1 00:00:00,000 --> 00:00:03,240 All of us service clients out there, and all of us have stepped in, 2 00:00:03,240 --> 00:00:06,360 worked with clients and seen the messes that they've brought to us. 3 00:00:06,360 --> 00:00:10,620 And our job as professionals is to clean up that mess and leave them in a much 4 00:00:10,620 --> 00:00:12,960 better position than they came to us in. 5 00:00:13,380 --> 00:00:16,830 And we use those mistakes to educate other folks that we work with, 6 00:00:16,830 --> 00:00:20,100 other businesses that we work with as we move forward. And frankly, 7 00:00:20,100 --> 00:00:24,270 some of those mistakes and what we've seen and helped companies through and 8 00:00:24,270 --> 00:00:27,900 individuals through really have helped us become such better advisors. 9 00:00:28,260 --> 00:00:32,250 So we wanted to take this opportunity this morning to go through 10 of the 10 00:00:32,250 --> 00:00:37,050 biggest mistakes that Jon Fonzi and Harry Roski have seen business 11 00:00:37,050 --> 00:00:41,400 owners make with their financial management. So let's kick this off, Harry, 12 00:00:41,400 --> 00:00:45,840 let me take it to you first for number one out of the 10, 13 00:00:45,840 --> 00:00:48,240 what is the mistake and how can we learn from it? 14 00:00:49,290 --> 00:00:52,890 So I'd say the biggest mistake is when Dave mentioned earlier when people have 15 00:00:52,890 --> 00:00:56,700 sold a business or retired and they want to invest in other businesses, 16 00:00:56,700 --> 00:00:59,220 is having a lack of discipline, 17 00:00:59,430 --> 00:01:02,460 real discipline about why they're investing, 18 00:01:02,490 --> 00:01:04,620 why they're looking at these companies 19 00:01:06,470 --> 00:01:09,870 and doing it in a way that they would've run their business prior. 20 00:01:10,110 --> 00:01:12,690 So sometimes there's this light switch that goes off, 21 00:01:13,050 --> 00:01:15,270 they feel that their deal junkies now, 22 00:01:15,600 --> 00:01:18,450 and so they're going out and they're doing things they wouldn't do. 23 00:01:18,720 --> 00:01:21,390 So what we try to do with them is to say, look, you need to have, 24 00:01:21,390 --> 00:01:25,410 let's take 10% of your liquid assets or whatever the amount is, 25 00:01:25,410 --> 00:01:28,800 but a relatively small percentage and say, if you want to go play, 26 00:01:28,830 --> 00:01:32,970 go play and do these other type of deals, but the other 80 or 90%, 27 00:01:32,970 --> 00:01:33,990 we're not going to do that with. 28 00:01:34,350 --> 00:01:37,920 We're going to make sure that your principal's protected. We want to make sure 29 00:01:37,920 --> 00:01:39,300 we have systems in place. 30 00:01:39,720 --> 00:01:44,220 And the other thing they don't do is to make sure that they demand what the 31 00:01:44,220 --> 00:01:46,470 structure is going to be. That's the big issue. 32 00:01:46,920 --> 00:01:50,070 They'll go along if somebody has an SCORP or something like, 33 00:01:50,070 --> 00:01:52,320 we want to allow our clients to invest in scorp. 34 00:01:52,650 --> 00:01:56,040 We make them go through a reorganization. We made them drop down assets. 35 00:01:56,400 --> 00:01:58,290 So you need to create that. And it's very, 36 00:01:58,290 --> 00:02:01,290 very difficult sometimes to get clients to get that started. 37 00:02:01,680 --> 00:02:04,920 So we have to talk about what's the long-term impact of that. It's huge. 38 00:02:05,400 --> 00:02:10,110 So that's one of the things we find difficult to implement. But once you do, 39 00:02:10,110 --> 00:02:12,630 client comes back to you a couple years later when they're talking to their 40 00:02:12,630 --> 00:02:16,650 friends, they go, well, I'm glad I did that, John. 41 00:02:18,150 --> 00:02:20,430 Yeah, I mean, just pig back off of that. I mean, 42 00:02:21,150 --> 00:02:25,950 the one thing you guys have heard me talk about this hundreds of times is a 43 00:02:25,950 --> 00:02:27,600 lack of an exit strategy. 44 00:02:28,710 --> 00:02:33,690 Nobody plans at the get-go of what that exit strategy is 45 00:02:33,690 --> 00:02:34,080 going to be. 46 00:02:34,080 --> 00:02:38,820 And a lot of that gets to you've created or started your business in the 47 00:02:38,820 --> 00:02:42,690 wrong legal form, whether it be an S corp or an LLC. 48 00:02:44,460 --> 00:02:47,190 Obviously Harry has spoke about QSBS before, 49 00:02:47,190 --> 00:02:51,870 or C corp are the only way that that's otherwise going to give you the 50 00:02:51,870 --> 00:02:52,920 benefit of that. 51 00:02:53,370 --> 00:02:58,320 But especially when people are taking on a partner far too many 52 00:02:58,320 --> 00:03:01,750 times they just say, we love each other right now. We'll work it out. 53 00:03:01,750 --> 00:03:02,980 At the end of the day, 54 00:03:04,000 --> 00:03:08,650 whether it's getting one partner out of the business or selling the 55 00:03:08,650 --> 00:03:09,483 business, 56 00:03:10,000 --> 00:03:14,560 you got to know where you want to end up at. And that's far too many times 57 00:03:15,160 --> 00:03:18,670 people ignore that. The one thing that I would say, 58 00:03:20,260 --> 00:03:22,210 I've never ranked these as the top 10, 59 00:03:22,210 --> 00:03:26,620 but one of the first things that comes to mind is from a business owner from 60 00:03:26,620 --> 00:03:31,180 operating their business is not reinvesting in their business. 61 00:03:31,450 --> 00:03:35,110 A lot of times people say, I'm going to take all that cashflow, 62 00:03:35,380 --> 00:03:36,730 and yes, 63 00:03:36,760 --> 00:03:41,440 they're going to do something with it from a personal perspective or save it 64 00:03:42,070 --> 00:03:46,690 or do investing outside of the business, but at some point, 65 00:03:46,720 --> 00:03:49,780 if you don't reinvest in your core business, 66 00:03:50,170 --> 00:03:52,630 your competitors are going to pass you by. 67 00:03:53,110 --> 00:03:57,100 You're not going to have anything that's as valuable as you have right now. 68 00:03:57,130 --> 00:04:00,100 You could take a look at it and say, yep, I'm making all this money, 69 00:04:00,100 --> 00:04:01,540 I'm pulling all this cash out. 70 00:04:02,050 --> 00:04:05,110 But if you don't reinvest and keep up with the market, 71 00:04:05,770 --> 00:04:10,210 your competitors are going to pass you by and become more 72 00:04:10,210 --> 00:04:14,140 valuable. And whoever that exit plan is, 73 00:04:14,140 --> 00:04:18,400 they're going to see that and think it is not as worthwhile 74 00:04:18,610 --> 00:04:21,250 as what you otherwise think it is. 75 00:04:21,520 --> 00:04:24,850 Piggy being one of the things that we said where Harry had mentioned about 76 00:04:25,990 --> 00:04:29,860 somebody that wants to sell versus willing to sell, I just did evaluation, 77 00:04:29,980 --> 00:04:34,270 it was for a personal divorce, and this guy said, 78 00:04:34,600 --> 00:04:37,000 one of the things I always ask the business owner is, 79 00:04:37,090 --> 00:04:39,040 how much do you think your business is worth? 