← Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
Owned and Operated - A Plumbing, Electrical, and HVAC Business Growth Podcast
Why Most Business Owners Lose Millions When They Sell
00:39:25
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- [00:00]
A
No buyer wants to step in and buy a job. They're looking to buy a business that spits off profits.
- [00:07]
B
All in, baby, let's do it.
- [00:09]
C
The point is like you've got to be prepared well before even if you're not thinking about an exit because you never know when that time may come or that big offer may come around the table.
- [00:17]
A
If you're thinking about selling the business, you want to show that you're making money and the more profit that you can show, the better position you're going to put yourself in.
- [00:26]
C
You know, a lot of people think, oh, if I try to get my business ready to sell, that's going to sacrifice like the success in the business between them. And then it actually does the opposite. You're cleaning up so many things.
- [00:36]
B
What the average owner should probably take a look at doing maybe first month post exit.
- [00:41]
C
Yeah, I've got three.
- [00:49]
B
Welcome back to owned and operated. Today it's John is not here. It's me running the show. This is the Jack show today. Today I have some friends on and neighbors and all around awesome people. I have Steve and Austin from McCall Wealth Advisors. How are you doing today, guys?
- [01:09]
A
Yeah, great. Happy to be here. Thanks for having us.
- [01:12]
C
Yeah, good to be here, Jack.
- [01:14]
B
So offline, Steve and I have been having a few conversations about what's going on in John and my life with all of John's acquisitions and the industry in general. And Steve is right in this on the daily. Steve, like what talk about what you guys do and where your position is with this market.
- [01:35]
A
Yeah. So I think what we're wealth advisors first and foremost, but we've got a bent to business strategy. And so we realized that for business owners, most of their wealth is tied up into their business. Eighty, in fact, 80% of all business owners wealth is tied up in their business and then there's 20% outside. And so we try to build all of our, I guess, advice, strategy and all of our, the resources that we can provide and build our team around helping that, that 80% grow, scale. And when they're ready to take chips off the table, we help them assess that.
- [02:21]
B
So which it's, it's always so funny when I hear those conversations because as, as an entrepreneur, we, I call us all squirrely. We always want to do and touch a lot of different things. And I think deep down we all know the correct move is just to reinvest back into that 80. How many, how many people do you work with that actually kind of go out of that bubble and they start to dabble in things they probably shouldn't touch.
- [02:47]
A
So a lot of business owners, especially those that have had some, some success, are pretty confident that they can have success in other areas too. And a lot of times I think the most value that we really bring is to keep your eye on the prize, protect that golden goose. There's. You will have plenty of golden eggs, but don't let those eggs turn into a goose among themselves because that compromises the golden goose.
- [03:15]
B
So yeah, talk. Talking to somebody who's running like three or four different businesses, I am definitely guilty of this exact thing. Yeah, it's definitely difficult to manage. I can, I can say that. But that being said, so where, when you guys start working with operators who are potentially looking to exit or are thinking about an exit? What, what, when do you guys normally get involved with them? At what time in the process or where should you get involved with them?
- [03:43]
A
Austin, you want to step in?
- [03:44]
C
Yeah. So Jack, that's. There's two different answers there. You know, a lot of times we would like to be involved sooner rather than later. Right. Because that just builds in a lot of optionality with how someone thinks about an exit. You know, as the timeline gets closer, a lot of doors just end up being shut off, you know, rather than if you were to start at an earlier time. So we would love to be brought in five, seven years before an exit because there's a lot of cool things that we could advise on and help build for the business owner to help them maximize for the most value and the way that they want to. We end up getting brought in about eight months before an exit. Yeah, a lot of the time, right. It's like they're running, running, running. Oh, I got an offer or oh, something's happening. I need some help and I need to sell now. And yeah, there's just, there's fewer levels, levers to pull and we try to pull as many of those as we can, obviously and we can and offer insight there. But yeah, the sooner the better, Jack.
- [04:43]
B
Yeah, I mean, and that rings true because it wasn't for me personally in my personal journey, it. I only heard about the conversion of your business to a C corp. So that you can. After five years. Right?
- [04:59]
C
Yeah.
- [05:00]
B
Right. Yeah, right off the. The capital gains up to $5 million. And I'm like, oh my gosh, I wish somebody would have told me that earlier than today because I don't know if I'm going to have the business in five years. So why would I start that road now? Unless that's the future. But for anyone listening who is on a five to seven year trajectory, like that's an amazing tool to save you up to what, 5 million in, in capital gains? Something along the taxes on 5 million in capital gains.
