[00:00:00] Welcome to The Financial Call. We are financial advisors on a mission to guide you through the financial planning everyone should have. Whether you're doing it yourself or working with a financial advisor, these episodes will help you break down complicated financial topics into practical, actionable steps. Our mission is to guide motivated people to become financially successful. Welcome to The Financial Call. We're excited today. We have a couple of guests. We'll introduce them. Laura's with me today and we're talking about business owners. This is season six, episode four exiting your business, which I think is. The hope for most business owners that there's actually something to exit from, right? So we'll get into a little bit of an intro and then we have a bunch of questions for some experts today we've brought in Bryant Jensen and Megha Kundra and These folks are is it best to say that you are an attorney or a legal firm? but experts in particular in helping people exit businesses and structuring

[00:01:00] the deal around selling their business. Is that an okay, succinct summary of what you guys do or, and obviously we'll let you guys expand. You've told us a little bit about your roles, but I'd like you guys to tell us more. Why don't you start, Bryant? Tell us if I butchered that or if you can fix it for us. No, that was pretty good. So we both work at a law firm called Fabian Bancot in downtown Salt Lake. Our firm's wide ranging, but our particular practice group is focused heavily on M& A transactions, helping mostly small business owners sell their business. That's a lot of what we do. That seems like a very specific thing to get into. And did you know you wanted to do that right away out of college or is that something that you slowly kind of went through a maze and landed there? I knew I wanted to go to law school pretty early. I didn't know what that meant until later. I got into kind of the tax side of M& A stuff and then high end estate planning in college. It started to seem interesting to me and then just kind of kept going down that road. Great. And then, Megha, tell us

[00:02:00] about you and your involvement. You talk, at least you told us you're maybe a little bit more involved in the day to day of actually helping the transaction get all the way through to the end. Is that right? Yeah. So, I do a little bit more of the M& A kind of side of things. I'm a fairly new attorney. I passed and was sworn into the Utah Bar last year. So I've primarily been working in corporate transactional work since then, just being a little bit younger, I tend to work on a lot of the diligence work that comes in, in terms of when someone's selling their business, kind of looking at the financials, looking at their assets, reviewing contracts, trying to determine if there's any like change of control issues or anything like that. So, yeah, definitely is the one that gets the stuff done. Basically, that's what she's trying to say. Modestly saying it. It's what she said for sure. Well, that's fascinating. Okay. So we have a bunch of questions. You've used the term MNA a couple of times just for anybody listening who may not know mergers and acquisitions. So that's a common acronym used in this space. And I think we dive right into it. We're talking today. We're hoping

[00:03:00] to talk to business owners who hope to exit someday, and hope to avoid pitfalls and be prepared for it. Just from experience, we see that many business owners enter into the business exiting transaction completely unprepared. It seems like it happens really fast. It might be because the buyer just shows up, and they weren't actually expecting to sell. The buyer's just there, makes an offer, and all of a sudden the seller's like, Wait, I hadn't thought about it, but that's a lot of money. Sure, let's entertain this. Or sometimes the current owner operator maybe has health issues or is just deciding they need to hurry and transition out. It seems like those scenarios kind of happen fast and the business owners don't do all the prep work that they could have done. So this is another one of those areas in life where it pays to be thinking about it a little bit in advance. And we're hoping that today this conversation can help people. Think a little bit more, like maybe five and 10 years prior to selling the business, so that they're in a better spot, maybe get a better valuation, maybe

[00:04:00] be able to sell for a little more, or maybe just experience a whole lot less stress and make fewer mistakes. That's the goal today. Laura, anything you would add before we start firing away? Questions? No, I don't think so. We have basically eight different steps that we've broken it out into, and we want to just go through with the experts here to guide someone through the things they should be thinking about to avoid these pitfalls. So I think we just dive right in with the first one. So the first one, evaluating the market. So someone has a business, they're wanting to sell. How does a business owner understand the current market conditions and the value of similar businesses in their industry? I'd imagine this could be pretty difficult. What would you guys suggest there? I mean, anytime you have a small business, it's hard to get a really good idea of what it's worth. There are probably the best way to do it is go get a qualified appraisal. So our small business appraisers around, you probably don't have one on file, but your CPA would probably know one or an attorney and they can look at your financials, comparable companies that they know of.

