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Business Succession Planning with Scott Snider

George Grombacher March 18, 2022

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Business Succession Planning with Scott Snider

LifeBlood: We talked about business succession planning, who owns most of the businesses today, the challenges facing business owners when they go to sell, and how to prepare yourself and your business to get the most value, with Scott Snider, President of the Exit Planning Institute.  

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You can learn more about Scott at EarnCEPA.com, Exit-Planning-Institute.org, Facebook, Twitter, Instagram, YouTube and LinkedIn.

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Our Guests

George Grombacher


Scott Snider

Episode Transcript

george grombacher 0:00
Come on one lipo This is George G. And the time is right. Look at today’s guest strong a powerful Scott Snyder Scott, you’re ready to do this.

Scott Snider 0:18
I am ready.

george grombacher 0:19
Alright, let’s let’s go. Scott is the president of the Exit Planning Institute. He’s a contributor to Forbes Business Council, a speaker, a family business owner, Scott excited to have you on, tell us a little about your personal life’s more about your work and why you

Scott Snider 0:34
do what you do. Yeah, man. So again, thanks for having me, I, I would say that I’m born and raised Cleveland, Ohio, travel, you know, travel quite a bit, at least pre pandemic certainly don’t travel as much, it’s actually kind of a good thing. I got a like, family and everything at home. So it’s kind of nice to be back at home. But our business is the Exit Planning Institute. So at EPI, we’re a professional education and resource company. So the purpose of EPI is really to help business owners lower middle market privately held companies grow value in their business, align business, personal and financial goals and position them for a potential transition, whether that is an exit that’s going to happen. Now, within the first, you know, within the next 234 years, or something longer term, I think that as we probably start to talk a little bit more about this exit planning stuff, I think that people will find that Exit Planning, it’s just really good business strategy. I think it’s always appropriate, if you’re an entrepreneur, if you’re a business owner to be prepared. So we fulfill that purpose by teaching professional advisors, what we call the value acceleration methodology and supporting them in their practice. After graduation from what we call the SEPA program, the certified Exit Planning advisor program. We believe that obviously kind of rising tides Rizal with takes like, you know, it takes a whole village to kind of help this business owner grow value and exit. So we chose to say, look, the way we’ll help the business owner achieve these goals is to surround them with really great people that represent these different disciplines that all add up to this holistic exit plan. And if we could educate those advisors and make them come together as one, the eggs, the owner will go from having a very successful company year over year to having a very significant one, one that’s valuable, transferable, ready, attractive, and again, aligned to their personal and financial goals. So that’s what we do it at the Exit Planning Institute. And we’re across the country and really across the world.

george grombacher 2:27
Nice. I appreciate that. So what is sort of the state of entrepreneurship? I don’t know if you have percentages? I do. Yeah. owned businesses. And what that looks like, yeah,

Scott Snider 2:39
very timely, actually. So we have all kinds of fresh data as we’re still kind of in this first quarter. So but a couple months ago, I did our state of the institute addresses really addresses just this right, we talked a little bit about the market, how we could serve that and maybe where we think we’re going so and it’s actually changing a little bit. So if you rewind maybe five or 10 years, there’s about 4.5 million lower middle market businesses that were owned by baby boomers. And I think that really the market today is directed to the baby boomers, I think they’re primetime. Today, when you look at the data, that’s down to about 3.1, which makes up about 51 ish percent of the privately held companies in the United States today are owned by people that are in that baby boomer type generation. Why think that’s important to know, for, particularly any advisors that might be listening is that the we also know that the average age and owner starts to think about I want to transition is about 63 years old. So if you just look at the baby boomer range, which is give or take from like about 55 to 75 years old, those boomers are kind of prime time starting to think about, Okay, what’s next? You know, I’ve likely done this for 2030 years, you know, how do I harvest value from this largest assets, and maybe move into something different in my life that I’m also that I’m also passionate about. The other thing that you’ll see in the market is what I also think is notable and interesting 43%, then of the lower middle market companies are owned by people 36 years old, to 54 years old. So really that upper end of the millennials, and really that Gen X generation. And for those that are focused in helping owners exit, if you looked at their generational characteristics of somebody in their 40s or early 50s, they typically like saving money, they like optimizing their time they believe in a work life balance, and and those sorts and those types of things. So their core value is their time versus a baby boomer their core values success. I mentioned that because if you rewind about what I just kind of talked about kind of as alignment of business, personal and financial in this optimization of your time as an owner. I think those I think we have a real opportunity to educate the next generation of business owners kind of coming into the market. So nonetheless, that’s kind of what we’re seeing today. And I think that You know, if anybody understands this exit planning profession, which is really started in the early 2000s people that founded our industry or our profession, we’re talking about this exit wave, literally 20 years ago, and 20 years ago, the youngest Boomer was like, upper 30s. And so of course, they’re not thinking about transition, but in today’s world, plus things like health and wellness, pandemic, economic and, you know, instability, people are saying, you know, maybe it’s time to exit, I think, for any baby boomer listening, you guys have the incredible ability to handle crisis. So I don’t, I think you guys are kind of fed up with it, right? Like, I don’t want to navigate another pandemic, another bubble, another burst another recession, maybe it’s time to harvest value. In fact, last year, was one of the best if not the best year in our country, for private for private equity, a lot of cash on the table, people buying a lot of great businesses. Nonetheless, those are kind of what’s feeding this exit planning professional, a little bit about the space that at least I operate in this lower middle market, maybe even small micro market companies.

