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The HaBO Village Podcast

How to Tell if Your Business is Sale Ready - With Guest, Josh Patrick [Podcast]

Episode 162: Michael and Kathryn interview business coach and Certified Financial Planner, Josh Patrick, about personal sustainability and how to tell if your business is sellable. If you find yourself struggling with your business finances or just want to form a solid future exit strategy, then this episode is for you!

Josh Patrick and Michael and Kathryn Redman portrait

 

In This Episode You Will...

  • Discover why you should become a delegation ninja.

  • Find out how making mistakes and experimenting will aid in your learning and growth.

  • Learn if your business is 'sellable.'

“If you own a private company and you don't look at your cash flow every month, you are putting yourself at dire risk."

- Josh Patrick

 

21 point vision checklist

References:

 

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Michael:
             Hello, and welcome to the HaBO Village Podcast. I'm Michael Redman.


Kathryn:
             And I'm Kathryn Redman.


Michael:
             And this is the podcast that helps you, the entrepreneur, business owner, and leader build a company that is more holistic. What we do is help you develop the whole leader for the whole business. Welcome to the podcast today. And we're going to have a really interesting interview. Kathryn, introduce our guest.


Kathryn:
             We are privileged today to have with us, Josh Patrick he's with Stage 2 Planning Partners. And Josh, you're a financial dude. You're a financial guru dude. you have titles I've never heard of like certified financial transitionist. I've never heard of that, but that's impressive. Chartered life underwriter, chartered financial consultant. Ultimately, we have Josh on the show because he has released a book recently called The Sale Ready Company. He's worked with hundreds of businesses and he specializes in blue collar. So, we're just excited to have a conversation with you about your book, Josh, and about what it is that you're offering and how you can help the folks that are on our podcast. Learn more about how to prepare themselves as they grow their companies to become potentially sale ready if that's the direction they're going. So, welcome to the show.


Josh:
     Well, thanks so much. I'm glad to be here. I appreciate it.


Michael:
             We had a chance to be on Josh's podcast a while back and had a great conversation with him and went, "Oh, he needs to meet all of you."


Kathryn:
             Smart people.


Michael:
             We're excited.


Kathryn:
             Need to be introduced to our audience.


Michael:
             Okay. Josh, let's jump in. Talk to us about the book real quick. What's it about? And obviously, the title's fairly self-explanatory, but go into it. What are you talking about? What's your angle on it?


Josh:
     Well, it's a business parable. In my experience, blue color business owners like stories. They're not especially wild about how-to books. In fact, I don't know many even finish how-to books or start how-to books. Sometimes they'll listen to them, but rarely will they read that. And a business parable is essentially a novel of the point, which is what this is. I've had this fictional family I've been writing about for about 35 years. It was the Aardvark family. And our patriarch is John Aardvark. In my first book, John was just plain stuck, he didn't know how to get out of his own way, so we helped John create a personally and economically sustainable business. Now, it's really important to talk about that first because it's really the basis for what's next when you're trying to create a sale ready company. When most business owners hire an advisor, the advisor can either help them with economic sustainability or personal sustain. Rarely can they help them with both. And the little known fact around private business owners is personal sustainability gets in the way of business success way more often than economic sustainability.


Michael:
             Well, what do you mean by that?


Kathryn:
             Yeah. Define personal sustainability for us.


Josh:
     I was just about to do that.


Kathryn:
             Well, you know what? Sorry for interrupting. Keep going.


Josh:
     [crosstalk 00:03:11].


Kathryn:
             We're going to interrupt because we like to talk. So, go on.


Josh:
     I'm a professional interrupter myself, so I understand [crosstalk 00:03:21].


Kathryn:
             Excellent. We're going to get along just fine.


Josh:
     I'm happy to be interrupted as much as possible.


Kathryn:
             All right. Talk to us about personal sustainability, sir.


Josh:
     because you guys have lots to add, too. So, the thing about personal sustainability is are you having fun at what you're doing? And I will tell you that an awful lot, especially contractors will walk into my office and I'll say, "Okay, great. I'm glad you're here. What are we going to talk about?" "I need to sell my business." "Okay, great. When?" "Yesterday."


Kathryn:
             As in, "I am all done. I am finis."


Josh:
     [crosstalk 00:03:56] burned out, and they're burned out, and this happens with many, many private business, especially ones with less than 50 employees. You have a business owner who started a business, has gotten very good at running their business, but they've gotten very good at doing things they don't like and don't have a unique ability for. And after doing that for about 20 years, they get tired and they get burned out. So, the number one skill I think is hardest for business owners to learn, and we talked about this when you were on my show, was how to become a delegating ninja.


Kathryn:
             Delegating... I love that.


Josh:
     [crosstalk 00:04:32] delegating, you're going to burn out in your company because you're going to be forced... You're essentially going to do things and have a bunch of helpers. And personal sustainability is about having your business run, where you've created operational freedom for yourself and you're no longer involved in the day to day operations of your company. Now in some businesses that's pretty easy to do, in other businesses it's really hard to do. But it's a really an important skill to do. So, if you're not happy with how you're spending your time and you've just bought yourself a job and you haven't created a business, there's a pretty good chance you're going to find that your personal sustainability may not be very good even though your economic sustainability might be great.


Kathryn:
             It's funny. If you listen to this podcast very often, you'll be like, "Oh, that's why you have him on. He's basically singing your tune just with different words and a different..." That's exactly what we talk about. Right? Is what does it look like to have both passion and provision? And the minute you don't have personal sustainability, you've lost that main driver of what caused you to start the thing to begin with, which was to have freedom, to have a life, to make your best contribution. So, it's fun to just hear it from your side because we see it all the time, too.


