The X’s & O’s
Selling a business is certainly no easy task and it is one of the most important decisions that a business owner will have to make. It’s imperative to find the correct plan for your situation, but many people fail to realize how many options are available to them. Brent, Matthew, and Joshua will break down the 8 ways you can sell your business and explain the pros and cons to each option.
Brent Pasqua, Matthew Theal and Joshua Winterswyk
Brent Pasqua: Welcome to the Retirement Plan Playbook. I’m Brent Pasqua, here with Matthew Theal and Joshua Winterswyk. Got the group all here. How are you guys doing?
Matthew Theal: I’m doing great, Brent. I’m really excited to record this podcast today.
Brent Pasqua: So, we’re on Episode 30, and today’s topic is the best strategies to sell your business. I just want to start by asking a question. Baseball just started, and basketball’s starting soon. What are your thoughts on sports right now?
Matthew Theal: You forgot hockey, man. Hockey starts on Saturday too.
Brent Pasqua: Hockey. Oh, sorry.
Matthew Theal: Yeah. So, sports are back. I’m loving life. My wife’s not that happy because we just watch baseball every night, and soon to be basketball and hockey, so the days of streaming Netflix are over in my household.
Joshua Winterswyk: I was not as excited for baseball this year, probably because of the COVID and everything that’s going on, but really excited for basketball to start up, just because the Lakers were paused at such a crucial time. They were doing so well right before the pause for this season, but excited. I’m in the same boat as you, Matt, too. My wife’s upset that sports are on the TV all day now, and all night, and I think she’s getting sick of it.
Brent Pasqua: I think there’s a lot of reasons why I’d be excited about sports. I mean, not only was it gone for so long, but then there’s these new styles of how we’re doing the season, so there’s so many unknowns. Basketball was… I still don’t quite understand it, but it sounds like it’s a tournament, and then hockey’s going to be, I think, a tournament. Right, Matt?
Matthew Theal: Yeah. I’m not quite sure what hockey’s doing. All I know is hockey has the smartest TV schedule. I think what they’re doing is they’re showing a game every three hours, so no games will compete against each other, which is kind of cool, so you could do a marathon.
Brent Pasqua: Right, and then baseball is just on an island always, and they can’t even get through one weekend with the team sweeping through COVID, so it seems like basketball, MLS, hockey, they’ve all done it the right way, and then there’s baseball.
Matthew Theal: Yeah.
Joshua Winterswyk: They always kind of do it in their own way. They can’t change for anybody. It’s that old traditional sport, I guess, huh?
Brent Pasqua: Yeah, but it’s fun to watch, and I’m glad it’s on TV, and so at least we have some sports starting up, and excited for what’s coming. Let’s start with the Hot Take Headlines. A question I have is, is the 60/40 traditional portfolio dead? It’s been talked about a lot lately. I’ve seen a lot of articles on it. Matt, let’s start with you. What’s your thoughts?
Matthew Theal: Brent, they wrote these articles in 2010, and the 60 portfolio has done really well since then, and the thing with the 60/40 portfolio is it’s really created to do two things. One, the 40, the bonds, is created to give you stability in retirement, create that income, and the 60, the stock, is for the growth. Unless you really think bonds are going to return negative for a 10-year period, then no, the 60/40 portfolio is not dead. It’s still alive and kicking, and during the selloff it only dropped by 20%. So, no, it’s still kicking. It’s still the best portfolio for retirees.
Joshua Winterswyk: I think it’s just easy to say with bond yields being so low. That’s where a lot of the headline’s driving from, is bond yields are very low. They’re predicted to be low going forward, but again, with portfolio, we’re not just only thinking about the short term, and we’ve seen the track record of the 60/40 portfolio. 82% of the time it’s had positive rates of return. So, looking at it just in a very small timeframe, I think it is easy to say that it’s dead, but I think I’m with you, Matt. I don’t think the 60 portfolio is dead. I think it does serve a great purpose. It has one of the best track records over the last 50 years, and I think it’s still a really great tool for investors for not only now, but the future in retirement.
Brent Pasqua: You guys can correct me if I’m wrong, but part of this is being led by some of the analysts predicting that stocks over the next 10 years aren’t going to do as well as stocks have done during previous decades, which means that with bonds rates being so low, and potentially stocks not doing so well over the next decade, that expected rates of return are going to drop to a level that’s so minimal that that could impact… Let’s say if you had a portfolio, you retired and are taking a 4% withdraw rate. That could actually affect how long your money lasts. So, do you believe that some of those predictions over the next decade, that stocks would actually be or have slower expected rates of return? Because we know bonds are a different environment.
