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Slip into something more comfortable and delve into personal finance with Josh Sheluk and Colin White, experienced portfolio managers at Verecan Capital Management. Each episode demystifies complex financial topics, stripping them to their bare essentials. From investment strategies and financial planning to economic headlines and philanthropic giving, delivered with a blend of insight, transparency, and a touch of humour. Perfect for anyone looking to understand and navigate their financial future with confidence. Subscribe now to stay informed, empowered, and entertained.
Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada except Manitoba.
You think of three words, you're measuring value, creating value, realizing value. So owners need to get a handle on how to measure value. Otherwise, you're playing soccer and there's no nets. You show up, you're kicking the ball around like
Kathryn Toope:Welcome to Barenaked Money. The podcast where we strip down the complex world of finance to its bare essentials with your hosts, Josh Sheluk and Colin White, portfolio managers with Verecan Capital Management Inc.
Colin White:Welcome to the next edition of Barenaked Money. Colin here with a very special guest, Rakesh Jain. Did I pronounce your name properly, Rakesh?
Rakesh Jain:Correct. You did.
Colin White:There we go. Rakesh and I, I'm not going to give away timelines or anything, but we did know each other back in the day as he is a old accounting professor of mine. I'm not gonna give any more hints as to how long ago that was, but Rakesh is a CPA working with Baker Tilly in in Halifax, Dartmouth, and he's been in corporate finance for over forty years. And we're gonna have a chat today about employee slash management ownership or takeover of of a business as a form of a succession plan. So, Rajesh, welcome.
Rakesh Jain:Thank you very much, Colin.
Colin White:So let's dive into it. We have conversations with lots of business owners, and for those who are looking to move on to their just rewards on the other side of retirement or financial independence, one of their options is to do an internal transfer of power, if you will, to either the employees or the senior management group. So is that a very common and very successful or good way to do it?
Rakesh Jain:I think one thing about Land of Canada is that owners are really concerned about their employees. And it's a little different than other parts of Canada because you've got evidences of Icelandic companies coming in to buy various quotas from large fishing companies here in Nova Scotia. And the concern that the owners had was they would just shut down the plants, put two or 300 people out of work. And those deals were very lucrative deals, but the owner said no. And those plants exist today in Nova Scotia hands.
Rakesh Jain:Mercy Seafoods, Camo Seafoods are two examples. So I think we can extrapolate that. In my experience, owners are quite concerned. I hesitate to use the word family. I try to get owners to say it's not family, they're a tea Because, but they really tend to use that word interchangeably.
Rakesh Jain:And I think the big issue is there are always one, two, three employees that have been around at least ten years or more. They've earned the right to actually run the business. And yet the owner has a dilemma where these individuals are competent but don't have any cash or access to cash. And therefore, the owner who has a shorter timeline can't really take a vendor note for the entire amount. He needs some cash.
Rakesh Jain:And so what happens, we see some of these management folks leave and start a competitive company, or they'll stay with their arms folded and not very happy. And the new owners will find it very difficult to transition the culture because the new owner will not have the same chemistry that the former owner did. So there's a world of issues that come up. So I see that there's a need. The question becomes, how do you make it happen?
Colin White:Well, it's interesting because you talk about using the word family and team interchangeably, and those are radically different things because I have a family and a coach to team. Those are two different forms of relationships. One is more fraught than the other. I think I've always sounded healthier to refer to a business as a team because, again, you wanna make sure you're working with a group of people that are aligned, and that's more rewarding and beneficial to everybody involved rather than having your idiot uncle John sitting at the table for no apparent reason. Right?
Colin White:But it's wouldn't you wouldn't you agree that I think part of the issue is how long some of these owners wait before they begin the transition? Now this is a a problem of their own creation. I mean, I've seen lots of founder owners who've gotten into this situation where they're in their seventies thinking about maybe I should start transitioning my business now, then it becomes an awfully big nut to crack rather than if they consider doing it earlier. Is that something you've seen as well?
Rakesh Jain:Yeah. It's a issue about letting go, And a lot of them don't let go. Their relevance, their purpose is all built into that business. But the value of a business is really the ability for that owner to make themselves dispensable. And every day, that's the thought.
