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Top Advisor Podcast
#109 – How Financial Advisors Win & Keep Business Owner Assets with Scott Bushkie
00:51:04
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- [00:10]
A
Welcome.
- [00:11]
B
Welcome.
- [00:11]
A
You know, According to a very recent study conducted by Today's featured guest, 96% of business owners are open to switching advisors right before, during or after the sale of their business. 62% of these business owners said they would consider leaving their advisor if no value was added during the sale. And a couple more stats just to warm things up. 48% of business owners plan to exit in three years or less and 64% plan to exit within five years. So there is danger and opportunity ahead for you. The danger? Too many advisors lose their business owner clients even though they had a great relationship with with that business owner and the opportunity. A lot of businesses are going up for sale as you could see in the next five years. And you can start this conversation with your business owner clients today. You can start to form a team of experts necessary for this life changing transition. Choice is yours. But before we dive into this important topic, I want to let you know about some free resources that I invite you to retrieve. After you've listened to today's interview, you'll find checklists, guides, videos, other tools. Simply go to referralcoach.com resources now write this down unless you're driving or on your treadmill. Referralcoach.com resources also in the show notes and while you're there, make sure you sign up for our weekly tips. We're always sharing best practices. We'll notify you of our newest podcast interviews as they go live. And while these are free to you, I think you'll find them quite valuable. This episode of the Top Advisor Podcast is sponsored by Nuxtrudo. Nextrudo helps financial advisors attract and engage qualified pre retirees in their local market by filling educational seminars with high content, I should say high intent prospects, and turning those audiences into new client opportunities to get your free local market report, which is very cool. You're going to learn about all the millionaire pre retirees right in your area and it's free. Just go to nextruto.com that's N-E x R-U-T-O.com I'll tell you a little bit more about Nextrudo later in the show. As I mentioned, our featured guest for today's show is Scott Bushke, the founder and driving force behind Cornerstone Business services. With over 25 years in mergers and acquisitions, Scott has become a go to expert for business owners looking to navigate the complex world of buying, selling and valuations in the lower middle market. Scott's impressive track record includes hundreds of successful deals both in the US and internationally, including helping firms in the professional services space like Financial Advisors. He also teams with advisors to help them with their business owner clients. Scott is the author of the book Finish Strong, Sell youl Business on youn Terms and the Finish Strong Workbook which is a great companion. Scott is also a sought after speaker, engaging audiences and helping advisors and their clients prepare for successful business transitions. Well, it's a long ramp up. It's Scott Bushke zooming in from Green Bay, Wisconsin. Fellow cheesehead. No, I don't know. Welcome to Top Advisor podcast.
- [03:46]
B
Thank you Bill. Excited to be here.
- [03:48]
A
Hey, great to have you. By the way, for everybody listening, Scott is the only the second repeat guest on Top Advisor podcast. That's how important I think his message is and valuable it's going to be for you guys. Scott, one of the reasons I wanted you back is because Top is because of your recent study that has revealed that business owners want what they want need from their advisors related to the biggest financial event of their life, the sale of their business. But before I ask you to tell us about what the study revealed, which I know will likely include a few more statistics before we dig into that, what is the big message you have for our listeners? Why do you believe they need to listen to this interview?
- [04:34]
B
Yeah, when we did this national study for business owners, we expected to find the mindset of them and why they would sell, why wouldn't they sell, what they've done for evaluation and everything else. But because we work with so many financial advisors, we asked some questions around that, around the financial advisor and quite honestly, those findings were in the study were almost more shocking than what we learned about the business owner psyche of selling. And because we worked for over 20 years with financial advisors to help their clients sell their business so they can get the aum, that was some of the things that really popped out that were shocking. Like as you pointed out that, you know, people are going to listen to this and they're either going to get really excited that this is the biggest opportunity that they've probably ever had in their financial advisory career or wealth planning career, or they're going to be scared to death because they're going to go, oh, this is a bunch of junk. I'm just going to keep doing what I'm doing and stick their head in the ground and watch big client after big client after big client leaving, going what the heck? Why did this happen? And you mentioned the stats on how many are going to sell and people have computed that and wrote books on it that it's 10 to $14 trillion, not million, not billion trillion dollars over the next five to 10 years is going to transfer and someone's going to manage those assets. And the people that we work with, they would much rather work with five clients that each have $20 million to invest versus 200 clients with $500,000 to invest in just the sheer amount of time they have to spend a quality of life and be more profitable and make more money, be able to give better service to those clients. So that's what we're going to talk about today is what can you do as a financial advisor to really specialize with business owners and not only keep the clients that you have, but really become a business owner magnet that get more people coming to you versus you chasing all these big, these big ticket clients out there. So I'm excited to jump in with you on this.
- [06:26]
A
Yeah, we know that business owners often compare resources with each other. Unlike, you know, an individual that may not talk about their financial situation to a friend or family member. Business owners often talk, they're in study groups, et cetera. So it's, it really is ripe for, for referrals, introduction. So let's dig into the study a little bit. If, if you want, you can give us a little framework and structure of the study. That's good. But, but mostly we want to know what you learn. Right. What, what are the top findings that every advisor who has a business owner client or wants to track more? What, what should they know?