george grombacher 6:05
Nice. I think that there’s a lot of really interesting stuff there. I definitely want to circle back this idea that boomers are most interested in success. And then the generation sort of below are this the tranche of entrepreneurs billows optimizing time, I want to talk about what that next generation you think that they’d be interested in. But of these of these boomers that are it’s like 66% of businesses are owned by boomers. And they’ve been dealing with crisis and building obviously successful businesses. Yeah. What what happens if they don’t proactively engage in in, in a process, it’s kind

Unknown Speaker 6:50
of like, it’s kind of a sad story, right, like, so if you look at the similar statistics, right, and then go to Okay, these boomers are trying to exit, about 70% of the companies that are put on the market actually don’t sell, or they sell for like a fraction of what the owner actually needs. And we could probably George go down like a rabbit hole here. But I think the problem with this is that for any, for any business owner, whether you’re 40 years old, or whether you’re 75, more immediately trying to exit about 80% of your wealth as a business owner is trapped inside of your company. So now imagine that 70% of us can’t harvest that? Well. This is why you see people working forever, that are business owners, there’s obviously other reasons, but they can’t. They’re too concentrated. As a business owner, they’re too concentrated on a I would say income generation versus value creation. And so what happens because there again, this is like this success to significance type thing. I think baby boomer business owners, these are the people that started their businesses out of their garage, out of their sheds out of their bedrooms. And now they have these like multi million dollar companies. And their profit and loss statement looks good, they make money. The owner has a nice family has nice things, all the stuff, you know, they go on trips, they have cars, they have second homes, their employee seemingly are happy their customers are seemingly engaged. So year over year, they’re pretty successful. But then they say, Hey, I’m 65 on 70, I think I want to, you know, sell my $10 million dollar business or my $100 million business. And then they go to market and they fail. And they’re like, What the hell? Like, I feel like I’m pretty successful here. Why doesn’t anybody want my business? And it’s because it’s unpredictable. It’s too risky. It’s not attractive, and it’s not ready. So an owner, so a buyer, whether in a corporate Briar or private equity, they might buy it, but they might buy it for a fraction of what you need, or think it’s worth, or they might not buy it at all. And then when you look at the family side of things, right, if you looked at internal transitions, I always say I think most family businesses are kind of gifting shares to the next generation. I honestly think it’s a rarity that the next gen the gen two has to actually buy the company from gen one, mainly because they don’t have the funding. Excuse me, mainly because they don’t have the funding. But I would say that I always talk about I’m a family business owner. So it’s like Dan, I don’t want to inherit all your problems. Right like so here. I’m going to gift you this $50 million business, but I get all this crap, you know, all this chaos, all this risk, same thing that I would sell to a to a third party. But nonetheless Yeah, I think that and but I also Jordan, get me down a rabbit hole on on generations. But I also think it’s ties I don’t think it’s it’s bad and it can be corrected. But also it’s also very natural for somebody that’s a baby boomer. They are baby boomers are the inventors of the 60 hour workweek. These people love working. They’re very passionate individuals, their core value is success. So no wonder they spent when they started that company at 25. Now they’re sitting there at 65 Saying that, you know, for the, for the past almost 40 years, I’ve really just looked at my business, I haven’t really looked at who I am outside of my business, my personal planning. And I don’t really understand my wealth gap, my personal financial plan. So I don’t really know what I need to fund my lifestyle without my business, because right now, I’ve been concentrating on income, the income is good, but I don’t know what the really the value is. So these are kind of the some of the issues surrounding that. That particular Baby Boomer generation, I think what you’ll find is the younger generations are, they don’t know what they don’t know. But they’re a little bit more open minded, given their generational characteristics, which is why I think there’s an opportunity with the next gen, but most immediate marketplace, certainly the baby boomers, a lot of them are exiting, and they certainly need help.

