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What's the single most important number when it comes to selling your business? Hint: It's not your net income.
In this episode of HVAC Full Blast, Mary Carter and Stephen Ross are joined by lawyer and business consultant Dan D'Alberto to demystify one of the most critical metrics in business valuation: EBITDA. Many business owners leave millions on the table simply because they don't understand this powerful concept and how it reveals the true cash-flow capability of their company.
From understanding personal add-backs (like beach houses and boats!) to seeing how smart accounting can dramatically increase your sale price, this is a masterclass in financial strategy that every business owner needs to hear.
In this episode, you will learn:
- What EBITDA stands for (Earnings Before Interest, Taxes, Depreciation, and Amortization) and what it really measures.
- The crucial difference between Net Income, EBITDA, and Adjusted EBITDA.
- A real-world example of how a business went from $900k in net income to a $2.7 million valuation by understanding its EBITDA.
- How running personal expenses through your business impacts its final sale price.
- Actionable advice on how to prepare your financials to maximize your company's value for a future transition.
Whether you plan to sell in two years or twenty, understanding EBITDA is the key to building real, transferable wealth. Don't make a multi-million dollar mistake—watch now!
Connect with our guest:
Dan | Purpose Equity
Email: dan@purposeequity.com
Have a question for the show?
Email us at: hvac_full_blast@tranetechnologies.com
Interested in becoming a Trane dealer? Visit us at partners.trane.com to learn more about how you can partner with a leader in HVAC innovation. Explore opportunities to elevate your business and stay ahead in the market with Trane!
Creators and Guests
Host
Mary Carter
Mary Carter is a seasoned sales and marketing leader with over six years at Trane Technologies, currently serving as Regional Sales Manager. With a strong foundation in RHVAC, consumer finance, and strategic account management, Mary brings valuable insights and real-world experience to every conversation.
Host
Guest
Dan D'Alberto
Dan D’Alberto is the founder of Purpose Equity and believes businesses can be a force for good in the lives of employees, customers, and communities. Drawing on years of experience in business transitions, especially within labor-based industries, Dan helps owners exit wisely while aligning financial outcomes with purpose and values.
Producer
Editor
Kerianne O'Donnell
Kerianne O'Donnell is the Digital Learning Manager at Trane Technologies and serves as the editor of the HVAC Full Blast podcast. With a background in graphic design and a strong passion for developing digital learning experiences, Kerianne brings her creative expertise to the podcast, delivering engaging and impactful content to listeners.
What is HVAC Full Blast?
HVAC Full Blast is your bi-weekly dose of HVAC business growth, powered by Trane. Hosted by Mary Carter (Trane Technologies) and Stephen Ross (Sandler), this podcast is built for residential HVAC dealers who want to scale their business, sharpen their sales, and lead with confidence.
Tune in for expert interviews, dealer success stories, and practical tips on pricing, service agreements, workforce development, and more. Whether you're in the field or in the office, HVAC Full Blast helps you stay ahead in a competitive market.
Interested in becoming a Trane Dealer? Visit our website at https://partners.trane.com/
We'd love your feedback and suggestions on future episodes. Please email us at hvac_full_blast@tranetechnologies.com.
This podcast channel is for general informational purposes only. The views and opinions expressed in these episodes are those of the panelists and do not necessarily reflect the official policy or position of Trane Technologies. Trane Technologies makes no warranty or guarantee concerning accuracy or completeness of the content presented in this webinar.
Trane does not provide tax, legal, or accounting advice. This material is for informational purposes only and it should not be relied on for tax, legal, or accounting advice. Tax law is subject to continual change. All decisions are your responsibility and you should consult your own tax, legal, and accounting advisors. Trane disclaims any responsibility for actions taken on the material presented.
All trademarks referenced are the trademarks of their respective owners. ©2025 Trane. All Rights Reserved.
Today, Mary Carter and Steven
Ross are joined by Dan,
a lawyer and business
consultant with Purpose Equity.
They dive into the critical
legal and financial planning
every business owner needs for
a successful succession or sale.
Whether you plan to pass
your business to the next
generation, sell
to your employees,
or find an outside buyer,
this conversation will help
you prepare for a smooth and
profitable transition.
Let's get started.
Welcome back to
another episode of HVAC
Full Blast. My name
is Mary Carter.
And I'm Steven Ross.
And we have a new
guest on with us today.
We do. And I'm excited
to introduce Dan.
I've known Dan for a long
time just personally,
but then also had the chance
to work professionally with Dan
starting a couple years ago.
And he's got a wealth of
knowledge that is both general,
like we could ask him
just about anything,
he probably knows the answer,
but also very specific in the
heating and air world and just
the trades in general.
And so I'm I'm excited.
I got all kinds of questions
lined up for you, Dan,
and and we're ready to go.
Sounds good to you.
You too, Mary.
But but, Dan, just to give
everybody else a background,
so how did you so
you're you're a lawyer.
You're a business consultant.
So you own a law practice.
That's kinda one separate thing.
You've also got a kind of
business consulting brokerage
business that's separate.
How did you get into like, when
law school, is this like, hey,
this is what I wanna do.
It's kind of business law or how
did you end up going down this path?
No, actually I just knew a bunch
of lawyers who made a bunch of
money and I thought
I want to do that.
So that was my twenty four year old
brain decision to go to law school.
But I went to a large law firm here
located here in Columbia, South Carolina
and was there for about
six and a half years.
And through the last half of
my career there, my time there,
I focused on working with
larger privately owned
businesses and really got a
taste for the business world
through that and realized that
I really wanted to be in the
business world as opposed
into the legal world.
And so I left that
and went to a small investment
banking firm here in Columbia as well.
We help people sell businesses.
We help people
invest in businesses.
We help people value businesses.
And that's really where I
began my consulting career.
That business blew up because
the owner died in a rock
climbing accident, actually.
And that's where a lot of the
lessons I learned came from was
going through a really bad
business transition through
that because he had no
paperwork and nothing planned
and basically decided to make
it my life's work to make sure
that nobody else had to
go through that again.
So what I do now on
the legal side is work through business
transitions as an
M and A attorney.
We also do profits, interest,
awards and all kind of other
business paperwork kind of
prior to a business transition.
But the main amount of time
that I spend now is actually on
a business that I have
also called Purpose Equity,
where it's an investment bank
and consultancy and we help
people grow their businesses,
value their businesses,
and then eventually
transition their businesses.
Wow.
What an interesting proposition
that you were in the business
of transitioning businesses
and then you had to go through
one kind of suddenly on a dime.
That's that's an
intense testimony
that why you need this process.
Yeah, I wouldn't recommend it having
personally gone through it and
it was very trying,
but looking back on it,
I would not change it because
it's a lot of the lessons that
I learned that I apply to
current clients came from that
very troubling and
difficult experience.
So if we were we'll ask
you lots of questions,
and you maybe should tell us
which hat you're wearing when
you answer the question.
Is this, like, your legal hat?
Is this the business
consultant hat?
But, you know, when we first kinda
worked together professionally,
I owned a heating
and air company.
I had a business partner.
What was unusual about our
partnership is that we were
true fifty fifty partners.
And, a lot of people
told us going into it,
that's not gonna work.
Somebody's gotta
be the tiebreaker.