Rakesh Jain:Work on strategic issues. Don't micromanage the employees. Try to make yourself dispensable. And a lot of owners don't start that transition early because they don't understand the value of their business. They hear their anecdotal evidence.
Rakesh Jain:Well, I heard that John sold his business for five times a number. Well, that's not the way valuations work. And this business might only have one customer. So the valuation is going to be lower. This business might have one supplier, or it may have a lot of competitors.
Rakesh Jain:There's no cookie cutter. So an owner who thinks that on Monday he wants out can't start on Friday. Sometimes it's even tax related, Colin, where there was a company that, I think there were eight children, and they had another accounting firm. They came in and they said, I can get 13,000,000 for my business. I'd like to spread it out amongst my, but they didn't have a family trust.
Rakesh Jain:And so that entire 13,000,000 went into the one owner's hands. And there's no way to do that until you except waiting a couple of years and that and time kills deals. So good luck getting that same offer two years from now.
Colin White:Well, think it's one of those things that, you know, it's amazing when you when you watch a founder led business or somebody that's been a business owner and they build something. I mean, that's that is very, very uncommon. It's very difficult. Many more businesses fail than than succeed, you know, so you need a very specific skill set and a dogmatic, you know, approach to things. And I always describe it as a gag reflex.
Colin White:Like, no matter what happens, you can get past it, and then it becomes your identity. And in that process, you become a little necessarily tunnel vision towards that skill set. And it's very uncommon to have be very successful in any particular arena and still maintain the perspective truly understand the value of an enterprise. And, you know, that's that's a leap for somebody who's been largely so hands on to a whole journey and made all the primary decisions to to kind of give up some of that control. And and identity, as you said, is a bit of a difficult process.
Colin White:I had a conversation with a guy. We've been talking for a number of years, and he was always talking about, you know, succession plan, building a team, and he's trying to attract talent because this is also another one of the caveats. If you wanna attract talent, you you need to give them a reason to be there, and that can often take form as a percentage of an ownership. And we've been talking for five or six years. We sat down just for, you know, conversation, and he was still talking about it.
Colin White:I said, well, how much of the business do you own? He goes, oh, I still own a 100%. 68 years old. If you if you don't go walk back to the office and give away 10% of your business, you're not even serious. And to his credit, he did.
Colin White:He walked back to the office, called the lawyer right away, and said we need to do paperwork because I've got two senior people here. Then I gotta stop thinking about how to do this, and I just have to get it done. Because, you know, senior people, qualified people who are gonna have the skill set to to carry on, they're gonna get other offers. They're they're ambitious people. You you want the ambitious people who are willing to take initiative to stay around.
Colin White:And, you know, sometimes it just gets started. Get get them an ownership stake, however that happens, and then work on the details, you know, as you move forward. Again, it's just it's just getting them to take that action, but it it involves giving up some of that sense of accomplishment. And frankly, sometimes it's greed. Like, you know, I want all this for myself or all this for my family.
Colin White:No,
Rakesh Jain:I think that's well put Colin. For lack of a better word, we call those golden handcuffs. Yeah. And it really builds that stickiness and it creates a lot of stability in an organization when there is a succession plan and that's been communicated to the staff, how it all works and there's a line of sight. But hope, as they say, it's an overworked quote, can't be your strategy.
Rakesh Jain:And unfortunately, I'm at that age where a lot of colleagues and friends are coming up with unexpected health issues. And so why not take control of the succession process rather than having some event take control of you?
Colin White:Well, it's funny you bring up the golden handcuffs because I've always bristled at that. I've never wanted to handcuff anybody to me. Yeah. I want I wanted to entice them. Like, you know, if don't wanna be here, I want the door wide open because I have seen people who have levered themselves in a position where they've, you know, they have people tied to something.
Colin White:And I I love your expression. They folded their arms. You know, when you see somebody fold their arms, you know, that now you have a bigger issue. So but, I mean, I I understand the the sentiment for sure. You know?
Colin White:But I think you can frame that in a more, you know, a positive light on things. It's like you wanna entice people to stay. You want them to be rewarded for staying. You want them to have a have a have a path forward. And you end up with, in my opinion, maybe a smaller piece of a much bigger pie, you know?