- [07:03]
B
Yeah, so, so let me just frame up what it was. So it was done by a third party specialist and there was only business owners and it was a nationwide survey tied to the 2020 census. So it's statistically correct. 750 business owners all over the country and had to be between 45 and 75 to get in the study. And you also had to have at least 5 million in revenue. So it was broken down about 25% were business owners between 5 and 10 million revenue, 10 to 25, 25 to 50 and 50 to 100 million in revenue. So it's, it's not somebody who just started their business yesterday. It's not somebody who's 25 and doesn't know, you know, what they don't know. These are mature, you know, baby boomers, Gen X that, that took this, this study and what we found was, was some of them are just shocking. You know, as far as the number of business owners that you mentioned want to sell, I mean to have physically almost half of all the boomers you know, or half the business owners in the study want to sell their business in the next three years. So it's not one of these things. Where I started in 1998 and people were talking about this big, you know, this big wealth transfer that's coming. And it's always been it's coming. I think it's safe to say that's finally here. It's not like, well, this would be nice to do in two years. It's like, if you don't do this now, you're going to lose business. And some of the things that we saw was that the financial advisor was, number one, was the most trusted advisor. And it was interesting because when the study was done by other groups 10 years ago or back in 2013 even, it was the CPA and the CPA in that study. And ironically in my study, both dropped down to number five and the financial advisor moved up to number one from number.
- [08:49]
A
Yeah, I mean, if you ask anybody just generally, who would be the trusted resource, it would be the cpa.
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B
Right.
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A
But you're saying it's the financial advisor,
- [08:59]
B
Financial advisor number one again to have a conversation about their exit and things along that line. It was financial advisor number one, a SEPA exit planning business coach number two, then investment banker M and a advisor like us. Then it was kind of you talked about the peer groups like someone in my peer group. And then it was CPA and then attorney and then others below that. But so, yeah, so it's interesting that they're really looking at this financial advisor and the SEPA to help them start this conversation. And some other things that popped out was you think, all right, if I asked you right now, what's your house worth? You'd probably be giving me an answer just like that. That's probably within 10% of what the value of your house is or your cabin or your car or any other assets you have. But yet when we ask people, what things have you done, what actions have you taken to understand the value of your business, which again is usually 80 to 90% of their overall net worth, over 60% have never done what we call an RMA or real market analysis to understand the true value in today's marketplace or get any kind of a professional valuation done now that's ever in their 20, 30, 40, 50 year business cycle, have never done anything, let alone in the last year. Because what business buyers care about is, you know, what does the last 12 months look like and what does the next 12 months look like? So what your business value was 2, 3, 4, 5 years ago, even though your business could be the same, could be very different, higher or lower, depending on all the other things that none of us can control, with interest rates and uncertainty in the lending market and geopolitical and Covid and all the other things that go on that will increase or decrease the value of your company if your industry is rolling up or not. 36% said, we just come up with an assumption with my financial advisor, which I think is scary, because when we looked at why would you leave your financial advisor? The number three answer was, my financial advisor either gave me the wrong value or. Or the wrong tax implications. And what I've seen, how I've seen this play out, is if I'm the financial advisor and you're the business owner, Bill, it'd be like, hey, what do you think your business is worth, Bill? I don't know. I think it's probably worth 20 million. All right, well, let's use that number. And then you finally come to someone like Cornerstone Investment Banker to sell your company, and we say, now it's worth 12 million. And you go, well, I'm a smart business owner. I didn't screw up. You know, Scott is my financial advisor. Why did you. Why did you let me use 20 million? Now I've got an $8 million gap. I'm burnt out, tired, sick, and I don't have any energy to fix anymore. We've always used this number, and I'm off by $8 million. And you screwed me, Scott. You screwed up. I'm going somewhere else. So to understand truly what that value is worth, it was unbelievable. Only, like 34% had ever had any either an RMA or a professional valuation done. So that one stood out. And I think, again, going back to the financial advisor, that 72% in both of these cases, 72% going back to the valuation. Expect you to help me get an accurate valuation. So you, as my financial advisor, I don't expect you to do the valuation, but I expect you to help me get an accurate valuation. That was the business owner's expectation. And the other one, that was 72%. Ironically, same number was. I expect my financial advisor to have a team around me that could help maximize my value and minimize my taxes. So, again, I don't expect you to do the work, but you better have that team that at the right time, you can introduce to me to help me maximize my value and minimize my taxes. Because if you don't do those things, I'm probably gonna. I'm open to Leave and go somewhere else that somebody can help me with that. So it's, as you mentioned earlier, we've seen so many people over the years when I speak talk about how man, I build rapport with this, this man or woman or this family. And we took them golfing because they liked to golf. We went out for dinners, we did this, we did that. I've even had someone say, I took them to the masters, I paid their way for the masters for two days to go to the masters because it was on their bucket list. And yet when they sold their company, I was left out of the equation because I just sat back and waited that, well, I've been Bill's financial advisor for 10 years and he's got a half million dollars with me. I'm his guy. You know, I'll just, I can't help him start the conversation. I can't help them put a team together. I'll just, I'm just, I could just manage a portfolio. So whenever he sells, I'll just sit back and wait for the phone call. And what we found is that 96% of those people are open to moving. So if the investment maker says, hey, I got a guy, or if somebody calls and says, hey, I know that you're working with Scott and he's been your financial advisor, but you know, we're ABC Financial advisor and we specialize with business owners that just sold their company with big lumps of sum. And let me show you all these shiny projects and objects we have and woo you off your feet. More times than not, those people are going to leave if you only are worried about the rapport you built them. That's what I thought from the financial advisors part was so intriguing because everything I've seen and learned about building rapport and getting them to like you and all these things, that's good. But it all goes out the window when it comes to this huge, significant sale, which is the sale of their company, which they do once in their life. And they're so extremely vulnerable at that stage. They just, they don't know what they don't know. And they're looking at people to lean on that they know and trust.