[00:05:00] Other, you know, market factors overall and come up with an idea of what your business might be worth roughly. What's the cost of getting that qualified appraisal done? Do you have a rough idea? I've seen anywhere from 2, just depends on how complicated your business is where your appraisers located How thorough of a report you wanted to produce that sort of thing? And those are so nuts too. I mean, when you look through those, they're like, well, we got seven different values for the company. One, because of this method and two, because of this method and three, it's a multiple of earnings and four, you know, and And then how do you value things like goodwill or branding? And there, there's so much in those that it becomes pretty difficult to know. And I think that's part of why you need it so badly is because you have two parties involved here and they have to have a third party coming in without the emotional bias and being able to say like, Well, we see in the industry that a brand in this industry is worth X and a customer base of that size is worth Y and these contracts

[00:06:00] over this many years produce income are worth another value. Anyway, that's, that's tough, but that's important for sure. Yeah, it is. And it depends a little bit on who you're selling to. So private equity groups or venture capital funds that buy a lot of businesses, they have an idea of we'll pay eight X of your earnings in this industry sort of thing. Most sellers don't know that, and so to not be at an information disadvantage, can really help to get that appraisal. Yeah, and that's really cool. In our industry, the multiple is about 8. Or, it's interesting, if you have over a billion dollars in assets under management, that number goes up from an 8 up to closer to a 10 to 12. And at the peak registered investment advisor firms were selling and really high multiples about two years ago, a year to two years ago. And then it's come back down a little bit. But if you are a solo practitioner in our industry, you're looking at about a three to four. So you build out a team and grow and create systems. It definitely expands the value of your business quite a bit. Okay. So the second category is

[00:07:00] reviewing financials. So I'm You mentioned this a little bit, Megha, around you spend time looking over the company's financials and those are things like income statements, balance sheets, cash flow and tax returns. So I feel like a lot of small business owners don't do that stuff very officially, right? Yeah. And how, how does that impact your job trying to help? But this part of the process, explain your textbook client, absolutely. And, you know, obviously I know cost can be a huge factor for a lot of people trying to sell their business, especially if it's a smaller deal. And I guess one of the biggest pieces of advice that we could give is honestly, just make sure that your financials are organized and you kind of have everything, you know, where it needs to be. I think you can hire an accountant, a CPA that can kind of help you in this area. But I think just kind of making sure that if you're expensing something, right, that that's kept separately from your regular financials, those kinds of things and just making sure that everything's kind of organized and put together. Right. Because like, let's just maybe dive a little deeper because you say expensing something. And I

[00:08:00] think what we're talking about there, correct me if I'm wrong, Megha is like, sometimes business owners will get a little bit creative with the things that they'll write off, right? And that can make the business look less profitable. And they're trying to do that from a tax standpoint, right? But a buyer needs to know like, well, that's just a personal ish, business ish expense that's legal to expense, but it's not a detriment to the value of the business, so they need to understand the difference there, right? Absolutely, yeah, and just kind of making it as friendly as you can for the buyer so that when they're going through and, you know, reviewing it, they're not getting frustrated or kind of having a headache just right off the bat, and it makes them want to actually come in and purchase your business. We had talked about that aspect, I think, also just making sure your asset sheets Our solvent and everything. Sometimes, you know, owners will get rid of an asset or they'll purchase a new asset right before or right after a deal is kind of going through and just making sure that those previous assets that maybe you're not using anymore aren't necessarily on there. So it's always good to kind of do your own diligence before you're bringing in the attorneys to do theirs. How many of your clients end up

[00:09:00] with a, like an, we know of a lot of firms that do outsourced C F O services, so this for listener, C F O, chief Financial Officer, instead of hiring someone who's really expensive in-house. You can go to an outsourced firm and have them help with your books and organize this aspect. It seems like most business owners, this is the least favorite part of their job, right? How many of your clients have an outsourced CFO or someone doing their books? Yeah, usually on the deals that I've worked on, they've usually brought in an accountant. I think we had done one back in December, a smaller deal that they had brought somebody in. Specifically for that, like to clean it up to sell. Yes. Yeah. Interesting. Definitely seen that side of it as well. I'm not sure Bryant, if you've seen both or. Yeah, that's pretty common. It really depends on the size of the business. So some businesses will have an in house CFO or accounting team that has the stuff just ready to spit out. That's not necessarily as common in smaller deals. So you do see engaging a CPA or an outside CFO, like you said, say, Hey, come do an, you know, sort of an audit, put together some real financials so we can disclose those to the