80 00:04:41,080 --> 00:04:45,970 Or Have you ever been offered to sell your business? And he said, yeah, 81 00:04:45,970 --> 00:04:49,750 but they're always way too low. The offers are always way too low. Well, 82 00:04:49,750 --> 00:04:51,250 I valued the business and he said, yeah, 83 00:04:51,250 --> 00:04:53,980 everybody offers me three to five times ebitda. 84 00:04:54,010 --> 00:04:58,600 He was in the industrial manufacturing space. Well, guess what? 85 00:04:58,600 --> 00:05:03,430 I valued the business and I came at a little between three and a half and 86 00:05:03,430 --> 00:05:07,990 four times ebitda and I told the guy, I hate to tell you this, 87 00:05:08,050 --> 00:05:09,640 but that's what your business is worth. 88 00:05:09,640 --> 00:05:13,870 If you're expecting somebody to come in with a seven or eight times 89 00:05:13,870 --> 00:05:14,703 multiple, 90 00:05:15,040 --> 00:05:19,030 that ain't going to happen unless you've got something special or different. 91 00:05:19,360 --> 00:05:23,470 And one of the things that he didn't do was reinvest in new 92 00:05:23,470 --> 00:05:25,480 technology, new equipment, 93 00:05:25,480 --> 00:05:29,560 state-of-the-art stuff that was going to give him those higher multiples. 94 00:05:29,560 --> 00:05:34,210 So I see people that don't reinvest in their business and then still expect that 95 00:05:34,210 --> 00:05:36,610 they're going to get these high multiples on exit. 96 00:05:39,640 --> 00:05:39,910 David, thank. 97 00:05:39,910 --> 00:05:40,743 You. Had a follow up? 98 00:05:40,780 --> 00:05:45,580 Yeah, I have a quick follow up. So we've covered, 99 00:05:45,580 --> 00:05:48,130 for those of you who are keeping score at home, 100 00:05:48,760 --> 00:05:53,530 mistake number one was investing too much of the proceeds into other businesses 101 00:05:53,530 --> 00:05:57,950 after a sale and not holding some back. 102 00:05:58,880 --> 00:06:02,630 Mistake number two from John was lack of an exit strategy. 103 00:06:02,630 --> 00:06:04,760 And if you're in this room with us, 104 00:06:04,760 --> 00:06:08,720 you know how much we value exit strategy because we beat the hell out of you all 105 00:06:08,720 --> 00:06:09,800 day long about that. 106 00:06:10,190 --> 00:06:14,240 And then number three from John was not 107 00:06:14,300 --> 00:06:17,000 reinvesting in the business, 108 00:06:17,000 --> 00:06:19,640 enhancing your competitive advantage, 109 00:06:19,820 --> 00:06:23,420 kind of building your moat around the castle. 110 00:06:23,960 --> 00:06:28,910 So I have a follow-up question for 111 00:06:28,910 --> 00:06:32,360 that specifically for both of you guys about 112 00:06:33,050 --> 00:06:35,810 reinvesting, about investing in the business. 113 00:06:35,930 --> 00:06:39,770 And this is a question that Nicola and I get all the time because 114 00:06:41,540 --> 00:06:46,040 we're real hawks about making sure that the business owner 115 00:06:46,400 --> 00:06:51,290 is taking profit out of their business. So there was a book 116 00:06:51,290 --> 00:06:55,310 that was written and there's a whole methodology on that called the profit first 117 00:06:55,310 --> 00:06:59,990 methodology. And our contention with business owners, 118 00:07:00,140 --> 00:07:04,460 especially Main Street business owners who have six figure businesses, 119 00:07:04,460 --> 00:07:08,600 but they're not quite breaking a million dollars yet is okay, 120 00:07:08,600 --> 00:07:13,070 so we've all heard that you got to sacrifice to make your business successful, 121 00:07:13,070 --> 00:07:17,510 but if your business isn't funding your lifestyle, 122 00:07:17,510 --> 00:07:20,300 eventually you're going to go broke and you're going to have to take a job. 123 00:07:20,570 --> 00:07:25,220 So you need to be taking money out of your business to make sure that your 124 00:07:25,220 --> 00:07:30,080 business is actually producing value for the shareholder. For you, 125 00:07:30,590 --> 00:07:32,420 the purpose of a business in the first place, 126 00:07:33,380 --> 00:07:38,180 what is the appropriate amount on a percentage basis? 127 00:07:38,480 --> 00:07:43,340 Let's say the owners are taking out enough to sustain their 128 00:07:43,340 --> 00:07:44,180 lifestyle. 129 00:07:44,510 --> 00:07:49,250 What is the appropriate amount to reinvest and kind of break it down for us 130 00:07:49,250 --> 00:07:53,630 into aggressive, moderate, and conservative. 131 00:07:53,630 --> 00:07:55,910 What would you say on a percentage basis, 132 00:07:56,150 --> 00:08:00,410 if the owners are fine and the business is doing a million plus a year, 133 00:08:00,410 --> 00:08:03,230 but it's still a main street business, it's still a small business, 134 00:08:03,470 --> 00:08:08,420 what is the appropriate amount to reinvest to continue to build your competitive 135 00:08:08,420 --> 00:08:09,253 advantage? 136 00:08:10,100 --> 00:08:10,310 Go on. 137 00:08:10,310 --> 00:08:11,143 John. 138 00:08:11,780 --> 00:08:15,320 Oh, throw the hard balls to me, Harry, thanks. No, no. I'll add in. 139 00:08:15,920 --> 00:08:17,510 I would say, Dave, 140 00:08:17,630 --> 00:08:22,520 it's impossible to put a percentage on anything because it's going to depend 141 00:08:22,880 --> 00:08:27,380 on the business, the state of technology and the industry that they operate. 142 00:08:27,650 --> 00:08:31,940 If you assume that the owners are okay, they have enough money, 143 00:08:31,940 --> 00:08:33,800 they don't need to pull anything more, 144 00:08:34,160 --> 00:08:38,720 a lot of it's going to depend on what kind of return on an investment that 145 00:08:38,720 --> 00:08:39,560 you're going to get. 146 00:08:39,770 --> 00:08:43,910 If you can get a higher rate of return of investment by reinvesting in the 147 00:08:43,910 --> 00:08:47,450 business and you're already set from a personal level, 148 00:08:47,450 --> 00:08:50,000 you don't need to pull any more money out of the business, 149 00:08:50,690 --> 00:08:55,560 well then reinvest a hundred percent of it back into the business if you think 150 00:08:55,560 --> 00:08:59,550 you can get a higher rate of return on your personal investments than what the 151 00:08:59,550 --> 00:09:04,440 business is otherwise providing you. There's an issue there that says, 152 00:09:04,440 --> 00:09:06,630 Jesus, this business otherwise going to survive. 153 00:09:06,630 --> 00:09:10,170 Are they reinvesting enough or keeping up to my point? 154 00:09:10,350 --> 00:09:12,660 But then there may be they're better off that says, no, 155 00:09:12,660 --> 00:09:17,040 we're better off taking the money out because the personal needs of the 156 00:09:17,040 --> 00:09:21,060 family are greater than what we could otherwise do for the business. 157 00:09:21,060 --> 00:09:25,590 And it depends a lot on how you measure a return on investment. 158 00:09:25,740 --> 00:09:28,440 It's not always just going to be dollars and cents. 159 00:09:28,740 --> 00:09:32,820 There's always going to be this element of taking care of my family. 