Matthew Theal: I mean, that could be true. We could get lower expected returns from stocks, and it might be a little bit more difficult for retirees to get that income, but the 4% withdrawal rate, take your money and times it by 25, so 25 years of retirement, that’s 4%. You don’t have to earn any interest.
Brent Pasqua: Yeah.
Matthew Theal: So, I don’t know. I feel like a lot of times they do this to get clicks or sell products.
Joshua Winterswyk: Yeah. One of the articles I was reading on the 60/40 portfolio being dead had an estimated stock rate of return of 4.2 over the next 30 years.
Matthew Theal: Gosh.
Joshua Winterswyk: Come on, guys.
Brent Pasqua: Yeah. It’s interesting to see these predictions. I mean, predictions, as we’ve been dealing with sort of this year, people will write and say just about anything to get some extra clicks or to get notice, so this may be another one I don’t believe either that 60/40 is dead. I understand the concept behind it and what people are saying, but I don’t think these predictions are generally that accurate. Let’s move on. So, demand for guns is currently off the charts, especially with first-time buyers. What’s your take right now on the push for guns? Josh, let’s start with you.
Joshua Winterswyk: It makes sense. I think that’s my take. Again, with headlines and kind of the public’s outreach about defunding the police and people just feeling unsafe, I think that the demand for guns just makes sense, and that’s my take on it. I think that there are a lot of first-time gun owners too that are purchasing guns and going through those background checks. I think the FBI had a record 3.9 million background checks in the month of June. It’s the largest number since 1998. So, it is kind of alarming that so many people are going out and purchasing guns, but I think that it makes sense for kind of the times that we’re in and people feeling unsecure.
Matthew Theal: Yeah, I agree. Follow the money. People are scared, and this should tell you that people aren’t happy with the political climate we’re in today. No matter what fence you’re on now, the one thing we want is safety, and guns can provide that, so we don’t like seeing unrest.
Brent Pasqua: Yeah. People fear isolation. We’ve just been put into a time where we’ve been isolated, and in the beginning of the pandemic people started hoarding food. I remember going to the store. I had to go grab something that… I think it was on March 14th. It’s right after that Wednesday that shut down basketball, and I remember going to the store because I had to get some cough syrup for my daughter, and I went in there, and each line was at least 25 people deep with baskets just full of just stuff, and I couldn’t believe what I was seeing.
Brent Pasqua: I started to wonder one night, what happens if there was so much scarce food that people just started robbing your houses to take food? I mean, could that ever even be possible? One thing I heard on another podcast too, what I thought was interesting, is what happens if this virus had a fatality rate of 10%? Would police show up to work? Would store people show up? Would the military be able to stay structured? I mean, that leads into a lot of other things. Now, I’m not big on conspiracy, but I could understand why people start to have these fears nowadays.
Joshua Winterswyk: Yeah. There’s just so much uncertainty and so much unknown that drives that fear.
Brent Pasqua: Last one. Have either of you ever heard of GPT-3?
Matthew Theal: I hope we’re saying that right, because we’re not tech guys. Let’s put that out there right now.
Joshua Winterswyk: I guess I’ll start here. I didn’t hear about this until, Matt, you came up with this headline for the show today, and I had no idea what that was until I Googled it and did some research on my own. So, my take on this is before this podcast, I had no idea what GPT-3 was.
Matthew Theal: It’s bananas, isn’t it?
Brent Pasqua: Yeah, because I didn’t know what it was either, and once I started watching some of the videos on it, it’s pretty interesting. So, maybe let’s have you describe it, because I don’t even know if I could describe it correctly.
Matthew Theal: I’m not even technical, but I’ll take a shot. A bunch of smart people, I believe Elon Musk is involved, have created this software language called OpenAI, and this GPT-3 I think is some kind of generator where you tell the software what you want it to do, and it does it for you. For example, if I said, “Teach me how to paint a flower,” I’ve seen online where it comes out with step-by-step instructions on how to paint a flower. If I put a paragraph in and say, “Turn this into legal speak,” like how a lawyer would write, it could turn it into a legal language.
Brent Pasqua: Right, and you could have something like you could have a topic on a book that you want to write, and you just write up some of the basic topics, and it could basically write a whole book for you.
Matthew Theal: Yeah, exactly. It’s insane.
Joshua Winterswyk: I thought that was really fascinating, because it continues to adapt on its own. A lot of the artificial intelligence, we have to continue to train it, but it’s constantly adapting to your own language and its language. I thought that was kind of crazy when I read that. I don’t know if I explained that perfectly, but-
Brent Pasqua: But you could see how it could really change business, and even podcasts, because if, let’s say, you wanted to do a topic, you put the topic and the contents in there, it could literally produce maybe a voice-animated podcast for you.