Josh:
     Well, it's really interesting. I've done about 340 podcast episodes now and I've had some good folks like you on and some not some good folks, but from the good folks, you hear the same story with different language over and over and over again. The truth is, to create a great business where you love going to work every day and you're being financially awarded appropriately, you do the... I mean, everyone's saying you should do the same things. There's no big secret about it. But the [inaudible 00:06:24] is how do you get a business owner who has bad habits to stop having bad habits and start developing good habits that they actually are excited about doing and it doesn't feel like a punishment to them?


Kathryn:
             Yeah. Delegating ninja. I kind of like that.


Michael:
             Well, and it is interesting because it's... I agree. Those of us that talk about it a lot and study it a lot, I mean we tend to start saying, well, things like, "It's not rocket science." It's pretty simple, straightforward. The rules are the same. We're all talking about the same thing, and sometimes we all use the same words. Because there's only so many words you can use to describe it. But I'm amazed at how many business owners do not know these... They're complete mysteries to them. Even the person that says, "I'm going to walk in," and says, "I'm ready to sell." The idea that they waited that long and thought, "Well, what are my options?" and they actually thought selling the company tomorrow, literally tomorrow, was an option, and it's not.


Josh:
     Well, they think that's the easy way out.


Kathryn:
             Well, they think it's the only way out. Like there's no other way for me to get my life back than to get out of this.


Josh:
     I have found that rarely do I tell something to a business owner they haven't considered before. They don't know how to do. I like to say a lot of times, creating a personally and economically sustainable business is simple but not easy.


Michael:
             Amen. Amen.


Josh:
     [crosstalk 00:07:49].


Kathryn:
             That's really, really well said. Yeah.


Josh:
     I can tell you how to do it and it's a really simple explanation, and when you go and you try it you're going to fail. And I know most business owners don't like to make mistakes, but the truth is that's how you learn. One of my favorite business philosophers, even though he wasn't a business philosopher, he was a mathematician, was Buckminster Fuller.


Michael:
             Oh, Bucky.


Kathryn:
             Also Michael's favorite.


Josh:
     Oh good.


Kathryn:
             He's got an affinity.


Michael:
             One of my favorite.


Kathryn:
             One of his favorites.


Michael:
             So, we go to church and at church, it's a geodesic dome because the guy who originally started the church 50 years ago decided he loves Bucky's dome and so he built a dome.


Kathryn:
             So, there you go.


Josh:
     Oh, cool.


Michael:
             Yeah. They're a horrible structure to actually do business in, but-


Kathryn:
             They really are. Sound and-


Michael:
             They're very strong, but they're very impractical for a lot of things in our normal, modern [inaudible 00:08:49]. But-


Kathryn:
             Buckminster Fuller.


Michael:
             ... we digress. Talk more about Bucky.


Kathryn:
             Wait. No, wait. There's one more story, though. When Michael was his early 20s, he worked at the Marin YMCA and he had a kid in his program that his parents had named after Buckminster Fuller. And so, he had this poor kid named Buckminster, and I thought-


Michael:
             I thought it was just really sad-


Kathryn:
             ... poor kid.


Michael:
             ... that a seven-year-old kid was named Buckminster.


Kathryn:
             Honoring though it may have been, he probably didn't see it that way.


Michael:
             He had severe ADD too.


Kathryn:
             So, back to Buckminster Fuller.


Josh:
     They shouldn't named the dog Bucky.


Kathryn:
             Exactly. Exactly.


Michael:
             Our next dog.


Kathryn:
             Our next dog.


Michael:
             Bucky.


Kathryn:
             Buckminster. Okay. Let's hear the real story.


Josh:
     Buckminster Fuller had two things to say about mistakes. One is you don't learn les, and mistakes are learning opportunities. So, the truth is mistakes are actually pretty good things to do as long as they're not the type of mistakes that'll put you out of business or completely ruin your life. And you really have to work really, really, really hard to find that sort of mistake. I mean, they're there. I managed to find a couple, managed to avoid going out business, but they were hard to get across. We had to work pretty hard to get there. And not that I was working hard to try to ruin my business. It was just that if I had paid attention at any step along the way it probably wouldn't have happened.


Josh:
     So, the truth is if you're going to learn how to have an economically sustainable business and a personally sustainable business, you're going to be making a lot of experiments to try things, most of them won't work. Which leads to another one of my other favorite mantras which is fail fast, fail cheap. In fact, I was talking to my coach about that this morning, is that I was... We've been talking about before we started about marketing your book and my book through Amazon ads, and I spent a whole day wasting my time before I realized I was getting nowhere. So, I said, "Okay, we're done. I'm moving on until I can get a better answer for where I am." So, I spent a day, which was actually four hours longer than I should have spent, but after four hours I realized I had failed and it was time to move on. Now, most people say, "Well, I don't want to fail." Yeah, you do want to fail because if you say, "I failed," you can stop.


Kathryn:
             Well, yeah. And it's also that revelatory moment where you go, "You know what? This is not what I'm good at. I should not even be trying to solve this. This is a waste of the best use of my time, which could be invested over here, which would actually make me money. This is a complete waste. And there are other people who are way smarter than I am at this, and I could give it to them to do. And wouldn't they, that be amazing?" That's the delegation piece.


Josh:
     This was my mistake here, and I make this mistake too often, is I actually had hired somebody to do that for me.


Kathryn:
             Oh no.


Josh:
     What happened was this person delegated the responsibility to get the store open to me and I had no idea what I was doing so I was trying to get through the Amazon page, and I said to him, "I don't know what I'm doing. You're going to have to do it." He said, "I don't know how to do it either." And I should have said at that point, "We're done." Because we knew how to do a part of Amazon ads, not the part I needed because I wasn't the publisher, but I am the author, and I'm willing to spend some money to sell some books.