[00:10:00] buyer. When you guys are talking about sizes and small, what are you typically working with? I'm just curious. I mean, what valuations of companies do you consider small? What do you mostly work with? Yeah, I mean, small is relative. I mean, if you own a business, you're getting 5 million out of it. That's a lot to you. That's probably on the smaller range of a deal. We'll do anything from 5 million to we're working on it now. It's one and a half billion. So it's really a big range. That's not what I was thinking when I heard the word small. I know. I'll take five million. Small one? what about, I was talking to one of your colleagues the other day about this. It seems like if a business is selling for a million, two million, they incur almost the same amount of cost and fees and legal expense as a five to ten million dollar deal, but they're taking one tenth of it home, right? I mean, it's, it gets difficult in that space, doesn't it? (10:50) Yeah, I think that's something I would advise small business owners as well. If you're going to be selling your business for maybe one of those small numbers that we mentioned earlier, legal costs don't always scale as well as

[00:11:00] you might think it might take. If you've got, a partner on it and a couple associates, it might take the same amount of work on our end to do a deal that's $5 million that it would even for a $20 or $25 million deal. (11:09) Interesting. Okay. So let's talk about, I think most business owners in the sale of their business, the most, I mean, it's probably not the thing they should care about the most, but it seems like it's the first thing that they care about the most, which is taxes. And I think you guys know that there's more to it than that, but what are some of the main tax planning concepts a business owner should understand before they even entertain a buyer of any type? Yeah. So principally You got to understand how am I taxed? Are my a partnership and S corporation, a C corporation. I have a surprising number of clients that don't know when they come to me and I say, well, that's, first step, we got to figure out what we are. Asset sale versus stock sale. That's going to be taxed differently. Do you want to sell just the assets of your business or are you selling the whole thing that makes a difference? So figuring out. What you are, asset or equity deal are kind of the

[00:12:00] first steps. And then you can get into your planning. Do you have charitable objectives? And then maybe a gift to a charity or charitable trust makes sense. That's really common in Utah. As you might imagine, do you want to set up a trust for your kids? Do you want to do some really sophisticated planning? And you can get into a lot of options using trusts, gifts, stuff like that, that depending on your circumstances might save you a lot of money. Or if it's a smaller deal, it might not be worthwhile. So I'd evaluate where you are. What options are available to you? Cause you know, like a C corporation of a certain size and industry, you can exclude up to 10 million of gain on the sale of your business. So if you're a C corp and you meet that, that's great. Save all this money in tax. If you're an S corp, not so great. What else can I do? So those are the considerations that I would say, if you're thinking about selling, think about what kind of business I'm unstructured as, how should I be structured? And that's to your point about, think about this in advance. Maybe it makes sense to become a C Corp. Maybe it makes sense to get out of that and become a partnership.

[00:13:00]  So when you kind of first get the inkling to, Hey, I might want to sell in three, five, 70 years, it makes sense to have a conversation about how my tax draft over to sell right now. How can we make that better? And let's put that structure in place. Is that founder stock that you're talking about the C Corp? That's what it's called. That's like the common name for it. Yeah. You're going to call that a lot. Yeah. If people have heard that before. Yeah. Yeah. That's the exemption. Now, talk to us a little bit about the asset sale versus the stock sale. So thinking about maybe an example of a landscaping business, they could sell all of the trucks, all of the contracts, all of the different pieces of the business. Or they could just say, here's the name and everything that is the business. You can buy the whole thing. Like how does that change the outcome for the seller? Yeah, that's a really good question. So in landscape co example, if you sell, let's just say it's an LLC, you sell 100% of the LLC land co, you're going to get your gain or loss based on what you got for those LLC interests over what we call