Matthew Theal: Oh, yeah. Absolutely. Then to go back to the 60/40 real quick, stuff like that is why I think you should be bullish on stocks, man. They’re literally creating software that does the most rudimentary jobs, and now it’s starting to do the most detailed and hard jobs. Wait until companies get ahold of this. Wait until more smart people get this into their hands, and then imagine what they’re going to create.
Joshua Winterswyk: Yeah, absolutely.
Brent Pasqua: I mean, to be able just to create business memos and emails and things like that where you could write some of just the basic stuff, what you need, and it puts the descriptions in there, that’s pretty fascinating, to think of what they could possibly do with this. I know it sounds like there’s been a lot of advancements, but it seems like there’s a lot still that needs to be done, but it sounds like it’s taking off, though.
Matthew Theal: The next 10 years are going to be pretty wild on this AI software front, for sure.
Brent Pasqua: All right. Let’s get into the Retirement Planning Corner. This topic today is a little bit different than our traditional retirement planning topics. We’re going to be talking about the best strategies to use to sell your business, and there’s really actually only eight different ways that you can transfer or sell your business. Today we’re going to go through all eight different ways, and some of the reasons why people would choose those ways to sell their business, and it’s pretty fascinating if you start to think about as you’ve built your business up, what are the ways that you can actually exit that business and extract the value of that business out of it, but also in a way that is keeping your dream alive in the way that you’ve wanted to, either sell it and walk away or walk away from it.
Brent Pasqua: So, let’s talk about option number one. The first and one of the most common ways to sell your business is to transfer the company to a family member, and that could be a child, a cousin, a niece and nephew, some type of person within your family that has been working in the business, who’s become a key employee, and you now want to transition that business to that key employee, and sometimes I think business owners will make promises to that family member working in there, that they want to transfer or sell the business to them. They don’t technically usually know how to do it, but if you have a son or a daughter, that’s a very emotional, passionate thing, that you may want to sell your business to that family member to keep your vision alive. What are some reasons, Matthew, why people will sell their business to a family member?
Matthew Theal: So, I have four reasons. Number one is, and you kind of said it, is they’re going to want to keep the business in the family. Sometimes it’s an ego thing, but then sometimes it’s also like, “Hey, I built this up over the last 30 years. My son or daughter has been involved. They’ve helped a lot over the last 10 years, and now I’m ready to retire. I want to transition it to them.” So, it keeps it in the family, and then you could pass it on from generation to generation, and then it becomes something that Grandpa created.
Matthew Theal: Next thing is a lot of parents want to take care of their kids, maybe son, daughter are 25, 30, 35 years old, they’re struggling through their career. Well, learning the family business could be a good way to transition it to them. Then if you’ve built a good company culture and a good mission, this is a very easy way to keep that going, and if you do still want to be involved in the company or have some kind of input, selling to your family members or your kids is a great way to do that. You could stay on the board, maybe. You could talk about it at Christmas. It’s a good strategy, very popular.
Brent Pasqua: Yeah, and a lot of people, I’m sure, feel very passionate about their son or daughter working inside of their business, and they want to keep that family business going. Not everybody’s just ready to retire at that moment. It does allow them to stay in the business or slightly watch over it as the son, daughter, or family member has taken over. Correct?
Matthew Theal: Yes, absolutely.
Brent Pasqua: The second way to sell your business is to sell your business to one or more key employees. A key employee is generally somebody who has substantially contributed to the success of the business, knows the business well, goes above and beyond expectations of the business, and at times, a business owner may have had these conversations with the key employee, that they are one day going to sell them or offer them shares of the business. Generally, a lot of times a business owner also knows that this key employee can successfully run the business because they know so much about it. Beyond the owner retiring, what are, Josh, some of the other reasons why a business owner would sell to a key employee?
Joshua Winterswyk: The selling to a key employee is very similar to selling to a family member. They just don’t have that relation. It’s selling it to someone that’s already inside the company, that’s already part of the entity, and so you’re selling it to that known party, which is the key employee. So, a lot of the same reasons, like continuing the same mission and culture that that business has already built, keeping that business in that community with the same infrastructure that it’s already had, and again, with this strategy, as well as selling to a key employee, and this is very common when someone doesn’t have maybe a family member to transfer it to as well, but the owner can remain involved with the business. So, if an owner, again, wants to see and reduce his risk after his exit by staying involved, with this strategy he can do that while maintaining everything he’s built and transferring it to someone that he knows, for the most part likes and trusts at the same time. It can be a very good strategy for an owner to exit the business.