Michael:
             Yeah. Well, and it's interesting because as we're talking about this delegation process and failing, I'm just thinking, yeah, and one of the things that's really easy to say, find somebody to do it, get them to do it for you, delegate that. I'm thinking like an auto mechanic shop. You've got the person at the front desk who's taking in everything and doing all the business and talking to the clients. That's one thing you could give away. The owner are so often sits there at the counter, but they don't have to. But the idea of learning to delegate and learning to hire in that specific area, you're going to fail several times. And a lot of the business owners I talk to, they screw up twice, and they're like, "It doesn't work. Nobody can do this. It'll never happen." And they don't give themselves the ability to go, "This is going to take you a while. You may have to go through a few people before you actually learn to identify what's a good person for this and then find that good person and then train them." There's three things you got to learn and you got to fail at a while to do it. But if you don't have that mindset, you'll give up too early.


Josh:
     That's my 96, 97% of the business is never grow past 15 people. Now, if you look at the numbers for a business in the United States, there's 28 million businesses, only six million have any employees, only 300,000 do more than five million in sales, and only $150,000 do more than $10 million in sales. So, to get to that level, I mean that 150,000 out 28 million is an infinitesimal percentage of all the businesses that exist and those owners have gone through the process of learning to work with failure and go past two or three times. Same thing with sales. I mean, if you teach somebody sales, you say you need seven, eight, nine touches before you're going to get a sale. Well, how many sales people give up at two? [inaudible 00:14:31] easy ones that fall off the back of a truck.


Michael:
             There was a gentleman who wrote an amazing sales book. It's the red cover. But he passed away from pancreatic cancer a few years ago and his daughter's running the company now, do you know who I'm talking about?


Josh:
     [inaudible 00:14:47]?


Michael:
             No. This is the random thing to talk about on a podcast. It's like, okay, I-


Kathryn:
             I mean, it says here that he's read over 2,000 business books-


Michael:
             You've probably read this book.


Kathryn:
             ... so it's possible that he's read this book.


Michael:
             Anyway, it may come to me. It's a phenomenal book. The guy was amazing. He was a great teacher, he was a great business person, and he was a great salesperson. And his book is probably one of the most fundamental books on sales, and I wish I could remember the title of it right. It may come to me. Anyway, one of the things he talks about... He has a whole section where he actually does a good job talking about this subject, and he would teach his sales people at low, small business level and at corporate level you need 12 no's. The six or seven no's didn't go for him. 12 no's. Because he said, "If you are will to go back 12 times, your completion rate is going to be huge because most people won't say no 12 times.


Josh:
     And he's correct about that. I mean the two best sales books I've ever read, and these aren't marketing books, these are sales books. One is Swim with the Sharks Without Getting Eaten Alive by Harvey Mackay.


Michael:
             Harvey, yes.


Josh:
     And the reason that book is so important because in there he [inaudible 00:15:55] Mackay 66. Now, if you know those 66 things about your potential customers, you may not be number one, but you'll definitely be number two, and when number one, stumbles, you become number one.


Michael:
             Oh, we have to go back because I don't even remember... I remember hearing about the 66, but I don't remember what any of them are anymore.


Josh:
     I used to make my sales people and my food service company actually document the 66 things.


Kathryn:
             Interesting.


Michael:
             Oh, that's genius.


Kathryn:
             That's fun. Okay.


Michael:
             I love it.


Josh:
     And the other one is a book called The Challenger Sale, and The Challenger Sale's written by a group, I don't know who the group is, but it's incredible. In there what they say is that the best salespeople in the world are not the ones who build rapport, they're the ones who challenge their customers to think differently and then they have a solution for that thought. Now, that's great for a single person sale if I'm going in and I'm going to sell to the owner, I don't have to bring anybody else along that works really well. They've also written another book called The Challenger Customer, which is if you're doing complex sales or you have three or four or five decision makers involved in a process, they talk about that person who you're talking to who's really nice and you think it's going to shepherd you [inaudible 00:17:13] through the company, they have no juice.


Kathryn:
             That's funny. That's awesome.


Josh:
     The people that have the juice are the ones who never, never, never want to talk to you, so the way you win those businesses, A, you help that really nice person figure out in a nice way who really has the juice to get them to introduce you to those people and find a way to challenge them to think differently about the issue that you're trying to help them solve.


Michael:
             Yeah. No, I like that.


Kathryn:
             Yeah. That's cool. That's good.


Michael:
             And I think we've seen that in our own business, and when you sit there and say, "Okay, think about it this way," I think what you're doing is... I don't think you're coming at it from the right perspective, or I think there's a different way you could look at it that might be more successful and then give it to them. Yeah. No. Because they respect that. It's a language... And this is what unfortunately most young salespeople... I remember when I was young, I didn't know it. That that's the language they speak in and that's the language they respect. You're not being challenging, you're not being a jerk, you're not being pushy. As long as you're not a jerk and pushy and-


Kathryn:
             As long you're not being a jerk and pushy.


Michael:
             ... but if you can converse in that language at a calm level and go, "Well, think about it this way. And here's a solution," but it also takes time and you got to get your reps in. Right? Which means you're going to fail a lot. I think there's a place to start redefining for some people, they don't understand what failure is. I'm almost wondering if people are just not... They're confused and they have a different definition of failure than what we're talking about in the context we're talking about it. What do you think about that?


Josh:
     Well, I think most people, when you say the word failure to them, they say, "No, I don't want that." They say, "I want success." Well, if you get success out of the box you're lucky. If you get success out of failure, you got skill because you've gone through the process of failing and then getting yourself back up, making an adjustment, failing again, getting back up. I mean, it's really, if you look at any of the giant leaps forward that we ever make, it's all iterations. It's never one giant leap. The internet has been here since 1960s. When did the internet become real?


