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Business Valuations
359 Plays3 years ago
In the day-to-day running of a business, it’s often hard to find time to prioritize some of those big picture questions like “what is my business actually worth?”. But knowing the value of your business can be the catalyst to your next big step, like an upcoming retirement, offering an Employee Stock Ownership Plan, structuring a buyout among partners, or even selling your business outright. It can also reveal practices within your business that reduce value and make it harder to grow.
In this episode we’re talking with Matt Fett from BCC Advisers about business valuations. We’ll learn about when you would need one, how much it generally costs, and opportunities it can reveal. Plus, the behaviors that make it hard to structure a good deal to sell or transition a business and the role emotions play when trying to understand how much a business is truly worth.
For more information on Matt’s services, go to bccadvisers.com.
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Transcript
Introduction to Uncommon Living and Wealth Building
00:00:00
Speaker
Everyone dreams of living an uncommon life and the best asset you have to achieve your dreams is you. Welcome to the Uncommon Wealth Podcast. We're going to introduce you to people who are living uncommonly. We're also going to give you some tools and strategies for building wealth and for pursuing an uncommon path that is uniquely right for you.
00:00:26
Speaker
Hello and welcome everybody to another episode of the UnCommonwealth Podcast.
Challenges of Rebranding the Podcast
00:00:32
Speaker
You know, it's hard when you change your name. It's hard when you change your name. It's hard when you change your name. Thanks for tuning in. We're grateful that you're here. We like that we used the whole podcast, UnCommonwealth, because that's what we do. We'll give you ideas.
00:00:45
Speaker
to be able to look at your money a little differently, to walk this path that you're uniquely gifted to do, financial advisors, and then we have a guest on the show.
Guest Introduction: Matt Fett and Business Valuations
00:00:55
Speaker
And before we start, before we get into bio, don't you start that yet, Brian. We had a person that did business evaluations on the show last season with the Uncommon Life Project, if you remember that.
00:01:06
Speaker
They were from Principal Financial Group and we were kind of jockeying, had a great podcast. And at the end of it, I asked them, okay, this is off air, how about you do a business valuation for us at Uncommon Wealth? She's like, oh, I'm sorry, we don't do that for financial advisors. And I was like, okay. And then Brian's like, what about this? And she's like, yeah, we don't do that for either. So it was a small quadrant, I guess, that she was actually wanting to do, which really frustrated us. Frustrated.
00:01:32
Speaker
So, Brian calls it a small sliver. We actually have a person that actually does a huge sliver, if not everything, for business evaluation. He's on the show now, his name's Matt. Brian, give us a bio and then we'll go into it.
00:01:43
Speaker
Let's
Matt Fett's Career Journey in Business Valuation
00:01:44
Speaker
do it. We've got the one and only Matt Fett with us today from BCC Advisors. Matt specializes in providing business valuations, go figure, for closely held companies for a multitude of purposes. We will unpack the multitude of purposes because that's a general statement. And we want to go deep today with Matt. Welcome to the show. Thanks, guys. Good to be here. That was an amazing voice, Brian.
00:02:07
Speaker
I feel like I'm getting more and more radio Brian versus normal Brian. Sorry. All right, Matt, how did you get into business valuations?
Understanding Business Value for Retirement
00:02:15
Speaker
And one, I will say it is super valuable what you do. Obviously you know that, but as business owners, sometimes we can just be putting our nose to the grindstone for so long.
00:02:24
Speaker
And we don't feel like there is really anything valuable there, which there actually really is. And at Uncommon Wealth Partners, we try to help people understand what that value is and how that helps them in retirement, because it does. It's an asset. And you get to help them quantify it. So how'd you get into it? Yeah, absolutely. So I graduated from Iowa State University in 2008. A cyclone. December of 2008. Yeah, it was a cyclone. Oh, man.
00:02:47
Speaker
I quit my job in December of 2008, so I'm already tracking with you. Yeah, so a couple months after Lehman Brothers goes to bankrupt, I graduated with a finance degree. Nobody is hiring for finance, but ended up at BCC Advisors. They were looking for someone straight out of college.