Brent Pasqua: Yeah. If you’re a business owner and you’re thinking about, yes, my desire would be to sell my business to my key employee or key employees or my family member, but they don’t have the money, is that a reason for them not to make this a consideration?
Joshua Winterswyk: No, not at all.
Brent Pasqua: So, the concern that a lot of business owners have when they’re looking at possibly selling the business to a family member or a key employee is that they’re not going to be able to have the money to sustain it or to buy the business. That should not be the reason that you don’t sell it to a key employee or to an owner. There are ways to structure the deal, that you’re using the positive cash flow from the business to be able to transfer it and sell it to a family member or to an owner that is very successful. The business has to be able to have positive cash flow and to be able to sustain it and run it, and it has to be able to continue on.
Brent Pasqua: So, if you have a strong, structured business, just because a key employee or the family member doesn’t have the money to buy it doesn’t mean that that cannot successfully take place and the business owner cannot extract their money from the business. So, don’t make that a hurdle, because that hurdle can be overcome. The third option on selling your business is to sell your business to employees using an ESOP plan, or also known as an employee stock option plan. Matt, tell us a little bit about employee stock options.
Matthew Theal: Yeah. So, an ESOP plan is actually a qualified retirement plan. It’s very typical to a profit sharing plan, or you could even think of it kind of like a 401(k), and all the employees would participate and get ownership in the company. There’s probably four reason why you’d want to do this. One, again, you’re transferring it to a known entity. You’re transferring it to those employees. Your key employees are going to get to participate, but so are also your lower-level employees, so they get benefits in the company as well. You’re going to continue that mission, that culture, and keep that community, everything you bought, and you might even get more stay from your employees because they have a little stake in the game now, and some outlier benefits are you’re going to get tax treatment for doing this.
Matthew Theal: As the owner, you’re going to get your cash in your pocket much sooner, and like I was saying, it’s going to motivate those workers. It’s going to motivate the employees to stay, to invest, and to hopefully get paid out by the company. The one negative, though, I will say, is these can be costly strategies, and also kind of complex, and it’s difficult to understand these fully. There’s a lot of different parties involved. So, I feel like quite a few owners shy away from this strategy usually.
Brent Pasqua: Right, and the company has to be larger in size, generally. Is that correct?
Matthew Theal: Yeah, because you’re going to need the employees to be able to suck up the size of the stock.
Brent Pasqua: Right, and if this does fit for a larger-size business, I think a huge benefit is the fact that the company and the employees share in the profits. So, employees are more motivated to work hard, to grow the value of the business, because they’re an owner of the business. Correct?
Matthew Theal: Yep. Yeah. So, they’re going to get their stock, exactly, and the stock is the ownership.
Brent Pasqua: Yeah. Very interesting. I think it’s a complex way of planning. It’s a complex way of doing it, but for businesses that make sense, it’s very helpful to the long-term growth and selling strategy of the business. Josh, number four is to sell to one or more co-owners. Tell us a little bit why someone would want to sell to their co-owner, and why that could be very helpful.
Joshua Winterswyk: So, selling to one or more co-owners, just a common example is originally you start your business with a partner, multiple partners. It could be a family member or a friend, or just someone you did business with, and the ownership stake in the company is divided, so it could be 50/50. It could be a third of you guys each, and maybe you want to exit, but the other two owners do not, so you might just be a little bit older than the other two owners, you have different vision or different ideas about the future, and you’re looking to exit the business, and that’s another common strategy, that I’m going to sell my ownership to the remaining owners of the company.
Joshua Winterswyk: The reasons people do this, again, this is very similar to the key employee, selling to the key employee and selling to family members. It’s selling it to someone you already know, someone that you understand has that same commitment, has those same skill levels and that knowledge within the business, and you know them, you have some trust built already, and then that company can continue that culture, that mission, maintaining the community as well. Another reason or benefit that selling to one or more co-owners too is the gradual incremental sales stages over seven years, a seven-year offer for the owner.
Joshua Winterswyk: So, you could actually stage this really over multiple years of exiting the business, and plan for this, and it can be in incremental payments over a certain amount of time. So, that might even be attractive, like, “I have a goal of exiting in 10 years. Let’s start working on this now, and I can get paid out in gradual steps over time,” which can be beneficial to the business and the person that’s exiting as well, and you can continue to actually remain in the business while you’re having that distribution or that sale pushed out to you. So, a lot of benefits there too, and this is pretty common, especially with businesses that have multiple owners or partners.