- [05:28]
C
It's a lot more than that now. I think a year or two ago they came out with some new legislation that you can get like up to $75 million worth of capital gains kind of written if you're qualified for qualified small business.
- [05:43]
A
There are a lot of like a lot of caveats to that.
- [05:47]
C
Yes, yes, we are not tax advisors. We'll say that.
- [05:50]
A
No, but yes they did. There's a lot of friendly options but the only way that you can even think about those is if you start early.
- [05:56]
C
Yeah, you have to plan.
- [05:57]
B
Yeah. Starting having those conversations with, with people in kind of all different industries, including I think this one, which is why I think you guys are awesome to have on here today. So just an update for you guys and for anyone who's listening who hasn't heard. So John in the past three months has recently acquired three small businesses ranging from about 2 million in top line to 5 to 6 million in top line. And so where, where this, these conversations are coming from is I think that once those become really public and those episodes drop, I think there's going to be a lot of questions for other people who are potentially interested. We all get those thousands of emails a week about hey, sell your business now or you know, we're, we're at the private equity company and we're looking to buy. And so I just, I think that this is a great time to do this. And from your guys's perspective, how long have you guys been helping out operators to exit and do you guys have like some great examples or some, some kind of walkthroughs that you could do with with us and the listeners today.
- [07:06]
D
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- [07:44]
A
So it's funny, we've been a part of our practice started in 1988 and so, you know, obviously we were children. I don't. Austin, were you even born then? I was a baby. And so, you know, we have a lot of examples of, okay, this business owner did this, this did this, they planned in this. So we've got a lot of thankfully through our senior partners, they've told us what, what works best and what, what doesn't work, like what to steer away from. So we've got, and then, and then since, you know, since we have kind of taken on initiative and, and been firm leaders in the, in the firm, we, we've got a lot of examples of what we're walking through now. And so Austin's got one that he's working through currently. We're a business. They approached us what at the end of last year, he was looking to sell and eight months. Yep, yep. He had a. Yeah, it was one of those. I had an offer. PE came in. Austin, you want to dive in?
- [08:46]
C
Yeah, yeah. And I think that's such a, such a good point, Steve. Like, you know, the, the stats we hear is that 50% of all exits are involuntary. Right. And that's not even counting those emails that, you know, a lot of home services companies get that you're right, sell your business now. But the point is like, you've got to be prepared well before even if you're not thinking about an exit because you never know when that time may come or that big offer may come around the table. So this, this business owner, he's. His business was doing right around $1.1 million in revenue. He, he, he got an offer for right at $2 million EBITDA 300,000. And he was thinking, all right, let me capitalize on this and take it on the surface hood, right? $2 million for us for a business that was a fair value at that point in time. He came to us and said like, okay, how, how can I do this? But once we backed up and really looked under the hood of this business one, he was really the only senior leader. Right. He had had a couple of managers with him, but they had recently left like with them in the last six months. So that meant that he was going to have to continue to stay on for three to five years to make sure the business succeeds. In addition to that, the company him to part of his, his compensation was an earn out. Right. So if the company didn't continue to produce, he wasn't going to be making his Money, which is important. The third thing is a significant portion, about 30% they wanted to include not as cash at close, but a stock at close in this private equity company. So that means, and they, they always pitch it like, you know, this is valued at X now, but we're thinking about selling in two to three years and that value could grow by two, three, four times. So it's actually advantageous for us to this, in my opinion, like you actually got to discount that stuff. If it turns out that it's, you know, the value that, that they're saying it is great. If it's more than that, awesome. But a lot of times it ends up being less. There's no guaranteed with that guarantee with that stock portion. And so those, those were big three things. And even more so than that, about 25% of the $2 million he had saddled in debt. And this was debt that upon the, the actual close, he was going to have to pay off immediately. Right. And so the $2 million number that you would see headlined once you back out taxes, because again, short time to close, not a lot of levers to pull. So you back out taxes, you back out fees to the attorneys, you back out commissions to the broker, you back out all the debt that he was going to have to pay off. That $2 million number looked a lot more like five or six hundred thousand dollars. Right.
- [11:36]
A
And it's, it's for him, for him, he'd have to stay on. So honestly, it was almost just like a bonus, a very nice bonus to become an employee.
