1 00:00:00,120 --> 00:00:03,960 And that's what this is all about. It. It's basically saying that at 2 00:00:04,040 --> 00:00:08,519 some point in time, even if you're conducting a business that generates nice profits 3 00:00:08,560 --> 00:00:12,880 for you, everything's going to come to an end, either naturally or you're 4 00:00:12,880 --> 00:00:15,240 gonna want to get out. You're gonna want to retire, You're gonna want 5 00:00:15,240 --> 00:00:20,039 to do something else. You're listening to Carrie Let's Financial Survival Network, where 6 00:00:20,039 --> 00:00:25,559 you get valuable information you just can't find anywhere else to thrive in today's trying 7 00:00:25,559 --> 00:00:31,120 times. You need the Financial Survival Network now more than ever. Go to 8 00:00:31,239 --> 00:00:37,359 Financial Survival Network dot com and get your free newsletter and gift. Financial Survival 9 00:00:37,439 --> 00:00:46,880 Network now more than ever. Welcome you are listening to watching the Financial Survival 10 00:00:46,960 --> 00:00:52,159 Network. Have you ever been involved started a business, It succeeds and things 11 00:00:52,159 --> 00:00:56,000 are going really well, but you're ready to move on. Well, I'll 12 00:00:56,000 --> 00:01:00,240 tell you what that's happened to me. And I started a company. Well, 13 00:01:00,280 --> 00:01:03,520 I took over a family business many years ago. Should have had a 14 00:01:03,560 --> 00:01:08,200 succession plan from day one because I was working with the relatives who I preferred 15 00:01:08,280 --> 00:01:14,280 not to work with. But later on I kind of created my own exit 16 00:01:14,359 --> 00:01:19,079 plan sold it to my largest competitor and never looked back. But Wayne Zell 17 00:01:19,359 --> 00:01:26,280 is with us. Now, Wayne, you are a CPA and a fellow 18 00:01:26,439 --> 00:01:33,439 attorney. You've written a book, your multimillion dollar exit the entrepreneur is a 19 00:01:33,480 --> 00:01:40,480 business succession success planner, and we really appreciate you coming on Amazon bestseller. 20 00:01:40,519 --> 00:01:47,040 We might also add, so succession, when is the ideal time to create 21 00:01:47,120 --> 00:01:52,239 your success succession plan? Well, nice to be on the podcast with you, 22 00:01:52,280 --> 00:01:55,400 and it's it's great to meet you, Kerry. Yeah, the best 23 00:01:55,400 --> 00:01:57,799 time is at the beginning, at the beginning of your entrepreneurial journey. And 24 00:01:57,840 --> 00:02:01,680 if you don't do it at the beginning and you're way along, way far 25 00:02:01,719 --> 00:02:07,240 along on your entrepreneur entrepreneurial journey, then do it later on. But don't 26 00:02:08,080 --> 00:02:15,599 don't delay because you never know when something might happen unexpected disability or death that 27 00:02:15,719 --> 00:02:21,479 causes you to leave your family, your employees, your customers, your business 28 00:02:21,960 --> 00:02:24,759 in a state of turmoil without having to find what happens in those events. 29 00:02:25,000 --> 00:02:30,439 So start out with thinking about the unexpected and then of course plan for the 30 00:02:30,520 --> 00:02:32,599 expectant, and then you never know what's going to happen in the future. 31 00:02:32,680 --> 00:02:38,879 So doing business succession planning is an ongoing process, and it always starts at 32 00:02:38,919 --> 00:02:45,680 the beginning. But in the beginning, you're like setting up systems, you're 33 00:02:45,759 --> 00:02:49,879 finishing off your space, you're opening up your store, whatever it is. 34 00:02:49,919 --> 00:02:53,039 You've got like a million things. And I know for myself, when I've 35 00:02:53,039 --> 00:02:57,199 started businesses, I tend to put something like that on the back burner, 36 00:02:57,319 --> 00:03:00,879 saying I'll get to it because I got so many things to do. Them 37 00:03:00,960 --> 00:03:05,840 up to my elbows and alligators. You know, it's hard to get to 38 00:03:06,360 --> 00:03:12,120 get you to realize that this is really crucial to the success and eventual sale 39 00:03:12,439 --> 00:03:16,479 exit from your business, isn't it. Yeah. I mean the entrepreneurs focused, 