There's gotta be
a way, you know,
and and so I think in our in
our operating agreement we
designated our CPA as the
tiebreaker but in seven or
eight years we never once
actually had to resort to that.
We maybe we got lucky But
it but having a fifty fifty
partnership did
actually work for us.
But it then created a little
bit of a paperwork chain
because we had to make sure
that we had set up everything
correctly in terms
of decision making.
We had to have a
buy sell agreement.
We had to buy life
insurance on each other.
So Dan, maybe just, you know,
our our listeners tend to be
people that own heating and air
companies and and that
that could be of all size.
It could be, like, ten
employee shop, you know,
in a small rural area.
It could be, a hundred and fifty
employee shop in a big major city.
But do you have a checklist?
Like, when you sit down to work with
a company where you're like, alright.
Step one is we gotta make sure you
got all your paperwork straight.
Like what is that checklist?
Yeah, great question. So
here's how I think about it.
And especially because you have listeners
potentially all over the country.
Different legal documents can
be called different things in
different areas in
different states, right?
Just different states have
different laws and therefore
different things,
different pieces of paperwork
are called different things.
But the substance
remains the same.
Okay, so here like basic
blocking and tackling type of
legal paperwork needs to
cover four main areas.
Okay, death.
This we call it
the four D's death,
disability, divorce
and decisions.
Okay, those are the four main
things you have to have covered.
It could be in an
operating agreement.
It could be in a
shareholder's agreement.
It could be in bylaws.
It could be in a separate
buy sell agreement.
I don't care what the
legal paperwork is called. Right?
Leave that to the legal
technician in your state,
but you have to cover
those four things,
and you have to cover them in
writing on a piece of paper
that all of the business
partners have signed so that
they all are in agreement.
And then hopefully,
you have it in writing and then
you never have to look at it
again because you never have
a death, never had a divorce,
you never have a disability,
and you never have a
decision making dispute.
So the four Ds are all bad
things that can potentially
happen that you hopefully never
have to dust off your operating
agreement or whatever the
legal document is for.
So like you were saying, Steven,
you have to have a buy sell
agreement that typically
involves, you know, a death.
Somebody dies. One partner has
to buy the other partner out.
What does that look like?
Is there a key man policy?
Because if you have one guy
that was the operations guy and
one guy that was the
sales guy, you know, when
you lose one of them,
you lose that skill set.
So is there a key man policy that
covers the person that's now gone?
Usually disability
applies the same way.
Right?
But there's some nuance there
because disability involves,
is this guy actually disabled?
Is it going to be for
six months or a year?
Is there a permanent disability?
Those sorts of things.
Divorce is an even more
difficult situation.
It's very rare that a judge
or a jury would grant the
departing spouse
ownership in a company,
but it does happen.
And so you need to build that situation
into your legal documentation.
But really the most common
thing that happens is
disagreement.
Right?
So that's why you have to build
decision making into your agreement.
As you said, Steven, you
had a tiebreaker built in.
You and your business
partner were fifty fifty,
but you got good
advice from somebody.
I don't remember if
it was me or not.
But somebody told you
that you needed to say,
somebody has to have
a tiebreak here.
And so we made our
CPA the tiebreak.
So as long as your legal
paperwork covers those four
things, those four
d's, you're covered.
And the technical legal name
for all of those documents does
not really matter as long as
it's on paper and you are using
the right paperwork for the type
of legal entity that you own.
Okay.
And I'm gonna go on
a limb here and say,
definitely want these things
if you're in a partnership,
but probably also want them
even if you're a sole owner.
Right? Or or probably
want them even more.
Yeah. That's a great
great point, Mary.
So if you're in a partnership,
whether it's fifty fifty or
eighty twenty or you have five
different owners, you definitely
want all of those things.
But if you're a sole
owner and you pass away,
typically your
business goes away.
Right?
And so the way to make sure
that you have the ability to
retain that value in the event
of an untimely passing or
disability is to have the
right documentation in place.
So you have an key employees
step up to run the business
while you're gone.
You have a business broker
involved to maybe sell the
business quickly
if from the estate.
You have the right insurance in
place to maybe hire a new CEO.
So there are a lot of
different ways to do it.
But point is is that the
paperwork defines those ways.
And you and your wife and
your key employees or whoever it is
that owns the company sit
down together and discern
if something happens to me,
here's what we want to happen.
Do I wanna sell the company?
Call the business broker.
Do I wanna continue the company?
Do a buy sell agreement
with the key employee.
Do I want a key man policy so then
I can go out and hire a new CEO?
Whatever you decide
is the right path,
you build the paperwork and
the insurance around that path.
That makes sense.
Even, I mean, to Mary's point,
if you're a sole proprietor,
I mean, I've got five kids.
So if I own a business
outright and I die,
it's great that in theory,
well, you just go, my will,
everything just gets
left to my kids.
Well, who's gonna
run the business?
And what if the five
kids don't agree?
And are you just setting up this
next generation for
an absolute disaster
none of that was
thought through.
So I think that was an
interesting I mean, we
paid money but we got
really good advice.
And so I had a trust set up.
And so in your trust, you
know, what happens basically,
everything's gonna
get liquidated,
the kids are getting money
because they don't I don't
wanna obligate them to be
in business with each other.
I mean, you know, maybe
that works out, maybe not.
But if they get the cash,
they can decide to go buy a
business together if they want to.
But, I mean, it's just those types of
things that you don't really think through
until you have a trained
professional that says, hey,
probably never gonna happen.
But if it does, let's think
through what's gonna, you know,
kinda catch this
scenario and, you know,
you don't wanna get
caught off guard.
Yeah, Steven. That's a
that's a great point.
I would say that like
in any family situation,
communication is
the most important.
And and it goes without
saying that that is the case
with family businesses as well.
And so when you're thinking
about a transition,
whether it's a purposeful
transition to a son or a
daughter or a non
purposeful transition,
meaning somebody passed away and
there's an emergency circumstance,
you really need to communicate
ahead of time what you want and
how it needs to play out.
So you did the right thing
by saying, you know what?
My kids, they're all too young
to take over the business,
but you didn't know if you were
gonna die when they were old enough.
Right?
But the point was is that
you said, you know what?
I don't want my family
fighting about my business.
Let's just liquidate everything.
Everybody gets cash and
they can go be on their way.
And then if they wanna do
something with it together
after that, that's fine.
But the last thing we want them to
do is be fighting about, you know,
who's gonna run the business
and who's gonna be the CEO and
who's gonna be the COO
and somebody wants out,
but the business can't
afford to take them out.
There's just too many pitfalls to doing
it that way without communication.
So you took the very smart and
probably the easiest route by
suggesting that at the time.
I think we're gonna have to
change the name of this podcast
from HVAC full blast to
clear expectations Cause
it really just comes
down to that and so
many different facets of life.
That's exactly right.
Communication is key.
Mary, I'll give you an example.
I've got some friends who are
married and they don't have any
kids, but they
both have siblings.
And so they formed an LLC,
and so we're sitting
down talking about that.
And I was like, so what
happens if one of you dies?
What happens if
both of you dies?
Like, they're they're
like, oh, well,
just everything's gonna
go to our siblings.