160 00:09:32,850 --> 00:09:36,960 I think I've given you that story before about the one gentleman that said 161 00:09:38,250 --> 00:09:40,470 he would obviously sell the business, 162 00:09:40,470 --> 00:09:43,200 he could make a ton of money by selling the business, 163 00:09:43,200 --> 00:09:47,640 but he otherwise chose to keep it because he felt he had 164 00:09:47,670 --> 00:09:52,470 a obligation to his family members to provide them jobs that he 165 00:09:52,470 --> 00:09:56,670 knows they would not otherwise have if he wasn't letting them work in the 166 00:09:56,670 --> 00:10:00,930 business. So that gets to one of my other things, which is nice segue, 167 00:10:00,930 --> 00:10:05,550 I'm going to steal your thunder or your question here is 168 00:10:06,150 --> 00:10:07,410 impulsive spending. 169 00:10:07,950 --> 00:10:12,840 People that don't look or determine what a return on investment is 170 00:10:13,110 --> 00:10:14,730 before they make that investment. 171 00:10:14,940 --> 00:10:19,530 A lot of times people like to chase that shiny new thing that's out there like, 172 00:10:19,590 --> 00:10:23,220 Ooh, this is the coolest new technology out there. I got to buy it, 173 00:10:23,220 --> 00:10:24,450 I got to invest in it. 174 00:10:24,780 --> 00:10:28,620 But they never take a look at what kind of return on investment am I going to 175 00:10:28,620 --> 00:10:32,760 get on that from a valuation perspective, 176 00:10:32,760 --> 00:10:33,930 financial modeling, 177 00:10:33,930 --> 00:10:38,760 we all talk about the capital asset pricing model, cap M, 178 00:10:38,790 --> 00:10:43,080 that's always kind of that rate of return, that hurdle that we all look for. 179 00:10:43,410 --> 00:10:45,690 But there's other, so first off, 180 00:10:45,690 --> 00:10:49,800 people may not look at that when they are investing or reinvesting, 181 00:10:50,070 --> 00:10:54,150 and the other is tying in that personnel element that says, 182 00:10:54,420 --> 00:10:59,070 am I really better off or would I be better off by doing this or 183 00:10:59,130 --> 00:11:03,600 giving my family money rather than reinvesting? So again, 184 00:11:04,230 --> 00:11:08,280 not planning or having that impulsive spending that just says, 185 00:11:08,310 --> 00:11:11,880 I'm going to chase the newest and greatest thing. Like, Ooh, look at that. 186 00:11:11,880 --> 00:11:13,500 I'm going to go for that. No, that one's cool. 187 00:11:14,700 --> 00:11:18,660 I'm going to invest in that without knowing what that plan is. 188 00:11:18,660 --> 00:11:23,610 Or you talked about starting off the session about 189 00:11:23,610 --> 00:11:27,870 your goals of whether or not they're achievable or having some sort of 190 00:11:28,260 --> 00:11:32,430 deadline or being able to measure those that m in smart. 191 00:11:33,000 --> 00:11:37,140 Far too many times people just chase something because it's the latest and 192 00:11:37,140 --> 00:11:41,700 greatest thing, but not knowing whether or not it's a measurable return. 193 00:11:43,350 --> 00:11:45,270 And I would add on to that, John, 194 00:11:45,300 --> 00:11:50,160 it's not only the measurable return is how are you being distracted in your 195 00:11:50,160 --> 00:11:55,150 business and is that really going to be helping you build value in 196 00:11:55,150 --> 00:11:56,890 the business that you've created? 197 00:11:57,790 --> 00:12:00,130 I think those distractions are not going to be like us. 198 00:12:00,130 --> 00:12:04,750 If we said tomorrow we wanted to be experts in 199 00:12:05,590 --> 00:12:09,640 pension plans, how much time and effort would we have to put into that? 200 00:12:09,640 --> 00:12:13,270 And then you're pulling away from the blue ocean about all the other good things 201 00:12:13,270 --> 00:12:13,960 that you're working on, 202 00:12:13,960 --> 00:12:18,820 so you're actually diluting your other business that's delivering all this value 203 00:12:19,600 --> 00:12:23,020 and then all of a sudden, at least in our business, then you're looked upon as, 204 00:12:23,050 --> 00:12:25,930 well, wait a minute here, how can you be an expert in all these areas? 205 00:12:25,930 --> 00:12:28,600 And now you've gone off into the pension area. That's just one example, 206 00:12:28,600 --> 00:12:30,820 but it's the same thing in the business line. 207 00:12:31,360 --> 00:12:34,990 People want to buy your business because you have a certain business line. 208 00:12:34,990 --> 00:12:36,400 If you start adding onto that, 209 00:12:36,790 --> 00:12:40,780 I think it's a distraction that money could have been used other places and 210 00:12:41,920 --> 00:12:46,690 it's just you got to be very strategic on why you're doing it and it has to 211 00:12:46,690 --> 00:12:47,523 be. 212 00:12:48,700 --> 00:12:52,480 I was going to say the cost of investing in something like that. 213 00:12:52,690 --> 00:12:55,720 So if you're going to say, yeah, I want to become a pension expert, 214 00:12:55,720 --> 00:13:00,340 and you look at all the revenues that you could otherwise generate from doing 215 00:13:00,670 --> 00:13:04,810 pension valuations, actuarial work, whatever it is that you want, 216 00:13:05,230 --> 00:13:08,140 but yes, you either got to go out and hire somebody, 217 00:13:08,200 --> 00:13:10,330 but there's a time then that me, 218 00:13:10,330 --> 00:13:14,500 you have as far as hiring, finding that person, 219 00:13:14,500 --> 00:13:18,610 training them. And again, yes, it takes away from what we're doing. 220 00:13:18,610 --> 00:13:22,720 So not to say that we're all about the billable hour, 221 00:13:22,720 --> 00:13:27,250 but every hour that you take away from me of doing what it is that I do, 222 00:13:27,400 --> 00:13:31,060 that's less revenue coming in the door and that's part of the cost of 223 00:13:31,060 --> 00:13:35,980 reinvesting that maybe somebody doesn't realize as part of this analysis that 224 00:13:35,980 --> 00:13:37,600 they're looking at. Absolutely. 225 00:13:37,600 --> 00:13:42,130 Yeah, and I would argue on the flip side, by you investing in something else, 226 00:13:42,490 --> 00:13:47,290 use our parlance and our type of business is we could have hired 227 00:13:47,290 --> 00:13:51,580 that super smart valuation person that came across our desk that we thought was 228 00:13:52,030 --> 00:13:55,090 maybe getting paid a little too much, but we really wanted them on the team. 229 00:13:55,330 --> 00:13:59,260 And then therefore you've strained your resources maybe not to be able to buy 230 00:13:59,260 --> 00:14:01,870 that person, not buy them, I mean get them on board. 231 00:14:02,560 --> 00:14:05,680 The other thing is that I just look at it, Dave, 232 00:14:05,680 --> 00:14:09,760 to answer your initial question is you're right. 233 00:14:09,790 --> 00:14:13,030 You've got to be treated as a shareholder first. 234 00:14:13,480 --> 00:14:17,500 If the company's not returning a dividend every year on your investment, 235 00:14:17,500 --> 00:14:19,960 then you've got to question whether why are you in business? 236 00:14:19,960 --> 00:14:22,960 Because if it's just for the compensation, that gives you a job. 237 00:14:23,530 --> 00:14:27,520 So you should be building up value. On the flip side of that, 238 00:14:27,610 --> 00:14:32,470 you don't want to keep too much money in the company because 239 00:14:32,470 --> 00:14:33,910 when you do go to sell, somebody says say, 240 00:14:33,910 --> 00:14:35,440 why do you need that much working capital? 241 00:14:36,310 --> 00:14:38,860 What's in the business that you need that much working capital? 