Kathryn:
             1990s?


Josh:
     Yeah. 30 years later.


Kathryn:
             Yep.


Josh:
     So, you think they went from ARPANET, which was the Defense Department's thing to Google overnight? Even Google iterated a whole bunch.


Michael:
             Oh yeah.


Kathryn:
             Yeah. For sure.


Michael:
             Well, and they were in a dorm room when they started, as a PhD project.


Josh:
     Right.


Michael:
             Can you imagine defending their PhD project? They must have had-


Josh:
     They never defended it. They dropped out.


Michael:
             Oh.


Kathryn:
             Oh, that's awesome.


Michael:
             Oh, that's right. Oh, that's right.


Kathryn:
             That's the best. Well, who is it that's famous for saying, "I never failed. I just found 100 ways it didn't work? It was like Einstein or someone like that. Right? where you like-


Michael:
             That's the famous Thomas Edison quote.


Kathryn:
             Oh, it's Edison. Right. But that whole, you have to find the ways it's not going to work if you're going to find the way it's going to work.


Josh:
     Yeah. I mean, if you do it right out of the box, it's dangerous, especially if you're young. I mean, I tell this [inaudible 00:20:44] platform talk or I do a keynote, I spend the first 10 minutes talking about all the terrible things I did my first 10 years of business and I started off saying, "I was 23 years old running a business, and very, very worst thing that could ever happen to a 23 year old happened to me."


Kathryn:
             You were successful.


Josh:
     I was really successful. I wasn't just successful. I was unbelievably successful for two years, and I thought it was because of my brilliant business ability. In fact, it was just pure luck.


Kathryn:
             Nice.


Michael:
             What kind of business was that?


Josh:
     It was a food service and vending company. We fed people that worked at factories.


Michael:
             Okay.


Kathryn:
             Wow.


Michael:
             And then after two years, did that stall? Did it-


Josh:
     No. It went worse than stalling, it went down to the point of being about a week of being forced into bankruptcy. And on top of that, having a $200,000 embezzlement in 1978, '79, where $200,000 was actually a lot of money. I couldn't get any credit. I couldn't get any... My suppliers where I was 90 days with, and I didn't realize this, and I thought a [inaudible 00:21:57] statement actually talked about why I should have money in the bank. It has nothing to do with money in the bank [inaudible 00:22:03].


Kathryn:
             It does not. If I'm so profitable, where's the money? Yeah, we've never heard that question before.


Josh:
     I learned the hard way that cash is king in a private business and profit is king in a public company, and never shall the two meet.


Kathryn:
             That's awesome.


Michael:
             Yes.


Kathryn:
             Okay, say that again.


Michael:
             That's well said.


Kathryn:
             Say that again. Cash is king...


Josh:
     In a private company. Profit is king in a public company. And never shall the two meet.


Kathryn:
             Interesting.


Josh:
     Well, in other words, if you own a privately held company and you don't look at your cash flow statement every month, you're putting yourself at dire risk, especially if you have inventory, receivables, and equipment, because none of that shows up on your [inaudible 00:22:47]. That's just cash flow statement stuff.


Kathryn:
             That's very good.


Michael:
             All right. So, let's get back to the book real quick. What's our main character's name again?


Kathryn:
             Aardvark.


Josh:
     John Aardvark.


Kathryn:
             Mr. Aardvark.


Michael:
             And in this book, what's John Aardvark-


Josh:
     John has created a business. He's going from having a business that was essentially stalled, he was stuck, he was unhappy, he was burned out. We fixed all those things in the first book. So, he created an economic [inaudible 00:23:16] sustainable company, and he had started filling what we call the four buckets of profit. Now, we go five years down the road, John is 62 years old and he's got two children in the business. One of his children should never have been there. The other child is green. So, we have to figure out what are we going to do with these children?


Josh:
     And on top of that, we have John's spouse who is really unhappy with the consultant that John brought in because she feels that the consultant is trying to drive her son out of the business even though the son is a complete jerk. It's what we call a brilliant jerk [inaudible 00:23:55]. So, we have to solve that problem. We have to solve the problem is there enough? Well, as it turns out, it would have been enough had John kept his lifestyle where it was five years ago, but when you start creating a business that makes more money and it has more success, what do you do?


Kathryn:
             You spend more money and you buy more stuff.


Josh:
     Right. Right. So, instead of living on $200,000 a year, John was now living on $300,000 a year. [Inaudible 00:24:23] the business good enough to be sold to his children to support 200, it wasn't good enough for 300. It's the first question, is what do you need? I'm going to transition out on my business. Well, before we even start the process, I need to know what do I need and where is it going to come from? Then the second question we have is what's the business worth? Well, a private business, it's not like Apple Computer... Or Apple. It's no longer Apple Computer. Where I can go and punch up on the internet what's the stock value today, and multiply how many shares I can tell you the market value of the company.


Josh:
     A private company has values that could be hugely different depending who the buyer is. Now, we want to transfer the business to the children. That's what we started off with. But unless the children, specifically the child, who's in the business can make the business significantly more valuable, I can't afford to sell the business to my child. I'm going to have to sell the business to a third-party. So, I need to go and communicate to the children in the management team is, "Here's what we want to do. This is plan A. But we have plan B in case plan A doesn't work out." So, the management team has a chance to keep the business in the family, but it's up to them. And John says, "I would prefer to do it this way, but if you guys don't do it, I'm going to be forced to go this way."