- [11:45]
C
Yeah. But it stripped him of perhaps his golden goose, which is the asset of the business itself. Right. And so what we told him is yes, you could sell right now, but it was significantly compromised what you want to do post sale. And so let's do some work, let's clean up that debt, let's bring in some general managers to really help the load off of you so that when you go to sell in four or five years, even if you still get that $2 million offer because of that's paid off, because we can pull some lever levers between now and then to help with the taxes, your plan actually will work even with the same exit price. Right.
- [12:22]
A
Just because typically, and then, and in that case though, because he did the planning and he builds a team, most likely that value price is going to go up because he's invested back in the business.
- [12:35]
B
And so yeah, definitely, I, I definitely get that. And, and so where, where are the big levers that you see? Not necessarily the tax Levers, but the levers that you see that, that most business owners can pull or focus on to really try and drive that value as they kind of round that corner a year, two years out.
- [12:55]
C
Yeah, Steve, I think, yeah, I think
- [12:58]
A
the biggest thing is really a mindset. It's, it's a mindset shift for the owner because I know it, you know it. We all hate paying taxes. And so we run our business to earn as much as possible. That's, I mean, we're trying to make a good, good living, but we also want to make sure that, you know, that tax expense is, is as minimal as possible. Well, if you're thinking about selling the business, you don't, you want to make it, you want to show that you're making money because a buyer wants to, I mean, that what's attractive is the asset is making money. They want to see, okay, this is actually a really efficient business. It spits off a lot of profit. And the more profit that you can show, the better, the better position you're going to put yourself in. Because, because that's what, that's what the market wants. And, and those multiples, if you do the math, that's where the real multiples come in.
- [13:57]
B
Yeah. So. Right. Yeah. When you're looking at the EBITDA multiples of ebitda, that's where the, they're taking their valuation from. And when you focus on taxes and, and optimizing for taxes and tax purposes, you're trying to get that net number, which is part of ebitda, as low as possible, so that you're paying as minimal amount of tax, business taxes as possible. But as you start to optimize for, as you start to optimize for a sale, you're looking at, hey, how can I get the EBITDA number as accurate and as high as possible? Because that's where my multiple comes from. And I mean, you do get, you guys have CPAs at your firm. I would, I would assume you guys are not the personal CPAs there.
- [14:38]
A
No, we're not CPAs. We work.
- [14:40]
B
I was gonna say that. Now there's so many different ways. I, I talked to a CFO the other day and he was just rattling them off and I'm going, I never thought of that. One time expense here. One time expense do. And he's able to really climb these EBITDA numbers by just actually focusing on an EBITDA for business versus a tax reduced business.
- [15:03]
C
Yeah. Yeah. Well, and Jack, to, to your point, like, you know, a lot of people think, oh, If I try to get my business ready to sell, that's going to sacrifice like year to year revenue. It's going to sacrifice like the success in the business between now and then. It actually does the opposite. It's counterintuitive. But you're cleaning up so many things as you're getting ready to sell like the best. The analogy I make is because most people have done this is selling a home. Right before you sell a home, what do you do? Like you make sure that all the nicks are cleaned up. You make sure that like all, all of the plants are in a good spot, you know, walls are painted. Well, you make it as livable as possible and as pretty as possible. So a buyer can, will come in and say, you know, yes, I, I am, could see myself living here. And by doing that three, four, five years before an exit, not only when that time comes is it going to be more attractive to the buyer, but you're going to enjoy working in the place so much more too between now and then.
- [15:59]
B
Yeah, yeah. So, so the other co host of the show and I, we talk a lot about, you know, the theory behind the business and etc and one of the big ones that we've been deep diving recently is we've always done like there's benchmarks in this business set by nexstar, set by business practices like best business practice groups and always all those, those percentages like you, you can only use 3% of your revenue on, on X or 7% of your revenue on marketing. And ironically enough what we found is like the, the better option is to do what you said, like clean up those nicks and focus on. Well actually let's look at how much of the percent of each of our expenses is off of revenue or off of, excuse me, not revenue off of gross margin. And so that we're able to really deep dive and find those nicks and see like hey, where are we losing money? And it drives all of the focus to say hey, what is your ebitda? What is this worth the EBITDA that you're spending? Is this worth the EBITDA that you're spending here? And so you can actually hyper focus on that. And I think you're right. I do think by cleaning up that business and all those individual line items you do build a better business ironically.