[00:14:00] tax basis in that LLC. If landscape co just sells its assets, sells its trucks, contracts, goodwill. Now your gain or loss is based on the basis in those assets. And it might be different partnerships. You can, any of this gets really technical, but partnerships, you usually like look through the assets, but even on a business stock sale, you're saying or with partnerships, yeah, you'll look down to, you know, if I'm selling a business, it's all just accounts receivable. They'll just treat it as if you're selling accounts receivable, for example. But buyers typically like. To buy assets because they don't have to worry about inherited liabilities of your business and they get purchase price tax basis in your assets so they can depreciate as if they're brand new based on what they paid for them. Sellers usually want to sell the stock and get out. So it really, it kind of depends on the nature of your business. A C corp, you know, I'd say, let's sell your stock because you pay tax once. If the C corp sells your assets, it'll pay tax on the gain on the assets. That's got to distribute the cash to you. You get taxed again. So it really

[00:15:00] depends on that fundamental question. How are you set up? There's an asset or stock sale and then kind of evaluating from there. And it seems like at least for the clients I've walked through this, there's always a little bit of a negotiation between buyer and seller because like you said, one favors the other. That's interesting. Okay. Is the name, like the trademark, the name, the brand, can you sell that as an asset sale? Sure. So you can sell any IP, the going concern value, the name, that sort of thing. Zach, you had earlier mentioned, you know, goodwill and how can you quantify that? You know, when you're doing evaluation of the company, I mean, we can also sell goodwill separately. We've done purchase contracts and like that for goodwill of a company, you know, when you're kind of selling the reputation that the owner has built in his business and they know that that name is going to be carried forth. So. Wow. Okay. That's a lot of things to think about. For sure. So Bryant, you talked a little bit about estate planning. You mentioned giving to charities that that and we've seen that as well using donor advised funds or charitable remainder trusts. There are ways to move money

[00:16:00] into a different entity so that when it's sold, they don't have to experience that gain. Today's probably not the day to go into a ton of detail because we have entire episodes on that. But back to your point about the business entity type, for example, S corps, it gets a lot trickier doing like a charitable remainder trust with an S corp, right? Because you end up having, I think what's called a deem sale. And you basically have to recognize the gain anyway, sometimes before you can get it there. And, and then it seems like with C corps and straight LLCs, you have a little more flexibility. But the taxes along the way are not as good because the S Corp allows you to control salary and distributions a little bit better. In other words, what I'm saying is I feel like most of the sellers we run into are LLCs taxed as S Corps and have been for a long time. Before we move on to estate planning, do you have any, any advice in particular for someone who is in that boat LLC taxed as S Corp and there may be five to 10 years away from selling what they should be thinking about? Yeah, that's a really common LLC taxed as S Corp. I see that probably most frequently as

[00:17:00] well. I would say if you're really committed to selling and S Corp is probably the worst vehicle to be in. At least in our experience, you don't get that founder stock benefit. There's a lot of buyer benefits to being a partnership that aren't available to an S corp or are harder to make materialize for an S corp favor partnership status. And there's a lot more flexibility in the partnership. So like you said, CRTs can't own stock in an S corp. It's a prohibited owner. Some other trusts can't, partnerships can't. So it really limits your flexibility in doing kind of advanced tax planning or state planning. to be in an S corp, and it's not as buyer friendly as a partnership. So there are tax free ways to go from S corp to partnership. And so if you're saying I am going to sell in three years, no matter what, I meet with the CPA and attorney and talk about, you know, what makes most sense to, to move forward with. Do you two ever get involved in that part of the prep process? Or you're more like, Hey, we're about ready to get going to the cell. And, and you jump in at that point. Typically we do all this. in a

[00:18:00] short time frame. So someone will come and say, Hey, I'm going to sell my business in three to six months. What can we do? And then we try and do all this very quickly. And that can work. That can work fine. But more time, the better, right? That makes sense. Okay. So with regard to estate planning, what are some things you see in terms of how do your clients address transferring the ownership to either future generations or other people and some of the things you see them do either right before or right after a transaction? So there's lots of options. So one, and you touched on this, who do you want your business to go to? You can want to sell it to your kids or just some outside buyer. If it's your kids, that's going to change the answer quite a bit. But the most common thing we see is structuring some sort of trust for the benefit of you, your spouse, your children, grandchildren, some of the proceeds of the sale or all the proceeds of the sale come to that trust at the end of the day and your state planning set up in conjunction with the sale. Um, so yeah, let's go down that road a little more. So let's say that we're not selling to the kids. We're selling to a third