00:03:03
Speaker
And I've been there ever since. So 13 years, same company, kind of the anti-millennial stance, but it's been a great career. 13 years, I became a partner, I think three or four years ago. Nice, man. Yeah, it's been great. I didn't know that. Oh, I've got a lot of questions. No, that's great.
00:03:22
Speaker
Okay, how in the world why do you think they would just went after somebody straight out of college? That's a different approach. Yeah, absolutely. A good employee in our industry has a background in either accounting or finance, but they don't know anything about business valuation. You don't want to hire somebody from a CPA firm that has four years of experience and wants a salary of a CPA with four years of experience.
00:03:46
Speaker
We have found that hiring people out of college, training them from the get go and business evaluation has kind of been the best approach for us. I love it. Yeah. Okay. All right. So they reach out to you and you're like, I've never thought about business evaluations, but it seems like right in my wheelhouse. Well, I actually, my least favorite class in college was doing valuations for businesses. Um, but it was more that I just don't understand it as well as I do now. So it kind of flipped my stance on that. Things change when they start paying you. Then it's like, maybe I like this. Yeah.
00:04:15
Speaker
And working with the business owners changes a lot too, because you can actually see the impact of your work. Ah, dude, that's a great point. When we feel like we were dealing with, it's just emotional. I'll just say that, it's emotional. Especially when they're at the end of their career, and they start thinking about the next generation passing it on, man, it's scary, it's emotional. And like Brian, I love how you say this. You say, it's kind of like a child. You raise it up,
00:04:42
Speaker
It starts to walk, you remember the first time it rode a bike, you know, like there's a lot of things and memories. Tell me how working with business owners and kind of the end of the stage where they're evaluating it, how emotional it can be, and then maybe some tools to not make it emotional.
Emotional Challenges Post-Business Sale
00:04:58
Speaker
Yeah, absolutely. Yeah, that's a great point, you know.
00:05:01
Speaker
The biggest hurdle for a lot of business owners is just, what am I going to do after this? If they sell the business, typically the buyer wants you to stay on for a couple of years, so there's kind of an off-ramp there. The last couple of months, a lot of the business owners have worried, can I afford to sell because of the downturn in the economy. That's kind of been a new thing to help people through as well.
00:05:26
Speaker
Everybody's different, everyone has different hang ups. Sometimes it's the control issues, sometimes it's the financial issues, but we try to help them understand that there is life after the business and set it up the best to survive after you, let it go essentially. Okay, so you gotta, horror stories. Give me a horror story. We all think of this. Let's just get right into it. Yeah, come on Matt. Boy.
00:05:55
Speaker
What kind of horror story? Are you talking bad clients? No, everybody's people and people are people.
Misconceptions About Asset and Business Values
00:06:02
Speaker
But like where a situation went south quick and you just never could get it back and it's just like hot mess express without throwing your whole company under the bus because it's emotional. So I know their stories and here's what I would say as being a business owner.
00:06:19
Speaker
you always value your business more than what it's really valued as. So maybe I'm asking about that. A business is worth what someone's willing to pay for it. Yeah, and so there's a difference between price and value. And sometimes having that discrepancy, people can't put those together. You know, recently I've had more than one client, I give them the value of their business,
00:06:41
Speaker
And they want me to add the value of the assets to the value of the business. And they just don't understand that that's not exactly how it works. If you sell the assets, you can't have a business anymore because you can't generate the cash flow that those assets have. And so that's kind of been a hurdle for me recently that I've had three or four clients struggling to understand.
00:06:59
Speaker
Yeah, it's like in life insurance. It's like, I want the cash value and the death benefit. Well, you're getting the death benefit and it's way more than you ever put into it. So it's kind of the deal. That's how it works. Tax free. Same thing. Yeah. Yeah. It's stuff like that. Just helping people understand that.
00:07:16
Speaker
Once you get past that step, then they can kind of fully understand how the business works. You know, if you're a buyer, what are you buying? You want to buy the future cash flows of the business. And so once they kind of understand that, then the conversations go a lot better. So we kind of talk about it, you know, we're in the financial services business and by federal law, you know, you have to get a quarterly statement. There's no quarterly statement per se that comes in the mail and you can show your wife like, oh look, honey, we'll get the value of our business.