- [17:25]
C
Well and we think about like what ends up driving the multiple, what ends up driving the enterprise Value buyers don't like, yes, past, you know, past cash flow, past revenue, past EBITDA is a good predictor of what's to come in the future. They don't care what you made, to be frank. Like, they want to know what they can make in the next two, three, four, five, ten years. Right. And they want to, we want to know, can they do that with the least amount of risk as possible? Right. And so if you can show a buyer that we've got this recurring revenue, I've got this great management team in place, I've got these expenses down as far as I can. Margins are great. They're going to say, I'm going to pay a higher multiple for this because my risk is really, really low. Right. And that's what you want for a buyer. That's how you really get those accelerated multiple numbers.
- [18:16]
A
And, and I would say too, to add to that, it's like we're going through a couple of different transactions at, at the moment and all the buyers are looking, they want to look at the last three years. And so you can't just say, okay, I'm going to clean up this year, or hey, I'll, I'll do, I'll do tax mitigation strategies in 2026. 2027 is my, my year. No, a buyer wants to see, hey, is there proven profit growth that is sustainable? Because that's a red flag. You, you show that you weren't running much of a profit one year and then you've got a 400% profit increase. They're like, what are you hiding? You know?
- [18:55]
B
Yeah.
- [18:56]
A
I mean, yes, that's exciting. Oh no. Our sales could know your sales increased by 10% but your profit increased by 400. Like, come on. And so that's just that those are yellow flags, potentially red flags.
- [19:09]
B
Those are red flags.
- [19:10]
A
Lower your, it's going to lower your EBITDA. So say you're, if your industry's getting 8, that might get you down to a 6 multiple because they're taking a risk.
- [19:19]
B
Yeah. And ironically, the funny part, it's funny you say that, Steve, because I have that argument with brokers probably once a quarter is I said, hey, his, his expenses dropped in the last year, but his revenue went up. Like unless. Or his gross profit expenses. So like his material expenses went down, but his profit went up. What happened? Explain this, please. Like, this is a 10 point reduction. Did this just come out of nowhere? Did you suddenly get good at it?
- [19:50]
A
Absolutely. And it's funny that you say that. So a business like that, that has those types of data, the discrepancies in their data, that's 80% of businesses that actually go to market, don't even end up selling now. They might sell later, but the first time they won't because they're books. Like, that guy probably didn't sell his business. He probably didn't. Why would you. You can't trust those numbers, Steven.
- [20:13]
C
Only 10% of those business that do sell get the valuation that the owner thought they were going to get when they go to market. That's like 2 to 3% of all sellers. Right. It's just crazy.
- [20:25]
B
That's the other part too is like, you know, brokers are, I think that they're great for this industry, but they also are really rough for this industry. At the same time, there's good ones or bad ones. Like real estate agents. You can have a house that's worth half a million dollars, but if you tell the owner it's worth 1.82 million, it's just gonna sit on the market. Or you might even get an offer. And then they step inside that house and it's absolutely trashed. And then they're like, ah, you're gonna get 200, 300,000.
- [20:50]
C
Yeah, yeah.
- [20:51]
B
And I just hate that retrading process and expectations. There's, like I said, we've worked with a lot of brokers who are absolutely amazing, but there's definitely some out there that they set the client up for failure. But enough of that me on my soapbox about brokers. Okay, Those are some great, great heads up. So start early, start a couple years ahead of time. The more time, the better. We always say, hey, you should be building your business now, like you are going to sell just because again, if you do get this offer, that's ridiculous. You should probably at least think about it and be ready for it. Are there any other big either red flags or here's a big lever.
- [21:30]
C
Yeah.
- [21:30]
B
John and I like to talk about levers versus knobs. Right? Levers are harder to pull where a knob, you start it and you can just kind of crank it up. A great example of that's like what we see is reduced multiples for not having a marketing team or not having a marketing plan or process or SOP just because again, turning on marketing as a lever is a very difficult thing to do because you spend a lot of money trying to figure out which channels work. But if it's on, it's easier to crank up and like really put money into it. In overdrive.
- [22:03]
D
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- [22:57]
C
Well I was just, I was going to tee you up because you're doing some good work with the business owner right now who came to us. He, he had an offer that honestly would have, would have been enough for him to do what he wants to do post but there was a lot more opportunity inside of the business that he could crank up those knobs and turn those levers to get a higher multiple but also raise his ebitda. So Steve share a little bit about the work that he's doing to try to make that happen.