- [14:09]
A
So would you say that the most important. Well, I'm picking up two maybe things advisors need to do and you can fill in the blanks or add to this. Number one, start talking about it now, you know, and don't take anything for granted and then form the team. Right? Is that so? I mean, are those the two main things that people should start Doing or is there anything I'm missing?
- [14:39]
B
Yeah, Bill, no, you're absolutely right. Those are the two biggest things is start the conversation. And we have like, you have all your tools. We have a one page questionnaire. You can ask six simple easy questions and if any of those are no, hey, it looks like we got some work to do here. So it's trying to create that intrigue and then empower them to get the answers. And so it's asking the right questions. And I don't care what age they are. In fact, what we found is that, you know, boomers are going to sell once and be done for the most part, you know, they're going to retire. But Gen X, we see them as kind of the, we call them the boomerang owners that they're going to sell. They started something in high school, college, took it over from their family, built it up. Now they're in their 40s, maybe early 50s, and they've been, I've been doing this my whole life for 20, 30 years. I'm going to sell, travel the world for a year or two, you know, Correct. Check the bucket list and I'm going to go back into business again. So don't think that just because somebody's 45 years old that they're not a potential seller. So have the conversation early. Let them know that you're there, that you have a team built up around you. Because yeah, once you have that team and you can start the conversation by asking the right questions, you don't have to be an expert in any of it, just asking the right questions and then just introduce and endorse and then it's really. Those are the two biggest things that you can do. Absolutely.
- [15:51]
A
I want to get into the questions, the right questions, and how a trusted advisor navigates this conversation. But first, let's take a very quick pause for a word from Nexrudo who makes this show possible. You and I know that the way most people find their financial advisor is through human to human connections such as referrals and events. Hosting educational events for qualified prospects is a tried and true strategy that is still producing great results for advisors who know how to make them work. Seminar marketing works because the in person setting allows you to build that all important trust with the attendees. And one of the key ingredients in making seminar marketing work is getting the right people, truly qualified prospects to attend. This is where Nuxtrudo comes in. This is their special expertise, getting the right people in the seats. Nextrudo handles the heavy lifting so you can focus on earning their business. Nuxtrudo can help you design the seminar if you wish, train you to present it effectively, and create customized territories targeting your ideal market. They even handle compliance approvals if necessary. And here's the best part. Their specialty is getting pre retirees, specifically those with about $1 million in investable assets, into the room with you. Nextrudo promotes the event, getting bodies in the seats so you just show up and bring your great value, spur attendees to action and set appointments. And because nextrudo guarantees exclusive marketing rights, you you'll never have to worry about them reselling your leads to the advisor down the street. They even offer ongoing marketing support to help you create a true sales process that ensures your prospect lists are always fresh, responsive and eager to meet with you. You'll be working with the owner, Steve Abbott, who provides incredible customer support without any pressure. Steve makes it easier for you to see if this is a right fit model for you. I've looked at nextrudo's model and I've looked at other models and nextrudo does offer some features and value the other firms just don't. So head over to nextruto.com that's N-E-X-R-U-T-O.com and request your free local market report. You'll see exactly how many millionaire pre retires live in your area, broken down by age and assets. Again, head over to nexruto.com n e X-R-U-T-O.com for your free market report and to schedule a complimentary strategy session to see if it makes sense for you. That link is also in the show notes. Now back to the show. As a trusted advisor financial advisor, what's the best way to navigate a conversation with business owners about their eventual exit? You mentioned maybe a checklist you have. Are there key perspectives or things an advisor should bring to the table to get this conversation going?
