Blue Collar Culture

Business Results the Old Fashioned Way

Kathy Boyle | Thinking of Selling Your Business? Why You Need a Legal Framework in Place

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In this episode of the Blue Collar Culture podcast, we chat with consultant and business planner Kathy Boyle. Kathy is the owner of Chapin Hill Advisors and focuses on the question on most business owners’ minds: “what happens when I don’t want to do this anymore?”

When it comes to succession planning, estate planning, and even personal planning, Kathy is here to help us break down some myths about getting out of the business. We can’t wait for you to hear all the valuable information we have in this episode! 

We’ll chat with Kathy about the two biggest mistakes she sees business owners making, as well as…

  • What exactly is M&A, and how does it impact a small business owner?
  • The difference between boutique M&A firms and business brokers
  • The importance of having a legal framework in place before selling your business
  • And more

Listen now…

Mentioned in this episode:

Transcript

Ryan Englin: Welcome back to another episode of the Blue Collar Culture podcast. I'm your co-host Ryan Englin and I'm here with Jeremy Macliver.

Jeremy Macliver: Welcome back everyone.

Ryan: So I'm really excited to jump in to the conversation with today's guest. She actually does consulting and planning services for business owners that are thinking, you know, someday, I'm not going to want to do this anymore. Someday I'm going to want to sell the business, give it to my kids, or just step away from it any way that's possible.

So when it comes to succession planning, estate planning, even personal planning, she's going to help us break down some myths that are out there regarding getting out of the business, whether that is that the buyer has no control and just has to accept what is being offered, or maybe that I can wait until I'm ready to retire to start this.

So I want you guys to welcome Kathy Boyle to the podcast. She's the owner and the founder of Chapin Hill Advisors. And we're going to dig in to this succession planning mess and how do I get out of my business and how do I sell. So Kathy, thank you for joining us today.

Kathy Boyle: I'm delighted to be here, Ryan. Thanks for having me.

Jeremy: Welcome, Kathy. So as we jump into this, my first question with that intro is what are the two most common mistakes that you see business owners make in preparing their business, maybe not for sale because I see a lot of times, you know, even I was in the situation where growing my business, I poured everything into it and had no intention of ever exiting and then the opportunity came, but what are the two biggest mistakes you see business owners make in growing their largest asset?

Kathy: Yeah, so, you know, they kind of overlook the family jewel, right? And they're so busy working in the business that it’s really hard to work on the business. And you know, they can take this succession planning down the road a long ways, because we're going to deal with all kinds of issues that take away from doing the business, right?

And that's where everybody's focused. The first word out of most of their mouths: "I'm so busy, I'm so busy, I'm so busy." You're never not going to be busy, right? So the biggest mistake, I think, is that they don't think about it from what I call "getting in your helicopter." Looking at the business as if you were talking to your best friend and really figuring out whether or not somebody else would find this business of value, whether it was your children or an outside buyer.

The second mistake is if you do decide to sell the business, the biggest mistake they do is they get one bid, they get one offer, they have one person interested, and now the buyer's in control. So you may as well have no offer because the buyer is going to control the whole decision, you're not going to get a good... They don't even understand that there are boutique M&A firms out there who will help them get maximum value for their business. So that's, if I had to pick two, those are two of the biggest mistakes I see.

Ryan: First off, a couple of things in there. What is M&A? And what's the impact for small business owners?

Kathy: Good question. We do tend to talk in acronyms. So M&A is mergers and acquisitions. So you think of big firms like JP Morgan and, you know, the big banks doing these big deals, massive deals, but there's boutique firms that are mergers and acquisitions advisors who will help family businesses sell their business. So they can do it in a variety of ways.

Some of them use big databases, some of them cultivate buyers by calling, some of them have institutional buyers that are picking up like, you know, funeral homes or something. And septic companies are actually being purchased by bigger companies that are building up a chain of septic companies.