- [23:26]
A
Very, very successful business. He does a lot of commercial work, but he is in our world, we call this, oh, he's got owner centricity problem. He's working 60 to 70 hours a week. He is the primary salesperson. He is the backend quality control and so I mean all of those things are necessary and valuable. But he, and he has learned over time that he can do it so efficient and he's had frustration with actually taking that hat off. Going back to your E Myth book, probably the first book that most people read when they get into business. He just never took that hat off and let it go. Let it appropriately train people.
- [24:09]
C
It's hard for business owners because it's their baby, right? The keys, somebody else.
- [24:15]
B
It's also hard because they're, I mean that's why they're in that position that they're in. It's like I not to pat myself on the back. I'm really good at being a tech. It's not the best use of my time but I'm very, very good. And so it like it's very hard to try and train and trust and allow someone else to do something and take off that hat because I know how well I can do it. And when they don't produce or don't meet those expectations. It's like, oh man, come on. I know I can just jump back in.
- [24:43]
A
And in this, this owner's case and probably in your case, it's like, I mean they're a representation of you.
- [24:48]
B
Yeah.
- [24:49]
A
So you gotta, you, you. There's so for him he had to step back, train people to be representatives of him. Take some hats off from quality control, take some sales hats off so that he can focus on the business which if an owner is able to invest in a proper team, that's when they can add a zero. You know, if they're focused, they can add a zero to the business. Now there's a lot of work involved and a lot of investment. I get it.
- [25:19]
C
Interest. Yeah.
- [25:21]
A
100%. And so owner centricity. No buyer wants to step in and buy a job. They're looking to buy a business that's structured, that spits off profits. And so if you've created an environment where, where, where everything kind of bottlenecks through you, key decisions, sales, payroll, all that kind of, it's like the more stuff you take off your hat, the more attractive that cash flow is.
- [25:51]
B
Yeah. Because you open up the market. Right. So if, if like that, that business you're referring to in terms of just generalities is probably still, still sellable, but it's still sellable as a tuck into another business or emerging, emerging potential for another business. It's not adequate for a first time buyer or a separate industry, buyer or non institution. Even an institutional buyer might have issues with that because they have to bring in their own guy to run it.
- [26:16]
A
Yeah. Private equity, they'll, they'll discount that. If you have a team that's in place. We like to say you do not have an owner centricity problem. If you can step away for four straight weeks, take your family on a long vacation and that business doesn't, doesn't skip a beat. Now you'll have to, I understand emails, all that kind of stuff. But you not physically being in the business for a month, that's your litmus test. Yeah, that's your, that's when you know you have a good team.
- [26:47]
B
It's the control freak in me that's losing. No, that's awesome though. And no, I, I completely agree. Like that's definitely when you're looking at a business. For me, like when I buy businesses, it's less of an issue just because when we absorb store, I don't actually want the owner to stay on. I'm the perfect buyer. For like that kind of owner. Just because like I want the contracts, I want the business, but like I'm ready. You should, you should definitely leave. I don't need the help. That being said, like for most other cases, it, you will get more value out of having more buyers bidding the price up higher.
- [27:22]
C
Yeah.
- [27:22]
B
Like bar none. And because it's true profit, they're buying
- [27:27]
A
a system that operates well that now
- [27:30]
B
that, so that's what I would say about, that's, that's the point with marketing too. It's like you're buying a system that operates. You don't want to buy the lack of a system for potential operation like yes. Operation there. But you just don't want that. Sweet. Guys. And if I, I, on a much more of a personal note, like just out of curiosity, you know, as somebody who potentially wants to move into, I guess the capital allocation realm rather than the owner realm. Right. Because I think that there's a difference once you, once the dream is once you sell the business, you move into kind of a different role as, as a capital allocator. You make enough that you move into a place where you're putting stuff in maybe another business, maybe ETFs bonds. Like I know this, the show isn't specifically about all of that, but like what, what is your guys's recommendations on what, what the average owner should probably take a look at doing within the first six months post exit or even. Yeah, I mean maybe first month post exit.