40 00:03:17,080 --> 00:03:20,919 soul focused, and you deal with entrepreneurs. I deal with them all 41 00:03:21,000 --> 00:03:25,159 day long. Their focus is on the business getting it started. Yeah, 42 00:03:25,199 --> 00:03:29,520 the the initial startup phase. Okay, you don't have to have your business 43 00:03:29,520 --> 00:03:34,159 succession plan in place when you're you know, setting up the premises or you 44 00:03:34,199 --> 00:03:38,919 know, bringing on employees at the very beginning, but you should start thinking 45 00:03:38,960 --> 00:03:44,479 about it and then doing your planning once things start moving along is really critical. 46 00:03:44,639 --> 00:03:47,439 It's selfish, I believe, to not consider the fact that you've got 47 00:03:47,439 --> 00:03:52,039 other people relying on you if you're setting up a business, if you have 48 00:03:52,120 --> 00:03:54,159 a family, if you have a spouse, you have kids, if you 49 00:03:54,199 --> 00:03:59,439 have employees working for you, if you've got customers that you're servicing, how 50 00:03:59,439 --> 00:04:02,759 do you make sure that they're being taken care of as well as yourself? 51 00:04:02,759 --> 00:04:05,479 I mean, if what happens, if something happens to you, you become 52 00:04:05,599 --> 00:04:10,599 disabled, you're in an automobile accident, and you started up this business. 53 00:04:10,680 --> 00:04:14,520 Let me tell you a quick story. I had a guy who was starting 54 00:04:14,560 --> 00:04:17,240 up a government contracting business and he was doing very well. He was all 55 00:04:17,279 --> 00:04:21,199 the way up at seventeen million in revenue and doing very very well. But 56 00:04:21,399 --> 00:04:25,160 he had a long way to go to where he wanted to be in terms 57 00:04:25,160 --> 00:04:29,399 of selling the business. And one day I get a call out of the 58 00:04:29,439 --> 00:04:31,319 blue. It's right around New Year's and his son calls me and he says, 59 00:04:31,399 --> 00:04:34,000 hey, look, my dad passed away. What do you mean. 60 00:04:34,040 --> 00:04:39,199 He was fifty three years old. We were just starting in the business succession 61 00:04:39,279 --> 00:04:43,319 process. He passed away, and he was frantic. What do we do? 62 00:04:43,560 --> 00:04:47,519 How do we deal with the business. So we got together investors that 63 00:04:47,600 --> 00:04:51,160 he had brought into the business. Fortunately, they were very sophisticated people. 64 00:04:51,199 --> 00:04:56,600 We brought them into the business. I helped basically build a board of directors, 65 00:04:57,079 --> 00:05:00,600 and we were able to bring in a management team to run the business. 66 00:05:00,120 --> 00:05:03,959 And it worked out so that we grew the business by three times and 67 00:05:04,079 --> 00:05:08,959 sold it for thirty million dollars too. So it was you and I needed 68 00:05:09,000 --> 00:05:12,639 you. Lucky. We were lucky. I think we were lucky. And 69 00:05:12,680 --> 00:05:15,519 I think the biggest thing that he did that most people don't do is he 70 00:05:15,639 --> 00:05:19,959 surrounded himself with two people who were very sophisticated and very familiar with the industry, 71 00:05:20,199 --> 00:05:25,240 and they were minority investors in his business, so they had an incentive 72 00:05:25,720 --> 00:05:29,480 to help out the family and as well, you know, they wanted to 73 00:05:29,519 --> 00:05:31,959 help out, and so it worked out beautifully in the end for the family, 74 00:05:32,399 --> 00:05:35,360 not so well for the founder. But you never know what's going to 75 00:05:35,439 --> 00:05:41,360 happen. And that's it's planning for the future. So you know, like 76 00:05:42,160 --> 00:05:46,399 if you're bothering to do a business plan, and normally you should do that. 77 00:05:46,079 --> 00:05:53,360 It doesn't necessarily have to be a multi level presentation to bring in multi 78 00:05:53,360 --> 00:05:58,439 billion dollar investors, but you should always be doing a plan barebones at the 79 00:05:58,519 --> 00:06:03,199 least. Right had a section there for succession slash exit plan. You should 80 00:06:03,199 --> 00:06:08,079 always have an exit strategy