[00:19:00] party, but this person is receiving 30 million worth of assets. So they are going to have to think about the lifetime exclusion amounts and they're likely to be subject to a state tax. So if we just simplify this for those listening, what we're talking about here is maybe assigning a portion of the business value to a trust or to another entity so that when it sells. You don't have to put it into your own estate and then later get it back out of your estate. Is that, am I explaining that okay? Yeah, no, that's a really good explanation. So if you're looking at a valuation where you might be paying estate tax, and that estate tax exemption amount's going to, at least it's expected to drop significantly in a couple years, almost in half the profile of who might pay that tax is going to expand a little bit. So, you know, family holding company is an option, gifts to kids are options. Setting up trust for each of your kids is an option. Some people do a sale to a trust for their kids before they do the actual exit. People try and discount that, get under that exemption amount. So if you do get in a situation where you think my valuation is going

[00:20:00] to push me above the estate tax exemption amount, especially considering other assets you might have, then you really should explore some aggressive estate planning with trusts, gifts, and things like that to minimize the tax hit. Yeah, that makes sense. We see every once in a while that a business owner will be able to get a discounted valuation due to a minority interest in the business. So like, like you talked about getting a discount there just for the listener here. So let's say that you are selling or valuing 10% of your business that you're planning on putting over into a trust to get it out of your estate. Well, in many cases, it may not be. need to be valued at 10% of the real value of the whole business being sold because that 10% owner is really just along for the ride, doesn't have any control over the outcome of the business. Therefore, it's not worth as much to that particular owner. And for that reason, they can sometimes get a compressed value. So maybe 10% of the business is technically worth, you know, 5 million because it's a 50 million total valuation. You might be

[00:21:00] able to move that out at two or three or something less because of a discount. But I had a client do that not too long ago, and I was actually really surprised. And maybe it was a really aggressive strategy, but I was really surprised at how much they were able to discount for a minority position in the business. So those are some things to think about in advance that could put you, if leaving like a lifetime legacy to your family, we do talk to some people who are like, I don't want my kids getting anything and not let you guys run into that as well. Yeah, a bit. Or a very limited amount. Yeah. Yeah. It seems like it's more common that people want to pass the assets along. Okay. So as we're talking about valuations, our fifth category was around improving the business value. I know for our business that if you are a financial advisor. And you are the key person and the business like survives or dies based on one financial advisor going to work or not going to work, your business is not worth nearly as much as if you've created systems and processes and culture and the things that make a business thrive, whether someone shows up or

[00:22:00] not. So in my little world, that's like one of the first things I can think of is have we created a system and have we made this in a way that We can replicate it. What do you see with your business owners that they should be doing five and 10 years before selling to get their valuation higher? Yeah, I'm happy to touch on that. I think obviously in terms of valuation for most companies, increasing revenue, increasing sales and increasing clients is kind of what you want to go for. So from the legal side of it, I've seen some ways that maybe you can streamline bringing those clients on. And one of those ways is contract review or contract negotiations. I do a lot of contract review for a SAS company, a software as a service, and they provide services, basically software services to their clients in order to enter into those. They have to formally execute a master services agreement or like a SAS vendor agreement. And so what we've done is we've basically created like a form. Kind of template for that MSA and allow those clients to basically provide their own edits or red lines and have gotten it down to a point where it's almost an hour, an hour and a half, I think on our end to get through those edits and

[00:23:00] red lines because we have that form. So I think if your goal is growing the value of the business and increasing it, obviously you're going to want to bring clients in. That's going to increase your revenue, and I think having processes like that can kind of help streamline bringing them in. Let me see if I can catch up to you. So you're saying that. The standardization of the contracts across the firm, is that what creates the value or is it just getting these contracts in place? Yeah, I think obviously if your goal is kind of to try and like bring clients in and kind of increase the value of your business, again, having those contracts already in place, right? So that you're not going into it blind and just kind of negotiating those agreements blind can be really helpful. Down to that point, kind of, as I said, where when we get the client providing red lines or feedback on our contracts, it maybe takes like an hour, an hour and a half at this point to kind of run with those edits. Interesting. Okay. That's great. Okay. So an example would be having more clear and actually documented contracts in place. No, absolutely. And then I think it just helps your client have a better view about your company in general, right? They're not already kind of starting off on a sour note that now we have to create this contract just to get into business with you. You've kind of already got