- [19:01]
B
Yeah, what we found talking with a lot of financial advisors and talk with business owners all over the country is that there's a handful of questions that seem to be pretty good that kind of get things going because we, you know, if you tell someone, well, you know, you have to do this well, especially entrepreneurs are like I'll do the opposite or you know, I'll do it when I'm ready. But when you just, you don't have to know all the answers but just asking the question. The first one is have you had this, this real market analysis? So there's RMA done in the Last year or two. Another way of saying it, do you know what your business is worth? And if so, is it done by someone that's an investment bank that's in the trenches, or does your Uncle Bill look up on Claude what a business should sell in your industry and send that over to you? So that's number one. Because if they don't know what their business is worth, how can they do any of the other work? So once you know what it's realistically worth, then what are you going to net out of it? So between the financial advisor, the tax attorney, the cpa, whoever, the tax team, how can you minimize taxes? What things can you do ahead of time? And as we all know, there's things that you can do six months, a year or more in advance that you can't do once you get the loi or after the sale of the business and you just end up paying full boat on the taxes. So what are you going to net out? So do you know what you're going to net out? Do you know what your value is? Do you know what you're going to net? And then the third big one, which is where the financial advisors really shine, is do you know what you need to live your ideal lifestyle? What number you need to live your ideal lifestyle? What does that look like? And we call it the lifestyle number. So then if you run those three things now, you know what the values in a martyr of three to four weeks, within a month, the owner could go from I don't know anything to I know my real number is, I know what my net number is, and I know my lifestyle number is. And then they look and say, okay, if my net number is 8 million and my lifestyle number is 10 million, well, now I'm making a choice. Either I lower my lifestyle down to 8 because I'm burnt out, tired, sick, I don't want to do it anymore, Or I go, hey, I've got a $2 million wealth gap. And in the RMA that we do, we'll identify the top two to three things that they could do to enhance the value the most. And then they could do that work, or we could help partner them with a business coach that we know we don't do that work. But those are the first three questions. Do you know what your value is? You know what your net number is? You know what your lifestyle number is? Then you get into, you know, do you have enough life insurance to protect yourself? Well, geez, I thought it was worth 10 million. Maybe it's worth 15 $5 million short or whatever the number is, you know, are you protecting and mitigating your risk as a business owner if something bad happened to you? And again, according to the exit plan institute, 50% of people are going to go out not on their terms, but on the five dismal. Ds, death, divorce, disability, disagreement, distress. And then. Do you know all your exit options? That's another big one that you can ask, you know, hey, Bill, just, you know, thinking about, you know, your exit options. Do you even know? Well, I know I'm going to either give it to my kid, or I was going to call my competitor down the street. Well, those might be the worst two options that you possibly have. There's, there's nine separate ones, and then you can mix and match them either which way. So there's probably 50 or 100 different options, but they only know two. And, and that's why it's important to know the pros and cons of all, because it might have thought, oh, my gosh, I, I've only got these two options, but this fifth option would have been the absolute perfect and fit exactly what they were trying to do for themselves and their employees, their customers, their kids, whatever it might be. And then lastly, you know, when, why, and how you're going to get out of business. You know, you've been doing this for 20, 30, 40 years, Bill, but, you know, when's enough's enough, you know, oh, that's the lifetime number. When are you going to get out? How are you going to get out? Well, I really don't know. I just thought I'd figure it out someday. So when you start asking those three numbers, Life insurance, protecting, mitigating risk, when, how, and why you're gonna get out. And do you know all your options? Those six questions, there's gonna be at least one, if not all five or six of those being no. And when they're no, it's like, hey, look, I've got, again, going back to the team. I've got a team. I've got a person on my team, a strategic partner on my team that we can set up a call. There's. It's. Everything's confidential. There's no cost to the initial call. And let's just sit down and talk about this stuff. Why wouldn't you want to get smarter? You get one chance, exit your company. I'm here to help you, make sure that you get that done when it makes sense to you, and making sure you maximize whatever is important to you, and that's where I think by asking those questions and then being able to bring someone in right away that's an expert in that space, that's not going to embarrass you. It really elevates your game as a financial advisor to that trusted advisor level. And now you're starting to help them make decisions. And they could be 10 years away from selling or they could be 10 days away from selling. It doesn't make a difference. It's all about showing that you have a team and you're there to help them in this. This scary thing that they've never done. Ninety plus percent said they've never done it before. So you've never, you know, they've never done it before. They don't know what it's worth. 32% said they don't even know who to talk to or who to trust. Like, I don't, you know, 49% or 54% said, I don't want to talk to anybody because my employees find out, they're all going to run out the door and leave me immediately. Which you don't want to tell your employees, but you got to talk to somebody. And what I found is if you sit back and just wait for them to talk to you, the owner calling you and say, hey, I need to sit down, talk to you, it's probably gonna happen one out of ten times. You need to be proactive. You need to be asking these questions, because when you do, that's when it cements the relationship because you're helping them in their time of need. And the nice thing is it doesn't. You have to spend 10 or 20 grand going to the Masters. You have to spend a couple hundred bucks at a round of golf. This is a conversation that you could have in their home, in your office, wherever you want to have it virtually, and bring so much value to your business owner client.
- [24:33]
A
So you and I talked about a couple of case studies. One is kind of where someone lost an opportunity. Another one is where someone really succeeded very well. Let's start with the one loss, and I don't know if it's the one. The guy took the client to Masters. But in your study, you tell a story about an advisor that thought he had a great relationship and really missed out on a lot of assets. So tell us that one first.
- [25:00]
B
Yeah, I mean, there's so many versions of it, but basically, kind of what we mentioned earlier, that they have a client, they have a half million to million dollars with the client. They are their, you know, their financial Advisor. And, you know, they, they, they both love to golf, so they played some golf. This is not the one that went to the Masters. But they, you know, them and their spouses like to go out for dinners, you know, probably three, four times a year and talk a little bit about what's going on and just were very friendly if they, you know, they go to a nonprofit gala once or twice a year. And they were kind of friendly, more than just client, maybe a little friendly, Very good rapport. And they said, yeah, I've read my books, I've read everything. That my job is to be a good portfolio manager, manage the assets well, and if I can build rapport well, that's all I need to do. And I think for maybe the people that are non business owners that don't go through this catastrophic or just huge, emotionally charged event, that probably works very well. But for people when they go through the sale, it is such an emotional event. It's such a change of life from working all my life for this illiquid asset that now I'm working for money. Now this money's gonna work for me. I've never had 10, 20, $30 million before. And they're so vulnerable at that stage. And what we've heard multiple times is, so, you know, again, they've got this client, so they sit back and wait like, oh, Bill just sold this company. So I'm sure he's super busy. So again, I've been, We've known each other, we're good friends for 10 years and three weeks go by, four weeks go by, five weeks go by. You know, again, writing off that you're busy, you're transitioning the company, eventually you're going to call me with the money. And after about five, six weeks, I finally go, hey, Bill, you know, hey, I heard you sold your company. Congrats. Yeah, thanks. God, I'm really excited. Oh, my gosh, it's been so much work and. Yeah, that's why I didn't want to call you right away. Yeah, I'd love to sit down, talk to you about investing your assets. Yeah, absolutely, I would. But I got to tell you that, you know, we've never had this much money. And my wife and I, we said we can't screw this up. And ABC&XYZ also called and they have plans specialized for business owners like me. And, you know, we've talked and I like you. We're definitely going to sit down with you. I want to give you a shot, but we've at least got to Listen to these other two as well. And you go from the front of the line of 10 years of building rapport and all the dinners and all the relationships and all the golf to the back of the line and losing the money because they show how they're. They flex their muscles, they show how many programs they have and everything else, and you just can't. What we see, what we hear is that they just. Yeah. They lose the business.