242 00:14:39,100 --> 00:14:41,260 So there's a delicate balance there. 243 00:14:41,350 --> 00:14:46,060 I think that's important because if their perception is they need more working 244 00:14:46,060 --> 00:14:47,140 capital to buy you, 245 00:14:47,170 --> 00:14:50,110 that means it's be a lower purchase price no matter what you say. 246 00:14:50,620 --> 00:14:54,440 That's be their first impression and I think everyone knows what first 247 00:14:54,440 --> 00:14:56,000 impressions are. They're hard to get rid of. 248 00:14:57,110 --> 00:14:59,090 Yeah, I mean as a business owner, 249 00:14:59,360 --> 00:15:03,350 you are the shareholders and you should operate the business with a 250 00:15:03,950 --> 00:15:08,750 fiduciary obligation to that shareholder, to the investors that says, yes, 251 00:15:08,750 --> 00:15:12,590 your return can come in one or two ways or a combination of both. 252 00:15:12,860 --> 00:15:16,250 One is a current dividend cash payout, 253 00:15:16,460 --> 00:15:19,250 the other is increase in value of the business. 254 00:15:19,550 --> 00:15:23,120 And if you're only viewing one and not considering the other, 255 00:15:23,120 --> 00:15:25,430 you're doing a disservice to your shareholders. 256 00:15:25,790 --> 00:15:28,340 I'm talking about investing top dollar. 257 00:15:30,240 --> 00:15:33,110 I'm going to not pick on Carrie, I'm going to use her as an example, 258 00:15:33,110 --> 00:15:36,500 even though her properties that she sell probably don't have 259 00:15:37,550 --> 00:15:38,210 projects. 260 00:15:38,210 --> 00:15:42,710 But I watch enough HGTV to say that when people are buying a house, 261 00:15:42,830 --> 00:15:47,510 they're always, do I want to buy move-in ready? I don't have to do anything. 262 00:15:47,900 --> 00:15:48,650 If you do that, 263 00:15:48,650 --> 00:15:52,700 you're going to pay top dollar for that. Or am I going to buy something that has 264 00:15:52,700 --> 00:15:57,140 projects that I know I'm going to have to put some dollars in and increase the 265 00:15:57,140 --> 00:16:02,000 value myself? It's similar in a business or the people that you're hiring. 266 00:16:02,240 --> 00:16:04,820 If I'm going to buy that top dollar expert, 267 00:16:04,820 --> 00:16:08,420 it's going to take a while for me to get that return on that investment because 268 00:16:08,420 --> 00:16:12,530 I paid top dollar for it Carrie's properties. 269 00:16:12,530 --> 00:16:16,610 If you follow her on LinkedIn, she's a member in Chicago and provisors with me, 270 00:16:17,720 --> 00:16:21,380 I don't know, Carrie, do you guys, those types of level of buyers, 271 00:16:21,380 --> 00:16:23,330 are they looking for projects or. 272 00:16:24,980 --> 00:16:29,810 It's so interesting that you brought this up and most of the buyers are not 273 00:16:29,810 --> 00:16:33,320 looking for projects at that level. They want it done. 274 00:16:33,320 --> 00:16:38,030 So your exit strategy in your world is very similar to the 275 00:16:38,270 --> 00:16:39,050 residential world. 276 00:16:39,050 --> 00:16:43,970 And that's what I tell my clients is you have to put in if you want the right 277 00:16:43,970 --> 00:16:46,610 exit, and you can't just do it at the very end. 278 00:16:46,610 --> 00:16:48,530 You have to maintain it and grow it and 279 00:16:50,300 --> 00:16:52,610 always be thinking about that exit strategy. 280 00:16:52,610 --> 00:16:56,630 And there's some homeowners or sellers that don't agree with that and they'll 281 00:16:56,630 --> 00:16:59,870 see that on their exit, they won't get the return on it. 282 00:16:59,870 --> 00:17:04,820 And then buyers will not value that property the same. That's actually, 283 00:17:04,820 --> 00:17:09,500 there's a bigger discount on that piece of property if there has to 284 00:17:09,500 --> 00:17:14,450 be work put into it because they take time and energy and they value 285 00:17:14,450 --> 00:17:16,670 their time more than they do the project itself. 286 00:17:18,620 --> 00:17:20,090 It's funny that you guys, 287 00:17:20,150 --> 00:17:24,860 you've hit on this because the perspective that 288 00:17:24,860 --> 00:17:29,840 Nicola and I have used when we're doing a session 289 00:17:29,840 --> 00:17:34,640 at our monthly breakfasts or when we're teaching a topic in our 290 00:17:34,640 --> 00:17:39,620 professional development sessions for the members is typically we 291 00:17:39,620 --> 00:17:44,150 cover things from the perspective of an investor in the 292 00:17:44,150 --> 00:17:47,780 business. So about 25 years ago, 293 00:17:47,780 --> 00:17:49,590 there was a book written called the E Myth. 294 00:17:49,590 --> 00:17:51,960 It was written by an author named Michael Gerber. 295 00:17:52,440 --> 00:17:56,280 And the famous expression that came out of that book was, 296 00:17:56,520 --> 00:18:00,450 you want to work on the business and not in the business. 297 00:18:01,050 --> 00:18:05,730 Well, that thinking is good thinking, but it's not the best thinking. 298 00:18:06,300 --> 00:18:09,900 If you're working in your business, you have a job, right? 299 00:18:11,070 --> 00:18:15,570 If you own a convenience store and you work the seven to three 300 00:18:15,570 --> 00:18:20,310 shift and your brother works the three to 11 shift and your cousin works the 301 00:18:20,310 --> 00:18:21,780 11 to seven shift, 302 00:18:22,020 --> 00:18:26,880 you basically have purchased a job for yourself now that you're 303 00:18:26,880 --> 00:18:31,680 working in the business. If you are working on the business, 304 00:18:31,920 --> 00:18:34,920 you have a staff that works, 305 00:18:34,920 --> 00:18:37,920 the am the second shift and the third shift, 306 00:18:38,100 --> 00:18:41,670 and then you're working on the business constantly figuring out how to 307 00:18:41,670 --> 00:18:45,750 strategically reposition your business and reinvest in your competitive 308 00:18:45,750 --> 00:18:50,250 advantage to make the best convenience store you can possibly have so that you 309 00:18:50,250 --> 00:18:54,510 drive the other convenience stores on the other three corners out of business. 310 00:18:55,140 --> 00:18:58,860 So that's the difference between working on the business and in the business. 311 00:18:59,460 --> 00:19:04,350 There's a third aspect that nobody else talks about that Nicola and 312 00:19:04,350 --> 00:19:06,660 I focus on an exit success lab, 313 00:19:06,870 --> 00:19:10,290 and that's working over the business, 314 00:19:10,740 --> 00:19:12,270 that's treating the business. 315 00:19:12,510 --> 00:19:17,070 It's a separate investment and looking at that business and saying, 316 00:19:17,100 --> 00:19:21,450 how can I take this convenience store on 85th Street and Second 317 00:19:21,450 --> 00:19:26,010 Avenue and parlay it into convenience stores on 318 00:19:27,100 --> 00:19:32,100 every 10 blocks in the city so I can get a second convenience store on 72nd 319 00:19:32,100 --> 00:19:36,750 and second Avenue and a third on 62nd and 320 00:19:36,750 --> 00:19:41,700 second Avenue that's working over the business and viewing the business as 321 00:19:41,700 --> 00:19:46,140 an investor. And that's the aspect that we're talking about right 322 00:19:46,140 --> 00:19:49,020 now that everybody else misses. 