Colin White:Because hanging onto it too tight means that it's gonna run between your fingers at some point.
Rakesh Jain:Yeah. There's a tremendous advantage when a management buyout is in place because there's an element of trust that the owner has in the individual. The only issue the owner has is they would like to see a significant portion of that purchase price paid at closing. And so I've built models because this is something that I'm going to explore further in my next career, which is actually facilitate management biotes. And I think that the amount of due diligence is really low because the managers know what they're buying.
Rakesh Jain:Sometimes they know more than the owner because the owner has done such a good job of making themselves dispensable. The other thing is culture. Colin, I know you and I have talked about this recently, and culture is everything. You can put core values on a wall, but those core values have to drive behaviors every day. And, when I had my own firm before I sold it to Baker Tilly, eight years ago, my team knew what they couldn't do, where the fences and boundaries were based on those core values.
Rakesh Jain:But anything within that boundary, whatever they needed to do to get the job done was fine because I was more interested in results and making sure that our client base was extremely, extremely happy.
Colin White:Well, it's interesting you bring up the due diligence side of things because you're right, that's a huge deal in in in a business transaction is the diligence stage. And using internal people who probably know where a lot of the bodies are buried is is probably one way to shortcut that. But in my experience, when but what you add is the expectations of the owner as the owner is expecting them to do it exactly as he would have done it or she would have done it. And, you know, that whole art of, you know, giving up the control of the business and sitting back and watch somebody else run your baby without interfering with it. And that's that's gotta be a studied thing.
Colin White:Like, that's gotta be a very and it's gotta be an open conversation between departing and incoming ownership groups because otherwise, again, it's that whole gag reflex of somebody who's built something and thinks they know best and may disagree with some of the decisions getting made. You know, not spending time in due diligence, but you may be spending more time on managing that relationship with the with the departing owner. Do you have do you have any ideas or any tips for people on how to other than communication? Like, there is that something that goes into an agreement or?
Rakesh Jain:I've been in situations where the owner has given the general manager a chance to buy the business. And the general manager has basically gone to every investor he knows. And in a small town, that wasn't the way it was supposed to happen. And I said to the owner, you can't have this person knocking on doors, looking for equity to help him buy the business. You have to be involved.
Rakesh Jain:So the amount of, and confidentiality is so critical terms of making these kind of transactions happen. But the deal structure is very flexible. You can be, I'm not sure if I'm answering your question, Colin, because in evaluation, the premise is that you get all your cash at closing. But when you're dealing with a general manager, that goes out the window because that becomes the floor for what the price should be. Because if the owner's expected to take back some money, then the price can be higher, and the terms can be very flexible.
Rakesh Jain:And the fundamental premise is trust, that the owner feels quite content that he was able to receive 70 to 80% of the purchase price, and the rest he's able to hold, and put some checks and balances in terms of control. And I can tell you that the general manager works very hard to get rid of those checks and balances and have the owner out of the business so that he can make it his business truly.
Colin White:Yeah. Well, that's answer I was looking for. So it's about putting the checks and balances in place so that there's a clear path to the departure because, you know, you're right. If the if the departing owner is gonna take back a note for part of the purchase price, they still have a dog in the fight, you know, so they're they're gonna be more likely to wanna participate and, you know, avoid perceived mistakes and, therefore, maybe even cause more conflict with the channel manager that's that's that's taking over. So having those checks and balances will be I I guess that's healthy.
Colin White:That's healthy motivation for the incoming group or person to, you know, get everything all cleaned up so that the departing OR can depart and go off onto their next adventure, whatever it is.
Rakesh Jain:It's worth a shot to try the management buyout first before you go, because at least you've given your team a chance to buy it. And then a third party coming in may want to create some sort of a ladder where those key employees can actually be rewarded through some sort of a phantom stock option plan or a real stock option plan, but some sort of a performance mechanism. The only two disadvantages, there's few, but really the disadvantages of management buyout sometimes is that a strong technician doesn't make a strong entrepreneur. So you could be the best electrician in the world, but putting your belt down and starting to run a company, it's so the owner's got to really understand all of the strengths and weaknesses of this general manager. They have that ability.