Brent Pasqua: Yeah. I think what makes sense here is if you’re a multi-owner business and one business owner is older than the other or that other business owner, then there’s really no other better person to buy their shares of the exiting owner’s business shares than the other co-owner because they already own the shares, they already know the business, they could do a deal over a long period of time, and they can extract the cash from the business over a period of time, and that’s very helpful. I mean, I know there’s key hurdles there, like price, for example, on what the shares are going to be actually worth, but those are all hurdles that are easy to get over, but that seems like a very good option when selling a business, and when you’re ready to exit and have multiple owners.
Joshua Winterswyk: Yeah, absolutely.
Brent Pasqua: The fifth way to sell your business is sell to an outside third party. Give us an example, Matt, and some reasons why you’d want to sell to an outside third party.
Matthew Theal: Yeah. So, this is the country club one, where you’re at the country club and you hear someone bragging, “Oh, I sold my business.” They’re usually doing it because people don’t brag about selling to their business to their kids or anything like that, so-
Joshua Winterswyk: For their key employee?
Matthew Theal: Yeah. No one’s really bragging about that, but this is the one where the guy at the country club bar, you overhear him, “Oh, I sold my business for 20 million,” and what’s happening is usually it’s some kind of private equity company coming in and purchasing the business. They might do a roll-up strategy. So, an example would be they buy eye care facilities, so they go around and buy small eye care facilities, solo shops, and they put it under one big national umbrella. The reasons are pretty straightforward as a business owner as to why you’d want to do this. You’re most likely going to get maximum value for your shares, so that means you’re going to get the most amount of cash in your pocket right away, and you could choose your departure date. It’s your business. You get to pick when you sell it. I feel like most people come to us and say, “Hey, I want to do an outside third-party sale,” and it’s probably because they’ve heard about it from someone they’ve come across throughout their career.
Joshua Winterswyk: Right, and I think a lot of businesses see this as the only option to sell their business. They see that this is primary option number one, to sell it to a third party. Correct?
Matthew Theal: Yeah, that’s a great point, and they don’t understand how the other ways could work.
Brent Pasqua: Right, and I think a survey study that was done said that 60% of all business owners prefer not to sell it as a third party, though, because of the other reasons why you listed it as a benefit to selling it to a family member or to a key employee or to another co-owner, to keep the vision, the culture, everything alive. Not very many business owners just want to sell their whole vision and culture that they’ve created to what they think is just a big conglomerate that’s going to change their culture.
Matthew Theal: Yeah.
Joshua Winterswyk: They worked so hard their whole life to build this business, and you’ve created, which is most likely like your baby, you’ve watched it grow, and now it’s finally blossomed, and you’re at a point where you’re actually in a position to sell and move on to that next step, but you don’t want to see it torn down to the ground. So, I think that that’s probably where that statistic comes from a lot, and I also feel like just the media and society says when you sell your business, it’s being sold completely to someone else. Just naturally, that thought is generated just within our society, that when you exit your business, you’re selling it to another business in your industry, or like Matt said, a private equity to get that big payday and that big paycheck and have that departure date set. So, I think that mentality is kind of just built over time in our society.
Brent Pasqua: Yeah, and I think with an internal sale versus an external third-party sale, the difference between the owner being at work one day and then completely retired the next versus an internal sale where maybe the owner still has his feet in the door, is still overseeing it, like you said, on the board and things like that, a business owner… Every business owner, I’m sure, has some kind of goals or desires of what they want to do in their next step. Third-party sale is almost like transaction check, and then they’re departing, so not always really the best option. There’s a lot of options, but third-party sale is the most thought-out decisions in terms of that’s what most people think they’re going to do. Option number six of the eight ways to sell your business is to engage in an initial public offering, or also known as an IPO. An example of a more recent one would be Uber going public. Let’s talk a little bit about this, Josh, and what are some of the reasons that people do an IPO, and are these very common?
Joshua Winterswyk: Yeah, not very common at all. I mean, there’s a lot of variables that go into a company actually exiting or leaving the business through an IPO offering, so this rarely, rarely occurs. It needs a very, very high valuation, and there’s cash infusion into the business with an IPO. You’re raising cash to come into the business, and some of the disadvantages of doing that is there’s a lot of loss of control you’re having now, being the owner. Now it’s going to initial public offering. Now this is a public company where you have shareholders, you have this fiduciary responsibility, this additional reporting, so it’s definitely not as common. It rarely occurs, and especially compared to the other options we just gave, and there’s just a lot that goes into an IPO, and there’s really no exit. So, if we’re talking about exiting at closing, yes, there might be a cash influx and some sort of a payday if everything goes well, but there’s not a departure date or an exit at the closing of the IPO, so definitely some disadvantages there, and a lot to think about if someone’s thinking about an IPO offering.