323 00:19:49,440 --> 00:19:51,300 Everybody else is out there. 324 00:19:51,390 --> 00:19:55,020 I mean the unwashed masses are working in their business, 325 00:19:55,650 --> 00:20:00,420 the minimally educated Michael Gerber crowd is working on their business and 326 00:20:00,420 --> 00:20:03,030 they're thinking about strategically positioning their business, 327 00:20:03,210 --> 00:20:07,650 but there's no place else that you are going to hear about treating your 328 00:20:07,650 --> 00:20:12,420 business like an investment so that it can become something 329 00:20:12,420 --> 00:20:14,730 more if you want it to. 330 00:20:15,390 --> 00:20:18,660 And that's what these guys are so great at pointing out. Alright, so Nicola, 331 00:20:18,660 --> 00:20:22,170 here's what I've heard so far. Check me on this, right? I'm taking notes here. 332 00:20:22,500 --> 00:20:27,360 I've got number one, investing too much of the proceeds into other businesses. 333 00:20:27,360 --> 00:20:30,390 Number two, lack of an exit strategy. Number three, 334 00:20:30,420 --> 00:20:33,720 not reinvesting in the business. And then number four, 335 00:20:33,720 --> 00:20:38,670 which is a great one that I have three clients right now. 336 00:20:38,670 --> 00:20:42,090 Impulsive spending, right? Ooh, shiny object, shiny object, 337 00:20:42,090 --> 00:20:46,980 squirrel on the fence, invest in the squirrel on the fence. I need new software. 338 00:20:47,110 --> 00:20:51,340 I got a guy I work with gets new software every year, new CRM system every year. 339 00:20:51,550 --> 00:20:54,220 Next biggest thing is going to help 'em be more productive. All right, 340 00:20:54,610 --> 00:20:56,920 gentlemen, what's number five? And then back to Nicola. 341 00:20:58,510 --> 00:20:59,800 Barry, your turn. 342 00:21:01,420 --> 00:21:02,920 Hey, I'm sorry, what was the question again? 343 00:21:03,400 --> 00:21:07,910 Number five, biggest mistake the business owners are making with their finances. 344 00:21:08,080 --> 00:21:12,400 So what I would say is lack of true preparation 345 00:21:12,970 --> 00:21:13,960 is the biggest item. 346 00:21:14,770 --> 00:21:18,100 Not realizing how long it's going to take to get everything up and going, 347 00:21:18,370 --> 00:21:23,290 looking inward to the company and trying to shed expenses that you really 348 00:21:23,290 --> 00:21:27,670 don't need and look at things that really spruce up the car, get it shiny. 349 00:21:27,730 --> 00:21:30,940 I think that is complete lack of planning. People say they don't have time. 350 00:21:31,300 --> 00:21:36,070 It's hard to get the owners to focus in on that's going to cost them real money. 351 00:21:36,700 --> 00:21:37,270 Again, 352 00:21:37,270 --> 00:21:42,190 it kind of goes back to we're a firm belief that every year what you 353 00:21:42,190 --> 00:21:46,930 should be doing is updating your A due diligence file. 354 00:21:46,930 --> 00:21:49,360 Where is all your information? What's going on? 355 00:21:50,920 --> 00:21:53,890 Where are all of our contracts? It helps you also in business to say, 356 00:21:54,220 --> 00:21:58,660 what are my liabilities? What are my obligations? And if you do that, 357 00:21:58,660 --> 00:22:01,840 and then the idea there is if you're that well organized, 358 00:22:01,840 --> 00:22:05,020 then you're going to be focusing in on who are your competitors, 359 00:22:05,050 --> 00:22:09,070 what's going on in the marketplace. It becomes this whole process. So to me, 360 00:22:09,070 --> 00:22:12,430 it's that whole process of getting ready for selling the company. 361 00:22:12,670 --> 00:22:15,520 And that means understanding everything that you have internally. 362 00:22:16,090 --> 00:22:18,100 And it goes back to that first impression. 363 00:22:18,100 --> 00:22:21,850 If you are highly organized and you have all this information when somebody's 364 00:22:21,850 --> 00:22:22,683 talking to you, 365 00:22:23,020 --> 00:22:27,730 I think you're going to get more favorable terms than you would've otherwise. 366 00:22:31,720 --> 00:22:33,190 John, anything else on that point? 367 00:22:33,610 --> 00:22:38,200 Yeah, because my next ones are kind of similar and related 368 00:22:40,090 --> 00:22:44,740 from what I see is a lot of times business owners fail to budget. 369 00:22:45,190 --> 00:22:48,700 They just assume that I'm going to go out, start my business, 370 00:22:49,030 --> 00:22:53,080 and we're just going to, things are all going to work out. 371 00:22:54,400 --> 00:22:57,580 No one goes into a business expecting to go out of business. 372 00:22:57,790 --> 00:23:02,080 We're all expecting to survive and make money from it. But how do you get there? 373 00:23:02,080 --> 00:23:06,700 You got to have a budget. Everybody's got to have a goal to shoot for. Dave, 374 00:23:06,760 --> 00:23:09,130 Nicola, you mentioned it to start us off, 375 00:23:09,340 --> 00:23:12,910 what were our goals for the next six months or the last half of the year? 376 00:23:14,590 --> 00:23:18,580 You got to have something not only for the business, but your employees, 377 00:23:18,580 --> 00:23:20,800 especially the key employees to shoot for. 378 00:23:20,830 --> 00:23:23,860 Because one of the things we talked about reinvesting in the business is 379 00:23:24,010 --> 00:23:27,880 incentivizing your employees. When you talk about the line people, 380 00:23:28,240 --> 00:23:30,580 if they don't know why they're doing something, 381 00:23:31,750 --> 00:23:34,630 I wouldn't say maybe they're not the right people, 382 00:23:34,630 --> 00:23:37,480 but everybody should have an idea of what they do. 383 00:23:37,480 --> 00:23:41,800 How does it contribute to the business? So backing up here, 384 00:23:42,580 --> 00:23:46,970 failing to budget for something, coming up, a forecast, 385 00:23:46,970 --> 00:23:51,020 a projection, a budget, all three of those are different. 386 00:23:51,500 --> 00:23:54,140 So a budget is, 387 00:23:55,190 --> 00:23:57,710 what am I shooting for? 388 00:23:58,760 --> 00:24:03,230 A projection is basically a what if analysis and a 389 00:24:03,230 --> 00:24:07,400 forecast is what do I most expect to happen? 390 00:24:07,820 --> 00:24:12,260 So from my perspective in valuations, I love it when somebody has a forecast, 391 00:24:12,680 --> 00:24:16,670 a budget is good, but if nobody, 392 00:24:16,670 --> 00:24:21,590 this gets to my second part, which is a lack of monitoring in an analysis, 393 00:24:22,250 --> 00:24:23,750 okay, you've got a budget, 394 00:24:23,990 --> 00:24:28,940 but if you never compare yourself to the budget and analyze why did I 395 00:24:28,940 --> 00:24:31,460 miss or why did I exceed my budget, 396 00:24:31,910 --> 00:24:36,890 then you're going through the machinations of just because somebody says, 397 00:24:36,920 --> 00:24:38,090 oh, I'm supposed to do this. 398 00:24:38,090 --> 00:24:40,670 This is part of the planning is I got to have a budget. 