So within the blue-collar business, any business should really reach out if they have enough volume, can't do this with a tiny little business, you know, under five million is kind of in the range of business brokers. But once you get past five million, generally, in revenue, generally, you can attract the interest of a boutique M&A firm who will help you maximize value and get multiple bidders, guide you through the process so you don't make a mistake with the biggest transaction of your life.

Ryan: So what's the difference between one of these boutique M&A firms and, I think you mentioned, business brokers? If you're under a certain revenue threshold, what's the difference between them?

Kathy: So the business broker is a very inefficient market. They're kind of running all over the place and, in my opinion, most of them are really not very good. And they throw a bunch of spaghetti on the wall, just hoping something sticks. So they're not really thinking strategically, you know.

I have one guy who's representing a sausage company. And I wouldn't normally deal with this kind of thing. But he's trying to find a buyer for that. And it's outside of New York City by a number of miles. And so it's in a limited geographic district. And so he's just kind of all over the board, you know, and so he's not presenting enough buyers to that potential guy because it's a very inefficient process, where an M&A firm is going to have databases that they built and cultivated over the years.

So they have lists of companies and people that are in acquisition mode. And so it's a more formalized process. It can be more expensive, certainly, than a business broker. But they're going to do a lot more work, and they're going to help you really figure out how to maximize the value of your business and how to get the best price, and they'll negotiate the transaction all the way through.

Jeremy: So maybe if I can sum that up, make sure that I heard that right--the business brokers are more or less a listing agent that's going to just kind of put it out there on, for lack of better words, I guess like a realtor MLS type thing and kind of say, "Hey, it's out here, you want to buy it?" And they're just hoping to get somebody to show up and make an offer.

Whereas a boutique M&A firm is actually active and looking at the strategy, the structure, like how are we going to do this deal? So I do understand, and I think we've had this conversation, where it may not always just be dollars, like there's ways to look at the tax implications, all of those kinds of things. So that's how you're gonna get from an M&A firm side of it.

Kathy: Exactly, exactly. And then also remember, there's some kind of intrinsic value that the business owner might not think of, you know, some of these guys are brilliant, and they create products, and there might be something patentable, there may be something that they're doing that's really unique, that's replicable. And they really didn't think much of it because it just works for them.

And so that's where more sophisticated firms come in and say, "Hey, you have something of more value." So and then also remember, there's certain firms that are buying up strategic assets. So they will be more aware of that.

And so you're not limited to your geographic district, which is where you would normally find your buyer, you know, reach out to somebody that you heard might be interested, or his sons are thinking to get in the business so he's thinking of buying something for them, you know, and that's kind of how a lot of business owners find buyers is through word of mouth. And this is much more strategic and a more formal process.

Why Early Succession Planning is Crucial

Jeremy: Very good. So I want to just dig into a little bit that business owners are busy, they got lots of different things going on, growing the business, getting more employees, making money, and then we're trying to do this other thing on their succession planning. Why do that when they know they're not getting rid of it for another fifteen, twenty years, what's in it for them?

Kathy: Good question. Well, the longer the ramp time, the more ability the advisors, professional advisors have to help them. And so I regularly see this where people are doing what they do. And they get to 69 or 70. And then they say, "Oh, I want to sell the business." Well, I can't help you a lot with no ramp time.

You know, I have a 72-year-old that came to me with a wine company. He's been running for 32 years. He's been losing money for the last five. I can't help him turn that around. I can't bring a business coach in to turn it around in three months or six months. We need a few years. So the longer you have a ramp time...

Everybody's busy. And that's a given, any business owner. I don't know anyone who's not busy if they're successful. So the longer the ramp time, the more we can fit it in little bite-sized pieces.

Okay, let's just take the next six months and see if we get your wills and trusts done. You have a kid with drug issues. You have a kid with addiction issues. You have a special needs child, we have to think about trustees and guardians and how much money is enough and whether we want to do it with life insurance or do we want to gift an asset.