Rakesh Jain:I like to say that a management buyout, management has to have some skin in the game. It could be as little as $50,000 I've helped managers buy companies with $100,000 that are 3,000,000 or 4 or $5,000,000 And the magic is making sure the cash flow covers the debt that's taken on. So we want that manager not to lose their home, but they don't get really great sleep. And that's sort of the balance you strike when you have skin in the game.
Colin White:Well, the challenge is is that, you know, a lot of founders who created something, you know, there was basically a void in front of them. Like, the next step hadn't been taken, and they were the ones that obviously had to take that next step and grow into it and figure it out. And the arc of many founder led businesses is a whole bunch of those moments where they're stepping into a void where nobody else was there to take the responsibility. Nobody there was had the skill set, so they had to figure it out. And by stepping aside and creating another void, then you're leaving that room for the general manager behind you to step into the void.
Colin White:And then everybody watches. Like, can they stick the landing? Like, do do they have what it takes to get to that next step? And you can take a lot of courses, and you you can spend a lot of time figuring it out. But until you're sitting there with you know, under live fire and, you know, tariffs just got announced, and you gotta figure out how to bounce.
Colin White:Until that moment, nobody's sure. You know, that's that's where the excitement comes. That's where the reward comes. But it's it's it's challenging for one generation who will always fill that void sit back and leave room for somebody else to fill the void.
Rakesh Jain:And this is why time is needed to have that plan so that you can say, okay, this is what I'm thinking. Let's watch this general manager, give them more duties and responsibilities. Let's see if they can handle that because I'm And still owner of the let's let them take over some meetings. And maybe even I'm gonna take a two month vacation and see what happens.
Colin White:Yep. Well, it's not not out of the blue. I mean, have a plan to get to that moment, but yeah. Yeah. The other thing I challenged Steve is leaving a leaving a business can be very lonely.
Colin White:And what I always challenge business managers is to make sure you maintain your peer group and watch what your peers are doing in this regard. You know? Take a look at what's worked and what hasn't and try to inform yourself and and take that next step deliberately. Like, you know, have an idea. Do some FAFO.
Colin White:Like, you do some AB testing and, you know, do it very methodically so that, you know, you build a skill set around you and you begin to build that up. But let's let's get practical for a second. You're talking about sources of finance and stuff, and I'm aware of some of the cash flow lenders that are out there, but they all have nuances as to the kinds of industries they want to be involved in stuff. You know, could you maybe run down the playing field a little bit for a GM as to the different sources of capital that they could pursue?
Rakesh Jain:Well, let's look at a business, maybe it's a representative, but the logic applies to most businesses. So let's say the business is doing $3,000,000 in sales and has $300,000 in income before income taxes. You can add back depreciation and interest costs, and that becomes, let's say, 500,000 of what we refer to as the EBITDA. And that EBITDA can serve as debt. So at, let's say, 7%, you could probably borrow a couple of million dollars, you know, to find a lot of banks, Roynet, BDC, and most of the chartered banks are more looking more at cash flow.
Rakesh Jain:And how is this person going to service the debt? So they look for a ratio of around 1.3 times. So it's entirely possible. And I've been very successful in, especially if the cash flow can be, if it can be demonstrated that that cash flow is solid and that there's a growth strategy. And that growth strategy is really critical.
Rakesh Jain:And that growth strategy is something that the owners may not be interested in, but the new general manager might want to do an acquisition or buy a piece of equipment or buy an extra building or they get excited about that growth plan. And so I want to see that excitement in that general manager, what they would do. And that excitement transfers into the financing package. And I see virtually all the chartered banks, they used to not be in that game, but they are actually cutting the grass of companies like BDC and Roy Net who are cash flow lenders. So there is no shortage of access of funds.
Rakesh Jain:Like most banks will finance cash flow. And then of course they'll take security, but their main interest is, is this manager solid? Is this business solid? And is there a growth plan? And you're all, and you've, you're most of the way there.
