Title: “Trusts & Selling Your Business” [PART THREE]
Panelists: Stephen Wilchins – Wilchins Cosentino & Novins, Bob Rosenfield – JN Phillips Auto Glass & CapeVista Capital, and Dale Sands & Chris Perry – Northern Trust
Host: Jeffrey Davis – MAGE LLC
Click here to read the transcript
Hello, and welcome to all our Radio Entrepreneurs, listeners and viewers, M producer, Nathan Gobes, and M excited to introduce you to PART three of three of the Radio Entrepreneurs, FBA family business panel discussion December, 2021 edition In this edition of the panel discussion, which will be broken into three parts. We’ll be covering topics related to trust that own and operate a family business. And when is the right time for a family business to sell, if you have not yet seen parts one and two of this panel discussion, we recommend you head over to Radio Entrepreneurs dot com or any of our many channels to catch the first two segments. All of these discussions are intended to be highly relevant to family businesses, but also entrepreneurs of all types. So be sure to follow Radio Entrepreneurs on LinkedIn, YouTube, Spotify, iTunes, Facebook, or any of the many other platforms we stream on to catch the third segment to catch the previous segments as well.
Next, I’ll introduce our panelists and hosts for this discussion for their full introductions. Please refer back to episode one, which is linked in the description below re joined today by Stephen Wilchins of Wilkins Cosentino and Novins Bob Rosenfield of CapeVista Capital and formerly of JN Phillips Auto Glass and true road holdings and Dale Sands and Chris Perry of Northern Trust. Welcome everyone. Of course, we also need to give a shout out to longtime supporter and regular FBA Panel list return of gray, gray, and gray CPAs. Even though he couldn’t join us this morning, we always appreciate gray, gray, gray, gray, and gray support last but not least Jeffrey Davis Radio Entrepreneurs, host and founder of MAGE, LLC.
Nathan (1m 32s):
Welcome Jeff. I’ll hand the conversation over to you.
Jeffrey (1m 35s):
Thank you, Nathan. We appreciate everything that you do as well. You know, I always cited, I try to tell families that owning a family business can be lightning in a bottle. There’s no guarantee that it’s going to ever happen again. And sometimes I see family members who never work outside of their family business again. And, you know, since it’s lightning in a bottle and sometimes the sale of a family business is a one-time event and nobody has real experience in doing it. When does a business owner decide to sell or transition a family business? Very tough subject. I think for all families that I’ve ever met, it’s, it’s, it’s just a constant debate within the family.
Jeffrey (2m 23s):
So I wonder how, if any of you want to address this issue? I think all of you should address this issue.
Dale (2m 30s):
Well, I’ll start off. The simple answer might be that the business owner frankly wants liquidity or has had a change in their life priorities and goals. So that’s a simple answer. The, the more comprehensive answer would reveal dozens of reasons why a business owner might choose to exit or transition. Those reasons typically fall within three major areas and I’ll list those, you know, maybe it’s the macro environment or the industry, maybe it’s company specific considerations, or lastly, maybe it’s falls within that pool of family or personal reasons. And then just briefly diving into each of those categories, you know, in the macro environment or the industry environment, what might be driving those decisions.
Dale (3m 18s):
Maybe the owner has a particular view on the global or the domestic economy. Maybe there’s specific dynamics within industry that are challenging that the business owner might be considering. And lastly, in this section, maybe there’s something going on in the competitive landscape or trends within the industry, shifting to the company front specifically, maybe the company is hitting some sort of critical inflection point. Everyone knows as businesses grow, you go through stages and businesses have different needs at various stages within their life cycle. So maybe the company is getting some critical inflection period.