So the longer the time span, the more digestible it is in the process and getting in, and we bring everybody else in. So we might bring a business coach in, and we might bring a life coach in. The kids don't want to take the business, so when they don't want to tell their parents that because the parents think of it as a gift, and so the longer, again, the ramp time, the more we can allocate because nobody has unlimited time and unlimited money. Those with money usually don't have any time and that falls with the business owner category.

Ryan: So one of the things that I heard just in that little piece I'd love to dig into was, you're not just necessarily going to come in when someone's ready to sell and say, "Here's what we need to do." They can actually work with you long before they're ready to sell and you can bring in experts to help them overcome their time constraints and some of their planning and everything else. Can you give us an example of where you see that happen?

Kathy: Sure. I mean, I have one particular company, the catering company. It's small, does a million and a half in revenue. And the problem is she's 69. She's running for almost 40 years. She's lovely, but she does high-end events. And the problem with buying a solo catering firm that does events is it's a very personal brand.

And so if I come in and buy that, it's like buying a solo practitioner CPA or solo practitioner dental practice. I'm assuming that 50 to 70% of those are going away. And that's an example of where you're not going to get maximum value and spend forty years running this business. So I don't know if I have ramp time with her because she's having a little bit of health issues, but had she come to me five years ago, we would have had more time.

What we're trying to do is add in a corporate catering side. Corporate business is renewable cash flow. And so if you get a couple of law firms and banks that use you regularly for their meetings, all of a sudden you've got another venue of renewable cash flow.

And the third thing I'm suggesting for her is, even though we live in very wealthy areas in Fairfield County, in Westchester County, we live in a vegan desert, and I happen to be vegan. So if you were coming to my home, there's no place to pick up something. So I'm a gourmet cook for fun. I have a couple of recipes that I think she could start with. And she could start distributing it.

And that could actually be a separate corporation that she could retain equity in and sell that, but still have a little piece and renewable cash flow good for herself. So that's one example of a company that, had I been brought in five years ago, we'd have plenty of time. Now with her facing some health issues, sixty-nine, her husband's already retired, he has some health issues. Now we're in a critical place where it's difficult to help her.

Business Strategy to Prepare You for the Future

Ryan: My brain is just running through all these examples and scenarios where it sounds like you do so much more than just help them sell the business. Like what Jeremy said, the difference between just a listing agent listing the business and hoping buyers show up and actually getting in and helping them with their strategy.

Because the biggest thing I hear in my head is, you know what, I've got fifteen years left, at least, I don't need to talk to somebody now. But it sounds to me like you could actually look at the business and say, here's some ways to structure it so that in fifteen years, it's ready to go. Is that right?

Kathy: Exactly, exactly. I have another catering company that landed... I won't say too much because they do have confidentiality. But he landed an airport to provide all of the salads and sandwiches. That's huge. But he also sells grocery stores. The margins on those two businesses are completely different. The buyers would be completely different.

So I'm suggesting before he gets too much further along in profitability, lift the businesses up into two entities. You can still use the same central, you can share expenses, you can offset balance sheets, etc. But the two buyers would be completely different and one might discard the second business because the margins on grocery business are much tighter. So that's another example.

And then doing estate planning with that and saying, well, is there an entity that we can discount in valuation and put into a trust for the benefit of your children? And that's where the personal planning of "How much is enough? What kind of lifestyle do you want to lead?" So it's all complicated. It's all interconnected.

And that's why I love what I do because I get bored easily. And I love these stories. And I love entrepreneurs. I love the fact that they're visionaries and that they create things. But waiting too late, again, you miss the opportunity for maximum planning.

Jeremy: So Kathy, you know, we're talking about the business and where that's at and how do we increase the valuation and, you know, I see story after story. I think of this one client of mine, who knows that they want to sell and they're about five to eight years out right now, and really digging in to what it looks like from a valuation perspective.

