Entrepreneurship Podcast post

Business Succession Planning with Lou Colella

George Grombacher June 22, 2023

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Business Succession Planning with Lou Colella

LifeBlood: We talked about business succession planning, why so many businesses fail to sell their enterprises, the role of emotion and “why” in the process, and when and how to get started, with Lou Colella, CPA, PFS, CFP, CEPA and Managing Partner of JFS Wealth Advisors.     

Listen to learn why a successful business transition comes down to execution!

You can learn more about Lou at JFSWA.com, Facebook, Twitter and LinkedIn.

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Our Guests

George Grombacher

Lou Colella

Lou Colella

Episode Transcript

george grombacher 0:01
Well, my plan is to George G and the time is right. welcome today’s guest strong and powerful Luke Calella. Lou, are you ready to do this?

Lou Colella 0:08
I am. Alright, let’s

george grombacher 0:09
go. Lou is a CPA PFS. He is a CFP and a SEPA. He’s the managing partner of JFS, Wealth Advisors, helping business owners to successfully make the transition and exit their business. Lou, I’m excited to have you on tell us little about your personal life more about your work and why you do what you do.

Lou Colella 0:32
Personally, I’m a husband and a father and my grandfather three times, I’m a brother. And I’m a son. So lots of roles there on the personal side.

When I’m not working, I love to fish golf hike, read in the wintertime here in the Northeast, and I love food and family and all things social. My work, I guess is the path of a financial advisor and coach, business owner, myself and advisor to business owners, my career has led me to my current gig, which I described as helping business owners grow and manage the value of their business, in alignment with their overall life and wealth plan. And especially oriented toward transitional times, like exit for business owner, or for business owner, there’s death taxes and exit of their business. And Franklin death and taxes. thing. And

george grombacher 1:45
how well are business owners doing that? How effectively are they making that transition?

Lou Colella 1:51
Well, research tells us that seven out of 10 of businesses that get put on the block, don’t sell two out of 10 Get a single, we’ll use a baseball metaphor here, a single or double, they take a haircut on what the business owner believes the price of the business ought to sell for. And one out of 10 hit the home run. So 10% of businesses get what they think they ought to get. And that’s unfortunate, because the outcome can be changed with planning. So not doing that. Great. Yeah, that’s why that’s what gets me out of bed in the morning, George. So, you know, that’s,

george grombacher 2:38
I don’t know if it’s knowable, but the people that actually people that that say I’m an entrepreneur, I want to start a business, that’s a big number to get to the point where I actually have a sellable asset saleable asset. So it’s not just 10% of business owners. It’s a small percentage of people that started a business long time ago.

Lou Colella 2:58
Oh, absolutely. Sure. Absolutely. Sure that, yeah, so the failure rate of businesses is large as you as you, as you describe, I’ve been in that, you know, kind of in that sector at a time in my career, too. So I understand that, you know, entrepreneurs and idea people are really important to our way of life. And, and those who are entrepreneurs that kind of really bravely swing the bat and say, I want to try something are important. For those that kind of last three, five years, you know, that first stage is just about survival, then it becomes growth, and making money, right, the business owner needs to put food on the table needs to develop a lifestyle. And, and what I’ve seen as many, many business owners kind of focus on that making money phase. So what do I have to do this year, this month, this quarter, just to make money more than I did last year? Because, you know, humanity is just about getting better. I believe that I think all investors have to believe that we just all want to get better. There ought to be a transition somewhere in the owners thinking from just making money to grow in value in their business. Those are different exercise routines, if you will, you have to focus on things like the four capitals. I know that you had the Snyder’s on father and son recently, I’m sure they talked about the four capitals. That’s what moves a business from just a money making machine that employs people to an enterprise that can sustain the next generation the next owner. And, and, and, and keep the communities and the people Will that work in those businesses growing and, and, and doing so in a sustainable way? That’s a different skill set. And that’s what I’m hoping to help business owners focus on.

george grombacher 5:14
Yeah, it’s such an important thing. And it’s when you break it down like that. You look at how hard it is to successfully have a to successfully start and then create a business that that that is providing jobs and livelihoods. And so how important it is to actually help that business continue on to next generations. It’s, it’s more important than just somebody making money.