- [27:27]
A
Yeah.
- [27:28]
B
Because they weren't there at the right time to build that team, to help them ask the questions. There's no. What we've heard, you know, and talking to business owners is they feel like they're. They. Well, yeah, Bill was good for my $500,000, but I don't owe him anything. He didn't help me. He didn't introduce me to the M and A advisor, the investment bank. He introduced me to this tax people. He's just my wealth manager guy. And I'm going to shop, you know, I got to do what's best for me and Bill. You can keep my $500,000, but I'm going to take my 25 million over here to this group, which is just pouring salt on the wound.
- [28:04]
A
All right, so here's something that you said that I think everyone needs to hear this. You teach that business owners should never accept an unsolicited offer to buy their business. Now, never is a strong word.
- [28:22]
B
Yes.
- [28:23]
A
Tell us more about that. What happens if they do or they don't?
- [28:28]
B
Yeah. I'll tell you some stats and I'll give you a case study with a financial advisor on a good story. So what's the job of a. You know, there's private equity, there's family office, and there's corporate development teams that work for companies that are buying companies. What's their job? Job? Their job is to buy a company for as little as possible and to put as much risk on the seller. So if it doesn't go as well through the transition, mostly on their. Because of them, the sellers even take a further hit. That's their job. Their job is not to go well. Bill's a really nice guy. I'm going to pay 5 million more than I think I should have to. They get fired tomorrow. So their job, most do it ethically, some do it unethically, but that is their job to get it for as little as possible. And they know exactly what to say, how to flatter you, you know, and this is what we get from owners. It's like, oh, Bill called me and boy, I've been doing this for 30 years. And Bill just called and said, boy Scott, you've really built a nice company. And I'd be, you know, if you're thinking about selling, I'd love to buy your company. And the flattery of like, oh my gosh, someone just validated all my life's work and they, they see value to it and they're telling me all the right things. It's like, you know, a lot of our people talk about giving up their kid for adoption is almost as similar of selling a company. And everybody's, you know, I coach basketball in youth basketball. Everybody's kid thinks their kid's the best athlete. And then you add in, well, my kid's also the smartest kid and he's the nicest kid and he's the best, you know, best kid in school, whatever it might be. And when they get flattered again, over 60% have no idea what their business is worth. And they actually will show that they target founder owned businesses because they've never, they've not gone through the sale process before, 90 plus percent of them. So they're going after these people, have never sold before, don't know what the value is. They're going to pump you up with all kinds of, you know, flattery and how great you are and then they're going to give you this offer. And I can tell you high level in six years that we've been running a process against unsolicited offers because they've really been more and more prevalent. Anybody that's doing probably 10 million in revenue or more, I can almost guarantee you've got an unsolicited offer or someone calling you say I want to buy your business or a letter in the mail, maybe even once a month, if not more because they know that if they can get to you and negotiate one on one before you get to someone like us, an investment bank that help you sell the company, they are going to get a better deal. Otherwise they just wait to see what's on the marketplace. So in six years we've run a process against the unsolicited offer and not once has the unsolicited offer or the buyer ever left. They'll threaten to leave, but they don't leave because hey, if I can still get it for this lowball offer, great. But in six years, 100% of the time the seller has chosen a different buyer. When we run a process to create auction, you know, create an auction like environment, create urgency and scarcity and competitive nature, 100% of the time. And just to give you a story on that. So we got brought in by the trusted advisor and so was us and the M and A attorney and the financial advisor and the cpa and the owner was going to sell. They brought us in and say, hey, we got two buyers interested, but we want to make sure that we can bring all the buyers to the table to get the best value. And that was on a Friday. We agreed to work together. We actually were going to do their interview on Tuesday. And over the weekend they're like, hey, you know, do we really need cornerstone? We've been in this industry for 40 years. I've sat on the national boards. We're the market leader in our region. We know this industry better than anybody else. I've got the two biggest buyers at the table. Why do I need anybody else? I'll just do it myself and save the fee. So they called me on a Monday and said, hey, you know what, we want you to do the rma. We want you to tell me what market is, but we're going to take these two buyers and work them individually. So they talked with them. I said, look, that's your product, it's your company. And the first offer came in again and they're thinking they're really the only buyer at the table because that's just how the seller kind of had set it up. After talking with them, the first offer came in at $31 million, 26 million