Brent Pasqua: Matt, do you know how expensive it is to do an IPO? Have you ever researched into that?
Matthew Theal: Yeah, it’s pretty expensive. I don’t know the numbers off the top of my head, but it’s actually so expensive, that’s why the tech unicorns don’t like coming public, and then you’re also subject to all the SEC reporting, so it really takes the fun away from being a business owner. You have to report to the SEC. One thing that’s coming on the market, and maybe we’ll do a separate pod another day, but it’s SPACs, so that’s a special acquisition co, and that’s a little bit different of a way to actually go public instead of going through the IPO process. It’s getting very popular right now. A couple companies you may have heard of that have done it is Richard Branson’s, the Virgin space company. I think it’s called Virgin Galactic. They did a SPAC. DraftKings did a SPAC, and they’re really, really popular strategies right now to come public because it is a little cheaper than doing the IPO process.
Brent Pasqua: Generally, a company’s pretty large if they’re going through the IPO process. Right?
Matthew Theal: Yeah. I mean, there are some cases where you get under $200 million businesses, but for the most part we’re talking about companies with billing and valuations. I think when Uber came public, I believe it was valued at over 100 billion, but I could be wrong.
Brent Pasqua: Option number seven would be to retain ownership and become a passive owner. Why would somebody really want to do this, and what are some of the reasons people do this?
Matthew Theal: I honestly don’t like this strategy. So, an example would be you’re a business owner, and essentially, you’re going to keep all your shares, and you’re going to put somebody else in charge, but in a way, you’re not going to give them a ton of skin in the game, and you’re going to gradually become less active in the business. That’s great, but I don’t think you built your business by now showing up every day. So, this is one for me I don’t think is really good for owners to consider, but some of the benefits is you could maintain control. You’ll keep your income high because you’re still going to own shares in the business. If the person in charge who is running the show for you is good, then your shares will appreciate over time, but to me, I’m not a big fan of this one.
Brent Pasqua: This is sort of, Josh, like becoming a silent owner. Correct?
Joshua Winterswyk: Yeah. Yeah, it is, and I feel like this exit is more of an exit without a real plan. You could really plan this out, but I think that instead of decreasing risk, it could raise just so many more risks, like Matt said, not being there every day, not running like you normally run it. So, I think that the idea of saying, “We’re going to minimize risk by me still being a passive owner,” I think that potentially, there could be a lot of risk that’s involved with that strategy, which makes me not like it as much, and you being a passive owner, or even going completely silent, again, just not a lot of upside that I like about this strategy. More risk involved.
Brent Pasqua: So, I guess one of the risks that I was thinking too that could really happen is let’s say that you’re a silent owner, you’re not there every day, you’re just taking shareholder profits at the end of the year, your business slowly starts to diminish, you can’t really get back in the business to build it back up again, and the value of your business just disintegrated over a two-or-three-year period, so now you can’t even sell it for what you could’ve sold it in year one. Now you’re selling it at a major discount of what it once was worth before you left, and you thought you were doing a good thing because you still got your shareholder distributions, but the business value just completely just dropped.
Joshua Winterswyk: It’s hard to evaluate the effect it has on your employees, right?
Brent Pasqua: Sure.
Joshua Winterswyk: Your managers, your employees, how do you really evaluate that when you’re no longer actively in the business every day? How does that affect the value and the projection of the business going forward too?
Brent Pasqua: Right, and then you’d worry about your employees leaving to competitors and things like that.
Joshua Winterswyk: Not being motivated.
Brent Pasqua: Yeah. See, I agree. I don’t think, Matt, like you said in the beginning, I don’t believe this is one of the best options of the eight, but it is an option out there. Number eight is isn’t, I think, a great option either, but it’s on the list. Number eight would be to liquidate. So, tell us a little bit about what liquidating your business might do for you.
Joshua Winterswyk: That’s simple. Just sell the assets. You’re selling all of the assets, and this is really common when… To give an example of when an owner would liquidate a business is a health event. There’s a traumatic health event where we have to quickly come up with the cash, some sort of cash value from the business that’s left. So, a health event is just what pops into my mind first, someone becomes very sick, and we have to liquidate the assets to pay for whatever is needed to be paid for at that time for the owner, because all of the equity is within the business, and also, really, the reason, just there’s no other real option for the owner at that point. So, if they’ve looked at all of those seven other options and they’re not obtainable, liquidate is that final strategy of we just have to sell the assets, and the business is no longer.
Matthew Theal: It’s a strategy-
Brent Pasqua: Yeah, I… Sorry go ahead.
Matthew Theal: I was going to say, it’s a strategy for people who don’t have a business that’s very valuable, or their assets are probably slightly more valuable than their business is worth.
