I met with somebody yesterday that'sa perfect candidate for you, I've
just gotten to know, but you know,he's looking five to 10 years out.
I mean, it's perfect.
And so you can startthe process with them.
But the fascination of a physician.
Uh, people calling them constantlysaying, I'm interested in your business.
(20:26):
It's just hard to overcome.
So how do you, how do you slow people downwhen they have those offers coming in?
What are your secrets to say,Hey, let's go inside first?
Terry Staley (20:38):
Well, generally they, they're entertaining one offer at a
time because they're under an LOI.
So oftentimes we get involved whenthere's already an LOI on the table.
And so it's like, okay, but at leastthere's just one to look at at a time.
Right.
Not multiple ones, but sometimes wefight against even the owner themselves,
Dave, because we're talking to theirbuddies and their buddies say in
(21:00):
the same agency, their buddies aresaying, I've been, I've been given
an eight multiple as an offer, right?
And so they're thinking aneight multiple of what they do.
And it's like, we walkedin this one situation.
And I said, I always ask the question,what do you think your business is worth?
Just so I can get a gut check on that.
And he tells me seven, 7 million, nota big number, but it's a big number.
(21:22):
7 million.
And I started looking at his financialstatements and we eventually ran the
financial statements and we had a businessworth about two and a half million.
And so then you got to, you gotto mitigate the differences.
You have to show them, you have towalk through the cashflow analysis
and show them how we came up with it.
And we have to show them that wecannot possibly, the cashflow we
(21:43):
generate, we cannot possibly payfor this company over a reasonable
amount of time to get 7 million.
And he said, and his answerwas, let's just take longer.
And I said, just because youtake longer, it doesn't mean
the company's worth anymore.
I mean, your guys, your guys couldbe looking at it and you know,
it might take them 15 years oftheir life to pay off the debt.
(22:04):
And by that time they're ready to retire.
Or to think about succession.
So it's, it's not workable.
It's gotta be five to seven years cast.
And then you're out andthen you're new long.
Dave (22:16):
But at the same time, and I get this from my old coach,
Dan Taylor, God rest his soul.
If you could make the same amount ofmoney you're making today in about
two thirds, less of a time commitmentto the company, would you do that?
And no one has said no, absolutely.
Everybody wants to do that.
So it speaks, I think, volumes foran insider transfer, needless to say.
Terry Staley (22:39):
So what are you doing?
Thanks, Dave.
All that.
Because oftentimes we get in and we findthe value is not where they need it to be.
And so we have to identify the valuedrivers that they grow value, and we have
to work on those between now and then.
And oftentimes we accomplish thatthrough incentive compensation plans.
But the key management, so if there'sanybody that can drive value, it's
(23:01):
members of key management, because ifthey're motivated to all row in the
same direction to, uh, to achieve, youknow, something that the, to achieve
a, you know, a net income that is overa baseline, the management is willing
to share that increase with them.
And with the piece that's notbeing paid out to them as an
incentive call compensation, itgrows the value of the business.
(23:23):
Absolutely.
And so next thing, you know, we modeledthis all out to show them that after
three, four or five years, this iswhat we look, look to have value at, or
that this is what value will grow by.
So to me, it's a retirementobjectives and even more.
Well,
Dave (23:39):
even then tell me if I'm wrong, if you grow it that way and
the business expanded, there maybe yet another third party oblique
opportunity that comes along.
It takes everybody out.
Absolutely.
Terry Staley (23:50):
And you all, we always factor in the drag
along tag along provisions.
Within these documents saying that ifthe seller has an opportunity with a
third party that comes along, comesdown the road, everybody gets to go.
Everybody gets to sell out that price.
And so that's a win win
Dave (24:08):
for everybody.
So I, I want to set the record straight.
You love insider deals, butyou work on all sorts of deals.
You love insider deals, but youreally helping with business
succession planning as well.
Obviously you're not doing the legal work.
You're doing everything elsethat could come to play.
So you transcend just being a CPA.
That's what I want to leave with people.
(24:28):
You bring a package in to helpthem get to where they want to go.
Terry Staley (24:32):
Yeah, I would say I have more of a business
advisory hat than I do a CPA hat.
I mean, obviously the CPA comes inhandy because of the base it's, it's
given me over all these years, butthe advisory, all the experiences we
have with all these, these varietiesof succession plans, whether it be
a third party or inside has given usthe opportunity to create opportunity
(24:53):
for these sellers, business owners.
Dave (24:55):
So you can see, ladies and gentlemen, what this gentleman and his
team bring to the table is to give you aclear vision of how to take your company
from wherever it is to the ultimate exit,using his financial analysis analysis.
And coming to a point as to what you canexpect from the sale of the company, to
(25:17):
put in your pocket a waterfall, as theysay, at the end of the day, how much money
you're getting and what does that looklike over what period of time, which also
includes a tax analysis, right, Terry?