They've completely taken a different shift with the company because, within the next five to eight years, they could position the company in a little different light. They've actually looked at their services and said, “No, we have to sell every single customer.” If we can get this on a recurring revenue model, this is going to change your evaluation. This is going to protect us, you know.

Now, the good thing is they're planning, they're making those transitions. They also caught that if they do a bunch of different tax structures right now and some LLC differences, they can save a lot of money when they get there, but it'd be too late that day. We're talking about all this and there's also the other side of this business, and that's the lives of each and every one of us.

So, I know that you do more than just the business, you actually look holistically at the entire thing. Can you tell us, you know, three or four categories there that all really are intertwined into it? And we got to plan on all of them.

Kathy: Exactly. So you know, the biggest thing is how much is enough, right? People always ask that and they think we have like a little magic computer in our head, we can just wiggle our nose and give you a number. How much is enough varies very much family to family in terms of your personal goals and whether divorces, multiple children, different marriages, and whether you want to take care of your grandchildren, want to give your kids a ramp-up to own their own business, etc.

So each goal is different and the personal planning can't be discounted to integrate with the business planning. And that's where this comes in. And you know, I have one guy that they're first-generation immigrants, and they have enough pushcarts that they go through 25,000 pounds of chicken a week. And they own seven restaurants and a beach concession. Four minor children on one side and two minor children on the other side and no wills and real estate, multiple states.

And I said to the one brother, I said, “You know if you died, your wife would have you come back. Not because she missed you, she'd just want to throttle you and kill you herself because you're leaving her intestate in four states, she's going to have to hire a probate attorney.”

So those are some of the things that they don't think far enough... They don't have a buy-sell agreement between the two brothers. They don't have it funded. I see this regularly with families and business partners where they don't have buy-sells. They don't have a clear vision in advance on when they're going to sell, when one wants to exit, who's going to buy the other one out at what valuation?

And if you do that at the time, when you already got disagreements, that's just a cauldron you don't even want to go to so I don't know if that answers the question completely. But those are kind of situations that are very real, very present. And they just want to kick the can down the road because, again, I'm gonna make them spend money on me and make them spend money on a trust estate attorney.

Sometimes we do bring in a formal valuation firm, more money. It's all about risk mitigation and taking advantage of a longer-term play. But it's not immediate to the balance sheet. Unlike a business coach who can come and say, "Hey, I'm going to take your business from 2 million to 5 million, you're gonna make more money." That's much more palatable than what I do, so they can kick the can down the road.

Ryan: Sure. So we were talking earlier, we had a guest on our podcast, and they're an attorney, and they have a saying that I think we all love and that's, "It's cheaper to stay out of trouble than it is to get out of trouble." And I think a lot of times, people are like, "Oh, we're in the honeymoon phase, the business is going well, we don't need to worry about all this legal stuff. It's just an expense to us, it's going to cost us money."

We don't think that most people, most business owners, they don't get along forever. There's gonna be either a hill or a bump or even a mountain that you have to climb over together. And having that legal infrastructure in place can really save a lot of fights and a lot of headaches going on down the road.

When it comes to getting the business ready to sell and you're thinking about all the life stuff and the business stuff and everything else, what's the importance of having all that legal stuff in place?

Kathy: Oh my god, it can't be just counted. I am constantly amazed at how many people go into business with complete rose-tinted glasses, you know, and just think it's gonna work. And nobody ever wants to spend money on lawyers, right? And lawyers, especially in New York City, are expensive. And you know, so they want discounted, they want free advice, whatever.

So I think if you have this platform already in place, and you have great agreements and if you have buy-sells and you have pre-set formulas on exit... You know, I have a fourth-generation business I was talking to and the current CEO is one of the cousins, there's three sets of cousins, seven stores, big business, 52 million, and he's trying all sorts of newfangled ideas with absolutely no P&L and this business went through three generations, it really went well.