Brent Pasqua: Yeah. The one thing that it makes me think of too, and no business really is built up just so one day they could just liquidate the assets that they’ve purchased, and unfortunately, it is one of those ways that a business gets sold. If the business owner, let’s say, passes away, and the spouse doesn’t really know how to run a business, and there’s not enough key employees that can sustain and run the business, and key employees start to leave, liquidating your business becomes really the only option. I’ve heard and seen this happen a few different times just throughout things that I’ve read, of businesses that had to liquidate because of somebody passes away, and that is a very traumatic… I mean, you build a business up to have such a, hopefully, decent worth or value, and then you’re having to just have the spouse sell it and liquidate it just because there’s a health event like this. It’s an option that usually it has to be done where there’s not proper planning in place. Would you agree?
Matthew Theal: Yes.
Joshua Winterswyk: Yeah. When you were saying that, that’s what I was thinking, that there was no plan in place, and we waited too long.
Matthew Theal: Yeah.
Brent Pasqua: Yeah, liquidate should not be the best option. I think the options of doing an internal sale or an external sale to a third party make the most sense, but like I said in the beginning, don’t make money the issue of the reason you select the option the way you do to sell your business. There’s lots of ways to make these options work by just structuring the business correctly and having a plan going into the sales process. We work with a lot of clients on selling the business and creating these strategies, and they work. They’ve worked for time and time again. They work, and there’s ways to sell your business that way. RPA Recommends, one of my favorite parts of the show, Josh, I remember on the last show you had something for us. It was a continuation of mine. Are you doing that one today or do you got something-
Joshua Winterswyk: Yeah, yeah, yeah. I was ready for you and the recommendations today. So, last time, just to refresh, if no one listened to the last podcast that’s listening to this Recommends, Brent said that he recommends looking up discount codes when he’s shopping online because he’s just saved a lot of money. Well, I found a really good tool for you, Brent, that I’ve been using. This is my Recommends. It’s called Honey, and it’s an extension in your internet browser. So, you download it, and what it does is when you’re checking out, let’s say you’re at nike.com, and you’re checking out with the stuff in your bag, and you hit little Honey browser extension that you can download for free, it runs all of the discount codes that users have put into the database to see if one’s applicable to the items that are in your cart. So, I’ve used it a ton. I was actually trying to look right now to see if I could find how much money I’ve saved using it, but I don’t think it tells you that, but it’s totally… Go ahead.
Brent Pasqua: So, wait. So, you don’t have to sit there and Google search discount codes like I do for 20 minutes to find a discount code to save me $5 or $10 or $15? You could just have the app do it for you?
Joshua Winterswyk: Yeah. So, you’re using the technology. So, what’s cool is users are putting discount codes frequently into the database, and so let’s say it’s going to give you seven different discount codes to try to find the lowest price whenever you’re checking out online. So, it takes the hassle of you having to Google search the discount codes out of it. So, I really like it. You should definitely try it, and on the next podcast, give us an update to see if you like it, but it’s worked out for me well.
Brent Pasqua: See, this is just the difference between your technology skills and mine. See, it took the concept of being able to want to use a coupon code to save money, but I would spend 20 minutes of trying to find the code to do it. Now your generation just knows how to pull up an app that can do it for you in 30 seconds, and then you don’t have to search the entire time.
Joshua Winterswyk: I just hope that you don’t wait two years to actually download it like you waited two years to use the recommendation of searching discount codes.
Brent Pasqua: Yeah.
Joshua Winterswyk: So, just download that sooner than later, and then it’ll all be good.
Brent Pasqua: No, I’m on this. I’m all about saving money on these websites now. Matthew, what do you have for us?
Matthew Theal: Well, I was recently hit with some pretty unfortunate news, went to the doctor and got a bad health score. Since quarantine, blood pressure’s just spiked like crazy, probably dealing with a little of that quarantine stress, weight up about 20, 25 pounds. So, I had to make some life changes, and so I started doing the at-home workouts a little bit more and a little harder. The company I’ll recommend today is checking out Obè Fitness, O-B-E Fitness. They have streaming workout courses from New York City’s top instructors. You get a free trial for a month. That’s what I’m on right now. But in general, my recommendation is to make sure you’re keeping your fitness up during quarantine. Don’t pack on the pounds. Don’t get the blood pressure going like I did. Good news is I started this two-and-a-half weeks ago. I’m down about 15 pounds, so-
Joshua Winterswyk: Wow. Nice job, man.
Matthew Theal: … that’s pretty good, but yeah, I was getting pretty large for a while. Let’s just say that.