And but the the trust attorney
that when I met with him, you know,
he was very good at coming up
with these scenarios that help
you see, like, you actually
have to spell it out.
And the one that made
them stop and think was,
you get in a horrific car wreck.
One partner dies immediately.
Alright. So what happens?
Well, the other partner
survives for a month.
Well, the the dead
partner's assets now all
become property of
the surviving spouse.
But then a month later,
that surviving spouse dies.
So in that scenario,
everything went what was joint property
now becomes property of one person.
And when that person passes, it
goes to all of their siblings.
But the siblings of the other
person got zero in that scenario.
So you'd have to
think through, okay,
how are we going to
what if this happens?
And, I mean, it's
it's it is staggering.
And I don't know, Dan, do
you have any real life scenarios?
You're like, oh, I know
you said you lived through one,
but what are like what are some of
those real life lessons learned?
Really like, hey.
We never thought this
would happen, but it did.
And we had the paperwork.
Or this happened and we
didn't have the paperwork.
And here's the fallout.
Yeah.
So I did live through a real
life scenario where there was a
situation that not everybody agreed with
what to do with the insurance money.
So in our particular scenario,
the gentleman who passed away
where I went through a bad
business transition, he
could not get regular life insurance
because he had a kidney issue.
But he was able to get key
man insurance for some reason.
So the insurance company was
able to underwrite key man life
insurance policy, but not
regular life insurance.
And so as you might know,
man policies are intended
to fund the business in the
absence of the key man so that
the business can continue to
run and then build itself
back up after six months or a
year or eighteen months after
the key man has passed away.
Well, because he
did not have any
regular life insurance,
his widow said, well,
that's actually all my money,
and it was intended to be
life insurance for me to use.
And we said no, and
the insurance company
was was not necessarily on
board with that because it was
key man policy and it was meant
for the use in the business.
And so she named herself
president of the business and
then began to use the key
man policy to fund her life.
And so it was a situation where
there was no paperwork other
than the insurance
policy itself.
There was nothing written
down. There was no trust.
There was no buy sell agreement.
There was no anything.
And so nobody had any clear
direction from the gentleman
that had passed away and
nobody really knew what to do.
And so that resulted
in a really,
really bad business transition
where we fought about the
ownership of the business
for eighteen months.
And eventually,
there was a lawsuit
as a result of that,
and it got settled very quickly.
But it went through eighteen
months of backwards and
forwards and ups and downs
and a lot of wasted money on
attorneys that didn't
need to happen if the
deceased had it written
everything down and made his
plan clear prior
to passing away.
And so I know exactly where
you're coming from and those
situations as much as you might
like to make them up on over
the dinner table and think about
them theoretically, they do happen.
And most often, they result in
litigation and people spending a bunch of
money on lawyers and fighting
it out and wasting time instead
of actually saying
to themselves,
what do I want if this happens?
Let's make that decision.
Let's communicate it, and let's
write it down and move on.
And if it does happen,
everybody has clear direction
on what to do and who gets what.
So Steven, we talk about
how sort of like the
time value and or sort of as
an appointment goes on time and
anxiety pitches, right?
And if I'm someone driving
along listening to this podcast
right now and I'm thinking
about these scenarios and I
know I don't have
these things in place.
My anxiety just hit a new high.
Yeah.
So what are some
of the practical
ways, Dan, that we can
get started on putting some of
these vehicles in place
because this doesn't,
it does seem to me like something
that feels very theoretical.
How do we make it actionable?
Yeah, great question.
So you gotta make
two phone calls.
You gotta find an attorney if
you don't already have one.
Right?
That person can theoretically
should be able to guide you
through the paperwork piece.
Like I said earlier,
it doesn't necessarily matter
what you call the paperwork.
You can do all of this in an operating
agreement if you have an LLC.
Can do all of this in your
shareholders agreement if you
have a corporation.
And or you can do it
in separate agreements.
Operating agreement,
buy a sell agreement,
all kind of different
ways to do it.
Right?
So don't worry so
much about saying,
here's the paperwork
that I need.
You say, I need a
piece of paper or
probably multiple pieces of
paper that cover the four Ds.
And let's cover those four Ds
somewhere in some piece of paper.
And your attorney in whatever
state you're in should be able
to walk you through all
those different pieces and
parts and then build the rest
of the agreements around it.
Right?
Because agreements have all
kind of different things other
than the four d's.
A lot of states require
a lot of boilerplate,
but we don't need to talk
about that right now.
But you go to the attorney
and you find find the right person
to make sure that they can
cover the four d's somewhere in
that paperwork for you.
The second call you make is to
your insurance broker and you
say, listen, I'm doing some
planning around my business.
I'm working on a buy sell
agreement that's gonna go into
my operating agreement or
my separate buy sell agreement.
And I'm gonna bring in this
key employee and he's gonna buy the
company from me if I pass away.
Or however you wanna set it
up, whether it's your son,
your daughter,
your key employee,
your business partner, whatever.
You go to your insurance
company or your insurance
broker and say, I need
a certain amount of
money to buy just to fund
this buy sell policy.
So if my company is worth four million
and I own fifty percent of the company,
I need two million dollars
worth of buy sell insurance to
fund the purchase of the company
by my partner if I passed away.
Right? So those are the
two calls that you make.
The third potential call that
you may need to make depending on
how wise your insurance
broker is and how wise your
attorney is, is to a
business valuation person.
Right? So sometimes
that's your accountant.
Sometimes that's somebody
somebody referred to as a CVA
or a certified
valuation analyst.
But typically, accountants
sometimes have those designations.
And so in this situation,
you don't need to call a bunch
of people that you already
don't know, right?
Typically, everybody has a
business attorney of some sort.
Everybody has an accountant.
Everybody has an
insurance broker.
It's just having the right
conversations with those people
that you already know.
So you call the attorney
and you ask them about the
paperwork to build
out the four Ds.
You call the insurance
broker to ask them about
a key man policy or a life
insurance policy depending on
what you're funding.
And then typically you would
call your accountant and at
least start with the accountant
to get a business valuation
done to determine how much
insurance you need to buy.
Sometimes insurance brokers and
this is sort of a little known fact.
Sometimes insurance brokers
actually have those resources
in house and will do the
valuation work for free
because they know they get
to sell you an insurance policy.
Some insurance brokers don't
do that, but some of them do.
And they like to make
up real big numbers.
So you got to buy a real
big insurance policy.
So that actually works great.
Nice.
Yeah, it
is overwhelming, I think.
And so for me, when Tim
and I became business
partners, literally
kind of came up with
our own valuation on a napkin.
And here's how we did it.
Tim had personally started the
company and had about three
hundred thousand dollars
in personal debt.
And really just was
like, holy crap.
I mean, was like the
vehicle loans, the building,
the warehouse,
like the forklift,
like he had to buy everything.
And so what we did
is we said, hey,
let's call the valuation six hundred
thousand dollars And if I buy half,
I'm gonna give you three
hundred grand and now you're
out of personal debt.
It didn't quite work that
way because what we found is,
all right, that's great.
But now any future vehicle we
needed to go buy or any future,
we still had to personally
cosign on behalf of the business.
So that was kind of
our next business challenge was like,
hey, how do we show a
valuation or cash flow to the
degree that a bank looks
at that and goes, Steven,
you no longer need to
personally cosign on this loan.