Josh:
     Then we say, "Okay, what's next?" Now this is the biggest problem that we have in any business is if I own a privately held something, or even an employer, I work for someplace, my social group is often my work people, people I'm coworkers with. And if you own the business, it's not only coworkers, it's other business owners, it's your suppliers, it's the people you see at trade shows, it's all that stuff, with a huge social network that you have. Well, if you sell your business, all that goes away tomorrow. So, if you don't have a way to replace that in a really well thought out way, you are not going to only have seller's remorse, which everybody has, but you're going to have extreme seller's remorse because your whole life has been turned upside down.


Josh:
     And this is where my financial transitionist training comes in, is you're going to go through the third stage of transition, which we call passage, which is going from an ending where you were to where you're going to be which will be a new normal. But in between there is of messy time. How messy is how well prepared you are. And you have a spouse. And if you own a private business, you probably were working 50, 60, 70 hours a week, and that spouse [inaudible 00:27:16] unusual, you're working together, that's not how it usually happens.


Kathryn:
             Right. We get it. We're weird. We understand.


Michael:
             Yes.


Josh:
     Your spouse probably has developed a life outside of you and they may not be so wild about you retiring and hanging around the house expecting them to entertain the business owner.


Michael:
             You know what? That is so-


Kathryn:
             Can't even imagine.


Michael:
             Let's just pause a moment because that is brilliant right there, just thinking about really talking about the consequences. If you're going to sell this company, the most conversations stop with, "Can I find a buyer, and can I get the money I want?" That just begins, especially beginning the rest of your life, this whole issue of I hadn't even thought asking. I've seen it, but I hadn't thought about isolating it, that social life aspect.


Kathryn:
             That's really good.


Josh:
     Yeah.


Michael:
             [inaudible 00:28:11].


Josh:
     It's a hugely big deal. So, then we go to the next thing is, "Okay, what's my business worth?" Well, my business going to be worth a whole range of values depending on who the buyer is. My children will be able to afford to pay somewhere between 50 and 70% as much as a third-party buyer. So, then we start talking with the selling owner about you want maximum dollars for your ego, or do you want enough to be satisfied? So, we have to figure out what that is, and how do we satisfy that number. Now, often enough, we can do that internal sale of the discount of the value, but sometimes it's not good enough or children aren't interested.


Josh:
     And then we should be looking at, "Okay, do I want to sell to my managers?" Well, most businesses aren't saleable in the first place, so if I'm going to transfer my business, I better find a methodology that's transferrable. For example, almost every construction company in this country is not saleable. Why? They don't have a recurring revenue source. Without a recurring revenue screen, a third-party buyer is not going to be a special interest in paying you anything that's reasonable for your business. I remember I worked with some heavy equipment contractors who did roads... Huge equipment. So, we got time for them to get out of their business, and what we did was we found we could auction the business off for a lot more money than we could sell the business for.


Michael:
             So, describe what auctioning off the business in that context would mean.


Josh:
     Well, they have front loaders and graders and these huge trucks that they would auction off, the amount of money... Because all that stuff was paid for. The amount money they would get for auctioning off their equipment was significantly more than a buyer would ever pay them for that.


Kathryn:
             So, they weren't selling the business, they were selling the equipment, auctioning off the equipment associated with it.


Josh:
     They were selling equipment and liquidating the business.


Kathryn:
             Got it. Makes sense. Liquidating. Yes.


Michael:
             Yeah. Yeah. And I was thinking they're liquidating... That's key right there. They're liquidating the whole thing. Let's just liquidate our assets and get out of it and be happy.


Josh:
     There's four standard ways to leave a business. You sell to a third-party, you sell your children. I am not in favor... In fact, we have this LinkedIn poll going on right now. Should you sell or give the business to the kids? And boy, are we having a lot of arguments over there about that.


Michael:
             Oh wow.


Josh:
     I'm a big fan of selling a business, not giving the business. Are we going to sell it to an outsider, a third-party, whether it's a strategic buyer or a financial buyer? the fourth way is liquidation. And every time I say the word liquidation, everyone says to me, "I don't want to do that." And I give them a couple examples where liquidation makes sense. My sister is a great example. She had a woman's boutique. She decided it was time for her to close the store, she was done with it, she didn't really want to do it anymore. And she had two choices. She could have looked for a buyer, which she probably could have found, or she could do a gigantic going out of business sale.


Josh:
     And when we ran the numbers, the gigantic going out of the business sale won. By doing a gigantic going out of business sale, she got significantly more money in her pocket then she would've had she sold the business with almost no risks because had she sold the business she would've ended up doing owner financing for at least 50% of the business. So, she did liquidation. So, liquidation by itself is not necessarily a bad choice.


Michael:
             That is an option I had... I mean, I guess I had thought about it, but it wasn't... I mean you walk around and you see companies liquidating all the time, but I hadn't thought about the fact that that's an exit strategy.


Kathryn:
             Yeah. I think sometimes when I see companies liquidating everything, I think, "Oh, that's just so they can forestall bankruptcy." I'm not thinking of that as an exit strategy. I'm thinking of it as the best way out of the potential failure. That's how I think of liquidation.


Josh:
     Sometimes it is. Sometimes that is the best way. That's exactly what it is. There's a fifth way which works for some companies. I call this a wind down strategy. This would actually work for you guys when you decide it's time for you to stop working. Which is instead of selling your business or liquidating your business, you wind it down. So, in the wealth management world, where I spent a lot of time, this is a really good strategy for sole-owned wealth management firms, and you basically take the 80/20 rule and you apply it to your business. You take 80% of your customers, you find a new home for them, you keep 20% of your customers, and if you look at the 80/20 rule, 20% of your customers provide 80% of your revenues. So, if I get rid of 80% of my customers, I have now gotten rid of 80% of my work, I'm keeping 20% of my customers, and I'm going to make 80% of what [inaudible 00:33:06] but the overhead I'm going to get rid of as a result of that will likely allow me to make more money than I was with my full company.