00:07:46
Speaker
And it's hard, like, you know, we've been doing this now almost a decade. No, it's been a decade. And we don't get that like statement in the mail, you know, from principals since we were talking about principal, like, Oh, there's that 401k statement on the value of our business. It doesn't work like that. So what?
Impact of Value-Adding Activities on Business Valuation
00:08:05
Speaker
When do you kind of start suggesting as a business matures to like, Hey, it might be time to get a business valuation just to check in and. Great question. Yeah, it is a great question. And generally in my experience, businesses don't get evaluation until they have to, you know, I, I like to say that we help businesses in transition, any kind of transition you go through. That's, that's typically where our firm comes and helps. Um,
00:08:30
Speaker
Occasionally, we get people that just want to know, and we have a smaller scaled down analysis that we do for those clients. Kind of just give a range of values, do some calculation, that kind of helps them.
Employee Stock Ownership Plans (ESOPs) Explained
00:08:43
Speaker
Plan. Yeah, plan, exactly. And helps you guys plan, too. Yeah. If they kind of have a better understanding of their business. We've had a lot of business owners that they've had their head down, working in their business, their whole lives, and they come to us, and they don't even have a guess as to what it's worth.
00:08:58
Speaker
And sometimes it turns out well for them, but a lot of times it doesn't because they're not doing the things that add value to the business. You know, they're running the business the way they think they need to be, but they're not thinking about adding value as they go along. Kind of, I think what you're alluding to is like the McDonald's, the E-Myth, like the process, the manuals, the repeatable parts of the business that someone could come in and buy that business and keep operating it the same way. Is that what you're kind of alluding to? Yeah.
00:09:28
Speaker
One way that we like to, so a third of our clients, or maybe even more than that, are ESOPs. So they do have a valuation done every year. Because it's required. It is required. And if an employee leaves during the year, they get bought out at the price that we valued at the beginning of the year.
00:09:44
Speaker
And so as we go in year two, year three, they start to see the trend of the value. And we start talking about why is the value going up? What are the things that you're doing that are adding value? If we value it at five times EBITDA, for every dollar of EBITDA you add to the bottom line, you're adding $5 of value. I like that number. Keep saying your words, Flo. Keep saying your words.
00:10:08
Speaker
And so once you get the management team and then the management team starts talking to the employees about that, you start to find that the employees start thinking about adding value and everything that they do. Why are we printing all of this paper? That's an expense that's decreasing value to the company. Nice. And so once you start thinking that way, expense, how does that affect value? Income, how does that affect value?
00:10:34
Speaker
On that vein, I feel like if you're going to a realtor, what's your best bang for your buck? Kitchen. Or, you know, like master bedroom, whatever, master bathroom. What is the best bang for your buck for evaluation for your business that normal people start with or that you see in your business?
00:10:50
Speaker
Yeah, a lot of times there's overhead. They don't think about, they're overstaffed. A lot of our clients, I would say, I have seen some of our clients that don't track their inventory cost of goods sold. We talk about that all the time. I wanna come back to that, keep going. Yeah, and so if you don't know what you're paying for each part and the volatility year to year or even month to month, how can you price that product on the back end and make sure that you're still making a profit on it?
00:11:20
Speaker
So there's a lot of slippage there. I'd say that's a good place to start if you're not keeping track of that. So one of the things, so I did just shy, I think it was like a month shy or two months shy of five years at Deloitte and Touche. And we kind of talked about this before the show.
Importance of Tracking Costs and Strong Accounting
00:11:35
Speaker
But we have a lot of business owner clients who are in the, they're reselling stuff basically, right? They do have cost of goods sold, they do have inventory. And the thing that we invariably come back to is, you know, kind of like the E-Myth, how much does the sugar cost in the pie? You know, if you haven't read the E-Myth in your business, you just have to read it. But how much does the pie cost, the crust, the sugar, the flour,
00:12:00
Speaker
you know, whatever. And I think small business owners, they get in like, oh, I'm going to sell this thing. And they don't appreciate the cost of goods sold. They don't appreciate how to set up their P and L to understand their numbers, track their numbers. And, you know, what I kind of tell them is the unfortunate thing is like, especially if you're doing less than I would say a couple of million dollars of revenue.