Dale (3m 58s):
Maybe the dynamics of the management team or the employee base are changing. And lastly, maybe the business is in need of heavy investment to keep the business relevant, or maybe the risk picture is changing for that particular business. And then lastly, on the family or personal side, you know, maybe it’s simply a desire for personal liquidity to enjoy the fruits of your labor for the business that you’ve built over many years. Maybe the owners have made enough money. And again, just want to sail off into the sunset or more dire. Maybe there’s a health issue or maybe some other change in goals and priorities. So I’ll leave it. I’ll leave it there.
Jeffrey (4m 41s):
I think you didn’t even connect Steve. Steve, did you, did you say, did you want it?
Steve (4m 48s):
I just said Dale did a good job outlining. I think what I’d like to add is that a lot of times the succession issues on the personal side, you know, once you do the macro in the company side, it’s the succession. Do I have family members that are coming up? Do I have a strong management team? So if I back away and I don’t want, and I want to go down to Florida, do I, can the management team run the company and be successful and grow the company? So these are also pressing issues for the, for the owners of the business to decide whether they want to sell or not.
Steve (5m 34s):
You know, the other issue is, you know, maybe sell a little and Dale I’m sure has this experience where they’re selling 20% or 30% to a private equity company and letting the private equity eventually company take over as time goes on. But you know, certainly the owner wants to make sure there’s substantial net worth that he or she have. So when they retire that they certainly could live a comfortable lifestyle,
Jeffrey (6m 5s):
I’m going to move into my neck. Oh, Bob, you’re going to answer to
Bob (6m 9s):
I, yeah. I thought that Dale’s outline was really comprehensive and touched all the points, I would say as his implicit, those are overlapping items, right? So I would say in one regard as a business operator is like, is our strategy working? Do we have a defensible in repeatable strategy? So this business can go on indefinitely. If there is such a thing in our rapidly changing economy.
Bob (6m 49s):
And so the macro issues are key. The macro issues in the company issues usually run into the classic distribution, each potential change in the distribution pattern. And, you know, can the shareholders be educated as to the value of reinvesting in the company, as opposed to receiving income. People used to ask me, what’s your exit strategy? And I would say our exit strategy is to always be profitable and have the best KPIs in the industry. And then the exit strategy is our choice and it’s not forced upon us by circumstances.
Bob (7m 32s):
So, but all of that is just the rehash of what Dale said. If, if a business owner is thinking about, Hey, I got to go down the list, that’s a fabulous list and a great way to organize it. Thank you.
Jeffrey (7m 46s):
Well, you know, exclusive of Bob’s my, or my reference to Bob in the first segment of his trying to run his family business as a meritocracy for me, I find a lack of objectivity in a lot of family businesses. And as you know, the self-evaluation of what the standard of excellence is, or the standard of performance, how do you really plan if there’s an absence of that, or maybe there isn’t for a successful transition in a family business, how do you ensure that as professionals?
Dale (8m 26s):
Well, I, I think you could, could answer that in a number of different ways. You know, maybe another way to word that would be, you know, how to prepare for a smooth transition. So here at Northern Trust, we always recommend that business owners start to view their business from the perspective of, of an outside professional investor and take those early steps to get prepared. So, I mean, Steve and Bob both mentioned this, you know, getting your house in order across the board. So we recommend working on the corporate structure, the estate plan, the legal documents, try and do all of that stuff early. So you’re prepared for whatever comes down the down the road on the management team.
Dale (9m 10s):
And this was mentioned earlier as well, focus on the management team. What are their strengths? What is the depth of the management team? What is the succession plan look like? What are the contracts for those key managers look like, get those done well in advance before you’re potentially going through a transition or some sort of transaction, you know, other things to think about in terms of preparing that business on the financial side, do you have reviews? Do you have audits? Do you know what a quality of earnings analysis is on the sell side? You know, our group here at Northern would recommend and coach our clients to try and move down the path towards being a professional outside investor.