Colin White:Well, again, you're struck on something that's that's pretty pretty systemic. As somebody who grows a business gets to a certain point, the growth mindset kinda goes away. You get into, you know, coast mode or semi retirement mode or slowdown mode the fire dies a little bit and you're not as aggressive as you were when you were building the business, and it's almost a changing of gears, you know, so the next generation may still have that fire and they should have that fire because they're going to be taking on a new challenge. So the business will necessarily kind of change its its demeanor. It's interesting to see how how important that could be and reflected in the financing that's available, having that vision and that plan that you can put on paper to say, okay.
Colin White:Here here are the over the next five years here, the steps that we want to take, and here's what we and from from a seasoned operator, somebody who actually understands and knows the business.
Rakesh Jain:I run across I'll ask questions like my standard question is what keeps shipping to most owners? That helps me understand where their threats and weaknesses are in the SWOT analysis. You know, everyone, they understand their strengths and opportunities, but they tend to sometimes ignore their weaknesses and threats. So what keeps you up at night? And that's an important question.
Rakesh Jain:The second question is, if you're doing $5,000,000 in sales or you're doing $10,000,000 what's your plan? What would you do to make it $10,000,000 And they get stumped at that because that's not in their wheelhouse. They're working day to day. They show up Monday through Friday. And they're not even really conscious of threats and opportunities that could be regulatory.
Rakesh Jain:It could be a workplace injury. It could be anything. They're not managing risk. They have kind of strategy that's intuitive, but they're not formally assessing where are the risks? Where am I going to get blindsided?
Colin White:And
Rakesh Jain:so the best way to deal with this is, look, I'm not going to coast. If I'm coasting that old line, I'm falling behind. So how am I going to grow this to $10,000,000 or double the sales if your business is currently doing 5,000,000 And I've been pretty successful in convincing a buyer that that's a legitimate trajectory, that this is pretty solid. They would buy a piece of gear. No one's doing that right now.
Rakesh Jain:That piece of gear would give them 2,000,000. They would now take on another service line that would give them a million and why. So there's a very, there's concrete steps. And then you can build timelines and milestones so that if in the first three months you haven't hit those milestones, time to revisit that plan and look at and pivot and see how you get back to that 10,000,000 goal another way. But I see this is very rare.
Rakesh Jain:And if you want a really good multiple and value for your business, then you have to have that either in writing. My preference is writing just like the way you operate with investment policy statements and so on. Have that understanding with your clients that this is their expectations. So very few owners have really given that a lot of thought, Colin.
Colin White:Yeah. Well, I think it's interesting because I watch different business owners not know what they're selling. Like, it it it really depends on what you have, and and therefore, instead of going concern that you're selling, is it something that one of your competitors would like to buy? Are you selling intellectual property? Are you selling eyeballs?
Colin White:You know? And then, you know, if your motivation and, again, it depends on the individual owner. Are you doubling down on, I wanna look after my community. I wanna look after the people who work here. I wanna look after my clients.
Colin White:I wanna maximize my economic outcome here. I wanna take all my risk off the table. I wanna stay involved after I'm gone. All of those are pivotal questions that could take the conversation in a dramatically different direction. And I've met very few business owners who understand that whole playing field.
Colin White:Like, that's where they had advice from people like yourself who have been in a few dozen couple 100 deals over the years to say, hey. Listen. I recognize this pattern. Last time I saw this pattern, you know, here were two things that, you know, really helped. And, again, it's not necessarily that, you know, you're being paid for your time.
Colin White:You know, you're being paid for what you know. And being in the room, you can dramatically change because there's some really fundamental questions that people don't even know to consider. I had one conversation with a guy one time, and he was trying to value his trucking business, and this guy started with a truck, and he now had a fleet of trucks. And I started talking about his valuation, and he said, okay. And I thought we were starting a conversation.
Colin White:He came back like three months later with a Kinko's box full of colored printouts of every piece of equipment he owned with a full appraisal done. I did the valuation. Passed me. He said, that's that's not a valuation. But in his mind, the only value in his business was the net value of his equipment.
Colin White:He couldn't conceive of anything else. Right? And, you know, that's that's perfectly fine because he's a he's a very successful business guy. He made really good money, and he provided good incomes for a lot of people, but he just didn't have that skill set to kind of keep it going and get it to that next that next level for whatever he deemed important. Like, whether it was keeping those people working or whether it was in those communities or what whatever his values were because those all call for a different approach.