[00:24:00] that process there and have that base form so that they can come in, which I think is helpful. Got it. Okay. And then obviously if you can increase sales, that's going to increase the value of your business, increase profits that should increase the value. If you can increase your growth rate in the last three to five years, that should increase your value. Are there any other things that go into the valuation that you two think like, Oh, this is a dead ringer. If you can do X value goes up. Anything else? So what Megha said is exactly right and what you said is exactly right. To add to that, I would say, you know, you got to know what your, your assets are. So if your asset is a key contract with a government vendor, make sure that's well documented. Make sure there's no, you know, risks or uncertainties there. But really it's like, like you guys said, just drive revenue up, make sure your assets are well documented, have systems in place, that sort of thing. Will people ever try to cut expenses in those few years? For the appraisals, how many years are they looking at? Three years back, five years back, one year back? Three is probably a pretty good rule of thumb. Three. So will people try to cut expenses in

[00:25:00] those three years to make their revenue look bigger? Will they put money into the business to buy new machinery so their, their assets are greater value? I'm just curious. Yeah, it depends a little bit on how much foresight they have at that point in time. Most of our clients, in my experience, don't think they're going to sell in three years when they're making those decisions. So there aren't really too many decisions where they make just, let's try and drive a higher balance sheet or income statement number just for the sale. And sophisticated buyers can kind of see through that a little bit. So not worth it to try and mess with the numbers that way. Just do your job. Well, I think that's a really good way to put it. Just do your job really well, run your business really well and it'll work out and clean to like run it clean. I think that's. That's the thing I've seen. We've entertained acquiring other firms actually, and so far we've never done it. And the large reason for that is every business that we've looked at and we've thought, Oh, could we fold them in? It was, they just weren't clean enough and it was so complicated and it seemed like,

[00:26:00] I just don't know if we want to take on that. It felt too messy. That's interesting. Yeah. And if the buyer is looking at three different businesses in your industry, and you have the cleanest financials, most organized documents, easiest sort of, like you said, to unload or acquire, that can make a difference. And you touched on this at the beginning, Megha, do people use QuickBooks or they just hire an external person? I mean, what's the cleanest way to do it through? I mean, Google Drive and Excel sheet, do you know what certain softwares you've seen that help organize things? Do you mean in terms of like providing it to, you know, their council or just kind of putting it together? Either way. We're just getting their affairs in order, you know, because we're again, we're talking to somebody that maybe is entertaining the idea of selling their business in three to five years. It seems like. They're on the homestretch. They should spend quite a bit of time cleaning it up. What do they use? Yeah, and I think, you know, we had touched on this earlier, but honestly, just bringing an accountant in, obviously, as well, to kind of look at your financials and figure all that out. There's several data rooms and platforms that

[00:27:00] you can use, kind of, to consolidate all of that information and kind of turn it over for diligence and that kind of thing. I have a neighbor who used to work for a large corporation, a publicly traded corporation, as a CPA. And... I mean, he retired, but not really. He retired, and now he's an outsourced CFO for two or three companies, and he just loves it. Like, it's his favorite. He actually really loves his job now, whereas I don't think he enjoyed it very much before. And I think he's able to use that expertise. So, Laura, at least my opinion here is, I'd probably bring on an outsourced person, because they're going to make the forms. Those balance sheets and income statements, they have a flow to them that's fairly standard. And they're like tax forms. You can, if you get used to looking at them, you know exactly what page and where to go and find things. And if your forms don't look like everyone else's, I think the accountants on the other side are going to pick up on that pretty quick. Yeah, that makes sense. Okay. So we talked a lot about documenting processes. That was, that was one of our areas of conversation. And at least for