Dale (9m 51s):
Go ahead, get a sell side, cue of the well in advance of contemplating, transitioning or selling the business. Do you know what gap conversion looks like when you shift from a cash based accounting to more of a gap based account? Are you capable of creating budgets, hitting your budgets, projections, tracking KPIs, as Bob mentioned earlier, you need to have all those things. And then on the company side, you know, it’s getting the house in order, you know, are your operations all buttoned up? Do you have a vision? What’s your growth strategy? What are your processes look like? So all of this stuff, I mean, we help our clients start to organize their business, to get prepared for whatever’s around the corner.
Dale (10m 38s):
You never know when you’re going to get an unsolicited bid from an outside third party. So be prepared, spend the time, spend the dollars, get prepared so you can maximize your optionality and hopefully maximize the value for the business that you’ve built over the years.
Steve (10m 55s):
Because the question comes up many times, this is fun anymore. Do I enjoy going to work? Do I enjoy? It’s not about making money as much as building the organization or building the leadership team and also do my intro, have my interests change. Do I want to spend more time on a charitable venture or do I want to help younger people finance, you know, start new companies, you know, do I want to be a mentor in that role rather than running this business that I’ve run for 40 years or 30 years? So that all this with the planning, specially what Dale said is very important to decide whether to sell or not.
Jeffrey (11m 44s):
You just made me think a little bit about my family business experience. And I think the first thing that my father made clear to me was that my job was not to have fun. My job was to do with the business, needed me to do not what I wanted to do. And he drilled that into me from the beginning. And you know what I think most people I work with that is not what is drilled into them from the beginning. And that can be a problem. But, you know, Dale brought up a very important point, which I’d like to talk to you next is what happens when a family business member is approached with an unsolicited offer to buy the business. How do you handle that?
Jeffrey (12m 26s):
Does anybody have thoughts on that as well?
Dale (12m 30s):
I certainly do. I hate to monopolize the time here, but you know, here at Northern Trust, we will try and advise and recommend to our clients. To first and foremost, we reach out to experienced professional advisors that have done this hundreds and hundreds of times, if someone receives an unsolicited bid with that offer, that’s too good to ignore, reach out to your trusted advisors and seek assistance. We typically recommend do not go down the path of entertaining an unsolicited offer until you’ve talked to those advisors and you’ve got your ducks in a row, your company is prepared and you’re willing to run it all the way to the finish line.
Dale (13m 16s):
Typically we will recommend that clients should hire an investment banking firm or an M and a advisory firm to help them with the process. And through that, the owners should evaluate all of their options is selling the business, the right strategy for them. If they do decide to sell, hire an investment banker, an M and a firm to run an organized process, to make sure they get to the finish line the first time and maximize value for all the shareholders.
Steve (13m 46s):
Bob (13m 48s):
I think that’s good advice. I can say that intellectually. I understood what a process would include. You know, I’d talk to friends and acquaintances about their process, but until you’re in it, until it applies to your own business, wow, you got a lot to learn about not just the process, but the how you as the business leader and your organization, to the extent they’re involved in engages with that process. So not like going down the street and buying a car,
Steve (14m 23s):
All right. It’s almost like a full-time job besides running the business. You’re trying to work through trying to sell the business or reorganize the business as well as trying to make sure your key people will stay with you. I mean, that’s a, it’s a very tricky situation and that’s why having the proper advisors is critical to moving forward. Well, then I added,
Bob (14m 51s):
Well just quickly. One of the things we learned was that folks that are called strategic investors or strategic buyers are different than financial buyers. And so when you would do a management presentation, you get different kinds of questions, they’re expecting slightly different kinds of answers. So kind of, you know, going through a couple of those and understanding what the theater of the presentation is, is all about is I found it instrumental in allowing us to maximize our value. And we did this twice.
Bob (15m 31s):
First, we took in private equity to grow the company. And then secondly, we exited it. And before that we had one process that kind of didn’t result in a conclusion. And I was not unhappy with that because I learned so much from the first process to take it to the next ones, because sometimes a business owner and a family, they might not know what exactly they want when they start down the path. Is this about family legacy? Is it purely about economics? How do you end up balancing those three categories that Dale talked about and sort of going to come out through the fabric of that process?