Rakesh Jain:I think that's a really valid comment, Colin. We're talking about dollars, but it's more than dollars. It's qualitative as well as quantitative. And you know, you think of three words. You're measuring value, creating value, realizing value.
Rakesh Jain:So owners need to get a handle on how to measure value. Otherwise, you're playing soccer and there are no nets. You show up. You're kicking the ball around. Like like, let's, you know That's great visual.
Colin White:That's a great visual. Alright. I wanna show up. I wanna put a net here. Wow.
Colin White:Look. There's a net.
Rakesh Jain:But everything is purpose based and results are a lot easier to achieve if someone's given you an independent valuation. And you know, it's not, I know it might feel like calling your baby ugly if you don't like the number, but but it gives you a starting point and it'll tell you, I I see owners when they get evaluation flip right to the number. They don't look at the 25 pages before the number and how that valuation was derived.
Colin White:No.
Rakesh Jain:That number means something, but how you got that number is way more important.
Colin White:Well, Rakesh, let's just be honest. Some babies are ugly. Yeah. If if we're being honest. Right?
Colin White:Yeah. Now whether the parents were gonna hear that or not.
Rakesh Jain:So I think that our theme, that time and time to transition, time to understand what your business is all about and why it generates the value and how can you increase that value and build a legacy for yourself. If that's an important consideration that I find generally for owners their name is on the on the board. Their name is it's cars are driving by and their name is on the building and so legacy is important.
Colin White:Yeah. Yeah. And we haven't really touched on, you know, the the family aspects too because they're you know, that adds a whole other wrinkle into the equation for sure. But if we had to give everybody an idea in an ideal world things are going to be able to accomplish whatever important goals that the the owner had set up for themselves, what's the ideal timeline from, you know, hey. Listen.
Colin White:I need I need to position it other than the day you start your business. I I need to get this organized for for an orderly transition to accomplish whatever I feel is important in that transition. How much of a timeline would would be kind of the ideal starting point?
Rakesh Jain:Well, assuming that all your tax considerations, because that's a there are three parties to every transaction, Colin.
Colin White:Yeah.
Rakesh Jain:Buyer, seller, and Canada Revenue Agency. There we go. Yes.
Colin White:Yeah. Absolutely.
Rakesh Jain:So let's assume that the tax, that the structure of the business is tax efficient. Yeah. Because then you might need more than two years, but generally you could start the process. I would say, start thinking about it eighteen months in advance and you get your ducks in a row in terms of working with a professional to look at all of the steps that would be, and I've seen transactions done in six months or even three months.
Colin White:Oh yeah, yeah, no, no, absolutely. I mean, you have the time you have. You can get it done probably in a very, very short period of time. But for an optimization or get to go through the steps, that'd be eighteen months you're probably building into that, a due diligence process and financing process and things of that nature. That's what we've been in that eighteen month period.
Colin White:Is that what you're referring to?
Rakesh Jain:Well, that's the outside because let's say that it takes some time to get evaluation done of the because the owner needs to understand what they've got first, because he hasn't even talked to the general manager. So got to, has to have to do that homework. So I'm thinking six months minimum to eighteen months. Because if the general manager doesn't have some of those characteristics or duties or so on, there may need to be some rethinking. I mean, that planning, when you hit the ground running, these deals can get done within three to six months.
Rakesh Jain:Now we're doing a management buyout right now, Colin, where everything was a go. Financing is a go. They're doing an environmental phase two, it's called, and they've found something. Now we've been waiting around for two months because it could get resolved, it may not get resolved. But Department of Environment, they work on their own timeline.
Rakesh Jain:So if there's permits that are required for transfer of the business, there's other agencies, there's a landlord that needs notice, there's all kind. And banks generally can give you a term sheet within a week, but they would take two to three months to come up with a commitment letter and disperse the funds. Yeah. So a lot of these time frames are not in your control. So if you
Colin White:Yeah, that's a really good point. I'd even back it up, say I would probably suggest five years out, because for me, it's it's the trying to work with the general manager of that next group and give them an opportunity to take on some additional responsibility and go through that process, you know. Now maybe you're already doing that. Maybe you're already in the process of bringing those people on, but if if this is thought just occurring you for the first time and you're saying, know, I want my management team to be my succession plan, I hadn't thought about it before today. Yeah.