Josh:
     Let me give you an example. I was working with somebody yesterday who's in the wealth... It is a wealth manager business. His revenue is a million dollars a year. That's his gross revenue. He keeps about 40% of that right now. He has about 60% operating costs. Nice business. But we went through and we figured out, okay, if we do a wind down and he keeps $800,000 of that business, which is actually about $900,000 is what it worked out to, and he goes down to one part-time person, he's going to have operating costs of $150,000 on $900,000 in sales. So, he's about 150 or $200,000 ahead of the game by winding down. And in the wealth management world, to sell your business, you'll have owner financing offer for 60, 65% of the deal. High risk with that strategy. With a wind down, there's literally no risk.


Kathryn:
             So, you just choose to make, ideally, a significant amount more money for a period of time to build up the assets you need to retire-


Josh:
     He already has the assets he needs, he just likes what he does. He doesn't want to work full-time. He says, "If I can work seven months a year, I'm in love." I said, "Well, how'd you like to work three months a year?" He said, "Well, if I could spread it out over the whole year, that'd be fine."


Michael:
             Don't make me put it all in one basket or I'll go nuts.


Josh:
     [crosstalk 00:34:41] the one basket was he wanted to make sure... And the reason that he wanted to keep his business is the social context.


Michael:
             Well, that's what I meant. I mean, taking all of his time and putting into one basket... If you say I'm only going to work for a quarter, that means three-quarters I'm not doing anything and I'm not talking to people and I don't have the fun, I don't have the... And my wife goes nuts or my husband goes nuts.


Josh:
     Right. Right.


Michael:
             Oh, that's funny. Well, and it's funny because we live in a smaller town. There's about 120,000 people in our community, and it's in the middle of farmland. I know, it's not a small, small town. It used to be a small town. It was 18,000 when my parents moved here when I was a kid, and it's a university town, but it's in the middle of ag land in Northern California so it's isolated. There's no suburbs to Chico. But what's interesting is it operates sociologically like a town of about 20,000 people. It's a very strange thing.


Michael:
             But what happens is, is that means you know people for years. And in our town, we have seen, especially in our business, over the last 20 years with our relationships, we've seen our older friends go into retirement and then all of a sudden they don't have anything to do, they show up at weird hours, they show up weirdly dressed, they want to hang out at your office and say hi. And you're like, "What are you doing? I have a job, and three months ago you had a job. Now you're behaving very strange." It's like, "Well, my wife doesn't want me in the house." I'm like, "I get it, and I don't want you here."


Kathryn:
             Oh goodness.


Michael:
             I mean, it's a real challenge. What does that look like? When you're coaching somebody through that process alone, just that section of it and that passage way and everything else and how to negotiate their own social life and their marriage and trying to at least have that conversation, how do you do that? What are the things that are going on-


Josh:
     We have a specific process we make people do. And I talk about that in the book. You get to see that laid out in the book-


Michael:
             Oh, good.


Josh:
     ... on how it happens. It's very simple. You start off, you're going to take one week off, you're not going on vacation, you're not going to do anything special, you're going to hang out at home. You are not going to call your office, and you are not going to contact your office and see how long you make it.


Kathryn:
             And see how your spouse interacts.


Michael:
             2.5 days into this week.


Josh:
     Right. Right. Then after we successfully do one week, we go to two weeks.


Kathryn:
             How many times do people have to try the one week multiple times?


Josh:
     It all depends. Some people get it right the first time out and some people never get it right.


Michael:
             Okay.


Kathryn:
             Okay.


Josh:
     So, the people who never get it right, we advise them, we need a strategy where you're staying involved in your business until you die. By the way, I don't think it's the worst thing in the world that you die with your boots on in your business.


Kathryn:
             Nor do we.


Michael:
             Amen to that.


Kathryn:
             Amen to that. That's the good word right there.


Josh:
     It's like work-life balance. People who don't own businesses talk about work-life balance. People who own businesses hate the term. But they will handle is work- life integration.


Michael:
             Yep. There you go.


Kathryn:
             Yep.


Josh:
     So, I hate the term work-life balance. To me, it's fine if I work for General Motors, but it's not fine if I work for Patrick's Food Service, which is a vending company. So, then we go to two weeks, and then we go to three weeks, and then we go to four weeks. So, you're doing four weeks where you have a life, you feel fulfilled, then you're ready to transfer your business. But until you'd successfully do that, and we know that you're financially able to leave your business, without those two things, we don't want to have a conversation about anything else. We want to have a conversation about successfully doing that, and then, and only then, when we start talking about how do we keep key people involved, who's going to buy it, what sort of valuations are there, what's the business actually worth, not what you think it's worth...


Josh:
     Because business owners overvalue their businesses by three, four, or five times. There's actually a real rational reason behind that, but they do it in... I often need to say, "Okay, you think your business is making $200,000, it's worth $3 million. Would you pay for that? Would you pay that much of your business?" And often I'll hear, "No." I'll say, "Why do you think someone else would do it?" "Well, because I need it." Not a good reason for someone to buy your business.


Kathryn:
             No. No. Only if they like you very, very much and are related.


Michael:
             Yeah.


Josh:
     [inaudible 00:39:27].


Kathryn:
             And even then... No.


Michael:
             No. I mean, I think valuation is an incredibly fascinating subject and more probably, and not the subject for today, maybe another conversation, but-


Josh:
     Yeah, if you really want to get into the weeds on that, there's a fellow named Rob [Sleet 00:39:45] who wrote a book called private capital markets, which is an 800 page textbook [inaudible 00:39:51] company finance.