The business is worth enough
now that the business can you
can sign on behalf of the
business to borrow the money to.
So Dan, that that maybe is
more of your consulting hat.
So when you come in, not
necessarily on the legal side,
but you come in on the
consulting side to a small
business and maybe their finances
are a little bit jumbled up.
Where do you start there to
help kind of untangle the mess?
Yeah, that's a great question.
So what you're talking about
is transitioning from what we
talked about at first,
is sort of building the legal
foundation of the business.
Right?
Yeah.
Think about like you're
building a house.
You can only build a house that's
that fits on the foundation.
If it's too big,
it'll topple over.
It's if it's too small,
you spent way too much
on the foundation.
And so we build the
legal foundation first,
have the documents ready,
have the buy sales ready.
We have the insurance
policy ready.
And we understand that we
have a good solid foundation
of who owns the business.
What happens if somebody dies?
What happens if
somebody gets disabled?
What happens if
somebody gets divorced?
And then the decision making
authority of all those individuals.
Right?
So that's the foundation
we're building.
Now we're talking about, like,
how do we grow the
business basically?
Right? That's sort of
what we're getting into.
And so to what you're
talking about, Steven,
there's absolutely nothing
wrong with doing a business
deal on the back of a
napkin like you and Tim did.
I got no problem with
that. Right? We're great.
Two consenting
adults who decided
this is gonna be our deal.
Okay?
Those kind of things
happen all the time.
And I actually don't have
a huge problem with that.
Now you'd theoretically wanna put
that pen to paper at some
point and put paperwork around
that deal, which you did.
But coming up the valuation on
the back of a napkin, frankly,
is fine for a small
fledgling business
like it was when you bought Tim
out or at least bought fifty
percent of the business.
Now with that said, getting
from there to where you ended
up is a different story.
Right.
And so one of the
keys that a lot of
business owners sort of
overlook during the growth
phase of their business is
making sure they have really
good financial help at the
beginning of the process
so that they are heading in
the direction of a thoughtful
and appropriate business
transition at some point.
And so that whether it's
to a child or to a buyer or
to a partner or to whomever,
having the financial base,
just like we talked about
having the legal base.
Now we're talking about
building the financial base of
the business and building the
financial base really looks
like two things.
One is you need to have a
really good accountant who can
help you understand cash flow,
the difference between
accrual and cash accounting,
how to plan for capital
expenditures and purchases next
year, how to save on taxes,
those sorts of things.
But you also need to have
a good banker who you stay in
touch with, who
understands your business,
who understands how you're
trying to grow your business.
And the more you bring them
under the tent and show them
how your business is running,
the better terms you're gonna
get from the bank to be able to
grow the business.
And the more likely at some
point you're gonna be able to
get off of those
personal guarantees.
Now here's the here's the
struggle that we see all the
time with business owners.
Okay?
And this is a tension that
doesn't necessarily have an
answer, but has a, I
would say, has a trend.
It's the tension between
your accountant and all every
business owner ever who wants
you to pay and you want to pay
as little taxes as possible.
Right?
And so you're spending money,
you're trying to do a section one
hundred seventy nine deduction,
you're trying to drive down
your net income as low as
possible to make it look like
you didn't make any money.
So you don't pay any taxes.
But guess who doesn't want
to see that? Your banker.
Your want your banker wants to
see you making money. Right?
Because they're going to give
you better terms and better
options if you are making money.
So that's the tension that every
business owner struggles with.
And the reason I say it sort
of transitions over time is
because the way I
think about it is
when you're starting out,
it's okay to be thoughtful
about trying to save on taxes
because you do want to make
sure that you pay Uncle Sam as
little as possible.
But with that said,
you don't want to hinder
the growth of your business.
And so you don't want to search
for every last deduction.
You don't want to buy a truck every
single year and spend, you know,
ninety five thousand dollars on a
new Ford f one fifty platinum
because you can because you
got that money in the bank.
Right?
Let's make smart
business decisions,
not fun personal decisions
that might save you on taxes.
So if you're gonna try to buy
three new trucks next year for
the business because
your fleet's getting old,
but this year, you're like, oh,
I got a hundred grand extra.
I'm gonna go ahead and
buy myself a new pickup.
That's gonna be fun for you,
but it's gonna look bad on
your balance sheet next year because
you just went and spent fun
money on yourself and didn't
save up for that
money next year to
buy and increase your fleet.
And now it's gonna cost
you more because the bank isn't
gonna give you as
good of a term.
So thinking about that
tension is always part of
every business
owners difficulty.
Right?
The difficulty between taxes
and showing net income,
what accountants wanna do
and what bankers wanna do.
But as you think about
eventually transitioning the
business, whether
it's like I said,
to a partner, to a son
or a daughter or to a
third party buyer, you need to
head start hedging more towards
showing net income than saving
on taxes because that's gonna
increase your
business valuation.
And that's everybody's ultimate
goal at some point. Right?
Is everybody has to retire.
You can't own a business
past the time that you die.
And so you theoretically wanna
transition that business to
somebody for a
good dollar amount.
And the way to do that is
have your books very tight,
drive as much net income to
the bottom line as possible.
Don't worry about
paying uncle Sam.
If you have to pay uncle Sam,
it's made you it means you made
a bunch of money and drive net
income to the bottom line so
that your valuation increases,
and that gives you way
more flexibility on how to
transition your business.
I think my I'll give my business
partner Tim some credit.
Like one of the things he
decided very early on when he
was a sole proprietor,
if he wanted
you know, remodel his garage,
he could go buy a whole bunch
of stuff at Home Depot and run
it through the business and and
basically pay pretax dollars
for all that stuff.
Right?
But once we were partners,
we he he was kinda like, hey.
You know, the point of this is gonna
be to drive value of the business.
So therefore, we really
did a pretty good job,
you know, back five or six
years in not having not running
personal expenses through the
business just to save on taxes.
We're like, hey. Does
paying taxes suck?
Yes.
But what are you gonna get for
that money down the road if
it shows up as profit?
Both the ability to borrow
against the business then goes up.
And to Dan's point,
your future value is gonna
be your retirement plan.
So that's good as well.
Dan, one of the
things that we hear,
you talk about net income,
but we also hear the
other term EBITDA.
So EBITDA tends to be what gets
kicked around a lot of times
when you're specifically
talking about valuations.
Can you give us kind of a
quick rundown what is EBITDA?
What's the difference
between that and net income?
Yeah. I thought you were about
to start beatboxing Stephen.
Yeah.
So
I'll give you an
example of how people
don't even know what EBITDA is,
and then I'll explain what
it is and why it's important.
Okay? So this is
five years ago now.
I helped a guy in this
industry sell his business.
And when I first took a
look at his financials,
he had about nine hundred
thousand dollars of net income.
And I thought, okay.
This is a pretty good size,
you know, HVAC related company.
And then we went through and
we started adding back all his
personal expenses.
Well, he paid for his horse
farm, his beach house,
his two boats including
one very sizable boat in
Charleston.
Everything other than his
actual house where he lived was
paid for out of the business.
Wow.
So he went from nine hundred
thousand dollars of net income
to two point seven
million dollars of EBITDA
because he was running over one
point one million dollars of
personal expenses
through the business.