in anything you get involved in. You buy a 81 00:06:08,120 --> 00:06:12,240 house, right, you buy a car, whatever it is, you always 82 00:06:12,279 --> 00:06:15,279 need an exit strategy exactly. And that's what this is all about. It's 83 00:06:15,560 --> 00:06:20,040 it's basically saying that at some point in time, even if you're conducting a 84 00:06:20,079 --> 00:06:25,399 business that generates nice profits for you, everything's gonna going to come to an 85 00:06:25,480 --> 00:06:28,879 end, either naturally or you're gonna want to get out, You're gonna want 86 00:06:28,879 --> 00:06:30,399 to retire, you're gonna want to do something else. And so I had 87 00:06:30,399 --> 00:06:34,199 a client come into me last week and he said, I've got this business 88 00:06:34,279 --> 00:06:36,800 and it was on his balance sheet, and his balance sheet was nice, 89 00:06:36,839 --> 00:06:42,279 yet twenty five million dollars net worth ten million was allocated to the business. 90 00:06:42,360 --> 00:06:44,319 I said, how did you come up with that number? He said, 91 00:06:44,319 --> 00:06:46,879 well, you know, I've had offers and I think I think that's what 92 00:06:46,959 --> 00:06:48,519 the business is worth. I said, okay, let's assume that it is. 93 00:06:49,079 --> 00:06:54,519 What's your exit plane? And he said, I don't really have one. 94 00:06:54,800 --> 00:06:58,120 I probably just wind the business down. I said, so you're basically 95 00:06:58,160 --> 00:07:01,519 taking ten million dollars away from your family off your balance sheet because he has 96 00:07:01,600 --> 00:07:05,879 kids, he's got a wife, and you don't care what happens, So 97 00:07:06,480 --> 00:07:13,040 that doesn't make sense to you want to plan to at least transition the business 98 00:07:13,040 --> 00:07:16,480 to your existing employees, sell it to a third party. There are lots 99 00:07:16,480 --> 00:07:20,399 of different alternatives, lots of different strategies, and we talk about all that 100 00:07:20,480 --> 00:07:25,079 in the book, and I think you need to spend that time because, 101 00:07:25,160 --> 00:07:27,560 yeah, you're tired. In the end, you may want to just get 102 00:07:27,560 --> 00:07:30,959 out and wind it down, but there may be a better alternative to preserve 103 00:07:31,199 --> 00:07:38,439 some value or enhance the value for the benefit of your family, your customers, 104 00:07:38,480 --> 00:07:43,399 your employees, and yourself. Hey, and let's not forget you're involved 105 00:07:43,399 --> 00:07:47,199 in a business. Day to day small business, it's extremely emotionally taxing. 106 00:07:47,639 --> 00:07:54,639 It's intense. You have challenges every day and it's easy to get burned out. 107 00:07:54,839 --> 00:07:58,800 Or you accomplish your goals, you're successful, and you want to move 108 00:07:58,839 --> 00:08:01,839 on to the next thing. So rather than having to think about it when 109 00:08:01,839 --> 00:08:05,680 you get to that point, if you've got that land in place, even 110 00:08:05,680 --> 00:08:09,120 if it's bare bones, hey you're that much further ahead. One thing you 111 00:08:09,199 --> 00:08:16,639 mentioned in the book is using a revocable trust and why it's important or an 112 00:08:16,680 --> 00:08:22,439 exit plan. How does that work? So what we've often seen is somebody 113 00:08:22,480 --> 00:08:26,920 dies owning their business, shares of stock in the business or an LLC or 114 00:08:28,160 --> 00:08:33,120 however it's structured when you pass away. In every jurisdiction in the United States, 115 00:08:33,159 --> 00:08:37,679 including the District of Columbia, there's a process called probate that people have 116 00:08:37,759 --> 00:08:41,000 to go through. So if you die owning your business in your own name, 117 00:08:41,480 --> 00:08:46,120 your a state, your executor is going to have to go through probate, 118 00:08:46,320 --> 00:08:52,200 which can involve not only disclosing the nature of the fact that you own 119 00:08:52,279 --> 00:08:56,879 this business, but the value of it has to be inventory and filed with 120 00:08:56,960 --> 00:08:58,919 a court, which is a matter of public record. So everybody's