at close and 5 in a seller note and maybe an earn out. But they're like, we probably aren't going to get the $31 million deal. Well, the next week we had come in with our RMA because it was moving, everything was moving really quick. And because they had been talking to them for a while and the RMA came in at 43.3. So our market valuation or analyst came in at 43.3 million. They said, well, yeah, that was the second, that 31 million, that was the second biggest buyer. Now we've got the 800 pound gorilla, we've got the company that come to our office twice, take us out to two amazing dinners, told us how smart we are, how great our management team is, how many synergies between the two firms there are that we're gonna be able to take advantage of. And all the things they wanted to hear. They had the most synergies and the deepest pockets to put the best offer forward. And their offer came in next week at $25 million. 25 million. Wow. So we said, you know, can we please run what we call pomo, the power of multiple offers. That's the only way you know the buyers. If it's one on one, the buyer has all the leverage, right? They've done this. They look at thousands of companies to buy five, like literally we ran a poll, they look at three to 5,000 companies and they buy five or six. That's like the average. So less than 1%. And they look at all those companies, they've done it all the time. A seller has never done it before. They don't know what the value is. They've got all the tricks in the book. They can drag things out, they can ask for more information and drag it out, drag it out, drag it out until eventually you kind of wave the white flag and say, fine, I give, I'll sell at whatever value that you want. But now if you can bring an investment bank, you kind of have knowledge against knowledge and even the playing field. But the only way that you can get to the seller, to have the seller advantage is to get these multiple offers. And that's where you can get like last year we averaged 8 offers per client. So now the seller has all the negotiating power they can get. You know, they can choose highest value or most cash at close best, culture fit in, protecting the employees, whatever mixture of what success looks like for them, they get to choose. And now they have that peace of mind. And not only that, but because like if you bring in our process, you know, we do the rma, we do the net number, we do the lifestyle number. And then if they decide to sell, well, now the financial advisor has already done his, his or her plan. So now we go through the process, we build the story, we do all the research, the seller signs off and then we're going to market. But now the financial advisor has been kept in the loop all the way through this process. They're cc'd on some of the key emails, they're in our updates every two weeks to listen in when they can make the call. But now they know what's going on because it's their team. They help bring us to the table. And now we got down to the signed letter of intent. And by the way, we went to market and in 10 days. Now this is very fast, but because the things are rolling fast, we had to move fast in 10 days because we created this auction like environment, we were able to get them $51.3 million.
- [35:06]
A
Wow. So the initial offer was 31. Your RMA, your real market analysis came in at about 41.
- [35:14]
B
43.
- [35:15]
A
43. But through your process of multiple, you turn the. You turn the seller into a buyer, don't you?
- [35:23]
B
Right, exactly right. They get to over 50 million. Yeah, yeah, we got over 50 million. And the funny thing was is that same group came to them nine months earlier, again without us, just one on one with the seller, and said, hey, we want to buy your company. We really like it, but we can only pay a 5 multiple. We have like a written mandate with our P firm that we can't pay more than that in 10 days with our process creating that. Like, hey, if you don't want to buy it, that's fine because now you're going to have these big boys in your backyard and you're going to eat at your home base all day long versus you can own this whole area and now grow from there and have a really good base. In 10 days, they couldn't pay more than a 5. One on one. They paid an 8.25 multiple in 10 days.
- [36:05]
A
Wow.
- [36:05]
B
So without us, without Pulmo, without an investment bank, it would have been 25 million, the biggest group. 30 million for my group, because that's what the five multiple would have been. And 31 million from the other group, when we bring competitive nature to it, 51.3. So they would have left over $20 million on the table. And because the financial advisor was in the deal all the way through, had put together their plan, they knew what the number was at LOI, and then 45 days later, we closed, they got to invest. I think it was somewhere over $30 million.
- [36:37]
A
Well, that'll. That'll change an advisor's practice quickly. One.
- [36:40]
B
Yeah. Yeah. If you can get three of those, you have almost 100 million assets with three clients. Three of those clients. So that's the intriguing part.
- [36:49]
A
That's beautiful. First, I got more questions, but I'd be remiss if I'm going to hold up to the camera. For those watching the video, the name of the study is the $100 million opportunity hiding in your book. And you kind of revealed a little bit what that actually looks like or what it could look like for someone. Let's talk for a minute about the deal team. Who should the advisor assemble around them? Who are the main players?