Lou Colella 5:41
It is it is I mean, it’s not just about the owner, I mean, it’s about the owner. In the entrepreneur, it’s about executing the idea. But when when when the business becomes a living, breathing entity, and part of a community, it’s not part of a bigger ecosystem. Right? That community relies on that business, the services or goods that it provides. The people that work there, something like 65 to 75% of all businesses in the United States are owned privately George, their own privately by a family, an individual, a group of individuals, and they employ lots and lots of people. So those people, buy homes, buy goods and services contribute to the community, the community itself relies on that business. So it becomes way more big than just about the owner and the owners family. If these businesses don’t take the seven out of 10, that don’t sell, at some point, that business owner is going to have to just close the doors. Think about what happens when the owners just closed the doors, people lose jobs, the services and goods aren’t provided, the next entrepreneur has to step in and start from scratch. That’s the real heavy lifting. And it doesn’t have to be that way. So with focus on the transition, the next generation of that businesses owner can make it better, bigger, more complex, serve more families be more robust to the community. It’s an economic kind of sustainability thing that we’re talking about here.

george grombacher 7:21
Yeah, yeah. I think that that’s total shift away from just if you were to look at this problem, like, oh, wow, that’s really bad thing, but so many more opportunities and challenges when you sort of go to the second layers. Yeah, so you, you started, well, you you are a CPA. So CPAs are, you had specific training, and you’re also a CFP, and now you have this, this this SEPA training as well. And you’re a grandfather. So do you see? So the CPA hat is what I would consider to be very logical and numbers driven. And I would view that and your work as a sepa, I think there’s probably more motion. And then the Grampa thing is you’ve actually seen the transition of generations of actual human beings. You see what I’m trying to sort of go for here?

Lou Colella 8:16
Yeah, so the CPA Yeah, because I became a CPA. Not because I wanted to comp beans the rest of my life. I mean, I think but my story is I became a CPA, because I wanted to understand the scorecard of a business, I was really interested my first, my first job w two job of all time, was working in a grocery store. I packed groceries, I stocked groceries, I worked in the meat department, I worked and there were a lot of little kind of sub businesses in the grocery store. And I always thought I wanted to own a grocery store, my best buddy from high school and I wanted to own a grocery store. That was our thing. So I became an accountant because I wanted to understand the scorecard. But I wanted to understand the scorecard. Only to understand the scorecard. I quickly realized that the success or failure the business was about managing the capitals, the people, the customers, the processes and routines that that create quality in a repeatable way in the business, and then the culture that the business has itself. So I you know, you’ve heard the term I’m a reformed CPA, I’m a CPA, I have the tax training, I get that stuff but only as a foundation to what really drives value in a business. Yeah, my, my, my kids and grandkids bring a different kind of lens through which I look to say, it’s not just about me and my life. It’s about providing for the next generation and the following generation and giving them the opportunities, teaching them the how to do Two things so that they don’t have to learn it from the place that I learned that I can take, I can start them kind of halfway up the staircase, and they can go the rest of the way take, you know, extend the staircase through their life through their lifetime. That’s how we make our world better over time.

george grombacher 10:19
You find that that I mean, everybody’s unique and different. And some entrepreneurs probably don’t care about that at all. But I imagine that many do.

Lou Colella 10:29
About what George

george grombacher 10:30
about just wanting to, to help make the world a better place. And if I had an opportunity to do that, to help people get a little further along.

Lou Colella 10:39
Yeah, there is there’s there is, you know, so you touched on that the emotional piece, your last question, you know, to help owners as a coach, so, so business owners generally, are decision junkies, they want to run their own show, okay. So I’m an advisor on the financial side, but on the on the, when I’m working with business owners, I take more of the coach position, because they need to arrive at where they want to take their enterprise, okay, lots of emotion there. And I’m only successful once I understand what the real drivers are for the owner, some owners are driven to change the world, you know, disrupt the world, you know, Elon Musk, kind of would be the epitome of the change of the world kind of owner, other other owners want to want to solve a problem in a particular industry, and they want to make it better and better and better. And most owners that, that I come across, are really, really engaged with ver y, once I find out what their y is, it helps determine how I can coach them towards success. Only after knowing their y Can you kind of guide them along the path, the chance to transition. mean human beings

george grombacher 12:06
are so interesting, we make change when we’re ready to make change, right? And we’re ready to make decisions about things and to just present numbers to somebody and say, Listen, Steve, you know, you’ve got your bottom line is this. And if you did this, you’d really really improve things like, great, but that’s not that’s not attack or finding that why? Yeah, it’s

Lou Colella 12:27
interesting. I don’t have hard numbers. So to kind of support this statement. But for many owners, I don’t want to say most, but I would, I’d venture a guess that for half, it’s not about the money. So if I come to it all about the money, I’m probably missing the mark at least 50% of the time, there’s always a bigger reason. You know, an ESOP, an employee owned company, in in many cases that I’ve served in the past is really, really important to that owner, because all of that owner may be willing to hang up there spikes are ready to hang up their spikes. They look at their business and their enterprise and all of the people that have helped his particular family kind of enjoy the success. And he wants the transition to go into the employees hands. So an ESOP is kind of the transition of choice in that particular that particular owners palette. Another owner might be about expansion. With a larger company that has larger reach, they may have a product or service that’s kind of geographically known, and they want to take that product or service across the country or around the world, and they need a bigger partner. So there are a lot of drivers to to the types of transitions that need to be planned for. And we have to uncover that early in the process.

george grombacher 14:15
Is it ever too early to be thinking about these kinds of things for the business owner?