going to 121 00:09:00,120 --> 00:09:05,120 know what the value of the business was or is at the time of your 122 00:09:05,120 --> 00:09:09,399 death. And then you have an obligation, not you, your executor or 123 00:09:09,399 --> 00:09:13,600 whoever's your legal representative, has an obligation to take this through the probate process, 124 00:09:13,919 --> 00:09:18,919 which can take years and costs anywhere from two to five to eight percent 125 00:09:20,000 --> 00:09:22,919 of the value of the assets. Is it worth it to go through that? 126 00:09:22,519 --> 00:09:26,000 So what we do, and you know our firm does both the state 127 00:09:26,039 --> 00:09:30,960 planning and business planning, and so we combine the estate planning and the business 128 00:09:31,000 --> 00:09:35,639 planning and tell our clients at a minimum, set up a revocable trust, 129 00:09:35,720 --> 00:09:41,039 which means that you are the trustee, you are the beneficiary of the trust. 130 00:09:41,159 --> 00:09:45,639 You control everything. You don't have to ask anyone for permission. Just 131 00:09:45,679 --> 00:09:50,480 put the stock or the LLC interest into the trust. And then if you 132 00:09:50,600 --> 00:09:54,240 god forbidden, you pass away, or you become disabled, there's a successor 133 00:09:54,320 --> 00:10:00,919 trustee that can handle everything without going through living probate, which would happen if 134 00:10:00,919 --> 00:10:05,440 you were incapacitated, or death probate, which happens on your death, and 135 00:10:05,679 --> 00:10:09,919 save the money, save the time, and avoid public disclosure of all of 136 00:10:09,960 --> 00:10:13,679 this stuff. And it just makes handling the business at a minimum a lot 137 00:10:13,720 --> 00:10:18,759 easier than if you didn't have that trust in place. And put your business 138 00:10:18,799 --> 00:10:22,600 into the trust right away, so you're in control of it. Nobody else 139 00:10:22,919 --> 00:10:26,039 is in control of it. You don't have to ask for permission to do 140 00:10:26,080 --> 00:10:28,559 anything with the business. You as the trustee, will vote the shares of 141 00:10:28,600 --> 00:10:33,440 the stock or the LLC entrant to control. Got it, got it? 142 00:10:33,519 --> 00:10:39,639 Yea. It makes a state planning succession all those things far more easier. 143 00:10:39,200 --> 00:10:45,399 And you know, one thing I find, having been an entrepreneur myself or 144 00:10:45,919 --> 00:10:52,200 you know, fourth generation entrepreneur, and you know, you get involved in 145 00:10:52,240 --> 00:10:56,759 the business, you never really bother to think of who's going to run it 146 00:10:56,919 --> 00:11:01,200 after you besides succession, but management succession. Like I was in a family 147 00:11:01,240 --> 00:11:05,159 business. My father started it with my uncle. It was my brother and 148 00:11:05,200 --> 00:11:09,879 I, so the succession plan was already in place. We've been working in 149 00:11:09,879 --> 00:11:15,600 the business since we were like children. But for many of you entrepreneurs out 150 00:11:15,639 --> 00:11:18,879 there, you don't think about these things. Well, you know that's funny. 151 00:11:18,200 --> 00:11:22,919 Even if you and your brother were deemed to be the successors for your 152 00:11:22,000 --> 00:11:26,320 uncle and your father, who's in control of the business. How will the 153 00:11:26,440 --> 00:11:31,000 day to day operations work? So that's why we as part of the book, 154 00:11:31,039 --> 00:11:35,600 we talk about using a management succession plan, actually defining who is in 155 00:11:35,720 --> 00:11:41,200 charge of day to day operations, who reports to whom, and then setting 156 00:11:41,279 --> 00:11:46,519 up a mechanism that sort of oversees the day to day operators. So if 157 00:11:46,600 --> 00:11:50,200 you and your brother are operating at day to day, who's going to oversee 158 00:11:50,240 --> 00:11:54,120 the two of you to make sure that again, the ultimate beneficiaries the family 159 00:11:54,320 --> 00:11:58,840 are being taken care of in the long run. And in many cases it 160 00:11:58,879 --> 00:12:01,879 may not be necessary, maybe overkill, but