george grombacher 10:47
Yeah, yeah, it sounds like it. If I think you said 70% of companies that actually go to try and sell such a small number are actually of all of them that go to try and sell only 30%. Do or 20% do.

Unknown Speaker 11:01
Yeah, only 30% 70% will fail. 30% will succeed. So that’s him think about that. Right? Not to get like philosophical or anything, but like, think about that, from like a social standpoint and economic standpoint. If businesses fail, lower middle market businesses, these are like heart of Americans employment, right. Like, what happens to employment, what’s happens to charitable giving taxes, communities, if these multimillion dollar businesses just close up shop? And a lot of them do a lot of them, liquidate, and they’re absorbed, potentially by competitors. But nonetheless, yeah, they’re they, I think it’s always a shame, to think that somebody literally started this business out of the shed or out of their garage, built it over 40 years. And it’s worth nothing. It’s just seems like kind of a waste of time. You know. So, but yeah, but good news. It’s correctable. And even if you have a short timeframe, it’s, it’s correctable. So if you are listening, and you’re 60 years old, with a multi million dollar company, and you’re like, man, maybe I need to get it together, you can. And if you’re a younger person sitting here saying, Man, I never really thought about it like that, you have a chance to actually make more money year over year, and have a valuable business, whether that’s on your timeframe or not, because the other thing that we haven’t touched on is 50% of the exits in our country today are involuntary, because of a death or disability, divorce, and partner dispute owners are being forced out of their business. And so now if you’re a young person listening, and saying, Man, I’m only like 35, or 40 years old, like I’m nowhere near exit, I just started my business five years ago, where I just bought my business five years ago. It typically, you should be thinking about how can I make this business independent of me? So if I do pass, or if I’m in a business partnership, and I have to, I have to kind of leave? Because we can’t find common ground? How do I get the value out of my business? So it doesn’t cave? So it’s not worth nothing? So yeah, a lot of stats flying around our industry that I think power some of those. But nonetheless, my message isn’t to be negative by accident. My message actually is to be positive, because there’s opportunity for significant change, that not only gives you a better business, but actually makes you more money year over year.

george grombacher 13:16
Yeah, that makes a lot of sense. Wow, 50% of the exits are involuntary. But then when you went through those different scenarios, it makes all the sense in the world. You know, it’s like somebody got hurt and they’re disabled, somebody died. And divorce. I don’t think that we think about that. Right?

Unknown Speaker 13:33
At all. I honestly one of the last speaking engagements I had, it was probably the fall time. And there’s three sisters. They own like a gourmet food store. And it actually was started by their parents, who came over from another country ran that business for like 20 years. And the next generations of sisters inherited it from not mom and dad. Now mom and dad are since passed. And she was sitting in the front row. As I was talking George and she started crying. I was like, oh, man, maybe I’m a really crappy speaker, something slays crying in the front row. But we’re talking about the five DS What I didn’t know she came up afterwards. And she said, Scott, you got a minute to talk. And I said, Sure. She’s like, I’m actually a former business owner. I was like, Oh, cool. Mostly I speak in front of advisor so I always I’m an owner, she was an owner. I always liked that commonality. She’s like, you really hit me when you started talking about the five DS I probably this was like a, I was talking in like February. And she said back in October. I own this business. My sister is the CEO, the kind of the visionary for this. In October, she was diagnosed with cancer. And by Thanksgiving, she had passed away and we spent Christmas without her. And we spent January liquidating our company, because what we found is that we didn’t really know how to operate the company without my sister. And that me and my younger sister just kept butting heads. And just what this kind of quick loss of my sister from a personal standpoint, we couldn’t bring it together, we didn’t have great management. So if me and my sister weren’t there, everything was just deteriorating, deteriorating, took 30 days to close that business. So within two months, think about what a tragedy for this lady, and she was in her 60s. She was like me, and my sisters have owned this business for years. And in two months, everything went away, my sister passed, we lost our company, we lost my father and mother’s legacy. And I’m kind of wandering right now trying to figure out what’s next. And like, all of that happened within 60 days. So again, I think all of us as owners have an obligation that’s bigger than us. It’s to our families, it’s our employees, it’s to our vendors. It’s to our customers, like if I let Exit Planning Institute just crumble, like I have 3500 certified Exit Planning advisors, they won’t have an institute to get the resources from because it could cave. So planning is critical. But yeah, that I don’t think everybody you know, I think people don’t think that these types of things will happen. And I don’t think they you know, they happen 50% of the time. So it’s pretty, I think it’s pretty critical to plan.