[00:28:00] us, we can see evaluation change. between a multiple of five, six times earnings up to eight times earnings as an investment advisor firm begins to create processes and gets rid of that key man risk. I don't know other industries very well. I'd be interested to know your experience with other industries besides ours. How much of a benefit do you see other industries receive for like documenting the processes and in terms of multiple expansion or anything like that? Yeah, I don't really know. How to quantify in terms of multiple expansion, but we do see deals materialize or fall apart based on whether or not a key person is going to be part of the company after the acquisition. So we do a lot of work with agricultural companies and farming and packing and knowing the process of that is very. Specialized and can be unique. And so we've had deals that were worth hundreds of millions that depended on, is this person going to stick around for two or three years and teach us how to

[00:29:00] keep that process going? So it's hard to say, is it a five or eight X, but it can make deals happen or kill deals. And so if you do have a lot of specialized knowledge that your business might fall apart, or at least take a big hit, if you were to step away as soon as you can make that into a system or Kind of spread that knowledge that can kind of mitigate some of that key man risk. But if you are going to go sell and you're in that situation, you need to probably expect some sort of period after the sale where you'll still be around two or three years. So, okay. That was going to be my question. Two to three years. Is it like they call those an earn out usually, right? Where you have a certain, like I know of a friend who has a certain set of metrics where if the business hits these metrics, he'll get extra payouts each year for the next three to five years. Interested to know how common that is. And I would assume if you don't do the work in advance to create the systems, you should expect to work for another three to five years after, right? Yeah, I think that's pretty fair timeline. We did a deal that ended in December. That

[00:30:00] was kind of the situation of smaller business. The owner and founder was really critical to it. He'll be there for a few years after he'll earn a salary. And then there's some contingent sort of purchase price. And like you said, an earn out, if you hit certain numbers, just like it sounds, your earnings go up. And that's really, really common. So someone who's thinking about selling their business as a form of retirement probably should anticipate, like, especially if they have specialized knowledge that I think a lot of the business owners are like, Oh yeah, I'll sell. And then the next year or within months I'll be traveling with my spouse or whatever it may be. The reality is they may need to count on another two to five years of working beyond the actual transaction date. Yeah, each deal will be different and you know, you can't take a step back probably. But yeah, you should anticipate being involved for at least some period after the sale. Unless you're selling, you know, a fast food franchise, in which case you can probably just walk away. But if you're selling something specialized, you should probably plan on staying involved for a little bit. Yeah, and I think that's something, you know, we as the attorneys can usually draft like a consulting agreement

[00:31:00] or transition services agreement, and they can get all of those provisions sort of figured out while the deal is happening. And then we can execute that document kind of at the same time as the closing. I like it. Okay. We only have a couple things left. Can you guys think of some of the, I mean, obviously you don't want to share anything that's too private or specific to anybody. So obviously we're not asking for that, but I would love to know like what might surprise our listeners, just some of the common mistakes or things that have gone wrong. Like you talked about deals falling through because key person is disappearing, but what else breaks a deal? Yeah, I think one of the things to keep in mind earlier, I had talked about the diligence that we as younger associates typically tend to walk through, and a big part of that is the review of vendor contracts and customer contracts to see if there's any anti assignment or change of control provisions. And essentially what that means is that you might need to get a third party's authorization or sign off if you want to go through with this deal, because that third party would need to sign off saying that you can transfer this contract as a part of the deal. So I guess going back to the

[00:32:00] question, don't just assume that you. are just going to need your sign off to go ahead and move forward with this deal. It kind of varies based on if you're doing an Asset versus an Equity deal, but these Change of Control and anti assignment provisions can be really key because if you have language in there that basically says this agreement shall not be transferred without the consent of so and so, well, that third party is going to have to go ahead and give their consent. So, I think just being aware of that and that it may not be as easy and smooth as you think. And that's why it's so important, I think, to involve your counsel early and ahead of time so that they can look for those things in diligence. Because that could be a huge dissatisfier if they're like, well, wait a second, we have to go and win all these clients again that we just paid for? Absolutely. And that's why I also think, you know, talking about the document processing, if you have sort of these sweetheart clients or vendors that you really like and hope move forward with the sale onto the next owner, you know, make sure that that's documented, right? And make sure that they're aware of those vendors and of those customers that you're hoping will, will move on with them. Okay, so then our last area. Now, I don't know how much you guys get to touch base with your customers