I find that, for example, 161 00:12:03,039 --> 00:12:05,799 if there's a sole owner, somebody owns one hundred percent of the business, 162 00:12:05,840 --> 00:12:09,639 this becomes absolutely critical. And we just did one for a client last 163 00:12:09,679 --> 00:12:13,519 week where he hadn't even thought about it, and he's in his late sixties 164 00:12:13,720 --> 00:12:18,480 and he likes to jump out of helicopters for fun. So I'm just like, 165 00:12:18,720 --> 00:12:24,519 we better do this plan, and we better link it to the revocable 166 00:12:24,519 --> 00:12:26,960 trust that we draft in form as well. So the succession plan is something 167 00:12:28,440 --> 00:12:33,279 that the company adopts. The board of directors is named, the officers are 168 00:12:33,399 --> 00:12:37,440 named, their salaries are set out. We know exactly what they're going to 169 00:12:37,519 --> 00:12:41,360 get paid, so that they don't up and leave. In a family owned 170 00:12:41,360 --> 00:12:43,799 business, it may not be quite as difficult, or it may be even 171 00:12:43,879 --> 00:12:46,440 more difficult depending on the facts. And so you just want to make sure 172 00:12:46,440 --> 00:12:52,240 that you have all that documented and that the revocable trust which owns the business 173 00:12:52,240 --> 00:12:56,759 and whoever the successor trustee is, is bound by that, and that we 174 00:12:56,840 --> 00:13:01,759 have exit plans within the management success plans, So if you become disabled or 175 00:13:01,799 --> 00:13:05,000 die, we outline what happens over some period of time three months, six 176 00:13:05,080 --> 00:13:09,639 months, twelve months, and then what happens after that, and who controls 177 00:13:09,679 --> 00:13:13,919 those decisions and leaving it in the hands of one person who might be a 178 00:13:13,960 --> 00:13:18,879 trustee, who might be a spouse may not necessarily be the best for the 179 00:13:18,960 --> 00:13:24,279 business, the employees, or the customers. Yeah, yeah, can be 180 00:13:24,559 --> 00:13:33,279 very troubling and very emotionally unsettling, all those things for sure. So how 181 00:13:33,279 --> 00:13:39,679 would you define a successful exit plan for your business? What's the addition to 182 00:13:39,759 --> 00:13:46,120 that? Yeah, I think the a successful business succession plan incorporates, uh, 183 00:13:46,799 --> 00:13:50,279 your personal issues. So you've got to You've got to understand what your 184 00:13:50,320 --> 00:13:56,440 personal goals are and whether or not the business itself is going to generate the 185 00:13:56,480 --> 00:14:00,679 cash flows for you and your family to survive. So there there's a personal 186 00:14:00,759 --> 00:14:05,120 financial planning component to it. So you shouldn't be bringing in a financial planner 187 00:14:05,159 --> 00:14:09,080 to help you. You want to ensure family harmony. If it's a family 188 00:14:09,080 --> 00:14:13,159 owned business, what legacy do you want to leave are you dealing with all 189 00:14:13,159 --> 00:14:18,200 these issues? Is there a culture that you maintain in the business that you 190 00:14:18,240 --> 00:14:22,039 want to maintain for your employees and for your customers. If something happens to 191 00:14:22,080 --> 00:14:28,480 you, How does the community benefit from your business today, and how will 192 00:14:28,519 --> 00:14:31,559 it benefit tomorrow. These are all things, you know, minimizing taxes. 193 00:14:31,600 --> 00:14:37,000 I'm a tax lawyer by training, and you know, everybody's always focused on 194 00:14:37,039 --> 00:14:41,720 income taxes, but we also need to focus on a state taxes death tax 195 00:14:41,879 --> 00:14:46,559 that you know can be imposed on very large estates, but the exemptions from 196 00:14:46,559 --> 00:14:50,120 the estate tax fluctuate and they are scheduled to drop by half at the end 197 00:14:50,159 --> 00:14:56,000 of twenty twenty five. You know, all of these things factor into a 198 00:14:56,120 --> 00:15:00,639 successful business plan and then planning for what happens after you ex at the business. 