- [37:18]
B
Great question. Yeah. The main players are obviously them. The financial advisor. You need somebody on tax. So it could be a cpa, it could be a tax attorney. And then you need the investment maker, M and a advisor like Cornerstone. And then the last person that's so critical is the attorney. It's not just any attorney, but the MA Attorney, because I have seen deals, again, real deals, unfortunately, where the client did everything right, built up a great company. We got multiple offers. They got more than. They got 30% more than they thought they were going to get. They were so excited, got the LOI signed, only to have their buddy, who's their attorney, who knew them really well and helped them set up their LLC and did some collections for them and helped with an employee issue, completely blow the deal up because they had no idea how to do a deal. They didn't know what the battle, which battles to fight. They didn't know what market was. And we lost the client and the seller had already been starting to spend the money that they already didn't have in their checkbook, but knew it was coming, and the whole thing fell apart. And they had to psychologically pick themselves up and build this company up again because they had started taking their foot off the pedal, which they shouldn't have, but they did, which a lot of people do, because they know they're getting closer to close. That's, you know, and so, you know, the analogy I like to give that they should use that I've seen work the best is, you know, your general's attorney is a great asset and they're going to be needed because they're still going to have to find things that they know are the bodies are buried and they know, you know, the books on the company and all the legal stuff that they're going to need to provide to the, to the MA attorney. So they're needed. So they're also part of the deal. But the M and A attorney, I liken it to, the regular attorney is like their family doctor, their general. You know, you go to the family doctor, you. You get your annual physical. And so, you know, my doctor for the last 30 years has given me a physical. He knows me better than anybody else does. I like him, he likes me. But all of a sudden I, you know, I go in and I've got a headache for the last six days. He runs a test to find out I've got a brain tumor. I got to have brain surgery. I could die now. I could say, well, geez, I really like my doctor. He is a doctor, she is a doctor. And you know what? I know you don't do brain surgery, but I really trust you. You've helped me through some things here with this and that and pulled muscles. I want you to operate on me. Like, what are you talking about? You could Die on the table. Yep. They're like, no, there's no way I'm going to go to the brain surgeon. That Tuesday, Thursday, that's all that they've done for 10 years is brain surgery. They couldn't cure their common cold, but they could do brain surgery. I'm going to go to the brain surgeon and then come back to my generalist and for checkups afterwards and that. Everybody's like, of course you're going to use a brain surgeon. But so often they go, well, again, I don't know what, I don't know. I don't know how important it is to have the M and A attorney. They know me, I can, I rely on them, I trust them. You've got to bring the M and A attorney in. And if you don't have one, that's okay. Most don't. You know, 95% of attorneys are not M and A attorneys, probably even more than that. And so we can give a different, you know, we can give different recommendations to people that we've had good success with. But, but that's the team. The financial advisor, cpa, tax attorney, the investment maker, M and A advisor, and then the, the attorney and the M and A attorney, and then there's other consultants that are on the peripheral of environmental and this and that, everything else. But those are kind of the, the key people that you need on your team. And if you don't have one of those people, it could really hurt you in that, in that process.
- [40:42]
A
And this, this RMA that you're talking about, real market analysis, that's, that's kind of a proprietary service that you offer, correct?
- [40:50]
B
That's correct, yeah.
- [40:50]
A
Okay. And yeah, so I'm curious, what does it cost if an advisor wants to get an RMA for one of their business owner clients? What does that look like?
- [41:00]
B
Yeah, we're proud that we tried to really put together a product that is good as possible for as little cost as possible because we don't want it to be a big friction point that people go, oh, I do it, but I don't want to spend 20 grand because a lot of professional valuations are 10 to 30 or 40 grand. So we've got it down to about a quarter of that cost at five grand. So just for five grand. And the other thing that we'll do for financial advisors is we'll update that for that client every year up to three years. So basically they're getting, for five grand, they're getting three years worth of valuations and updates on an annual basis so they can understand what it is today. And the reason we did this this way is because before we charge like 35 or four grand and people would be like, oh Bailey, I'm going to sell in two years, maybe I'll do it next year. Like why wouldn't you want to know today what your value is? Because a, either it might be worth more than you thought and once you do the net and lifestyle number go, man, I could sell today. Oh my gosh, I would have wasted two more years in business that I couldn't be enjoying life. Or it might say, geez, I thought I was here. I'm actually here. Boy, I've got a bigger gap than I thought. But at least now I have the energy and the horsepower to go in and fix those problems, either myself as a business owner or with a consultant that we can hook them up with. And so that way there's no reason why they shouldn't do it because if they're three years out, they're going to pay once in that and that's it. And so it's just a great what it is, it's a great tool to help them understand what is the value of my business in today's marketplace for estate planning, for buy selling, you know, to update their buy sell agreements and buy in insurance to think about selling, think about buying a company. What it is not is a certified valuation that if you're getting divorced and you got to go to court with a certified valuation or I want to do a gift in estate for IRS purposes or any kind of thing along that line. It is not that and we choose to keep it. Not that we can keep the cost down and everybody can do that, but we do them all over the country. About half of them are for people that want to sell and half of them are for people that want to update, buy, sell, agree, you know, life insurance or just want to know, passing on to a kid or whatever else that might it might be.
- [43:06]
A
So I, I promised a couple of case studies. There was one that you talked told me about earlier before we got on air here. I don't know if that was the one where you got the 1 to 50 grand 50 million or was it a different one? Some very successful case study.