Colin White:Redesigning your structure and giving them the opportunity to start building up the skill set and prove to you that they are in a position to take it on. But again, these things evolve maybe a little more quickly sometimes, and, you know, you don't have that kind of foresight, but giving it enough time for that the management team to to earn your your your trust and and earn the skill set that they're gonna need to take this to the next level. Let me ask you a quick question because the the budget a couple years ago had something the EOTs, the employee ownership trust things. I've never seen one in the wild. Is that something that, you know, has any merit or you're seeing any use of anywhere out there or is it?
Rakesh Jain:I haven't seen one used and we have 35 folks in our tax group. So it exists, it exists, but I haven't run across one.
Colin White:Yeah. I mean, I'm reading it and reading about it. I couldn't really come up with a scenario where I thought it was, would be an ideal fit. And I guess I'm wide open to hearing that at some point, but I think it's got a clock running on it. It's only currently available to 2026 anyway.
Colin White:So maybe it's something that was just it it's not gonna be a a useful tool. So big close. Anything that we haven't talked about? Is there anything you wanna you think people on this listening to this podcast still after all this time?
Rakesh Jain:My feeling is that the first place an owner should look, you should start thinking about it early, but look at his look at his or her, their people. You know, the people that they have to see if they can transition that business to their management group. That's the first place I'd look. Often what happens is owners get a knock on the door, a buyer wants to buy the business and off they go. There's no, there's no auction.
Rakesh Jain:There's no process. They they'll five months of negotiations and they'll tell their accountants and lawyers, oh, I think I've got an offer. And they have no idea whether that was the best offer available. And basically management is deer caught in the headlights. Now they're hearing rumors and so on.
Rakesh Jain:And then guess what? A buyer says, oh, by the way, one of the conditions of closing is we need employment agreements from your three key employees based on our due diligence. Okay. Well, luck getting those employment agreements now after the fact. It's pretty hard for people to sign paper out of the blue.
Rakesh Jain:I would recommend that you get those contracts in place well before any sale.
Colin White:Yeah. I understand what the value of your business is. Again, that's another conversation I had with another business owner who did that, sold his business, and then went back to the office and told everybody this is what had happened. And when he was talking to me, his his senior staff was all in up up in arms because they received their new employment contracts, and their new employment contracts all contained a one week clause. And so some of them have been with them for ten, fifteen, twenty years, and they were at being asked to sign a contract, you know, basically allowing them to be let go with one week's notice.
Colin White:He goes, yeah, they're all upset about something. Gotta go back and smooth that over. It's like, well, no. You're an idiot. And you should have seen that comment.
Colin White:In fact, you didn't make sure were even a bigger idiot. But some of these things are just, you know, foreseeable. That's some good food for thought there. That timeline's important. The fact that there's money out there.
Colin White:Cash flow lending, you're right, is a new thing. A newer thing, and I think more of the major institutions are getting involved in it from my experience as well. It's not simple or easy, but cash flow lending is a thing. And it's probably more possible than some people are giving it credit for it. Maybe as they go back and look around the office very carefully right now, they might see that, hey, there's enough talent here.
Colin White:And again, depending on where you feel your responsibility, maybe that's the group you should look to first.
Rakesh Jain:Yeah. Based on what I've heard today, Colin, you're in an excellent position to have those conversations with your clients and give them some food for thought. And that's all it is, is just go back, take it away, and just think about it.
Colin White:Educate people and try to give them information they can use to make good decisions for themselves. That's what this is all about. So Rakesh, thanks very much for sharing your time and your wisdom, and it's good to reconnect after all these years. And I'm glad I didn't piss you off too much as a professor so that we can still have a civil conversation at this point in our life.
Rakesh Jain:No. I believe in shade. I'm glad we met. Thank you, Colin. It was a pleasure.
Colin White:Have a good one.
Rakesh Jain:You too. Bye
Colin White:understand how the conflicts may affect you.
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