199 00:15:00,960 --> 00:15:03,840 So the book, there's a chapter in the book that deals on what 200 00:15:03,919 --> 00:15:09,759 happens next after you successfully exited your business, because your life shouldn't end and 201 00:15:09,879 --> 00:15:13,919 doesn't end there, and so it's life is all about planning ahead. And 202 00:15:13,960 --> 00:15:18,879 so a successful business succession plan, in my opinion, is planning for the 203 00:15:18,960 --> 00:15:24,600 unexpected, having a good business plan that plans for an expected exit whatever that 204 00:15:24,679 --> 00:15:28,759 may be, retirement, sale, whatever, and then planning for the future 205 00:15:28,799 --> 00:15:33,799 after the exited business. Yeah, so that's a good question. So many 206 00:15:33,840 --> 00:15:39,440 of you out there, entrepreneurs, you can't even picture yourself, not going 207 00:15:39,480 --> 00:15:45,320 to the office day and day spending this twelve hour days. So what advice 208 00:15:45,360 --> 00:15:50,120 do you have for them? I think having an interest in life that you 209 00:15:50,200 --> 00:15:56,080 are passionate about is what you should pursue. So I am an entrepreneur too, 210 00:15:56,639 --> 00:16:02,360 and my passion is business succession planning for entrepreneurs. So I do spend 211 00:16:02,399 --> 00:16:06,480 ten to twelve hours a day, seven days a week, focusing on this 212 00:16:06,919 --> 00:16:11,720 because that's what inspired me to write the book, and so I'll probably keep 213 00:16:11,799 --> 00:16:15,279 doing this. But I do have interests outside of work. I have, 214 00:16:15,759 --> 00:16:18,200 you know, a future grandchild on the way. I've got four kids that 215 00:16:18,279 --> 00:16:22,440 I spend time with. I've got, you know, I've got a passion 216 00:16:22,480 --> 00:16:26,799 for music. I was a musician younger, at a younger point in my 217 00:16:26,879 --> 00:16:30,000 life, and so all of these things. And my spouse and I love 218 00:16:30,080 --> 00:16:34,559 to garden, and we love to go out on our lake. Create time 219 00:16:34,600 --> 00:16:37,440 for that. The other thing I do a lot of time is spending time 220 00:16:37,480 --> 00:16:44,159 on charity, devoting time volunteering for charitable endeavors. Everybody can't do everything. 221 00:16:44,200 --> 00:16:48,120 I also teach at the college level at George Mason University. So I think 222 00:16:48,120 --> 00:16:53,840 there, if you have passions, make time for your passions and create a 223 00:16:53,919 --> 00:16:59,799 schedule that allows you to do that while pursuing your passion for business. So 224 00:17:00,120 --> 00:17:03,919 do it while you're while you're building your business, because you may end up 225 00:17:03,919 --> 00:17:07,799 getting so focused on your business that you may forget other things that give me 226 00:17:07,920 --> 00:17:11,319 pleasure and passion as well. I've been there, done that, got the 227 00:17:11,400 --> 00:17:15,160 teacher, Wayne. Really a lot of wisdom here again. The book is 228 00:17:15,400 --> 00:17:22,160 You Are Multimillion Dollar Exit, the Entrepreneur's Business Succession Planner, and it's by 229 00:17:22,200 --> 00:17:27,039 Wayne Zell, Attorney, CPA. We appreciate you coming on Wayne. I 230 00:17:27,079 --> 00:17:30,799 you've got a question for Wayne or myself, shoot me an email Kyl at 231 00:17:30,880 --> 00:17:34,160 kryltz dot com. We'll get you a quick answer. While you're at the 232 00:17:34,200 --> 00:17:40,039 site Financial Survival Network dot com. You can click through right to wayne site, 233 00:17:40,279 --> 00:17:42,839 order the book, and hey, while you're there, sign up for 234 00:17:42,880 --> 00:17:47,400 your free newsletter. Just sent one out today. Wayne. Great luck with 235 00:17:47,440 --> 00:17:49,640 the book and we will definitely talk to you again. Thanks Carry, thanks 236 00:17:49,680 --> 00:17:52,839 for having me on the show. I appreciate it greatly. Thanks for listening 237 00:17:52,920 --> 00:18:00,160 to Carrie Letz's Financial Survival Network. Your solution to today's trying times. For 238 00:18:00,200 --> 00:18:06,839 the latest, go to Financial Survival Network dot com Financial Survival Network now more 239 00:18:06,880 --> 00:18:07,400 than ever,