Brent Pasqua: And you’re a pretty fit guy.
Matthew Theal: Yeah. It happens fast. I mean, don’t sleep on your health right now. I know people don’t want to go to the doctor’s, but go to the doctor’s, get checked out, get your fitness up. Yeah. That’s my Recommends.
Brent Pasqua: I’ve been telling people that also, not about just keeping their fitness up, but also that working out at home wasn’t what it was five years ago and 10 years ago. I mean, not only has Peloton changed everything, but now you have the mirror, you have that, you have in-home workouts. You have so many different options, you don’t need a bunch of equipment. You don’t have to think about needing a bunch of space to have to store a bunch of equipment. You could literally do this in front of your TV, and a lot of these, you don’t even need weights.
Matthew Theal: Yeah. I can’t even get weights, so I don’t have them.
Brent Pasqua: Yep.
Matthew Theal: But pretty cool. If you do five classes in your first week, they send you a free resistance band, so I’ve got a resistance band now.
Brent Pasqua: Oh, great.
Matthew Theal: Yeah.
Brent Pasqua: So, you’re lasting longer than the 30-day trial then?
Matthew Theal: I don’t know. I’m still there. We’ll see how it goes.
Joshua Winterswyk: So, wait. Golf’s not an exercise then? Golf wasn’t working for the only exercise of the week?
Matthew Theal: No, it wasn’t. Unfortunately, if you have a couple beers before or after your golf game and you get out there, that increases your weight, and even my attempts to speed it up by playing ready golf just haven’t quite got the heart rate where it needed to be.
Joshua Winterswyk: Yeah, you definitely play ready golf.
Brent Pasqua: So, your WHOOP band is helping keeping you in shape then too, right?
Matthew Theal: Yeah, and actually, my WHOOP band is telling me… I learned that even when I thought I was working out hard, I wasn’t nearly working out hard enough, and the other thing that it’s helped with is telling me when I need to pare back my workout and not go as hard so my body can recover.
Brent Pasqua: Interesting. Very interesting. Yeah, I think that’s a great Recommends. I love it. It’s great for quarantine time right now. So, yeah, if people work out, it’s healthy, it’s helpful. It doesn’t have to be what it used to be. My RPA Recommends is going to go on the side of… I’ll piggyback something similar to yours. It doesn’t have to do with working out. It has to do with eating, and one of the things, as you guys know, and I’ve talked about it on the show, that I’ve been taking up cooking a little bit more. Since we’ve been in quarantine, there’s no restaurants, there’s no going out. It’s just basic cooking, so we want to cook good meals.
Brent Pasqua: Well, one thing that I always did was overcook any of the meats or fish or anything that I ever cook, I was always overcooking it because I was scared I was going to undercook it, serve my family raw food, and everyone gets sick. Well, I’ve been watching people use these meat thermometers where they’re able to put the thermometer on the inside of the stove while the food cooks. You stick it in your chicken, or you stick it in your meat or fish, and then the little machine sits on the outside of your oven or on your counter, and then it just beeps once your food reaches the desired temperature, the temperature that you want it to be fully-cooked.
Brent Pasqua: So, now you’re not having to open and close the door, let the heat in and out. Now you’re not having to go check it every 10 or 15 or 20 minutes. You just leave the meat thermometer on the counter, and it will tell you when the food is done. Game-changing for us. Our chicken is coming out perfect. Our fish isn’t being overcooked. They’re not very expensive. I think you can get them for $30 off Amazon, but they have the two probes that go from the little monitor into the oven. You could leave it in there when the food is cooking, which is really crazy because you didn’t think that wires could run into the oven, but it works perfectly fine, and a lot of people use them for barbecues now. Right, Josh?
Joshua Winterswyk: Yes.
Brent Pasqua: and all that?
Joshua Winterswyk: Yeah. Yeah, they’re real popular, especially when you’re smoking meat for a long time, but I don’t have one. That’s a good Recommends because I’ve been debating whether to get one-
Brent Pasqua: Yeah, you should just get one.
Joshua Winterswyk: … a thermometer, and just to try it out. So, you’ll have to send me the link to the one you got, Brent, if you like it.
Brent Pasqua: Absolutely. Yeah, and I think if you cook fish just slightly over the temperature, it just comes out dry, so by hitting that perfect temperature it just makes your food come out great, so it’s really helped us up our skills in the kitchen. We thank you for listening to Retirement Plan Playbook. If you have any questions or want to know more about our show, please visit us at retirementplanplaybook.com. Please rate us at wherever you’re downloading the podcast at. We thank you, and we’ll see you next show. Bye-bye.
Matthew Theal: Bye, guys.
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