Kathryn:
             No, thanks.


Josh:
     [inaudible 00:39:54] really want [inaudible 00:39:55] yourself make it through that. But after you do so you'll have a really, really thorough understanding of how to value businesses appropriately.


Michael:
             Yeah. Yeah. Okay. So, this whole process of saying, "We want to sell our business," or we want to figure out are we the type of people that should sell our business as business owners, what's our exit strategy? Let's say that. Really what we're talking about on a regular basis for our listeners is what's your exit strategy, and is it going to be with your boots on and going to the end of your life? We heard a story just recently of a man who started a company, grew it up, his family... It's a family-run business. It's still successful. He is in his 90s and he still comes in about 20 hours a week and actually does work. Has an office and does stuff. But he's not running the company on a regular basis so he's got enough balance where he gets to be involved, he feels like he has purpose and meaning, he gets to stay connected, and he decided that that's going to be his journey.


Michael:
             I don't know what our journey is. When we think about it, I don't know exactly what it is, but if I get to choose, I like that. If we have the energy and we're still making a difference in the world, then that's not a bad deal. But we have a friend that's a CFO, an outsource CFO, and over the last 10 years we've had lots of conversations. And he's got a client recently... We were having lunch about a year ago, two years... Before COVID, so I guess two and a half years ago. He's got a client that's got a $50 million a year company. $50 million. That sounds like a pretty good-


Josh:
     A hefty company.


Michael:
             Yeah. It's in the ag world. He can't sell it. They've been trying to sell it and they literally can't find somebody to buy it for what it's even worth.


Josh:
     How many employees do they have?


Michael:
             I don't remember. He didn't get into that because he was trying to stress to me, he goes, "Look, we've been trying to do this. The kids don't want the company."


Josh:
     Yep. That's all true.


Michael:
             So, it's not even a, "I'm going to leave it to them and they're screwing it up." They don't want it. "This is dad's, that's fine." They've got their own lives. But he didn't plan and now he wants out, and now he is old enough that he doesn't want to work anymore. I think he's in his 70s. And my friend looked at me across the table and he goes, "Look, that's nice. Your business is probably similar in some ways. You're not going to just sell an agency or sell a consulting firm easily, so you have two choices. Prep it to sell right now and spend the next whatever years figuring that out."


Michael:
             Or his other solution, which I thought was a really good one, he says, "Know that you're not going to sell it and know that you're not going to keep going, so start figuring out how to take the profit out now." In a sense, it's almost like a long-term liquidation. Get the value that you want. Think about it. And his advice was, "Think about how much you want to sell it for, what you think is reasonable, and then just start at figuring out how to build the company and pull that out and put it away and so you know when you're done and you close the doors and you walk away, that you don't have regrets and you're happy.


Josh:
     Yeah. We have a process we call pre-funding your retirement, or pre-funding your buyout. We do this a lot with companies like dental practices, where you have a senior dentist that's 55, 60 years old, is [inaudible 00:43:20] "I might have 10 years left of running. I need to bring a junior dentist in. The junior dentist can't afford to pay full rate for that." You just have a compensation arrangement where the junior dentist has a bonus and their bonus, instead of going into their pocket, goes into a retirement plan for the benefit of the senior dentist, and the senior dentist agrees to sell to the junior dentist at a reduced price because of pre-funding a buyout.


Michael:
             I like that.


Kathryn:
             Interesting.


Michael:
             I like that.


Kathryn:
             Nice.


Michael:
             That's creative.


Kathryn:
             That's really cool. That's good.


Josh:
     You can always get around that. Your friend who's a CFO with a $50 million company, I would be investigating whether an ESOP makes sense for me. We have done that a couple of times where, in fact, one of the biggest companies in Burlington, Vermont is a construction company, was $500 million construction company, so it was not a small company.


Michael:
             Oh wow. Yeah.


Josh:
     They could not get a buyer for what they thought was even close to fair market value, so they did an ESOP and they sold the country to an ESOP. And it's one of the three most successful ESOPs in Vermont.


Michael:
             Yeah.


Kathryn:
             And so, for our listeners who don't know what an ESOP is, give that just a very quick five minute explanation. We know what it is, but explain it for us.


Josh:
     Stands for employee stock ownership plan, and essentially what you're doing is instead of your 401K owning stock in General Motors, your retirement plan owns stock in your company. And it's a very tax advantageous way of running your company, and we could have a whole show on how to do ESOPs and what's the right way to do them and why they're great forms of business ownership, but we don't have time today. But essentially, it's a tax advantage way for an owner to sell their company, it's a tax advantage way for employees to own the company, and it's a tax advantage rate to grow the company.


Kathryn:
             Nice.


Michael:
             Yeah.


Kathryn:
             So, listeners, if you want us to do that show on ESOPs with Josh, you let us know, and we'll put that together.


Michael:
             I think it's a-


Kathryn:
             That'd be super valuable.


Michael:
             I think it's an incredibly interesting topic, and I think we should do that-


Kathryn:
             Yeah. That'd be really fun.


Michael:
             ... at some point. Yeah. Okay. So, themes of today.


Kathryn:
             Themes of today.


Michael:
             You're going to exit your company somehow. At some point you're going to exit it, so the first thing you do is you can't wait till the last minute where you're just fed up and you need out. You've got to plan ahead and think ahead.


Kathryn:
             And if you're fed up or starting to feel like you're fed up, know that there's other ways to manage your business that can help you find a better lifestyle, a better sustainable personal life. I mean, that's part of what we talk about.