Now if we not bothered
to go do that,
he would have sold the business
for way less money if we not
had a if we had not added back
all those personal expenses.
Alright.
So let's talk about what EBITDA
is and how we got from that
nine hundred thousand dollars
to that two point seven.
Okay?
So EBITDA is earnings
before interest, taxes,
depreciation, and amortization.
And basically, what
EBITDA tries to do,
what it tries to measure is the
cash flow capability of your
business absent any
financing activities.
Okay.
Right?
So if you had no debt, you
were doing no financing of any type.
How much cash flow would
your business produce?
That's really the key. Okay?
And so earnings before interest,
taxes, depreciation, amortization.
So you anything on the on
your profit and loss statement that
falls under those
categories, interest, taxes,
depreciation and amortization
gets added back to your net
income to create EBITDA.
Okay.
So you take your net income
at the bottom of your P and L,
You add back those four things
and that gets you to your
EBITDA number.
And the reason that is
used as a basic valuation
metric is because when
you sell your business,
whether it's to a partner,
to a son or a daughter,
or to a third party,
that's the measure that banks
look at to value companies.
That's the measure that
valuation analysts like we have
here look at to value companies,
and that's the measure that third
party buyers use to value companies.
Because you wipe away all your
financing activities and say,
if we didn't do any financing,
how much cash flow would
this thing produce?
And that's the number. Okay?
So you add those four
things back to net income.
And let's say, you know, and
I think in that instance,
that company had about
seven hundred thousand,
eight hundred thousand
dollars worth of add backs.
So we went from nine hundred
thousand dollars of net income
to about one point six,
one point seven of EBITDA.
Okay? Well, that's a
much bigger number.
And so therefore you have
a much more valuable company.
Now on top of that,
what we do is we go back
and we do adjusted EBITDA.
Okay. So net income is the
lowest number typically.
You add back the four
things, the ITDA,
interest taxes depreciation and
amortization to get to EBITDA
slightly bigger number.
Right.
Now we add back all
the personal expenses
and those get you
to adjusted EBITDA.
And the difference between that
guy's EBITDA and his adjusted
EBITDA was about one million,
one point one million dollars
because all of those personal
expenses were being run
out of the business.
Typically, it's not that much.
But you think about, you know,
your daughter your sons
and your daughter's car,
cell phones, family
vacations, gas.
Sometimes there's
a boat in there.
Sometimes there's a Corvette in there
that's not necessary to the business.
You know, you add all those things
back and you go from one point seven
one point six or one point
seven of EBITDA to now two
point six or two point
seven of adjusted EBITDA.
Everybody's company
is different.
Everybody come treats
their company differently.
But running those personal
expenses through the business
is the purview of
any business owner.
And everybody does it.
I do it in my business and I don't
necessarily have a problem with it.
But as you get closer to
transitioning your business,
you want to back those things
down and do it less because
you're always gonna
miss something.
Right? You're gonna
miss a phone bill.
You're gonna miss a gas payment.
You're gonna miss something.
And if you stop doing those
personal expenses two to three
years prior to you wanting
to do a transition.
Your company is gonna
be worth worth more.
You don't have to fish through
your general ledger to make
sure you caught all
your personal expenses.
And your company is gonna be
worth more as a result of that.
Yeah and it's not like
you're saying like don't run
any personal expenses ever.
You're just saying think about
it as you're thoughtfully
transitioning and maybe
through that transition you
take it as a result of net
income but you know it's
not as part of this
adjusted EBITDA.
Yes. That's right. Yeah.
That's exactly right.
So yeah everybody does it.
Got no problem with it.
That feels like like
a level five financing
tip, but it's a really
simple way to make sure
that you're increasing that
value of your business.
I'm I'm I'm just thinking
about my own kind of personal
finances and not just how
important that would be, right,
to think of that that
in terms of valuation.
Yeah.
So, Dan, just to make sure
I understand correctly.
So let's say I wanna go
buy my water bottle here,
and it's ten dollars.
So Yep.
In in one way to do that
would be to say, well, Steven,
you've got to earn thirteen
dollars so that you can pay
three dollars in taxes,
and then you then you can
buy your ten dollar water bottle.
Right? The other way to do
that is to say, well, hey.
Wait a minute.
I wanna buy the water
bottle through the business.
And now because it it didn't
have to go through and pay
income tax on it, I
saved three dollars.
But what Dan's saying is, yeah.
But you've got a a ten
dollar business expense now that the
value of the business is gonna
be eight times that or ten
times that or twelve times
that or something like that.
Right?
So if if I don't buy the water
bottle through the business,
while it costs me
three dollars in taxes,
if if the multiple
is ten x, well,
I just added ten a hundred dollars
to the value of the business.
So I paid three
dollars in taxes,
but I added a hundred dollars
to the value of the business.
That's an overwhelming
decision then to go, of course,
you should just pay the taxes and
buy the water bottle yourself.
Dan, am I summarizing
that correctly?
Yeah, that's right.
The issue is if
assuming you don't
capture that as a personal
expense and you pay ten dollars
for that water bottle and you
get 10x for your company on
your valuation you're getting
a hundred dollars less for the
value of your business
than you would have if you
hadn't bought the water bottle.
Right.
Well, would you pay a hundred
dollars for that water bottle?
Absolutely not.
Right.
Now if you captured it and it
was an add back to get to that
adjusted EBITDA
number, it's okay.
Right? But who keeps track of
the ten dollar water bottle?
Nobody.
Right?
Mary, you have think the hundred
and twenty thousand dollar
Corvette.
Well, we should
test this theory.
I think Mary should
buy a Corvette,
put it on your
company credit card.
And then if you could
just let them know, hey.
They can add that back into
their adjusted EBITDA and it
will just turn out fine, then,
I mean, I think we're good.
I mean, you can I think
you should test that out, Mary?
Alright. That sounds good.
My next phone call is going
to be to my lawyer and just to
make sure that I'm covered
and then I'm going to call my
accountant and yeah and you
know for kicks I might just
call my insurance person
because I might drop dead of a
stroke if I did that.
A criminal defense
attorney as well. Yeah.
Oh wow that's so interesting.
I'm truly fascinated by this
and I have a finance background
but it's something
that I've really only
come across when I got married.
We made sure to do some estate
planning and to kind of start
thinking about some of
these scenarios on paper.
And I have to say, it
was, I think, Steven,
you said earlier, staggering.
It was a little daunting.
I remember feeling a little
bit like we just decided to get
married and now we're talking
about what happens when you die.
Like, I'm not ready for that.
And what would you,
what kind of advice would
you give to somebody who's
listening and maybe
just is still kind
of feeling like woah this
feels a little daunting.
Yeah, good question.
I would really have two
things to say about that.
One is
all we're really talking about
here are pieces of paper right
there's nothing to
be scared about.
So nothing is permanent.
Everything can change, but
it's just paper.
So don't be afraid of it, right?
You know, don't be afraid
to call on your lawyer.
If you got to spend five
hundred bucks to sit down with
that person for
an hour, you know,
it's definitely
going to be worth it.
But in the end,
it's just paperwork.
And theoretically,
you won't have to look at it for
several years after you do it, right?
So it's once every five years,
you should probably dust it
off once every year to at least
look at it and make sure that it
still says what
you want it to say.