But on the fourth, only 1% of businesses make it. But there's no governance. There's no structure in place. The cousin that is trying to bring me in doesn't have the votes to get me in. And she's thinking of just giving up her shares. And when I asked her, I said, "Well, what happens?" She has to give them back to the company. I said, "Is there a valuation? That means your children can never come into the business?"

So people don't think forward enough. And the more that you have these documents in place with somebody who's seen it all, right? So we see so many, to any of us professional advisors, whether lawyers or somebody like me, we've already seen people make the mistakes so we can anticipate them.

And whenever there's money involved, the psychology goes up, fear and greed rule, and there's just so much emotion that getting an agreement done when there's already a problem and there's money at stake is, again, a nightmare.

How Business Owners Can Invest in the Future

Ryan: So that was a lot of examples about when there's family or partners and everything else. It definitely sounds a little scary and something that we definitely want to address with experts like yourself. But I'm sitting here thinking, you know what? I own the business myself. I don't have a partner. I'm married, but she's not involved in the business a lot. So I don't need that stuff. Like that's the stuff that's running through my head. Is that accurate?

Kathy: So that's a good point. A lot of businesses are solo-owned. So where some of the complexity comes in depending, again, on how big the business is and what it could be sold for or what it could be transitioned for, what happens is that, say the husband owns the business, and the business is 100% in his name, so it's a retirement account.

Most people buy their first home joint. Any joint assets bypass the will. So from an estate tax planning point of view, if you own too many of the assets on the husband's side of business, the wife has nothing to claim her exemption. So if your estate is large enough, you actually miss the use of something that's a layup. So that's one issue.

The second issue is if you're a solo entrepreneur, or you own the business 100%, even up to 5,200 employees, you've got to think about what documents are in place and whether everything's in your head.

You've been running this business for forty years, you know the customers, you know the order of things, you know who's good supplier, you know who you can extend credit to, you know whose payables are able to be a little bit, you know, extended if you need it, you've got the relationship with the banker.

But you're not infallible, you are mortal. And at some point, God will call you, you know, and so if you don't have documentation in place, nobody's going to get the value from that business. So that's where, if you're solo owner, those two pieces come into play.

Jeremy: You know, reminds me of a story when we were growing our body shops. We were working with an M&A firm looking at buying other ones. And I remember this one that was a really nice body shop and they're making good money, they had a long tenure of their employees.

And we were excited to find it. It looked like a great opportunity. It was a little bit under-priced and so we were like, "Wow, great deal." As we dug into it, the owner owned all of the relationships. And so we got scared, we got cold feet, we pulled out of that deal. And we actually went into a company that didn't have as much profit.

And really, there's some other issues, but the company was running without the owner, even though I had some disconnect. And we were okay with that because that's what we were doing for a living, right, and we could fix those, but we couldn't be the person that we were buying from on the original shop that I talked about because he owned those relationships, those guys had sent him work for the last thirty years, and we weren't that person.

So we ultimately got cold feet. I watched that business sit around for another three years. And ultimately, it did get sold, but I think it was more of an asset sale where they just kind of said, "Hey, here's our equipment."

Kathy: Right. And that becomes, you know, we have a panel discussion that we're holding, but it's how four business owners left a billion dollars on the table. And part of that is maximizing the value of your business and minimizing the estate tax. And so this is the thing if you wait too late.

I have another company I just got called in to. I was told by his friend that he wants to sell the business. When I got into it, I found out that he's actually discounted himself down. They brought in outside capital. He's no longer in control of the business, but what the partners aren't realizing is he's the one with all the contacts with the retailers that they sell to.

So that's, again, a business structure that, from the outside, looks great, four years when they hit five-and-a-half million. But structurally, internally, there's some real issues. And that's, you know, again, the thing that we come in, point out, and say, "Okay, let's fix this. How do we fix it? Who's the best? What's the biggest problem? What's the biggest risk? Who do we bring in first? And how do we allocate the time and money to get these things accomplished?"

Jeremy: Yeah, I'm working with another company who had a similar situation to the body shop I just described, the owner recognized, "Hey, I got all of these relationships. If I get hit by a bus tomorrow, the company's over."