george grombacher 16:10
Yeah, yeah, I certainly agree. So for people who are listening, they say, You know what, okay, that’s, that sounds a lot like me, I’ve got a successful business. I feel like I’m at a place where I’m not just trying to keep the doors open or making money. Yeah, right. How how do I how do I start? Do I talk to existing advisors and say, Is this the kind of work that you do?

Unknown Speaker 16:33
Yeah. So I would say certainly, yes. Right. So I think most owners have an attorney and an accountant, I would ask them what their process for Exit Planning is, if they stumble on that question, or they literally don’t have one that they can show you. We have certified Exit Planning advisors that can help. And they’re not going to take away from your current advisory group. In fact, they’re going to enhance your current advisory group. So if you just go online, you can go to earn sepa.com. And I’ll take you to the epi website, Sivas, CPA, certified Exit Planning advisor, to find a directory where you can search the directory. So whether you’re in Cleveland, Scottsdale, San Diego, Florida, wherever you’re at, there’s certified Exit Planning advisors that are trained within this methodology that I kind of alluded to earlier on in our conversation. And they can help navigate you and they’ll bring your fellow advisors around you. But maybe you don’t even know maybe your current attorney or your CPA is in fact, a certified Exit Planning advisor. And they haven’t had that conversation. But I would start by talking to advisors, it takes again, I think a whole community to really help help an owner, there’s so many different facets of exit and elements of Exit Planning that I think for an owner, it becomes a little overwhelming. But everything starts with a process called the value acceleration methodology. That methodology is run by a CBOE. And so those are the folks that can help.

george grombacher 17:56
Scott, people are ready for that difference making tip, what do you have for them?

Unknown Speaker 18:00
So I picked something that actually hangs in my home. That is, I think, a part of who we are at EPI, but certainly a part of who I am as a as an individual. I always tell people to start living and stay hungry. And so George, what that means for me is it’s an activation of yourself. I think it’s about purposeful growth. It’s about life experiences. It’s about surrounding yourself with great people. It’s about building an environment of creativity, all things that I think we need to just be better people. But also things that are needed to get us activated to actually plan for this exit of our company. So my message to people would be start living and stay hungry.

george grombacher 18:37
Why think that is great stuff that definitely gets Come on. Start living and stay hungry. Excellent. Well, Scott, thank you so much for coming on. Where can people learn more about you give us the websites again, if you’re let us know if you’re an advisor, how how they can engage with you. And then if you are a business owner, where where this should go?

Unknown Speaker 18:58
Sure, but business owners and advisors to places safe, same places, so earn sepa.com, again, SEPA CPA, you go in there, you can find everything Exit Planning, I would encourage people to follow the Resources tab, there’s a whole Exit Planning library of free content. So anything that we just talked about today, you could dive deeper in like a 25 page white paper and learn a little bit more about it. I would say also follow me on LinkedIn, Scott Snyder, smi D er, I, once a day, talk about different concepts, different challenges share different content and events going on in our space. So again, with your advisor owner, plenty of stuff for you guys to get into without having to really pay thing so just get immersed in it, start learning about it. And we’ll go from there. So Scott Snyder on LinkedIn or etsy.com

george grombacher 19:43
Love it. If you enjoyed this as much as I did just got your appreciation and share today’s show with a friend who also appreciates good ideas go to earn sepa.com That’s erncpa.com and check out the resources tab and all the great information that they’ve got on there. Find Scott on LinkedIn at Scott Snyder as an ID er and just get into those resources and start living and stay hungry. Thanks again, Scott. Thanks, guys. Appreciate it, man. And until next time, keep fighting the good fight. We’re all in this together.

Transcribed by https://otter.ai

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