399 00:24:41,060 --> 00:24:45,770 But if nobody compares how you're doing to that budget and explaining what 400 00:24:45,770 --> 00:24:48,440 those differences are, 401 00:24:49,070 --> 00:24:52,040 then you're missing the boat completely of why you're doing this. 402 00:24:53,720 --> 00:24:56,540 But John, sorry, go ahead, John. 403 00:24:56,540 --> 00:25:00,950 Don't you also think though that as part of that three-part process, 404 00:25:00,950 --> 00:25:02,840 the budgeting, the forecasting and everything else, 405 00:25:03,200 --> 00:25:07,100 you should be looking to what's the competitive set out there? 406 00:25:07,490 --> 00:25:12,230 Get information from the banks or from people like you in your industry to 407 00:25:12,230 --> 00:25:13,070 say, Hey, look, 408 00:25:13,430 --> 00:25:17,630 why is our cost of goods sold going up 8% when they average the only 3% 409 00:25:18,440 --> 00:25:22,670 or whatever the case may be. Those operating stats like RC, 410 00:25:22,670 --> 00:25:27,290 those tend to be 125 days, but industry standards 32 days. 411 00:25:28,220 --> 00:25:28,970 Absolutely. 412 00:25:28,970 --> 00:25:33,620 That's part of this whole process that says I'll pick on other 413 00:25:33,620 --> 00:25:38,090 valuation people because one of our standards says we have to do economic and 414 00:25:38,090 --> 00:25:41,480 industry research. Our reports have to include that. 415 00:25:41,690 --> 00:25:45,800 And a lot of people just go through the gyrations of grabbing something off the 416 00:25:45,800 --> 00:25:49,220 internet and plugging into the report because they have to do it. 417 00:25:49,520 --> 00:25:52,970 And when you read the report, something doesn't jive. 418 00:25:53,540 --> 00:25:57,710 The economic indicators say things upswing, 419 00:25:58,040 --> 00:26:01,370 the industry is all doing exceptionally well. 420 00:26:02,480 --> 00:26:06,350 Growth potentials are high, but yet when you look at the valuation, 421 00:26:06,350 --> 00:26:07,520 the numbers that they do, 422 00:26:07,580 --> 00:26:12,320 it's doom and gloom without an explanation of why are you 423 00:26:12,320 --> 00:26:15,950 so different than what all of the indicators are. But so yes, 424 00:26:16,250 --> 00:26:20,990 you have to look at those indicators to figure out what a proper budget 425 00:26:20,990 --> 00:26:24,260 forecast projection is otherwise going to be. 426 00:26:24,260 --> 00:26:28,220 Something's got to go into that where you're looking at it, and to your point, 427 00:26:28,220 --> 00:26:33,170 I did evaluation. It was for gift tax planning, 428 00:26:33,560 --> 00:26:37,910 turning it over to the second generation and the business owner where I was 429 00:26:37,910 --> 00:26:40,790 going through it with him, and he is like, it's fine, fine, whatever it is, 430 00:26:40,790 --> 00:26:44,730 the number is what it is. But this is the stuff that I find more interesting. 431 00:26:44,880 --> 00:26:49,320 I did a benchmarking of his company against industry averages, 432 00:26:49,320 --> 00:26:53,460 and he said, it's exactly what you said here. He goes, wow, 433 00:26:53,490 --> 00:26:57,450 we're that much slower collecting our receivables than the industry. 434 00:26:57,930 --> 00:27:02,010 And he asked his son, he goes, did you know that? And he is like, Nope, 435 00:27:02,010 --> 00:27:04,110 never looked at it. And he's like, geez, 436 00:27:04,110 --> 00:27:06,840 that's something we should be focusing on. That's where 437 00:27:09,450 --> 00:27:11,430 the value of the valuation was, 438 00:27:11,760 --> 00:27:14,910 wasn't in what that bottom line dollar amount was. 439 00:27:15,150 --> 00:27:20,100 It was the analysis that went into it that was an eye-opening surprise 440 00:27:20,100 --> 00:27:20,933 for 'em. 441 00:27:22,980 --> 00:27:27,000 Thank you for that. And the last two examples That you've given us, 442 00:27:27,510 --> 00:27:31,320 it really touches on what Dave and I are out here doing with Exit success lab, 443 00:27:31,320 --> 00:27:33,960 which is getting in front of business owners and saying, Hey, 444 00:27:34,080 --> 00:27:37,800 you've got to stop and focus on, for us, it's the exit plan. 445 00:27:38,010 --> 00:27:39,120 How are we going to get there? 446 00:27:39,120 --> 00:27:42,600 And that's at a very high level of what both of you have touched on is we're 447 00:27:42,600 --> 00:27:43,200 saying, 448 00:27:43,200 --> 00:27:46,710 you got to take the time out to do this now because not only is it helping you 449 00:27:46,710 --> 00:27:48,960 build your future and giving you a plan, 450 00:27:49,200 --> 00:27:51,480 but it's also helping you increase your value today, 451 00:27:51,780 --> 00:27:53,340 which you're missing out on. 452 00:27:53,340 --> 00:27:57,000 And that's one of the ways we really get to have those conversations. 453 00:27:57,270 --> 00:28:01,440 And so my follow up to both of you is it's tough to be able to get in front of 454 00:28:01,440 --> 00:28:02,460 these business owners and say, 455 00:28:02,460 --> 00:28:05,730 let's sit down and talk about some of these things. Like what you're saying, 456 00:28:05,730 --> 00:28:08,580 Harry, the lack of the true preparation and planning and John, 457 00:28:08,940 --> 00:28:12,870 the failing to budget and going back and monitoring and analyzing it. 458 00:28:13,290 --> 00:28:15,930 How are you? I mean, just give us your top one or two ways. 459 00:28:15,930 --> 00:28:19,170 You're getting the business owners to have those conversations with you and 460 00:28:19,170 --> 00:28:21,150 focus them to be able to do that. 461 00:28:22,240 --> 00:28:27,210 What we try to do is focus with them on increasing the 462 00:28:27,210 --> 00:28:30,420 value of the company. And it comes up in a lot of different ways. 463 00:28:30,450 --> 00:28:32,460 It's a lot of what John and I mentioned earlier, 464 00:28:32,460 --> 00:28:37,050 but one of the other things that we didn't mention that I think is probably top 465 00:28:37,200 --> 00:28:41,910 part of the list is how are they incentivizing the executive 466 00:28:41,910 --> 00:28:43,500 team to increase the value? 467 00:28:44,220 --> 00:28:48,870 Do they have a stake in the ultimate sale by having stock ownership? 468 00:28:49,170 --> 00:28:52,920 There's ways that you can give people what's called a profits interest if 469 00:28:52,920 --> 00:28:56,100 they're providing services depending on their corporate setup, 470 00:28:56,340 --> 00:29:00,870 how do you get them to step up because then they have a vested interest 471 00:29:01,230 --> 00:29:05,310 in getting more money for the company, but you're creating more value. 472 00:29:05,580 --> 00:29:08,190 So that's the one thing that we see that they just, yeah, 473 00:29:08,640 --> 00:29:10,500 John's doing this and Walt's doing this, 474 00:29:10,710 --> 00:29:15,180 but you got to think about if I get those guys on board and I give them part of 475 00:29:15,180 --> 00:29:16,013 the equity, 476 00:29:16,380 --> 00:29:20,850 my part that I'm still retaining is going to be probably worth a lot more 477 00:29:21,120 --> 00:29:24,870 because now I have a team in place that the buyer's going to want to keep in 478 00:29:24,870 --> 00:29:28,980 place and everyone's made money in the process. So you got to look at that 479 00:29:28,980 --> 00:29:29,820 bigger picture. 480 00:29:30,450 --> 00:29:33,540 I think that's as critical as all the other things we've been talking about. 