And so they have methodically, every quarter, started working with others on the team to build relationships to hand off things to keep the experience the same. But let other people share in this because it's, you know, it's strengthening the value of the business long-term, the security of the business going forward, and really making it a lot better business.

Kathy: Right, and one of the things you'll find... I don't know any business owner who's not a control freak. And that becomes the issue I hear over and over. I spoke with a young lady the other day, had no idea her mother owns a family business. I was meeting with her on vintage clothing and finds out that her mother owns a business in legal services, and she's torn because she feels like it'd be the best financial decision of her life.

But on the other hand, she really would move away from her creative... what she's doing and what she loves, which would actually be hard to come back in to. And one of the things she expressed was that her mother is not open to change. And she comes in with a way to say, "Oh, this would be more efficient." And she says, "No, no, no, I like it the other way."

You know, and that becomes a part of the issue is being able to allow your employees, your team members, or your children to run with some of their ideas. Also, make small mistakes, let them make mistakes, give them a little bit of line and let them make mistakes. Don't just rush in and say, “Can't do that.”

I told you I have one diner owner who put two salt and pepper shakers on and he goes, "I tell my son over and over, don't extend credit to that guy. What does he do? He lends the credit and I get burned."

You know, but he's not giving the son enough rope to make some decisions on his own and give them, you know, let them lose ten grand or twenty grand or whatever is, you know, affordable for you, in running their venture. Don't wait until they take over the business and destroy the business to some newfangled idea that hasn't been tested.

Ryan: Wow. So we have a lot of great stories today. And even those last ones, when you've got the family, the younger family that wants to start taking over, but you know, their parents aren't letting them do that. They're not letting go. Being in that helicopter position, like you talked about before and being able to look at the business holistically.

It sounds like it's a great investment in time, money resources, to work with someone like yourself who can actually pilot that helicopter for them and let them see what the business looks like from the outside. Is that fair?

Kathy: Oh, absolutely. You know, but I try not to give bad news until I'm paid.

Ryan: Fair enough, fair enough. So if someone wanted to talk to you about that they're thinking, you know what, maybe it's time I start thinking about how I exit the business, how do they get ahold of you? How do they learn more about how you may be able to help them, Kathy?

Kathy: Thank you. So my company is Chapin Hill Advisors, chapinhill.com. And so we have a lot of information on our website. I do a fair amount of TV and radio. So we have links to some of those broadcasts.

I write every week. So people are welcome. We have an “Effective Strategies for Success” blog that I write every week. It's short. It's an easy read, and they're always issues that are pertinent in my business life that I'm seeing, you know, camouflaged enough to protect everybody.

I have a LinkedIn profile: Kathy Boyle. And then we have a YouTube channel under Chapin Hill. And I've just started adding more videos to that. So we do video, short little video vignettes with little tidbits of information that are easily digestible.

And then we have longer ten-minute ones where I delve into an issue and use, you know, an example, again, camouflaged, but some of those are just a little eye-opening for people. So those are a couple of channels that people are welcome.

And I always do complimentary meetings, we'll do an hour to ninety minutes, you know, Zoom call if someone's not local or an in-person meeting if they're tri-state, New York oriented, so I'm always happy to talk to people about what their issues are and then give them a proposal and a price. Everything is very individual, everything is tailored with what we do.

Ryan: That's awesome. So for those listeners out there that have actually started thinking about this, "Hey, I'm not going to be able to work for the absolute rest of my life. And I am going to have to plan on being able to either give this to family or sell it somehow." Reach out to Kathy. She's got some amazing information on her website and it sounds like that sixty to ninety-minute complimentary session can be immensely valuable as well.

Jeremy: So thank you, Kathy, for being on the show today, really enjoyed the conversation, and I look forward to the next steps.

Kathy: Thanks Jeremy and Ryan, I appreciate it. Have a great day.

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