Terry Staley (25:29):
Yeah, we create tax efficiencies in there
that are quite substantial.
And so I think this is,I think we just offer.
A lot here for the price aspart of our services here today.
We also bring in spouses,significant others.
We bring in the buyers and their spouses.
If need be, we want to make sure thateverybody is aware of how this plan
(25:52):
is going to work, because when youtalk to these buying shareholders, And
most of them are pretty young, they'restill excited at the opportunity that
they're even being asked to the table.
And then when you start laying it out,because they all say they have no money.
When you start laying it all outfor them and how they can do this,
they're just, they're just wowed by it.
And they're so excited about it.
(26:14):
And then you roll out an incentivecompensation plan and it's
like, wow, this is incredible.
I can't wait to tell my,my spouse about this.
I can't wait to tell mysignificant other about this.
The next thing, we're getting phone calls.
They're excited because it, it takestwo or three meetings like this to get
through this for a full understandingof it because there's so much,
(26:34):
there's so much here, but we try tokeep it, keep it simple as possible.
At the same time, we cover everything.
We cover all, all I's aredotted and T's are crossed.
We want to make sure all the buysell provisions are addressed.
Death, disability, retirement.
What happens if whatever happens?
We want to make sure businesscontinuity is in place.
What happens if you're a sole, sole owner?
(26:57):
And something happens to you, whathappens to your company, your spouse,
who'd been not involved in the businesswhatsoever, all of a sudden owns this
company, what, what, what is that,what are they going to do with it?
And so we have to have first and foremost,these protective measures put in place.
That's why we want to get someof this stock out to some of the
shareholders, even if it was a smallbit upfront, just so that something
(27:18):
happens for continuity purposes.
The company can use company owned lifeinsurance to buy out the owner's spouse.
And then because these other peopleown some shares, they all rise in
value and they ultimately own 100%.
And so now we have a plan going forward.
Dave (27:34):
I think he's found lightning in a bottle, ladies and gentlemen.
Couple of thoughts here, if I may.
Any memorable experiences?
Obviously not.
We're going to keep the namesconfidentially to protect the innocent.
Anything that comes to mindthat you can share with us?
You know, sales
Terry Staley (27:53):
and family members that can create a lot of issues.
Yes.
And so we have one going, the salehappened two years ago and the final piece
of that sales is happening in 26, 1, 1 26.
And so, but it took us a year and ahalf to get through all the issues.
(28:14):
I would get phone calls from bothsides expressing frustration,
expressing emotion, expressing alot of different things because
this isn't how they saw it going.
But we persevered, we got through it, andboth sides are so appreciative of how we
helped them through the difficult times.
(28:37):
And it wasn't just numbers.
Dave (28:38):
Yeah.
Yeah.
No, I was going to say, ladies andgentlemen, who's the last CPA that
you've dealt with that can deal withnumbers, but also the people side that
doesn't exist with everyone doesn'texist with a lot of professionals.
So bring something unique to the table.
What would be the biggest lessonor lessons you would share with the
person on the sell side as they'regoing through this transaction,
(29:02):
be it third party or insider
Terry Staley (29:05):
start the process.
The thing is developing the plan,which is what we assist you with.
We developed a plan and thenimplementation is secondary.
Implementation might not start for fiveyears, but at least the plans in place.
To share one step, I forgot to mentionearlier was we meet and assemble
(29:26):
a team of advisors around you.
We need to work with your CPA.
If we're not your CPA.
We need to work with your banker.
We need to work withyour corporate attorney.
We need to work with your estate attorney.
We need to work with your wealthadvisor, insurance professionals.
So you get all thesepeople around the table.
They're all, they all havetheir homework assignments.
We're the quarterbacks.
We're not, we know enoughand we know quite a bit.
(29:48):
So we're, we're there to make sure it'sdone correctly, but these professionals
all excel in their own space.
And so we want to make sure thatthey are, they are bringing,
bringing their A game as well.
And we know what that looks like.
So we had those expectations.
One other thing when it comes to familysituations that we often have to deal with
is the state equity because they feel likeif they've got multiple kids, they may
(30:13):
have to give some ownership to the othernon business active kids to make it equal.
And that's like, that's the worstthing you could possibly do because
that's just going to cause a lotof infighting amongst the siblings.
Well, we encourage them with islet's take care of the business
active kids with stock ownership.
And then someday they're going to sell,like they're going to be buying the
company from you and with those proceeds,plus your other estate assets, that's
(30:37):
what you can buy it out amongst yourkids in whatever proportion you desire.
Perfect.
And so when they start hearing allthese things, they hear about my friends
gifted the company to his, his kids.
And I often, my, my initial reaction tothat is that's not a very good decision
because the company, if it's valuedcorrectly, it can support the cashflow
(30:59):
to allow you, your kids to buy you outand what they pay for, they appreciate.
And so again, going back to your nonfinancial things, these, this was
just wisdom gained through experience.