- [28:40]
C
Is this Jack, Is this the point where you want us to give you your our hot stock tip? Is that, is that, yeah, yeah, that's
- [28:46]
B
exactly like give me the goods so that I can go and do it myself. No, no, I'm, I'm more, I'm more curious about like the framework. Yeah, no, no, no. I, I, I, I like it. I'm more curious. The framework. Yeah, you know, like what, what should they be thinking about? What should they be doing? Where should they be positioning? Because I've heard like a bunch of different things. Right. There's people that are moving stuff into commercial real estate. There's people that are moving stuff into next ventures. There's people who are moving. And I mean all of those might be good in certain instances, but I think that there's probably a best practice for the average owner.
- [29:19]
C
Yeah, I think the best way to talk about this is to tell a story because I think that's probably most relatable. So we're with business owner right now. Two partners. Their business, you know, is going to sell Right. For, right. For around $8.3 million. They've got enough to where they can, they can walk away. And their, their personal finances are in a good spot to be able to do what they want to do. Right. We talk about pulling levers. They made their business as efficient as possible. Before they sold, they did a fantastic job of getting the house ready to sell. The only way they increased EBITDA is to expand. Right. Either add on to the facility or open a second location, which would have involved more risk. Right. And so they said, you know what, we can do what we want to do post, we're tired, we're ready to take chips off the table, let's do it. And so they entertained private equity offers and found one that, you know, because of the leverage, they were able to negotiate good terms. And so they're going to exit or I guess close here in a week or two. And so the conversation for them now is now what? Right, they're going to stay on and continue to work for about three years. That was part of the agreement. But with that capital we have to really take a hard look at how do we, how do we allocate those proceeds. And for Steve and I, I think one of the things that, that we do best in our opinion is, is understanding like there's no rules of thumb when it comes to like investing. There's no rules of thumb of what to do with the proceeds of your business. This should all come down to like you, your family. What, what desires do you all have? For some people it's buy another business. Right. Business owners, and I say this kindly, are psychos. And I can say that because Steve and I have ownership in our business. Right. And there's, there's a lot of stuff that goes on that like, you know, squirrely. Right.
- [31:12]
A
So let me tell you, can I, I'm going to interrupt here because I just did, I did a big whiteboard session with a husband and wife literally yesterday. We have this process called the cornerstone process. And they're considering an exit and they're like, well, what are we going to do? And so we've got a process for that. We can talk about that later. But, but on a whiteboard what I found is that no, they really are passionate about feeding the community and cows. And so their 10 year plan is once they have their exit, they're going to have an established head of cattle that can produce the, their cash flow that's necessary. And so what are they going to invest their proceeds? Well, they're buying the land now they're buying the equipment now to service all of these cattle and they're slowly starting to build up those Systems. So in 10 years, their whole family and community is and is going to live off of that operation. So for one it might be let's, let's buy some, let's buy some stocks, mutual funds, let's buy some commercial real estate. But for another, let's buy 100 head of cattle.
- [32:12]
C
Yeah.
- [32:13]
A
So that's awesome. But every business owner is different. You know, their interests are different and, and the go and going back to controlling the golden goose. It's like we all know that you can invest in a stock market, get you know what, 10 to 20% on a good year, but if you have a little bit control, you can turn a dollar into six.
- [32:35]
B
Yeah.
- [32:36]
C
So yeah, the rules depends on what
- [32:39]
A
risk you're willing to take, right?
- [32:40]
C
Yeah. Jack, the rules of thumb things I would say that most business owners need to think out, think about one, make sure you maintain a good amount of liquidity post exit, meaning don't take all of your proceeds and throw it all into some sort of purchase where it's locked up up.
- [32:57]
B
Because all in baby, let's do it.
- [32:59]
C
Yeah. Because you're, you're going to get squirrely.
- [33:02]
B
You know, I'm laughing, I'm laughing because I've actually seen it like more than one time. So like it's, it's me enjoying this moment as somebody who has seen people sell and then be like, hey, what are you up to? Oh, we just bought this business actually the old owner of Rapid Response did that. He went, sold Rapid Response to me, went down, moved down to Florida, built Rapid Response again, same ip. I didn't care. I said go for it, sold that made decent amount, a couple mil and then went and immediately bought within like six months a bar like. And I'm like, this is wild. Not only did you buy like take your money and like flip it for me to, to do it again and then take that and then go into some like randomly adjacent field with like the highest default rate out of any type of business. But you know, squirrely.
- [33:54]
C
Yeah, squirrels. Hopefully John Taffer didn't, didn't visit his business.
- [34:00]
B
Yeah, right.