Maybe you actually change it
once every five or even ten
years depending on
your life circumstance.
Maybe you get married, maybe
you have kids, whatever.
The other things I would say,
and this is probably
the most important part,
is that your documents are
intended to point you in a
particular direction.
Right?
So think about it that way
is, as the business owner,
you got your head
down every day.
You are working in the business.
You are making sure that
you're getting new jobs,
that you keep your guys
busy, that your trucks are running,
you know, that your
marketing is working for you.
All the different operational
pieces of the business that
frankly are the
really hard parts.
Right?
But your legal documentation is
really where do you want to end up?
What are your goals
for the business?
And so that's like I said,
that's the foundation
that you're building.
And so if you say,
I'm forty seven years old and
I have a thirteen year old son
who is really handy and
can probably take over this
business from me at some point.
That's a great thing. We
would love that to happen.
But do your documents
recognize that? Right.
And so if you want
that to happen,
you need your documents need
to point you in that direction.
Or if you want your business
partner to buy about,
let's say you're fifty fifty
and your business partner is
forty two and you are sixty two
and you want to retire in three
years and no longer
own the business,
then your legal documentation
needs to point you in that
direction of you being bought
out by your much younger
partner at some point.
Right?
And so, you know,
you have when you
found a business, you know,
usually people found a business
because their boss made them
mad and they figured they could
do it better on their own.
And we see that all the
time and that's great.
Eventually, if they get it up and
running and they're doing a really good
job it really becomes something
and it becomes something that's
meaningful to the family,
to the key employees,
to the general employees.
And so when it comes when it
becomes something meaningful to
those groups of people you have
to make sure that you point it
in the right direction to
accomplish the goals that you
want it to accomplish.
And that's really the key behind
doing the paperwork, right?
Don't be afraid of the
paperwork because it's just
it's just literally
pieces of paper,
but your paperwork points you
in the direction that you want
to go and so you figure out
what that direction is and then
let the paperwork point you
there and then when you ever
decide you want to change that direction
it's time to change the paperwork.
I love that.
What about so let's if I
ask you to kinda put your
lawyer hat back on,
or maybe this is one
where you wear both hats.
Like, you know, one of
the challenges is, again,
our industry,
we look at the average age of
a heating and air technician,
if we look at the average
age of a heating and air business
owner, like, we getting up
there in age as a group.
And so a lot of folks
are looking at, hey.
How do you how do you hand this
company off to the next generation?
So kind of that
succession planning,
I wanna give the business to
my kids or to my to whoever.
We also get a group of
people who say, well, wait a minute.
We're gonna create an employee
stock option program where the
employees will then
buy the business.
And so we we kinda keep
it running that way.
Or maybe you got a third
group that's like, well,
we're just gonna sell the
business and we don't care who
we sell it to.
We'll go get a broker and
we'll just put it up for sale.
But
maybe we could just start
with succession planning.
What are some do
you have any tips
for the folks who say, hey,
we actually do want to hand
this off to the next generation?
What are your thoughts and just
kind of getting going there?
Yeah. Great question.
So I really think about three
main things that you need to
do to handle a thoughtful
internal transition.
Okay?
And so that means
typically father to son,
mother to daughter, mother to
son, whatever it is, right.
There's a family transition,
uncle to nephew, whatever it is.
And so those types
of transitions
are the most likely to
get screwed up Because what we
talked about earlier, because
the people didn't talk, right?
The dad didn't talk to the son
or the mom didn't talk to the
daughter or whatever it is.
And so the first thing
that you have to do,
so if you're the dad or you're
the mom and you own the business,
is my son or daughter even
capable of running this thing?
If
they are, then you can
move on to the next step,
which we'll talk
about in a second.
If they are not, you
have to have a hard
conversation, right?
Because if the child
thinks they are capable,
but you don't think they are,
you really need to have
that hard conversation.
Communication is very difficult.
As you know, in families,
communicating about
anything is difficult.
This would be a particularly
difficult conversation.
But what you're doing is if
you don't think your son or
daughter is set up for success
to run the business after
you're gone, you're setting
them up for failure.
Right?
So how do you make sure that
they can be set up for success?
If you don't think they can
handle it at all and they're
never going to be capable, you
have to have that conversation.
If you think they
can be capable,
but they're not yet capable
and you gotta get them some
training or whatever it is,
then you need to go through a
thoughtful process of building them up.
Maybe they're really
good technicians,
but they don't understand
finance and accounting.
Maybe you send them to some
online finance and accounting
classes or have them sit down with
your accountant or whatever it is.
Maybe they're really good at
the finance and accounting
part, but they don't
understand operations.
Send them out into the field for
a year and get them that training.
Whatever it is built purposely
building them up to be ready
for that transition is something
that doesn't happen often enough.
Usually it's, alright,
son, I'm ready to retire.
I'm sixty three.
You're thirty three. Here are
the keys. Good luck. Right?
And then the thirty
three year old goes,
I don't know what to do.
Nobody told me how to do this.
Nobody trained me
how to do this thing.
And so
being thoughtful about
that preparation,
making sure that son or
daughter is ready to take over
the business is the key.
Okay?
The second piece of it is
do they even want to? Right.
If they're capable,
do they want to?
And just because you think you
want them to take over your
business doesn't mean
they necessarily want to.
So you have to have
conversation with them about
making sure they're ready.
But if you think they
are in fact ready,
they have to have a hard
conversation with you.
Do they even want
to do it? Right?
So we've seen situations where
the expectation was the son was
going to take over the business.
The son took over the business.
The dad had a heart attack.
He didn't die, but he was
no longer there to help.
The son came to us and said,
I never wanted to do this.
I don't wanna do this anymore.
How do I get out of this?
And so you have to make
sure that it works both ways that
the son or daughter is capable,
but that the son and
daughter also wants to do it.
That's so interesting because we
talk about that concept of
want to capable of in
sales all the time and
it's interesting in this order
you're sort of saying capable
of want to and But how
true is that, Stephen?
Like we talk about that with just
your belief system and your mindset.
If you want to make this money,
are you capable of
doing what is needed?
And I love hearing it
in the reverse there.
Yeah.
Do it in the reverse because
it's really the elder person's
responsibility to have the
first and hardest conversation.
Yeah.
And then the younger person's
responsibility to have the
second and potentially less
difficult conversation.
Right?
So those are two potentially hard
conversations that need to happen.
But if you get
past those, right?
If the son or daughter is
capable and wants to do it,
then we have to figure out how
to put together the financial
package to make it happen.
Right?
And that frankly,
that's just math.
That's sort of the easy part.
So if you hire somebody like us
or a really good accountant or
another business broker or
somebody who has the ability to
run some pro formas
understanding financing
packages, understanding
valuation,
that'll take care
of itself, right?
Because you have a mom or a dad
who's on board and a son or a
daughter who's on board and they really
know how to run the business well.
That's the hard part, right?
Finding financing to to do
an internal transition of a
business within a family.
Oh gosh, banks love that.
They'll follow though
themselves to finance that.
So as long as you've done some of the
things that we talked about earlier,
which is not spending too
much on personal expenses,
making sure you catch
all your add backs,
understanding all the
differences between personal
expenses and those add backs,
making sure you understand
cash versus accrual,
all those pieces and parts.