00:12:22
Speaker
you have the requirement almost of like a $10 million accounting system, but you're not doing 10 million in revenue. Like if you really wanna track the numbers, you have to operate like you're making $10 million. Otherwise you probably won't get there because the death of a thousand cuts is gonna just kill you if you don't know how much this stuff costs and what your truly profit is.
00:12:47
Speaker
So I appreciate you saying that. I'd love to see how you get it on the back end of like, oh no, this is just how we do it, but.
00:12:55
Speaker
someone coming in and buying that business, it's like, wait a minute, what am I buying? How much am I gonna make? Well, the valuable part, I'll say where Brian and I are, it's like we get a chance to change moving forward where you are kind of like, okay, we're at the three yard line. Like it would have been nice if we would have thought about this in the 40 coming in. We try to get clients early and earlier to start thinking about it. And by the time they get to us, you're right. It's typically too late, but we rely on accountants, CPA,
00:13:23
Speaker
okay back to this and I don't want to bang this drum but like it is emotional and this is a way to make it unemotional bowl like start focusing on the numbers start doing your cost of goods sold your inventory I mean I love it Brian Brian's really gifted at this so he did this with the client and now like he has a different
00:13:42
Speaker
energy towards his business because he's looking at the numbers in a different way. Basically he was ready to sell like, I'm not making any money. Yeah. Right. You know, and he wasn't drilling down in the numbers, down in the numbers, raise prices, raise prices again. Got it all now. Boom. Monthly income net net profit every month. Now like clockwork.
00:14:00
Speaker
It was two weeks ago, I saw him at a wedding and he was like, yeah, I'm going to try to get this thing up to 500,000. I'm walking away from it. And then this week we had a conference call with him and he's like, yeah, I'm not going to do that. Like there's no way I'm letting this thing go. I'm making money now. So yeah, that's encouraging. Sorry. I want to go back to the ESOP because I think there's a life cycle as a business owner.
ESOPs as an Exit Strategy
00:14:23
Speaker
I wouldn't say we're there yet. I think we're getting closer to it where you have a closely held business and we're young and we're growing and it's good. We have great team. And it's like, how do you keep that going? How do you maybe start to cash out a little bit, but you still want to benefit from the business. We're not done yet, but you want your team members to profit. So maybe kind of walk through
00:14:46
Speaker
Like when you started advising a company to look at an ESOP, I think ESOP's pretty popular as a way to go. And then kind of like, let's kind of navigate some of these maybe subsets of ways to cash out but still run the business. Yeah, absolutely. So ESOPs typically are good for businesses, you know, the motivation people use to set up an ESOP. They want to incentivize their employees.
00:15:12
Speaker
They want to keep the business local. If you sell into a private equity group, they might shut down a plant in a small town and then the small town disappears essentially. Or they need to escape and there's no buyers essentially.
00:15:28
Speaker
Real quick, can you just define what ESOP means so our listeners are on the same page? For the Philips in the world. Yep. So it's an employee stock ownership plan. Got it. And so there's a trust set up that owns the shares of the company. And every year or month, the company makes contributions to the trust.
00:15:46
Speaker
and the trust releases shares to the employees. And so essentially, it's like a 401k that is invested in the company. And so when you retire, you have X number of shares, we have a valuation done that year, value times price, and that's what you get paid out at.
00:16:04
Speaker
So it's a great way to incentivize employees to stay with the business. Those people get it at retirement. They can't just pay out or buy out of it. Like, hey, I'm 38. It's a great price. Let me buy out of that thing. Yeah, so incorrect. If you leave, if you're fired, if you quit, if you go to another job, you get paid out the number of shares that you have. Okay. But a lot of these are set up where
00:16:29
Speaker
they can wait five years, cash you out, and then pay you out over another five years, which disincentivizes people to leave. Whereas if you had $100,000 of shares set up, you leave the company, start up a competitor, and they paid you out right away, then you have the capital.