- [34:00]
C
But, but yeah, I mean you got to maintain liquidity because like there's gonna be something that pops up. And so we always try to take a good portion, you know, and just leave it in some sort of, you know, high yielding account where the money's guaranteed for a period of time. Because one and if we do end up going the market route and like investing it in public securities. You probably don't want to dump all that in at once, right. So that gives us a timeframe to sort of like drip in. But also if there is something that pops up that they want to take advantage of the opportunity, whether it's a business, whether it's some sort of dream vacation, right. Like there's a pool of cash there that they're able to do what they want to do. The second thing is, you know, be as tax efficient as you can. Like most business owners, unless they did a lot of pre planning, you know there's going to be taxes, whether it's regular income or capital gains that they're paying on the sale of their business. Most businesses are treated as an asset sale, right. And so you're gonna have capital gains, you know, anything between the basis and the value that you sell. And so yeah, go ahead real quick
- [35:07]
B
on that one because I mean I think that that's really pertinent is, I mean what are the strategies?
- [35:15]
C
Right?
- [35:15]
B
Because I mean we talked about one, with the capital gains. Two, outside of moving your business to Tennessee or Florida or you know, Nevada, you're going to have state capital gains. But what, what, what are the, are there any big levers for somebody within a year or within three years? I think are two good timelines to really say hey, what can we do? Because like real estate has a great, a bunch of great options. If you start within a year, you could probably do a 1031. Like there's, there's options in other industries. I have yet to find or hear about any. Yeah, shorter term options in business sales. Is there just none?
- [35:56]
C
Yeah, I've got three and Steve, interested your thoughts? The first one, and this is area I do a lot of work with and is just charitable giving. Right. If you have a heart to give. There are a lot of things that you can do pre sale that not only are going to impact your net proceeds post sale, but it's going to allow you to even give more to the causes you care about. And so that's one thing that we take a lot of pride in and do a lot of good work. I feel like the second thing is some sort of tax loss harvesting vehicle. And so if there's a way that we can invest money either pre sale, hopefully for a couple of years, but certainly post sale where we're able to achieve market returns but also rack up a bunch of tax losses, realized tax capital losses, then we can count those against the sale of your Business. Right. Which ends up being pretty significant. The third thing Steve and Jack really is what's called an ESOP employee stock. Was it Steve employs stock option. I don't remember what it stands for
- [37:02]
B
but yeah, most of us know what ESOP is.
- [37:05]
C
I shouldn't have gone there with the word. So basically it's a way where you can sell your business. Right. And move the business into like a, into retirement plan. And you can not only negate taxes upon doing that. Now it takes the right business owner, it takes the right business to do it Is not a leverage body. You've got to have a management team that's incredibly strong because a lot of your end profits or end and the money that you receive after the sale is going to be from future earnings, you know, in the business. But for the right business and business owner, that can be a significant way to eliminate taxes on the sale.
- [37:50]
B
Definitely. Definitely. Yeah. One of my buddies just was as, as the employee was a part of a giant ESOP from a construction company that sold out in California. So really neat stuff. I, I love ESOPs. There's some great stories here in, in the home service industry, especially of, of owners going the EB route and then selling mostly to their employees.
- [38:08]
C
It's rare.
- [38:09]
A
It has to be perfectly lined up.
- [38:11]
B
But you have to be a big company win.
- [38:13]
A
You will win.
- [38:15]
B
Awesome guys. Well, thank you all for, for coming on today and talking about a little bit about pre sale, post sale and what you guys do again, It's. It's called McCall Advisors or McCall Wealth Management.
- [38:27]
A
Yeah, so we're McCall McCall Wealth Advisors. You can find us. Yeah, McCall Wealth.com that's our website.
- [38:35]
B
So and where if people want to reach out to you guys directly, LinkedIn, Twitter, Facebook, where should they go?
- [38:43]
A
Yeah, you can reach out to us. Link LinkedIn But LinkedIn for sure. But then also we've, we've got a page dedicated. It's called McCall Wealth.com forward slash OAO.
- [38:55]
B
Awesome. Just for the show. We will link that below in the bottom. So McCall Wealth Advice. No, I'm gonna mess that up.
- [39:05]
A
McCallwealth.com forward/oao.
- [39:09]
B
Perfect. Awesome guys. Well, thank you for coming on today. Really, really, really appreciate it. This has been fun. They know where to find you if you like what you heard. Leave us five stars wherever you're listening. It really drives this show. And we'll see you next time.
- [39:25]
C
Thanks Jack.