If you do that, financing
part is the easy part.
Gotcha.
What about let's say the
next generation is not interested.
They're like, I got
no desire for this,
but I also just don't want some
outside company coming in and
ruining the culture that I've
built and and maybe the brand
name that maybe is my last name.
And so what I wanna do is is I've got
some some employees in the business.
Maybe I'm selling it
to all the employees.
Maybe I'm selling it
to the management team.
I've I've heard the term ESOP,
employee stock option program
or something like that.
There's also Phantom stock.
I mean, give us I mean,
what's kind of the quick rundown
of of maybe those two things?
Yeah. We can talk about sort
of the really three options.
One is transitioning
your business to employees.
Okay?
Just outside of an ESOP, which
I'll explain in a second.
But doing an internal
transition transition to one or
two or even three or four key
employees is just as simple as
it is to do it with your
son or your daughter.
Are they capable and
do they want to, right?
Those are two very
important things.
If you get past that, the
financing is the same. Right?
In fancy
finance world,
that would be recur referred
to as a management buyout.
Right? An MBO.
All that is is a fancy acronym for
the management's buying the company.
My key employees are
buying the company.
Okay? So it works the same
way. Are they capable of it?
Do they wanna do it?
You go to the bank and
you find the financing.
You did the valuation done to
determine what the purchase
price is gonna be.
And banks will typically
finance those relatively easily
assuming they know that that
management team is gonna be
there, that they're
qualified to do it.
And they're gonna keep running the
business like the old owner has run it.
Right?
So you can do just
a management buyout,
a key employee buyout just like you
can do with a son or a daughter.
Okay.
One step and you mentioned
this very briefly, Steven,
to get to that point that will
help you get to that point.
A lot of folks
like to do either phantom
equity or or what are also
called profits interest awards.
Okay? Okay.
So phantom equity is
just like it sounds.
It's phantom equity.
And basically all that means is
you are saying to your general
manager, if you have
a key general manager.
General manager,
you're a key employee.
You're valuable
to this business.
I want us I want you to stick
around for the long term.
I'm gonna give you five
percent phantom equity or five
percent profits interest
in this business.
So in addition to your salary
and in addition to whatever
bonus that you've earned,
I'm gonna grant you five
percent Phantom equity.
All that means is they have
now a piece of paper that says,
if this company throws off
a hundred dollars this year,
you get five dollars.
That's all that means.
And if we sell it for
a million dollars,
you get fifty thousand dollars
And so it's just a piece of
paper that commemorates
that relationship that says,
hey, you're not just
an employee anymore.
We're making this a
little bit more serious.
I'm now giving you
some of the profits,
which before that only me as
the owner was entitled to.
And now I'm granting you some because
you're so important to the company.
Right?
That's sort of a first step
into a management buyout.
Maybe your son goes off to be a
dentist and your daughter goes
off to be a doctor and you don't have
anybody to take over the business.
But you have a twenty seven
year old who might be the
general manager one day.
And you say, listen, by the
time you're thirty five,
I want you to own this business.
I want you to start out with
a profits interest award.
I'm gonna grant you five
percent of this business.
And then for the
next five years,
every year for the
next five years,
I'm gonna grant you an
additional one percent.
Okay, great. Now I
have ten percent.
And after that five year period,
they can start then buying you
out of actual equity with a
bank loan through the circumstances
that we discussed before.
And so internal
transitions to family
members, internal
transitions to key employees,
profits interest awards.
The profits interest awards are
the first step to those first
two internal transitions
that we discuss.
Let's talk real quick
about ESOPs. Okay?
So ESOPs are a special animal of
employee transition.
Okay? It stands for employee
stock ownership program.
And that is
allowed by the
federal government.
It is a particular
lot, you know,
of ownership allowed by
the federal government.
And I'll I only know
enough about them to be dangerous.
So bear with me on that.
But those are typically
reserved for much larger
companies, at least
two million of EBITDA,
but probably four or five
million of EBITDA because of
the administrative burden associated
with putting them together.
Because there's a lot
of government reporting.
You have to have a
valuation literally every single year.
People get bought out and
bought in all the time.
And so if you have a hundred
and fifty employees and you're
doing six million of EBITDA,
you can afford all those
administrative burdens.
And you might be big enough
that where you want to do that.
ESOPs can be very lucrative
for the business owner because
if you sell to an ESOP,
the numbers are usually
pretty good, right?
They might not be what a
third party buyer would be,
but they're typically better
terms than what a son or a
daughter alone could pay.
So
they are very burdensome.
They are very costly.
They take a long time to set up,
but they can be good for the
right business owner if the
business owner has a group of
key employees and really wants
to take care of that group
along with the rest of the
employees who are there.
So that's the ESOP piece.
It's a specific type of
employee ownership. Okay.
Gotcha. Yeah.
A last question along those
lines. Let's say, alright.
I'm not gonna do a
management buyout.
I'm not gonna I'm not gonna
sell it to my children.
I I'm not gonna do the ESOP.
I am eventually just
gonna sell it to somebody.
I'm gonna put it
on the open market.
So kinda like getting a realtor,
you could get a broker.
And you are a broker.
So kinda full disclosure is
I use Dan as my my broker.
But let's say you own a business
and you're shopping for a broker.
Dan, what are I mean,
kinda like a realtor, man.
I mean, there's good ones and there's
bad ones and there's ones that
have a ton of experience and
some people just don't even
know what they're
doing and like so.
What are two or three things if
you were shopping for a broker
that you would look for?
Yeah. Great question. Really
kind of two main things. Okay.
One is trust level.
Right?
You are going to
show this person,
if you decide to use them,
everything about your business,
everything about your family,
all your financials.
They're going to
understand everything,
All this personal information that
you really don't show to
anybody except for maybe like
your lawyer and your accountant.
Okay?
But because your lawyer and
your accountant is typically a
long term long
term relationship,
you build that trust over time.
Your relationship with your
broker is typically shorter.
Right?
Because you use they're usually
only involved for maybe a year
or so give or take.
And so you have to make sure
on the front end that you have
enough conversations with them that you
trust them to put your interests first.
Right? And here's
what I mean by that.
The brokerage business
is contingent fee driven.
So if you decide to
sell your business,
you're gonna hire a broker.
They're gonna get paid on the
transaction and typically only
on the transaction.
And so brokers want you
to sell your business.
But what you need to do is
find a broker that says,
I don't care if you sell
your business or not.
My reputation is too important for
you to just sell your business.
We're gonna find the right
partner for the right amount of
money to make sure it's
the right cultural fit.
And if it's not,
we're gonna kill the deal
because it's not worth it.
Right?
So you have to trust that
person to act in your best
interest at all times even
to up to and including
killing the deal at the end if
they think it's gonna be bad
for you or if they think
it's gonna go poorly.
Okay?
So trust level, number one.
Second level is how hard
are they gonna work?
And that's really
important, right?
So like I always use the
example and if any residential
real estate brokers are
listening, apologize.
But you what you don't want
is a residential real estate
broker type of broker to
say, yeah, I'll take your listing.
I'll throw you up on the
Internet and I'll wait for
people to call me.
Right? That doesn't
do anybody any good.