00:16:46
Speaker
I wanted two things. One, I think one of the best ESOP companies I think everybody would know, at least in the Midwest, is Hy-Vee, right? Aren't they a true ESOP? They're a true ESOP, but they are employee owned, so there's a little bit of a difference. They're a little bit of a hybrid, but kind of the same. ITA Group, my first company that I came from,
00:17:04
Speaker
was at ESOP and every time they announced the ESOP number, people were bawling and I was like, they won the lottery. I mean, I get it, it's powerful. What are just the high level, top two, three requirements, barriers to entry to start the ESOP? Just keep it super simple. Yeah, so you need at least 20 employees and that's kind of a technical thing with you can't have one employee making over a certain percentage of salary.
00:17:32
Speaker
So you have to have at least 20 employees. You have to have a good management team that can run the business once the owner retires and leaves the business. And you have to have a decent enough value that it makes sense to pay the annual administrative fees. You know, you have to have a valuation ton every year. Typically you have an external trustee. So there are expenses associated with it.
00:17:51
Speaker
What does that look like here? Just like ballpark? All in, maybe 20,000 a year, 20 or 30,000. It depends on the size and what you're using and stuff like that. Gotcha. And then how much of the stock does the ownership team or person have to sell to start the ESOP?
00:18:08
Speaker
Yeah, so you're paying fees for a transaction, so it makes sense that you're going to do a big enough chunk. Typically, it's 20% or 33%. It would be the smallest that we would see. There are ways to do it kind of a backdoor approach where you don't have to do a transaction. You contribute shares of the company to the ESOP and it gets a little bit more complicated. Sure. But a lot of the transactions that we're doing, they're going 100% ESOP right off the bat.
00:18:34
Speaker
So one benefit of 100% ESOP if you're an S corporation, the tax liability of the corporation gets passed on to the trust. The trust is a non-taxed entity. So essentially the company doesn't pay taxes. And so they're able to accumulate a bunch of cash, make acquisitions and it works out pretty well.
00:18:55
Speaker
That's actually really cool. Well, I think too, cause like, you know, you see publicly traded companies, you know, I think Facebook is probably one of the best just cause everyone kind of watched that happen, but you know, waited a long time to go public. There's a lot of private equity money in there. Then finally went public, made a lot of people, a lot of money, but
00:19:17
Speaker
as business owners or small business owners of like privately held businesses, it's like, okay, we're probably not going to go public, but like what other options do we have? So could you just talk kind of high level about growing? You know, we've had several business owners lately just like, oh, I need more capital. Like, do I go hard money loans? Like kind of, you know what I mean? Like we're kind of in this weird space where it's like,
00:19:41
Speaker
We're probably not going to go private equity or something like that, but we want to grow, we want to have capital, we want our team to do well. Can you kind of lay out that optionality? Yeah, we don't get involved with that, but that's not us. I have seen businesses sell 15% to a merchant bank or something, or private investors. Sure.
00:20:05
Speaker
Sometimes the business owner, if they want to liquidate a portion of their business, they will have some of the management team buy in and then that also starts the transition of transferring to that next level of management if they want to become the owners.
00:20:20
Speaker
So there are options like that, but, you know, like I said, that's not something we get into as much. Sure. Okay, go talk to principal. Okay, so give me a ballpark of like the dumb down valuation.
Business Valuation Services and Costs
00:20:32
Speaker
How much does it cost to work with BBC advisors? And then how much does it cost for like the full blown evaluation? You're at the end of your career business? Yeah, whatever.
00:20:41
Speaker
Yeah, so we offer essentially three tiers of valuation depending on the purpose. So if you're an operating business and you're doing estate and gift work and our report is going to get sent to the IRS, then you need a full appraisal report. Yes. And so a report like that typically 10 to 12,000 for an operating business. And that's kind of just baseline, run of the mill, not a lot of complexity in your business.
00:21:08
Speaker
Yeah, that's like that's what I put it. Yeah. Yeah. Whoa. Okay. Whoa. He likes it. He likes it. Um, so if you are, you know, two business owners and you're trying to do a buy sell agreement and you can't agree on the price or you're trying to buy out one of the owners and you just need a letter report, that's kind of our middle tier, you know, it might be eight to 10,000. Um,
00:21:28
Speaker
If you just kind of want to know what a baseline value of my business is, we do calculations. And that varies kind of depending on what you want out of it. If you want consulting on the back end to help you kind of understand it, it can be anywhere from four to eight, probably 8,000. Nice. Okay. And you do work with financial advisors. That was a question I didn't ask the principal.