[00:33:00] afterwards, but I'm really curious to know of the people who would walk away and be like, man, that deal went really well. We were happy that that transition happened so smooth. I mean, what would you say? Are some of the things that made them so successful in the two years, maybe three years after the transaction and that allowed that business to succeed? What went right? What were right for the business post sale or for the client? Either, either. I mean, I assume that if the client walks away and at the business survived, it's probably good for both. I would assume. Yeah, I think that's right. I think, be honest about what you're. Expecting what your hopes were. I think that's the first thing if you were hoping to transition it to your kids and it falls apart versus a third party. That's going to have a big impact on how you feel about the deal and how quickly you can walk away. The most successful ones we see usually have 12 to 18 months of planning. You think about how you want to exit. You find a deal that works for you.

[00:34:00] Be honest with yourself about if legacy matters, you know, do you want to see your business chopped up for assets and sold, or do you want to see some sort of lasting impact and that's going to make a big difference on who you might sell to and how happy you might be walking away. The other thing I'd caution is, you know, we do this every day. Most small business owners will do this one time, maybe two or three times. So a lot of this will seem foreign and says it'd be really honest and communicate constantly with your counsel. They're there for you. There's no dumb question. We get that. This is a totally foreign experience. Running a business and exiting a business are totally different. So be really honest, communicate regularly, get an attorney that will do the same for you. And no, and that helps, you know, to expect. I would assume it's also really emotionally charged and they're 30 plus years into creating this baby. And they're about ready to walk away from it. Oh, absolutely. What Bryant said, just, I mean, hit the nail on the head. And I think also just being aware of kind of going

[00:35:00] on that vein, like what you don't know, right? I mean, you've clearly built this business. You're very knowledgeable about this area. But just like Bryant said, you might A, be too close to it to kind of see what you may need, like an attorney or an accountant to tell you. And so I think that would be my advice. Just kind of go into it and realize, like, you know this business particularly, but when it comes to selling it and what that's going to involve, you may not. You need to have all of the knowledge that you do about that, that's great. Okay. So tell us a little bit about, let's say someone said, okay, I am in that situation and I want to talk to Bryant and Megha. Tell us about how they would find you or what they should do. I mean, give us a chance, maybe the website name really clear so that people could find you guys easily. Obviously we'll put that up on our. We have a page for each podcast episode and we'll make sure that that stuff gets up there. But yeah, tell us a little bit about at what point in the process they should call you, and then we'll wrap up there just so they know what to do next. Yeah. So our firm's called Fabian Vancott. We've been in Utah since 1874. So one of our Vancott side of the firm, their claim to fame is they were Brigham Young's

[00:36:00] attorneys. So longstanding Utah firm, downtown Salt Lake websites, just fabianvancott. com. We're both on there. I would say. If you're thinking about it, if it's crossed your mind, if you're getting close to an age where you want to step away, or you think that now's a good time to liquidate, multiples are good, earnings are good, you want to see if you can pull some cash off the table, shoot an email to a CPA, shoot an email to us, you guys, and just say, Hey, I'm contemplating this, who should I talk to? And we're always happy to take, you know, an initial call and see if we can be helpful. And we might say, Hey, It's early call us in a year, or we might say, Hey, let's do X, Y, and Z and get you set up. Before you go, go to market. And if you're listening to this because it applies to you, congratulations, like that's a big deal. I mean, it's good for you, but let's not be that seller that all of a sudden wakes up one day with a huge offer on your desk and you haven't thought about it. at all prior to that moment. I mean, that's

[00:37:00] not that it's too late. You'll probably still walk away with a bunch and you'll probably pay a decent amount in taxes. But gosh, if we can just think about it a little bit in advance, let's do it. Talk to us at Capita. Talk to these guys. Let's see if we can help you out. Thank you both. This was so fantastic. Appreciate you joining us. Thanks Zach. Yeah. Thanks for having us. Thank you. This podcast is intended for informational purpose only and is not a substitute for personal advice from Capita. This is not a recommendation, offer, or solicitation to buy or sell any security. Past performance is not indicative. Or for a future results, there can be no assurance that investment objectives will be achieved. Different types of investments involve varying degrees of risk, including the loss of money invested. Therefore, it should not be

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