481 00:29:33,900 --> 00:29:36,510 Absolutely. So I think I've mentioned this again before, 482 00:29:36,840 --> 00:29:38,220 to the sake I'm being repetitive. 483 00:29:38,220 --> 00:29:39,120 Of course you did, John. 484 00:29:39,510 --> 00:29:40,440 Of course I am. 485 00:29:42,220 --> 00:29:46,390 That's why those interviews ended up being 180 minutes. I talk too much. 486 00:29:48,070 --> 00:29:52,690 So two of the key drivers that in the m and a world that people look for 487 00:29:52,960 --> 00:29:55,000 is one is recurring revenue. 488 00:29:55,390 --> 00:30:00,280 Companies with recurring revenue sell at higher multiples than businesses 489 00:30:00,280 --> 00:30:05,110 with non-recurring revenue. Dave, you absolutely champion that. 490 00:30:05,320 --> 00:30:10,300 The other that they look at is turnover in key employees. 491 00:30:11,410 --> 00:30:15,730 How often are those key people turning over in your business? 492 00:30:15,730 --> 00:30:20,080 The longer you have that high level that management team in 493 00:30:20,080 --> 00:30:24,280 place, the better off you're going to be, the higher value you're going to get. 494 00:30:24,340 --> 00:30:28,060 And the way you do it is exactly what Harry said is you have to incentivize 495 00:30:28,060 --> 00:30:33,040 those people in order to work for not only for them 496 00:30:33,040 --> 00:30:37,120 to understand that what's better for them is also going to be better for the 497 00:30:37,120 --> 00:30:41,590 business because what's better for the business or what's good for the business 498 00:30:41,590 --> 00:30:45,760 is also going to be good for me because I'm going to share in a piece of that. 499 00:30:46,990 --> 00:30:48,250 So those, again, 500 00:30:48,580 --> 00:30:52,570 they will look at those as being the two of the critical factors, 501 00:30:52,960 --> 00:30:57,580 recurring revenue and low turnover of key employees. 502 00:30:59,890 --> 00:31:04,780 There's a story out there when Steve Jobs was doing something with 503 00:31:05,170 --> 00:31:08,500 Starbucks coffee and the original owner, 504 00:31:09,700 --> 00:31:13,120 Steve Jobs said, your executive team isn't worth anything, 505 00:31:13,180 --> 00:31:14,200 they should all be fired. 506 00:31:14,980 --> 00:31:17,650 And it was interesting when you go back and look at that story, 507 00:31:17,650 --> 00:31:20,020 I think it was within either 12 or 18 months, 508 00:31:20,560 --> 00:31:24,940 every single person that was on that executive team left the company Starbucks, 509 00:31:26,530 --> 00:31:30,350 which means sometimes you got to have outsiders come in and kind of what are you 510 00:31:30,430 --> 00:31:35,200 doing? And that's where if you're smaller businesses even had an advisory board, 511 00:31:35,710 --> 00:31:40,540 let alone a regular board of directors could be very helpful in assessing who's 512 00:31:40,540 --> 00:31:44,860 on your team and what are they really bringing to the table because that's 513 00:31:44,860 --> 00:31:46,840 obviously going to create the value for your business. 514 00:31:48,970 --> 00:31:51,310 I had this exact conversation, 515 00:31:51,310 --> 00:31:55,000 I think I've had this conversation with you, Pete, 516 00:31:55,030 --> 00:32:00,010 I've had it with a couple of people where we talk about the team that gets 517 00:32:00,010 --> 00:32:04,540 you to 5 million is not the team that'll get you to 10 million or 518 00:32:04,540 --> 00:32:05,320 20 million. 519 00:32:05,320 --> 00:32:08,890 The team that gets you to 20 million is not the team that's going to get you to 520 00:32:08,890 --> 00:32:11,230 a hundred million. Here's the thing, 521 00:32:11,770 --> 00:32:14,320 all of us as business owners, 522 00:32:14,950 --> 00:32:18,880 we have to become that next level founder, 523 00:32:18,880 --> 00:32:20,800 that next level CEO. 524 00:32:21,040 --> 00:32:25,930 And the only way we can go from being a $5 million CEO to being 525 00:32:25,930 --> 00:32:30,730 a $20 million CEO is by surrounding ourselves with 526 00:32:30,730 --> 00:32:35,260 people who are 50 million or a hundred million dollars CEOs or 527 00:32:35,380 --> 00:32:38,830 advisors to $50 million or a hundred million dollars. 528 00:32:39,920 --> 00:32:44,840 So your point about the advisory board I think is 529 00:32:44,840 --> 00:32:49,520 incredibly powerful because you don't realize you're so 530 00:32:49,520 --> 00:32:51,200 close to your team. 531 00:32:51,440 --> 00:32:55,250 You don't realize you've only got a $10 million team and you want to build a 532 00:32:55,250 --> 00:32:59,180 hundred million dollars business. But if you have an advisory board, 533 00:32:59,480 --> 00:33:03,500 and on that advisory board are two CEOs who've had a hundred million dollars 534 00:33:03,500 --> 00:33:08,450 businesses and exited, and three advisors who advise people who have 300, 535 00:33:08,450 --> 00:33:10,520 400, 5 million businesses, 536 00:33:10,610 --> 00:33:15,230 and they look at your CFO and they look at your chief operating officer and they 537 00:33:15,260 --> 00:33:16,850 say to you, listen, 538 00:33:17,480 --> 00:33:21,770 those people are not capable of doing this and they have a laundry list, 539 00:33:22,010 --> 00:33:23,600 that's what you need. 540 00:33:23,750 --> 00:33:28,460 And they're not capable of thinking like this and they demonstrate a completely 541 00:33:28,460 --> 00:33:32,630 new level of thinking that will take your business to the next level. 542 00:33:32,630 --> 00:33:35,510 If you don't have people sharing that with you, 543 00:33:35,630 --> 00:33:40,040 you don't grow to go from being that $5 million CEO to being the 544 00:33:40,040 --> 00:33:43,040 $20 million or a hundred million dollars CEO. 545 00:33:44,120 --> 00:33:46,760 That's the value of having an advisory board. 546 00:33:46,910 --> 00:33:51,380 That's the value of being part of a peer advisory group if you have the right 547 00:33:51,380 --> 00:33:53,450 people in that room. Now, 548 00:33:53,450 --> 00:33:57,740 if you're a $20 million business and you're surrounded by $5 million CEOs, 549 00:33:57,950 --> 00:34:02,810 nobody's pushing your thinking, you're in the wrong room. The expression, 550 00:34:02,810 --> 00:34:06,620 you never want to be the smartest person in the room as a CEO, 551 00:34:06,800 --> 00:34:09,650 being the smartest person in the room is the kiss of death for you. 552 00:34:09,920 --> 00:34:12,680 That's stagnation for you as the business leader. 553 00:34:12,680 --> 00:34:15,140 So you can't be the smartest person in the room. 554 00:34:15,350 --> 00:34:19,370 You have to be the person that's always learning, that's growing, 555 00:34:19,370 --> 00:34:20,210 that's coming away. 556 00:34:20,390 --> 00:34:25,130 The best thing for you is to walk out of a conversation with 15 business 557 00:34:25,130 --> 00:34:29,480 owners with three pages of notes, embarrassed about what you didn't know, 558 00:34:29,570 --> 00:34:34,310 because that means that now you have the capacity to grow your business. 559 00:34:34,790 --> 00:34:39,170 I mean, that level of self-awareness, people ask me all the time, 560 00:34:39,470 --> 00:34:43,130 what do I need to build a hundred million dollars business? 