00:21:50
Speaker
Dang it. Yeah. I mean, there isn't an industry that we haven't done or, I guess. What's the most quirky industry you've had to evaluate? Yeah. For a while there, we were doing a lot of ethanol plants, which is kind of an interesting thing. Yeah. I did a lot of ethanol work when I was at Deloitte. That was when they were trying to go public and, you know, organize and there's a lot of free money out there and cheap money. We'll say, maybe put it that way, but yeah.
00:22:15
Speaker
Yeah, and that's a tough industry because there's so much commodity-based movement that, yeah, essentially you're trying, do they have a mechanism to lock in their margins, you know, month to month? Right, right. Okay, so when, you know, you don't want them on the three-yard line, so when would you want them, obviously, to come in and then give our listeners a little bit of idea of like, hey, if this is you, come talk to us,
When to Consider a Business Valuation
00:22:38
Speaker
kind of thing.
00:22:38
Speaker
If you're planning to retire in the next five years, I think that's a good time to start thinking about what is your plan? And we can help you be a part of that plan. You guys probably do more of the help once they understand the value of their business. But if you, like you said, if you come to us when it's time, there's not much we can do to help you understand how to increase the value of your business. How to get it set up in a way that if you want to have an external buyer, what are they looking for? Do you have clean financials?
00:23:09
Speaker
Real financials. Real financials, yes. I can't tell you the number of businesses that come to us with internal financials out of Quickbook, and I'm like, if you go to a buyer with this, they're not going to trust the numbers. Right. So if I'm going to buy a business, generally I'm looking for three to five years of historical financials. And so if you can build on a five-year period to really peak at the right point, that's going to set you up for a good sale exit.
00:23:38
Speaker
If you're looking for an ESOP transaction, the whole process probably takes nine months. If you think your business is ready financially, you've set it up to a good point, we can get a transaction done in about a nine month period. Anything shorter than that and you're probably gonna be pushing it a little too much. I'm trying to think, other scenarios, if you wanna buy a sell agreement,
00:24:08
Speaker
maybe you're an early stage business, you just started, you have two owners that...
00:24:14
Speaker
Don't necessarily, let me start over. By-sell agreement, you have two owners and you're just starting a business together. Make sure you have a by-sell agreement in place because you don't know what's gonna happen five years down the line and you wanna make sure that you both have an understanding of how you're gonna be bought out if one of you has to exit. We can set up either a formula or we can do a valuation and then just have the by-sell agreement say that you have to have a valuation done and these are the parameters. Prior to, yeah. Yeah.
00:24:42
Speaker
if you're an early stage business, five years from now, your business is probably gonna look a lot different. So if you do have a formula in place, you wanna make sure that you revisit that buy-sell agreement periodically to make sure it still makes sense for how your business is. Now does BBC Advisors, BCC, BCC Advisors, do they help people acquire businesses and sell businesses? Do you do all that? Yeah, we do.
Role of BCC Advisors in M&A Deals
00:25:05
Speaker
So I'm on the business valuation side, but we have three partners that do M&A work.
