Marshall Rowe, Jim Fitts and John Weeks: Episode 290

Transcript

[0:00:27] RW: Hi, everyone. It’s Rae Williams, host of Author Hour, where I interview authors about their new books. We have not one, not two, but three awesome gentleman chatting with us today. They are the authors of Your Next Adventure which shows us how to take your business from pre-sale to post sale by planning ahead, assembling the right professional advisors and also incorporate your values, legacy and love ones into every choice you make. They are Marshall Rowe, James Fitts, and John Weeks and here is our amazing conversation.

[0:01:01] MR: What I’ve seen throughout my career working with business owners is that their passion and their energy for life is really being sparked through their business and watching those business owners try and figure out the transition from owning and running a business to the next successful and purposeful part of life has always been a real challenge. We wanted to look back and collectively think through, what could we offer business owners that might help them more successfully and easily move through that transition?

[0:01:43] JF: This is Jim, we took on a client back in 2008, actually, at the exact moment of the sale of his business, we speak about it briefly in the book. We hand no chance to develop a relationship with the client ahead of time or do any planning. Without any plan of what waited him. He fell into a pattern of watching his portfolio change value literally on a minute by minute basis for ours very day and it is what we call hibernation. He had no purpose or any other interest that he had developed or allowed himself to develop when he was in the state. It kind of fell into a funk and we constantly struggled with how we could help him. It’s clear to me that not only could we help people like him by starting, planning early but it was almost, you know, malpractice for us not to try to help our clients in this way.

[0:02:42] JW: This is John, I would say I came to the point of participating and writing this book really through my lifetime and really gathering information throughout my life that contributed to what went into this book and that included growing up in a family business and a business that my grandmother started, my father ended up taking over and running, had other family members in there and then my career started out working with business owners on growing the value of their business. The transition in my career over to help being business owners after they’ve realized the value of business that they’ve built up over time. All on the way, the owner with these business owner, I’d keep going back to the life that my father has lived both in the family business and then afterwards and while he would say he wouldn’t do all of it the same over again, he did so much of it right. When we started talking about writing a book and what could go into it and as we talked about building out the chapters and everything. I just kept going back to my dad and say that he was really the inspiration for me to want to write a book like this and really was a great example that I kept going back to as we wrote the book,

[0:03:59] RW: All right, what is the actionable unique idea of this book? What are we tackling, what are talking about, what are we dealing with?

[0:04:07] JW: I think the first or one of the first elements of the book is to recognize as a business owner that this transition process goes beyond just the business owner. It involves his spouse or her spouse, it involve the whole family, it involves the employees of the business, it involves the community in which the business resides. The transition is going to have a major impact on the business owner and his family. Just recognizing that will be really helpful in thinking about how will we approach this process.

[0:04:48] JF: This is Jim, following up on that, what we have found is how important communication is within the family and we spent a lot of time this book talking about how to bridge the gap between the generations and even between spouses as communication around the sale of the business. Business owners frequently are by definition successful, they’re the decision makers, sometimes they make decisions without incorporating their family. When you sell a business, the relationships within the family change. Communication is a foundation of how you can make that change successful. I think a central plate of orb looking and our thesis here is to help business owners understand how important communication is and would give them a lot of tips and ideas on how to do that effectively.

[0:05:43] JW: This is John, another key message and theme that runs throughout this is that all of this – all the things that we cover in this book are not discussed enough in enough detail and in many cases are forgotten until well after the transaction. The way that we talk about it is in terms of we want to work with the business owner and their family on helping them to get through the transition of their business ownership. Many advisors out there and these advisors tell us that this is the case, they’re dealing with the business and getting the business through that transition and transaction. There isn’t anyone that is solely focusing on the business owner, the family, the dynamics, the technical aspects of it. Whether it’s legal or accounting, estate or otherwise but this is an unmet need out there and that we’re trying to address that by focusing our book on this topic and this business owner and his family.

[0:06:48] RW: All right, what is that first step that we can take when we’ve decided, okay, we’re going to sell our business and this transition period has to begin, what is that first thing that we can or should do?

[0:07:00] MR: This is Marshall. One of the first aspects of thinking about the transition of a business is clearly to start early but it’s to recognize a concept that we introduce in the book called the three clocks. When you’re thinking about selling a business, it’s very common and important to recognize that you need the business to be running well and to be showing good profit margins when you want to sell it. It’s also, that’s one of the clocks, the business clock. The second clock is the industry clock. You want your industry to be in an upswing and evaluations in the industry to be strong and business owners think about that frequently. The third clock is the one that business owners don’t think about but which they should and that is the personal and family clock. For successful business transition, all three of those clocks need to be aligned when it comes time to sell a business. When the industry evaluations are high, you want the business to be functioning well but most importantly, we truly believe that the family has to be prepared and ready for this transition and to prepare the family, it takes time, we introduce not only the concept of the three clocks but the premise of the transition minus five years. Meaning that that period of up to five years before the transition is when the business owner needs to start thinking about their family and their spouse and identifying how they’re going to think about life post transition.