You want a broker who's gonna
bust their behind to make sure
that they find every single
buyer overturn every leaf,
look over under every rock because
that's gonna do two things.
If you make sure that
you figure out the
entire world of of
buyers out there,
you're gonna do the two main
things that we care about.
One is get the
highest and best price
and get the best cultural fit.
And that's really the combination
that we're looking for.
And if you have a lazy broker,
they're gonna hedge toward the
highest price and don't care
about the cultural fit.
Or if you have a lazy
broker worst case scenario,
you're not gonna get
either of those things.
You're gonna get it.
You're not gonna get highest
price or good cultural fit.
And so a good broker is
gonna look for those two
things and make sure they
uncover every stone to make
sure they find every buyer
so that when the time comes,
we get the right fit and
the right purchase price.
It makes a lot of sense.
I'm thinking about we've talked
about mediocre salespeople and
boy, if you've got a
mediocre broker who's feast or famine,
that's that sounds like
a recipe for disaster.
Do not like it.
It's too important.
Yeah.
When we did when we
did the process, Mary,
and I first sat down with Dan,
this this is kind of what
opened my eyes a little bit.
He's he said, hey.
There's probably fifteen
hundred groups out there that
would be interested in the
type of company you have.
And out of those
fifteen hundred, like,
our initial job is to
whittle it down to fifty.
And, like, who do we
want to sell to? Right?
And then out of those fifty,
we gotta whittle it down in a
hurry to get to your top three
or three to five.
And those are gonna be the guys
that you really kind of do a
lot of the legwork with for
them to check out your company.
But that's the
work, in my opinion.
It's not just to to Dan's point.
You're not just putting a sign
in the yard and going for sale.
Right? It's like you
wanna select your buyer.
And and so that that really
was eye opening in terms of how
much work selecting the
buyer was when you go, man,
there's fifteen hundred
groups out there.
And I feel like I talked to
all of them at some point.
So it's like, whew.
But, yeah, it was it was work.
Wow.
Well I feel like there's three things
in life that are certain death,
taxes and when you listen to HVAC full
blast you're gonna learn something.
You're gonna learn
something. Hey can I?
Dan I've been waiting for Dan
to come on our show so I can
hit Dan up for some
free legal advice.
So you ready in like
sixty seconds or less?
Lay it on me.
It's probably sick.
It's probably more
than sixty seconds.
I can't do anything in
sixty seconds or less.
Alright so this can't be
attorney client privilege by
the way because there's
hundreds of Oh, yeah.
Oh, yeah. No.
This is here's here's what I
think you're either gonna say.
You're either gonna say, dude,
you need to come and see me
before you go to jail or you're
just gonna say, I
think you're fine.
Right? So like either
either way. Alright.
So here's I've I've
got some friends,
and we we go on vacation
every year together.
And, you know, we've last
couple years, we've gone to,
Saint Thomas to go, you know,
take a a a week at
the Airbnb down there.
We went to Breckenridge. We've
gone to Costa Rica. Right?
We just like going
on vacation together.
So here's what we did this year is
everybody threw some money in a pot.
And so we it's
kinda interesting.
So I made everybody
form their own LLCs,
and they all had to go get
trusts to put their LLCs in.
But then all of those LLCs
are now owners of the big
LLC.
And we put all the money in the
pot and we went and bought a
little house and we're
renting the house out.
And because we paid
for it in cash,
we didn't have the best with getting
a loan and all that kind stuff.
But now that we've got a
tenant in there and it's cash flowing,
we're getting ready to go borrow
the equity out of the house.
And one of the guys owns some
land that's right on a major road.
We're gonna get ready
to go build a billboard.
And, again, we're gonna
take the pull the money out.
We're gonna go pay
cash for the billboard.
So we're gonna own the
billboard outright and then
have a advertising agency
handle the sales and whatnot.
So once that starts
cash flowing,
we'll be able to pull
money out of that
and then bring it back over
to the house that we bought,
which has a lot that's actually
big enough for two houses and
then build a second
house on that lot,
which we can then rent out.
So here's what we think is
that within about five years,
we'll be cash flowing
probably fifty, sixty,
seventy thousand dollars
out of this little LLC.
And because we're
a multi member LLC,
we are required by law to
have an annual board meeting.
Am I am I right so far?
Feeling like a full
circle moment now.
Next year's board
meeting is Iceland.
And this company will
never make a profit,
but our board meetings
will be spectacular.
So you're asking me is it okay
for you to go to Iceland and
put it on and pay for it
as a business expense?
It's a board meeting man we got
to get together and talk about
all this and I mean it's it's you
know it's probably gonna take days.
If I could use my new
knowledge it it sounds like as
long as you're okay with
an adjusted EBITDA that is,
you know, not favorable
to your valuation,
then maybe it sounds
maybe it's okay.
Very good, Mary. That's where
I was gonna go. You nailed it.
And and we've got, you
know, buy sell agreements.
Now we're not funding our buy sell
agreement with life insurance.
I think what we're gonna do is
say, if one if somebody dies,
we're just gonna liquidate the
business and then divvy it up
based on shares that way
because nobody wants to be in
business with anybody else's
kids or anything like that.
So we'll we'll we'll we've got
a look that's what I need to
come talk to you about.
I gotta get our
operating agreement
amended with a buy
sell agreement.
So but Gotcha.
That's easy. We can
do that all day.
So do you think it's legal to
blow one hundred percent of the
profits in the business
on the board meeting?
Yes. Recommended?
No.
But it's a self fulfilling
a self perpetuating
vacation fund is
really what it is.
Like we don't want
to buy time shares.
We want to just have
a self perpetuating vacation fund.
I mean if you are
looking at real estate opportunities in
Iceland it's a reasonable
business expense.
Yeah. Let's see.
Maybe you want to buy
an Airbnb in Iceland.
It's it's we should go
check it out anyway.
You won't know
until you get there.
That's what I think.
I I pretty much have
never traveled anywhere
without doing some real estate
investment research when I'm
there because I pretty
much love everywhere I go.
Wow, that's so interesting.
Well, Dan, this has been
incredibly eye opening,
educational and maybe a
little thought provoking too.
Glad to do it.
And Dan, just so I mean,
I'm getting ready to give
your email out. Is that okay?
Totally.
So I use
danpurposeequity dot com.
Is that the best
one to reach you on?
That's correct, yes.
And so just so listeners know,
Dan doesn't do it for free,
but if you need a consultant,
I mean, it's worth it.
Excellent. Thank you.
And if you didn't catch that,
you can always also email us
at h b a c underscore full
underscore blast at train
technologies dot com.
We can connect you with Dan.
And other than that,
color me impressed.
This was a really when,
when Steven said he wanted to
bring his lawyer friend on the
show, was like, I don't know.
Sounds expensive.
I
like how Dan said that your
relationship with your broker
is supposed to be really brief
because I keep calling him.
So he's like, yeah, no,
your insurance agent,
you keep calling that
guy, your broker.
It's supposed to
end at some point.
I'm like, tell me I
got more questions.
Anyway. I love it.
Well, Dan, thank you
so much for your time.
And, and Steven, thanks so much
for tapping into your network.
This was really fun. Woo.
See you guys next time.
Thanks, Mary.
Thanks, Steven. Bye.