Lou Colella 14:23
That’s a great question. I had when swore.

Probably to work in a business where he was an owner, another friend and mentor of mine was an owner and his answer to that question to me, kind of the mentoring piece was, he’d say, Louis, I think about my exit every day. And he was far away from it. George George, I mean, it was it was 20 years. And he said an owner that doesn’t wake up thinking about how they’re going to exit is going to get distracted by 100 things to do that isn’t related to how they exit. So my answer to that question would be, for the entrepreneur, that starting a business, I would be thinking about that exit plan on the very first day, it’s just simply good business strategy to think about how you’re going to grow value, and how you’re going to harvest that value downstream. Practically speaking, for the baby boomer generation, or for people that have a tendency to cram for the test, three to five years before you’re ready to glide paths toward your next act, gives you enough time to do some significant things in the four capitals to grow the value of the business, three to five years. I do have people that knock on my door and say, hey, I want to sell the business in a year or by the way I have an offer, what should I do? There’s not a lot that can be done in a year. But there is some things that can be done to kind of preserve the value that they’ve already built. So anytime is the short answer. The best answer the A student should be thinking about it every day, three to five years before exit gives some time to have some real significant results.

george grombacher 16:36
It certainly makes sense. While we don’t know what the future holds, having an eye on this is really a perfect scenario or an ideal scenario. And that allows you to be making plans and to proactively be, you know, positioning yourself for that.

Lou Colella 16:55
So yeah, so, you know, as a financial planner, as a planner, generally. My philosophy about planning is that you always have a plan. And better than having a plan is to have plan a plan B plan C plans aren’t. The further the the further away, the event that you’re planning for is, the more flexibility there is in the plan. That doesn’t mean I mean, if I’m sitting here in Lake Milton, Ohio, and I want to drive to you, George, in Phoenix, I’m not going to leave my driveway, without punching into my GPS, how to get there, I am going to have a plan to go west and south. Now, what routes I’m going to take, I’m going to have lots of opportunities to choose along the way, I’m going to be able to divert my way around accidents or concerns production, right. Similarly, in an exit plan or a transition plan situation, you want to kind of set your course, generally, if you have a long time to go. And you’ll have plenty of opportunity to adjust course along the way. If you have three years, I would say I would suggest to you that you’re going to set a pretty solid pin in the map. And you’re going to drive right to that pin. Because you don’t have you don’t have a lot of time to take kind of side trips. You have three, three years to get there. You want to kind of take the shortest distance between the two points. Does that make sense? I love

george grombacher 18:42
it. That’s a perfect, perfect analogy.

Lou Colella 18:46
Yeah, so plant planning to me is necessary. It’s not constrictive or restrictive. It just kind of sets the direction. It avoids distraction, and it keeps you kind of on track. Because we none of us have as much time as we really think we do. Isn’t that the truth? It is the it is the truth.

george grombacher 19:13
Well, Lou, thank you so much for coming on. Where can people learn more about you and how can they engage with you?

Lou Colella 19:20
Probably the best way is our website jfswa.com. They can search us JFS, Wealth Advisors. We, we have clients from all over the country. So geography is no longer a concern for us. If they don’t want to deal with us, you know, I would suggest that they talk to somebody that has some of these credentials that matter so much the folks that that are CPAs steepest Exit Planning advisors CFPs. They’re, they’re people that are committed to the process of planning and I’m and, and with business owners, those are good places to start, compare and contrast them and, and get started. Execution is what it takes is take that first step, have a conversation, have another conversation and it would be my hope that you become one of the one out of 10. Two out of 10, three out of 10 successful business owners and and it’s my hope that by the time I hang up my spikes, those statistics change the five out of 10 Six out of 10 Seven out of 10 our economy and the jobs in it, depend on it. Love it.

george grombacher 20:44
If you enjoyed as much as I did show your appreciation and share today’s show with a friend who also appreciates good ideas go to JFSW a.com It’s JFS, Wealth Advisors. So, get in touch with Lou and it’s been on your mind or if any of this resonated, which I’m sure it did. Reach out and just have that initial conversation and find out if now is the time for you to be thinking about and starting this this really, really, really important process. Thanks again, Lou. Thanks, George. And until next time, remember, do your part by doing your best

Transcribed by https://otter.ai

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