[0:08:49] JF: This is Jim. Further on that is to be able to take a look at what life after the sale of the business really is going to be and up to this point, the business owner in the family have built their social structure and their relationships and their days and years around the business. When that goes away is going to be a void, and that void has to be filled with something. The temptation I think is for business owners to say, “Well, I’m going to be alive for 30 or 40 years after I sell the business, I’ve got plenty of time to figure that out“ and we feel that that’s a lost opportunity, is that if you spend some time thinking about that ahead of time, you develop a plan for the future and then you move to something as suppose to away from something. You have a goal that makes the transition and a willingness to sell the business that much more easy.

[0:09:42] JW: This is John. We’ve all being pretty consistent with the answers and along the lines of sort of taking the time to think about you as the business owner, what am I going to do after I go through this transition after I sell my business. So many of them get caught up in the transaction itself and just thinking about the business that it just keep putting it off. As you’re all doing here, emphasizing that think about yourself, you know? Don’t first think about the business and what do I got to do about the business. Think about yourself because if you’re not ready personally, all that other work may go by the boards because again, back to Marshall’s three clocks. The industry is ready, the business is ready but if you’re not ready, it’s not going to happen. Carve out that time, focus on what do I need to do to be ready along with the business clock and the industry clock.

[0:10:36] RW: All right. For one of you to answer, what is going to happen when people don’t do something with this information? What are some of the side effects that you’ve seen, what are some of the negative things that may come out of somebody not preparing properly for the transition of selling their business.

[0:10:54] JF: This is Jim. I eluded to it for one of the reasons that I decided that this book was something that we needed to write but there are several other examples. I think the most common example of what happens if you don’t plan is you go into a prolonged period of hibernation where you shut yourself of from society, from your friends, from your social network and you realize that you don’t have a clue as to what your purpose is in life anymore. As a business owner, you bring purpose to your life every day and you bring purpose to the business every day. You have employees that you care about, you have a community that you care about, you have a business to run, people know who you are and the community, you have social stature, your phone rings. That’s all part of being a successful business owner. When you’re no longer successful business owner, your phone stops ringing, the email inbox becomes empty and you are searching for purpose in life. This has had very detrimental effect in some cases. You know, full on detrimental effects. Now, that’s not the usual but it’s possible but there’s always a period of time over which you’re going to struggle. The business owner’s going to struggle and by extension, their family is going to struggle with what the new status is going to be. Sometimes it takes years for them to get their bearings and come out the other side with a family relationship that are strong and new purpose in life. It’s a shame to waste that and there can be, the longer that thing goes on, the more deter mental it could be to family and social relationships. Proper planning will help prevent that.

[0:12:50] MR: Another, this is Marshall, another impact of a transition of a business not only to the business owner but to his family are changed expectations. A spouse of a business owner will have built a life that has been influenced by the business and the relationships associated with the business and with the business ownership wolves behind the family, a number of things change and there may also be the recognition of family wealth. That was never really understood previous to a transaction and that perception of wealth can impact the children, the adult children of the business owner of the expectations from community members of contributing to various philanthropic causes. There are a wide array of impacts on the family and without understanding some of those potential impacts, preparing for them they can cause significant stress in the life of a family and we’re keenly aware of that. And I truly believe that with preparation it can be significantly transformed into opportunity and adventure rather than stress and challenge.

[0:14:05] JW: Another way that we see it manifest sometimes is they converted this operating company into liquid funds and that is what is going support them in this next adventure that they are on and many of them don’t have experience in managing a full capital like that and how it can support a lifestyle going forward and if they’ve got nothing else to focus their time on, they get overly focused on the ups and downs of the public markets, which is where probably most of this capital will be redeployed. And so they can watch TV every day and see the value of this pool that is going to support them go up and down and as we all know, there are stresses. There’s really good times in the market but there’s also difficult times and so to be so wrapped up in something that they are used to running their business and having what they feel is in control over what happens and how it happens and then to have this whole capital that they feel much less connected to. And they feel like they are going to have much less influence on, really starts to wear on them mentally and in their lifestyle and relationships and things like that. So it is another area where to find other interests, to look at other things that they want to be doing other than looking at their portfolio every day that also can be very beneficial to them just an ease of peace of mind and lifestyle standpoint.

[0:15:37] RW: All right, so I would love for you guys to share a few of your success stories if you can about some of the lessons in your book and how they’ve affected people’s lives.

[0:15:46] JF: This is Jim. We have worked with a variety of families and a fairly typical example that is true in many of our client relationships is parents have a real apprehension about the impact that the wealth is going to have in their children. Nothing is more personal than their children and this apprehension frequently gets in the way of effective wealth transfer that empowers the next general. They’re hesitant because they are not sure of the next generation’s ability to be effective stewards of the wealth. So many of the success stories we have involve multi-generations of families that we work with and not only are we working with the senior generation and the wealth creators generally but we work with the next generation, the rising generation to help educate them about the responsibilities that go with wealth and in doing so and it takes some time but in doing so, we find that the parents relax and become accepting of their children’s capabilities in this area. And start to embrace the opportunities to move wealth in various ways downstream to the next generation and this process all involves a lot of communication, which I will come back to and building those bridges between the generations. So we have found that in several of our families, we wind up with closer family units, better communication, strength and relationships and much more effective estate planning strategies frankly when we have the opportunity to work with both generations.