- [43:24]
B
Yeah, that was the one where the financial advisor got 30 million. But another one that we just worked with that we just got done, in fact I was just on the phone with her. We're working through the true up on the working capital was another one where a husband, wife, team, woman owned the business and did a great job building this company up. And just like we've talked about, a private equity group said, hey, you know, we would really love to buy your company. It's a great company. And they're like, well, you know what? We're actually nearing retirement age. Let's. Yeah, we're intrigued. Let's learn more. They started around 5, 6 million. And they had worked through negotiations with them and their attorney up to about $10 million. But the kicker was is that that $6 million or so went down to 5 in cash at close. And everything else was an earn out. And as the number got bigger, the earn out got a little bit more unreasonable. So unless that company really was like a rocket ship, it was really a $5 million deal or something close to that. And so the financial advisor had heard me speak at their conference and said, hey, they'll do a call just to talk at no cost, and it's all confidential. So we jumped on a call with the advisor first and then with the advisor and their client, and we just talked about the scenario and what it is. Could we provide value? And said, look, we could do the RMA for five grand. So she's like, yeah, at least I want to know what you think market is. And we came back and market was around $10 million. But I said, what market also is is that you're usually getting somewhere between 75, 80 to 90%, sometimes even 100%, usually between 75 to 85% cash at close. And you're only going to get 50% cash at close. So at minimum, we think you could get another 3 million cash at close or so. So it was enough that she said, you know, I'm going to lay in bed at night thinking about should I would have, could have. You know, is there another number out there? Yeah, you know what? Let's, let's go through this and let's go through the process now. In the meantime, what we found out after the fact was that the financial or the private equity, the buyer had said as they worked up from 6 to 7 to 8 to 9 to 10, they're like, hey, look, Bill, 10 million, that is our number. We can't go a penny higher than that. You've. You've pushed us to double our offer. Good job. We're tapped out. If you don't like this, sorry, we're out. We're not the right fit. So she said, I'm scared. I don't want that buyer to leave. What should I say? I said, just send an Email saying, hey, we really like you guys. We appreciate everything that you've done. We get one chance to do this. I want to do it right. We brought Cornerstone in just to make sure we're doing it right. And they're going to run a process and you're going to be a part of that. I'm going to give them your name. It all be good, but just know that Cornerstone is going to take over from here on out. After they had said they can't pay a dollar more, she hit send within five minutes. Ring, ring, phone. Hello. Yeah, what's it gonna take for you not to sign with Cornerstone or how much more money do you need not to sign with Cornerstone? And she's like, oh, thank God. I signed with Cornerstone because it was all a bunch of smoke and mirrors. We went to market, they stayed in the process, we brought in nine or 10 other offers and we ended up closing that deal at $14 million and somewhere between, I think around 9, 10 million, almost double the cash at close. So if she would have done the deal and everything else, she would have been like, oh, I got five million bucks, I hope I get a little bit more. And I probably wouldn't, but because her financial advisor had seen me speak at a conference, understood to start the conversation and say, hey, wait, timeout before you sign this. They told me, don't accept an unsolicited offer. Let's at least have a conversation with them. And if you don't want to go forward, you don't have to go forward, but at least you take an hour and you'd be a little smarter, maybe at least do the RMA, you know, cost you five grand again on a $10 million deal or whatever. So because the financial advisor did that and then brought us in, they were like, oh my gosh, I can't thank you enough, Mrs. Financial Advisor. You are absolutely getting my money after the sale because I wouldn't have got anywhere near the amount of money. So it's almost like, well, of course you're going to get the money. And again, it doesn't make a difference if you're part of a wirehouse, if you're a small independent ira, what the fees were, none of those were in our study were what people cared about, why they would leave their advisor was, you didn't have the conversation with me, a simple conversation about what my post sale lifestyle needs are. You brought no value prior or during the sale process. Or like I said before, you told me the wrong value or basically I told you the wrong Value and you agreed to it or you told me some tax things that weren't right. I paid more taxes than what you told me. So that's the study that just by happened to see me speak going, oh geez, I've got a case, let's talk. And we talked offline without the advisor or without the client first, just so they felt comfortable being on that call and they had all their questions, they knew what we were going to talk about and make sure it's a good fit for us. The last thing we want to do is go in there and go, yeah, no, it's not a fit at all. And we all just wasted an hour. We want to bring value to the cases that we can bring value to. And that's where, that's why we love working with financial advisors so much because everybody wins. The client's gonna maximize value and have the peace of mind that they didn't leave any money on the table and get to choose who the best fit is. We get clients, you know, through the trusted advisors. So we work closely with them and then the advisor gets the aum to build up their book. And that's why like you we've created different tools around the third party sale and the book and workbook for them to start that conversation and just feel more comfortable around it.
- [48:36]
A
Yeah, you have a lot of great tools and I'm going to put some links in the show, notes and ways for people to reach you. My featured guest on today's show has been Scott Bushke, Managing partner, founder of Cornerstone Business Services, author of finish strong, sell your business on your own, on your terms and finish strong workbook which is know a pretty essential important part because that's.
- [49:00]
B
Yeah, that's the key part of it. Yeah.
- [49:03]
A
The nitty gritty of things. Right?
- [49:05]
B
Yeah.
- [49:06]
A
Hey Scott, thank you for, for all this great information, important information. Appreciate you being a guest today.
- [49:13]
B
Thank you.
- [49:16]
A
This episode of Top Advisor podcast is sponsored by nextrudo. Nextrudo helps financial advisors attract and engage qualified pre retirees in their local market by filling educational seminars with high intent prospects and turning those audiences into new client opportunities. Go get your free local market report. Learn how many millionaire pre retires in your area. You're probably sitting on a gold mine. Just go to nextruto.com n e x r u t o dot com to you, the listener of the podcast, small favor. If you like this episode or you like the podcast in general, please leave a five star review on the platform. You're listening. Not all platforms allow reviews. I know Apple Podcast does. We'd be grateful for that. In addition to visiting Scott's website and getting his study in the show notes again, here are four places I think you're going to want to visit. Number one, scripts, checklists, videos, all kinds of free but valuable tools@referralcoach.com resources for the most comprehensive referral and introduction training in the planet. On the planet, I should say. Thecatesacademy.com thekatesacademy.com and if you want to learn a little more about the coaching that I do with Advisors, go to CoachCates.com that's CoachCates.com and so this is Coach Cates, Bill Cates, reminding you that ideas do not make you more successful. Only acting on those ideas will bring you the success you desire.
- [50:49]
B
Hey, thanks for stopping by, Sam.