That you, you appreciateand value what you pay for.
Dave (31:15):
Right.
Let's flip to the other side.
You're on the buy side helping them.
What would be your advice tothe next buyer you deal with?
Terry Staley (31:24):
Yeah, we've had a couple of those recently where
the buyers actually approached us.
That's a little unusual because wedo have to get the seller involved.
And so we really walkthrough the same things.
And their biggest point ofconsternation is You know, you're
talking to us about a multi step sale.
And so the value rises or falls basedon how the company does over time.
(31:47):
And so I'm a little, they're a littleconcerned about that because the harder
we work, the buyers, the harder they work,the more we've got to pay for the company.
We get that question almost every time.
And so whether, whether the sellersin it or the buyers initiating it,
or whether the sellers initiating themeeting, but what I tell them is that
(32:08):
this template that we're using for thesuccession plan is the same templates
can be used for your transition outthe business to you're going to be
selling out the same way you got in.
And so you're going to beselling along the curve too.
Good call.
And so it's a good opportunity for you.
Yes.
You might be paying it based on theextra work, but hopefully you're, you're
(32:29):
receiving bonuses, incentive comp forwhat you're doing currently to drive
the numbers stronger, but eventually,yes, you will pay more for the company.
Because we generally baseit on a historical look of
how your cash flow has been.
For example, we'll look at anaverage of three years of cash flow.
Keep in mind that that establishesvalue, but we've also got to
(32:51):
look at what's coming ahead.
Because you're going to pay for it withthe cash flow that's coming down the road.
And so if that's, if that'snot keeping pace with what's
happened in the past, we've got tomitigate that valuation downward.
Dave (33:03):
Finally, let me ask you the ultimate question.
What advice would you give to advisors?
very much.
We're dealing with really insidertransactions, really sell side
transactions, and then buy side.
Cause you have to work with other peopleand get them to buy into this approach.
What, what is your advice for them?
Yeah,
Terry Staley (33:23):
I get involved.
And the reason I say get involvedis because so many of them sit
out there on the sidelines.
They don't really feel comfortableputting the whole plan together.
And when we get involved andbring him in, they see, wow,
I really like this experience.
I like working with somebodythat can really drive this.
With, with our business enterpriseinstitute, there's a lot of
(33:46):
professionals there in this organization.
That they just don't feel totallycomfortable handling from start to finish.
And so they like to come alongsidepeople like us, people like you, Dave,
who have experience in all aspectsof this to be part of the team.
And they love doing, they, if they'rea wealth advisor, they love bringing
(34:07):
their wealth advisory services,creating a personal financial plan,
understanding what annual cash flowafter tax is going to look like.
Dave (34:14):
Ladies and gentlemen, here's what I wanted to bring to the table, and
Terry answered it perfectly right here.
Most people come in, they get an LOI,or they make a decision about their
company and where they want to go.
And I think Terry would probably agreewith me that most companies are not ready
to be sold when they receive an LOI inthe circumstances I've been involved with.
(34:36):
But what Terry and his teambrings together is a whole plan.
And the significance of the planis to put you back into control of
one of the most important processesyou're ever going to want to have.
As far as your business is concerned,as far as your employee is concerned,
as far as your family is concerned,and as far as the individual who
owns the company is concerned.
(34:57):
It is a package you don'tsee with most professions.
Terry, how do people get a hold of you?
How can they reach you if theywant to know more about Terry
Staley and the Insider CPA?
Terry Staley (35:10):
Yeah, drop me an email at tstaley at inadvisor.
com.
Or give me a call.
My cell 8 9 2.
Love to talk to you.
No obligation meetings
Dave (35:22):
love to do.
I want to tell you theinsider CPA knows it all.
You want to get to know this guy.
You want to get a planthat is yours uniquely.
So you control theoutcome of expectations.
Thank you so much, Terry.
If you're in search of davidsider.
com and schedule a consultation.
(35:42):
Also, make sure to subscribe to the show.
Please rate it.
Leave me a comment on yourfavorite Spotify or Apple Podcasts.
My book, Quiet Plans, excitingresults available on Amazon.
either in a written or verbal format.
And as well, check outmy website, davidsider.
com.
A lot of content, a lotof information there.
(36:04):
And there's also a way for you toaccess an assessment, a quick 16
question survey that would allow usto get together and discuss where
you're at and where you seek to go.
I'm here to help you with your dreams.
Ladies and gentlemen, alot to the place today.
Thanks to Terry Staley.
And ladies and gentlemen, untilI talk to you again, I'm safe.
(36:25):
This
podcast is provided foreducational purposes.
It does not constitute legal adviceand is not intended to establish
an attorney client relationship.
The recommendations contained in thispodcast are not necessarily appropriate
for every individual or business indetermining the best course of action.
(36:47):
Business owners should consultwith a professional on their
distinct circumstances.
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