[0:17:24] MR: This is Marshall. I think an interesting family situation is one where the patriarch was very successful in building a medical business and he was fortunate and that three of his adult children chose to work in the business, the fourth child, a daughter choose to become a lawyer and when the time came for him to think about transitioning the business, his original plan was to identify one of the three children in the business to be his successor as the CEO. And he faced a number of challenges the first being that within the family there was originally the sense that the eldest son anticipated becoming the CEO but in fact that true family discussions, one of his daughters became the CEO of the medical business and the son played a different role in the family. He worked within the business and was very important but played a different family role but then when the question was, “Well, our daughter is not in the business how is she going to participate in this?” And originally the plan was that basically her participation would just ultimately in the future be some financial consideration but it was not well-defined and in this case, the communication within the family really involved the mother of the four children and the wife of the founder of the business and she felt that they needed to consider new avenues for participation for their daughter who is a lawyer and their estate plan was drawn and the transition plan was established. So that she would become the owner of the real estate, which the business leased for their business activities so that she participated in that business transition and it was in the end a way to bring the family closer rather than pushing family members apart and I think that’s an example of good communication, good planning in advance and engagement with all of the family members through a process to arrive to a transition, which really felt successful to everyone in the family.

[0:19:51] JW: So another example is one where not only was it helpful to the family in getting through a transition, a transaction of selling their business but also helpful to the adviser team that was trying to get this business through a transaction and it was a complex family situation, family business started by the patriarch then owned by two of the children, two sisters, there was a third sister who was disabled and had a lot of medical issues. And so they were concerned about her and how she was going to come through all of this. The founding patriarch was suffering failing health at the time and had this vague lifetime contract with the business related to transitioning of the ownerships of the next generation. Also had a girlfriend who really wasn’t appreciated by the daughters and who wanted to be sure that maybe she was going to get her share out of the transaction. One of the daughter’s ex-husbands was still involved as a senior manager in the business and he was determined to get to basically re-write the divorce settlement to reflect the value of the business as it started to come together. So obviously, a very complex situation and the investment banker recognized early on at re-transaction that they needed some help and so we were invited in and basically, again along the theme of communication, getting the right people together. Having the right advisers, talking about the right things, we were a significant contributor to this deal team that ultimately got a family and a business all the way through all of those wickets to a successful outcome on the other end and successful on all of those fronts from a personal family standpoint as well as for the business and so again, it pulls in so many of the elements that appear on our book to basically bring it together and that deal team, the adviser team that includes with someone looking out for the family and their interest. And representing those and helping to facilitate getting to solutions on all of those is why that will get done in the end.

[0:22:17] RW: All right, awesome. So if you guys had to issue a challenge, so to people who are selling their business or anybody listening to you that maybe is not thinking about selling their business right now but eventually will, what would that challenge be?

[0:22:31] MR: This is Marshall and working with business owners, there is an obvious passion they have for the business, their focuses on the business and to me the challenge for them is to think beyond the business and as a business owner myself I know this challenge but the challenge of helping them step back and think about finding the path to real purpose and joy for themselves and their family post the transition of the business but it really requires that they step back. And step out of the business and think about themselves and their family in the long term and just getting business owners to step back can often be a major challenge.

[0:23:19] JF: This is Jim. The challenge that I would offer is read our book and at the end of the first chapter, we have a series of questions and I would encourage the reader to answer those questions and then read the rest of the book and come back and answer those questions the second time and I think the answer is going to be different and that could be part of the growth process that Marshall eluded to that allows the business owner to step back, think about the future. Incorporate his spouse or her spouse, incorporate the children, think about all of these other constituencies, which are impacted by the business and the answers to the questions that we pose are going to provide a clear path that is going to make the transition of the business ultimately nothing to fear and something to look forward to.

[0:24:08] JW: And the challenge that I would propose really goes back to an organization that I have been involved with business enterprise institute. It works with advisors to business owners helping them with the transition of their business ownership and so the foundation of their work. You know they say that a business owner has to answer three questions: How much do I need to sell my business or who will I sell it and when will I sell it? And to me that is very business focused, it is all about the business and thinking about the business and how it is going to go through those transaction, my challenge to the readers, potential readers is to ask the three questions but in a different way and so the three questions are: What do I want to do for my next adventure? Who do I want to do it with and how much do I need in order to support this next adventure?

[0:24:58] RW: All right, awesome. Thank you guys. It’s never too early to start thinking about your next venture and your next adventure will prepare you with a future filled with potential purpose and satisfaction for you and those you care about. Check it out on amazon.com, again the authors are Marshall Rowe, Jim Fitts and John Weeks and we’ll see you next time on Author Hour.