561 00:34:43,130 --> 00:34:47,930 What do I need to build a $300 million business? And that the best answer that I 562 00:34:47,930 --> 00:34:50,510 can give to that question is self-awareness. 563 00:34:50,990 --> 00:34:55,580 You need to be so self-aware that you have the 564 00:34:55,580 --> 00:35:00,200 capacity to learn and grow at 40, at 50, 565 00:35:00,200 --> 00:35:02,090 at 60, at 70. 566 00:35:02,510 --> 00:35:07,190 If you have self-awareness and you realize the areas where you're ignorant, 567 00:35:07,190 --> 00:35:10,370 the areas where you have blind spots and you have the ability to be 568 00:35:10,370 --> 00:35:13,700 intellectually curious and assimilate information, 569 00:35:13,940 --> 00:35:17,930 you've got the capacity to build a big business if you can execute or if you 570 00:35:17,930 --> 00:35:21,440 have a team that can execute. All right, here's what I got. 571 00:35:21,440 --> 00:35:25,100 I think we only got one left. I'm turning it back to you, Nicola. So number one, 572 00:35:25,100 --> 00:35:28,280 investing too much of the proceeds into other businesses. Number two, 573 00:35:28,280 --> 00:35:32,810 lack of an exit strategy. Number three, not reinvesting in the business. 574 00:35:32,810 --> 00:35:36,110 Number four, impulsive spending shiny objects, squirrel on the fence. 575 00:35:36,230 --> 00:35:40,470 Number five, lack of preparation. Plan more, 576 00:35:40,470 --> 00:35:45,330 prepare more. Number six, failure to budget. Number seven, 577 00:35:45,750 --> 00:35:50,430 lack of monitoring and lack of comparing your budget to reality and 578 00:35:50,430 --> 00:35:54,150 lack of benchmarking against other industry standards, 579 00:35:54,150 --> 00:35:58,470 which I thought was a fantastic takeaway. That's number seven. Number eight, 580 00:35:58,740 --> 00:36:03,690 not incentivizing key staff because that is one of 581 00:36:03,690 --> 00:36:07,560 the two key areas that people look for, which leads into number nine, 582 00:36:07,620 --> 00:36:12,510 and that's not focusing on recurring revenue and reducing key 583 00:36:12,510 --> 00:36:16,890 employee turnover. So those are the nine. We got one left, 584 00:36:16,890 --> 00:36:17,723 Nicola. 585 00:36:18,330 --> 00:36:22,140 All right, who wants to take it? Harry, John, give us our last one. 586 00:36:22,890 --> 00:36:26,040 I'll take it. It's called personal budgets and estate planning. 587 00:36:26,550 --> 00:36:28,200 You got to have a personal budget. 588 00:36:28,200 --> 00:36:31,350 How much money are you really pulling out of the company for your lifestyle? 589 00:36:31,800 --> 00:36:33,750 What are you going to have after down the road? 590 00:36:34,260 --> 00:36:37,770 And then how are you going to maintain whatever you want to maintain and do the 591 00:36:37,770 --> 00:36:39,030 things that you want it to do? 592 00:36:39,390 --> 00:36:44,220 And along with that comes your estate planning for you and your 593 00:36:44,220 --> 00:36:46,380 family and to protect the economic interest. 594 00:36:48,300 --> 00:36:50,790 I would add one thing into that section. 595 00:36:51,960 --> 00:36:54,990 We have RIAs here on the call today. 596 00:36:55,320 --> 00:37:00,150 The idea here is you got to go out and interview two or three of them at least 597 00:37:00,150 --> 00:37:03,270 to make sure they're going to be able to fit your goals. 598 00:37:03,270 --> 00:37:06,480 That's all part of this budgeting because you just can't listen to one. 599 00:37:06,480 --> 00:37:08,940 You got to listen to two or three to say, okay, 600 00:37:09,270 --> 00:37:12,930 if I assume a certain mix of investments and things of this nature, 601 00:37:12,930 --> 00:37:14,820 can I do that? You just can't listen to one person. 602 00:37:14,820 --> 00:37:16,650 You need to talk to two or three. 603 00:37:17,130 --> 00:37:20,490 Just make sure that all the information you're getting is well utilized. 604 00:37:22,860 --> 00:37:23,693 Well. 605 00:37:23,700 --> 00:37:26,790 Speak to buy agreements as part of that guys please, 606 00:37:26,820 --> 00:37:29,580 because that should be part of it, right? 607 00:37:29,580 --> 00:37:31,290 Your buy sell agreement has to be in there. 608 00:37:32,160 --> 00:37:35,880 That's all part of your structure. I mean, what do you have in there? I mean, 609 00:37:35,880 --> 00:37:39,990 the biggest thing that we see on the buy sell stuff that people get caught up on 610 00:37:39,990 --> 00:37:42,690 and really don't plan for are disability. 611 00:37:43,530 --> 00:37:47,610 One of the key people get disabled going to, how are you going to take them out? 612 00:37:48,210 --> 00:37:49,050 How are you going to work it? 613 00:37:49,050 --> 00:37:51,570 And then obviously you have to have the right structure for that, 614 00:37:51,570 --> 00:37:54,750 for both financial and tax standpoint. But 615 00:37:57,090 --> 00:37:58,230 you got to look at, 616 00:37:58,290 --> 00:38:01,920 like Sheldon mentioned about the franchise and having the right leases, 617 00:38:02,250 --> 00:38:05,550 you got to have the right buy sell agreement and you got to have someone who is 618 00:38:05,550 --> 00:38:07,200 knowledgeable enough that can say, 619 00:38:07,200 --> 00:38:10,680 these are the 40 different examples that you need to factor in to your 620 00:38:10,680 --> 00:38:14,100 situation. And then that buy sell agreement, John, 621 00:38:14,100 --> 00:38:15,960 I know John's talked about this before, 622 00:38:16,140 --> 00:38:18,810 that needs to be updated every year or two because the companies, 623 00:38:20,010 --> 00:38:23,910 the value changes, people change, whatever the case may be, 624 00:38:23,910 --> 00:38:24,990 it's not the same company. 625 00:38:24,990 --> 00:38:28,950 So if you had a formula and then that formula may not apply because the business 626 00:38:28,950 --> 00:38:32,790 world has changed. So I mean, it's all part of this whole process. 627 00:38:34,140 --> 00:38:35,650 So I think you have 11 or 12 now. 628 00:38:37,150 --> 00:38:41,440 Well, I put buy sell agreements in with estate planning and asset protection. 629 00:38:41,530 --> 00:38:43,510 Kind of stuff. That one in there, look, 630 00:38:43,510 --> 00:38:46,960 personal budget is a great one to end on. This is a big issue. 631 00:38:47,260 --> 00:38:48,790 It's making sure we're corralling, 632 00:38:49,090 --> 00:38:51,910 what are you spending and what do you really need for the rest of your life? 633 00:38:52,030 --> 00:38:56,950 What are you planning for your retirement and for your eventual exit out of 634 00:38:56,950 --> 00:38:59,740 this business. So I think it's great to be able to talk to that issue. 635 00:39:00,010 --> 00:39:00,670 And Harry, 636 00:39:00,670 --> 00:39:03,610 I'm really glad you mentioned working in the other advisors because really 637 00:39:03,730 --> 00:39:06,490 oftentimes most of these folks have multiple advisors, 638 00:39:06,490 --> 00:39:09,070 and you've got to be on the same page with those other advisors and make sure 639 00:39:09,070 --> 00:39:13,090 you're all working together for what's best for that client. 640 00:39:13,090 --> 00:39:15,160 And that's really important. So thank you for highlighting that.