Bob (16m 14s):
So I encourage families to understand that that process is going to be very dynamic combination of perhaps emotion, about family legacy and, you know, hard and fast economic and business decisions. Right.
Steve (16m 30s):
Bob, I was just curious, why did you have, why did you decide to have a private equity firm coming rather than selling at that point?
Bob (16m 40s):
I didn’t think I was done with the journey. You know, we were, so in terms of our strategy over the last 10 years of ownership, it was kind of oper out in a rapidly consolidating industry. That was my conclusion. My partners didn’t when the up and out strategy meant a change in dividend distribution policy, they opted not to have that risk profile. I probably had a broader risk profile than they did. So at the end of the day, I purchased their interests, but I wanted to execute from being a regional company to being a national company.
Bob (17m 27s):
I just couldn’t do that from my own wallet. And so I went shopping for capital patiently. It’s probably two, two and a half years of shopping for capital for the right partner. Because for me, I wasn’t going to take, you know, a 5% residual interest. I was going to stay in very substantially. And so I needed a working partner, not just a financial leverager. And so we did, we grew it from a regional company to, you know, the number two player. We were in 24 states from one coast to the other.
Bob (18m 8s):
And that was on my bucket list as a CEO to run a different kind of company. And, you know, once I checked that box, I was good to go. But if I hadn’t done that, if I just sold it, I would have said, well, maybe I didn’t, you know, accomplished fully what I wanted to accomplish in my career, in the auto glass industry.
Jeffrey (18m 35s):
I’m going to try to jump in with one quick question, even though our time is short, you know, this has been wonderful. There’s so many questions I still have, but you know, again, very harder for families. At what point do you bring the estate planning issues, trust issues, transfer issues, when, at what, at wealth management issues, at what point do you bring the family into the discussion of all these things? And I don’t call it just the, a discussion education
Bob (19m 3s):
Steve (19m 5s):
Sooner to sooner,
Bob (19m 8s):
It’s a drum beat of discussion or referencing kind of the, the outline that Dale talked about. Don’t surprise your family members like, oh, I woke up this morning and you know, I hadn’t kept you in the loop, but thunder storm on the horizon, I don’t want to do this anymore. We need to go now just, just keep putting the breadcrumbs out about what issues are and how you’re handling them. So no surprises.
Steve (19m 41s):
So I would agree with that with one qualification. I think there’s a degree that you inform them depending on who it is, what the age is, what the experience is, so that, you know, throwing the breadcrumbs out, Bob that you mentioned, I think it depends on who, you know, what you’re informing them. So that needs to be thought through just as much as deciding that I want to inform them that we’re doing X, Y, and Z.
Jeffrey (20m 13s):
I, I do agree with both of you. I do think people always say to me, when did we start? And I always tell them yesterday, because you need time to see how well they’re adjusting and learning and stepping up to the plate because, and if things don’t happen, then you need to know what your alternatives are. When you give yourself a little window, you’re giving yourself more time for error. That’s the way I try to look at it. So I apologize. You know, there are so many more questions and I know we have more answers, but I’m going to have to turn this over to our producer, Nathan Gobes.
Nathan (20m 47s):
Thank you, Jeffrey. And thank you, Steve. Thank you, Chris Dale and Bob, this was a very important discussion for all business owners, whether they’re getting ready to sell, considering selling, or, you know, looking forward to the future. That wraps up the final segment of this December, 2021 edition of the FBA family business panel discussion. Thank you to all our listeners and viewers who have tuned in for this segment on Radio Entrepreneurs, links will be provided in the videos description below to parts one and two, if you didn’t already hear them. So be sure to check those out and click subscribe just below the video. If you’re on YouTube or follow. If you’re listening on one of our podcast platforms to stay up to date on all of our postings as they go live.
Nathan (21m 29s):
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