00:25:10
Speaker
Interesting. They help middle market businesses go through the full process. So if they're getting ready to sell, they'll go out, identify buyers, get them approved by the seller to make sure that there's no hard feelings between the buyers and sellers. They'll contact them. They'll try to get
00:25:29
Speaker
multiple buyers lined up, offer bids. So it's an auction process to try to drive up the price. And then they help all the way through closing, due diligence, everything like that. Huh, very
Risks of Seller Financing in Business Sales
00:25:40
Speaker
cool. What would you say is on the backend to like a business owner that's selling of like, like we had a situation where a guy wanted to sell his business and it was like, I would say 90% seller financed. And I was just like, dude, you're taking so much risk on this deal. Like,
00:26:00
Speaker
and he was gonna sell, he was gonna sell or finance the building that the business was in, which is a separate asset, and sell or finance the business, and I'm like. Don't do this. And then he was gonna work there for like two or three years, and I'm like, this is a recipe for disaster. That's a lot of eggs in that basket. Right. So, you know, we ended up saying, hey, keep the building, give the guy a first try to refusal, but make him sign a five-year lease, keep that asset to your benefit,
00:26:26
Speaker
and then sell the business at market value and sell our finance maybe 10, 20, 30% of it. Something like that and they ended up closing the deal pretty close to that. So kind of walk through maybe like what not to do if you're the business owner like, well I'm gonna work for this guy for five years, like no you're not, that's not gonna go well. Maybe if it's your son but you know. Even that, I wouldn't do it. Yeah, it's pretty typical to have a,
00:26:53
Speaker
one to three year where they stay on to kind of transition the business. Five year gets to be a lot. If you're doing a 90% seller finance, you're getting none of the upside and you're taking all of the risk. So that doesn't make any sense. So the structure that you said makes total sense.
00:27:10
Speaker
A lot of times we'll see an earn-out involved so that the buyer has some protection that in case they don't trust your numbers, you think the value is here, they think it's lower, you can bridge that gap by an earn-out and then if the business proves it, you're still working in the business so you can make sure that they're not just tanking it so they don't have to pay you.
00:27:31
Speaker
But that's a good way to do it. On ESOP deals, we've also seen a lot of clawbacks where if the business underperforms, they have the ability to clawback some of the purchase price. That's good. It's kind of an offset to the buy or the earn out. Typically it's both involved. Sure.
00:27:48
Speaker
Is it best practice to make sure they have a first rider refusal if this thing goes south? The owner can come back and buy it? I'm not sure if I've seen that. I don't work as much on the M&A side, but that doesn't sound like something I've seen. OK.
00:28:03
Speaker
It's good. You hear those stories, though. But if you have owner financing, of course you get it back. But you see those where I was just watching a video. This guy sold his company to AOL for $800 million, and he ended up buying it back for $25 million six years later, and they ran into the ground. But I definitely think that's probably more the anomaly than the standard. Probably.
00:28:23
Speaker
I just love business. I love talking business. I mean, you see a lot of different business. Like, what gets you excited about business and, you know, obviously there's a lot of geopolitical economic stuff going on, but, you know, people need stuff. People want to do good business. People need products. Like, you know, what are you excited about as you look kind of forward?
00:28:42
Speaker
Yeah, I love helping the small business owner that is getting close to retirement and they don't have a plan yet. And so I can help them understand the value of the business, kind of give them advice on things that they can do that gets them comfortable that they can, you know,
00:28:59
Speaker
feel safe to sell the business and they'll be financially set going forward.
Contacting BCC Advisors
00:29:05
Speaker
I love the ESOPs that I work with. A lot of them are set up for the right reasons. You get to see the benefit to both the employee and the seller. It does seem like a win-win in a lot of those situations. So those are the kind of things. I like to see the happy ending at the end of the process.
00:29:25
Speaker
How do our listeners get to know more about BCCU? How do they contact you? All that. Yeah, so our website is BCCAdvisors.com. Well done on that, by the way. I feel like a lot of businesses don't do that URL thing right. It's like, no, it's BCCAdvisors.com. Yeah, we do have one small quirk where advisors are spelled with an E.
00:29:49
Speaker
Long story, you know, website wasn't available. Probably Philip was the one who spelled it. But I think we do have it now or either one will get it. We'll get you to the website. Well, thank you for being on. Thanks for your expertise. And I know that it is super valuable to have somebody come in as a business owner and evaluate something they've been working so hard on. So appreciate all your hard work. Appreciate your insight and wisdom.
00:30:13
Speaker
You've been listening to the Uncommon Wealth Podcast. I've been your host, Phillip Ramsey. And I'm Brian Dewhurst. Until next time, go be in common. Thanks for listening. Thanks, everybody. That's all for this episode brought to you by Uncommon Wealth Partners. Be sure to visit uncommonwealth.com to learn more about our services. Don't miss an episode as we introduce you to inspiring people who are actively pursuing an uncommon life.