Michael:
             Absolutely. Well, and here's the other thing I want to say to our listeners. I think we've got three groups of listeners right now on this subject from our experience and from the conversations. The first one is the older group that are like, "Yeah, I wish I thought about this earlier. I'm in the middle of it now. And I didn't think about it." The ones that are going, "I'm just now starting to have that conversation and think about it, but do I really need to be involved in that? Do I really need to think about it now? Because I still got a while." And then the younger business owners, they're like, "I don't need to think about that at all," and that's crazy.


Kathryn:
             So far away.


Michael:
             And what I will tell you guys listening today, and women, just one of the best things that I had an opportunity to do over the last 15 years is be a part of an association called Rotary. I'm not recommending you join Rotary, but what it allowed me to do... In our club, we had over 200 people, which is a large Rotary Club if you're not familiar with that. And a lot of very senior people, people who were retired and people who were at the senior part of their career, and I got the opportunity to hear what Josh is talking about today of constantly looking at me as a younger man going, "You need to be thinking about it now. Think about it now. Think about it now," because I didn't think about it soon enough. And I can't tell you how many business people have actually said that to me. So, by the time we were 50, we had already started having these conversations, and now in our early 50s, this is like, I don't even think twice about it. This is part of doing business. You have to think about this.


Josh:
     The first step you want to do is create a sustainable business for yourself. You can't even go into sale ready. I mean, step three is actually creating a sustainable business. What you need, what's next, do you have a sustainable business? And almost nobody does. So, that's the first thing you got to get to. And then we can worry about what's your transition strategy.


Kathryn:
             So, what's the name of your first book?


Josh:
     The Sustainable Business.


Kathryn:
             Oh. Well, fancy that. All right.


Josh:
     I have these really complicated, fancy titles.


Kathryn:
             You know what? [inaudible 00:48:13] nothing-


Josh:
     Some titles go on for about 150 words, but the titles themselves are relatively short.


Kathryn:
             Yeah.


Michael:
             Nice. Nice.


Kathryn:
             So, even if you're just thinking about trying to figure out the whole picture, it'd probably be a great step to read this parable in full. Right? So, read The Sustainable Business and then read The Sale Ready Company, and that way you get the whole arc of the Aardvark. See how I did that?


Josh:
     There's a third one coming, too, which is going to be the transition to the daughter.


Michael:
             Oh.


Kathryn:
             Yeah. Sweet.


Josh:
     [inaudible 00:48:41] she has.


Michael:
             Is the daughter the child that actually is green but not a jerk?


Josh:
     Yeah. The jerk we handle in a really interesting way. I'm not going to ruin the surprise, but everybody who has read the book said, "I didn't see that one coming."


Kathryn:
             Nice. Okay. Good.


Michael:
             Nice.


Kathryn:
             All right.


Michael:
             Josh, if anybody wants to actually contact you more, your books are available on Amazon, correct?


Josh:
     They are. And they're also, if you go to thesalereadycompany.com, you can buy the book for $7.95 instead of $14.95. And if you go to... I can't think of the title [inaudible 00:49:20] sustainable business, but if you go to my website, sustainablebusiness.co, both books are there, you just click on buy, it'll take you to each of the book websites.


Michael:
              Sustainablebusiness.co.


Josh:
     .co.


Kathryn:
             Okay.


Josh:
     And if you want to contact me, just email me at jpatrick@stage2planning.com. That's the number two. And I am email obsessed and I usually get back to people pretty darn quickly.


Kathryn:
             Nice.


Michael:
             I can attest to that.


Kathryn:
             And we'll make sure all of that stuff ends up in the show notes so you don't have to write down or stop your jog if you're jogging right now, it's all good. So, yeah, that's awesome. And the other thing that we didn't mention is, you mentioned your podcast, but Josh hosts a podcast called Cracking the Cash Flow Code, so that would be another just way to continue to listen to the wisdom that Josh brings to this space.


Michael:
             He has amazing guests on there.


Josh:
     You got to listen to the Kathryn and Michael's episode with me because it was a great one.


Michael:
             We had a lot of fun that day, didn't we?


Kathryn:
             We did have a lot of fun.


Josh:
     I rate all my guests and you guys got the highest rating.


Kathryn:
             Oh, that's excellent.


Michael:
             Yes!


Kathryn:
             Thank you so much.


Michael:
             It just feeds my competitive heart so much.


Kathryn:
             I know. I know. So, see, now there's just three books you have to read to have your life. There's Josh's two books and then there's Fulfilled, and you'll be all set.


Michael:
             All right. Well, we want to thank you today. Hopefully you found the conversation today really valuable. This is one of those things where there's not a, probably not a direct action item except you need to learn. You need to equip yourself with the knowledge and understanding, and then you do need to build, as Josh said, a sustainable company. Because without that you don't have an exit or an exit you're going to like. You can have an exit, you just may not like it. It may not provide what you hoped for.


Kathryn:
             Not to mention a happy, healthy lifestyle along the way, too, with that exit.


Michael:
             Yeah. I like how he talks about the whole holistic perspective, especially not only the selling part, but what you're leaving and what you're getting for it, but what you're going to and how to think about that and prep that so that the transition, or the passage as Josh talks about, is really a healthy and smooth one, or as smooth as possible.


Kathryn:
             Smooth as possible.


Michael:
             Josh, thanks a lot for being with us today. We appreciate it.


Kathryn:
             You are a delight, my friend.


Josh:
     This was fun.


Kathryn:
             This was great. Thank you so much.


Michael:
             And thank you for joining us today. This is the Half a Bubble Out HaBO Village Podcast.


Kathryn:
             It's one of those.


Michael:
             It's one of those. I'm Michael Redman.


Kathryn:
             And I'm Kathryn Redman.


Michael:
             And we hope you have a great day. Thanks a lot.


Kathryn:
             Bye-bye.