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Start, Scale, Step Back: The Business Owner’s Transition

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Stepping out of a business is a formidable challenge, fraught with emotional and pragmatic hurdles. After all, when you have poured everything into building something, it’s an almost impossible undertaking to leave it all behind. In this episode, Elliot Kallen brings on Laurie Barkman, author of The Business Transition Handbook, to discuss the intricate journey every entrepreneur faces: the path from birthing a business idea to the emotional and pragmatic challenges of selling and transitioning into retirement. They discuss the essential role of an advisor, the hazards of not being adequately prepared for transitions, and the significance of charitable considerations post-sale. Tune in and learn how to start, scale, and step back!

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Meet Our Guest

Laurie Barkman

Author | M&A Advisor | Award Winning Podcaster & Speaker 

Laurie earned an MBA from Carnegie Mellon University Tepper School of Business and a Bachelor of Science from Cornell University. She has a Certificate in Exit Planning from The Exit Planning Institute and is a former middle-market CEO with an exit to FedEx in 2015. She was also a Managing Partner of a private equity firm where she led deal sourcing, strategy, and due diligence. To support education and economic development opportunities for women, urban youth, and entrepreneurs, she serves on Boards for PowerLink, Center for Ageless Entrepreneurship, The Pittsburgh Promise, and is an Advisory Board Member for Safety io, a subsidiary of MSA Safety.

Start, Scale, Step Back: The Business Owner’s Transition With Laurie Barkman

In this episode, we are with Laurie Barkman. Laurie is a specialist in selling your business, transitioning your business, and moving your business to the next level, whenever that is. We’re going to talk about what that is. This is an episode designed primarily for people who own companies, people who want to transition family businesses, or people who know people who want to go to the next level with their business. You can pass this along at the same time. Laurie, let me welcome you.

Thank you, Elliot. It’s great to be with you.

It’s great to have you here. Let me tell you why we’re talking to somebody in the business transition industry. It’s because we help people from our end or business owners with their money. That’s what we do. We could talk to them emotionally and deal with that. There are emotional upheavals when it comes to transitioning your business. We will talk about that because they get taken for granted and ignored. They’re enormous.

Why don’t you start talking a little bit about what you do? She’s in Pittsburgh, Pennsylvania. We’re in California. She’s one of the foremost authorities in the country. In the end, we will give you the ability to reach out to her. I see you’ve got a book there called The Business Transition Handbook, which is a great business for everybody. It’s a great book if you’re looking to sell your company because it doesn’t happen in the last six months of your company. It takes more time. What is the Sherpa that you do? How do you help people?

The Business Transition Sherpa is a journey that entrepreneurs are on. The journey starts when you launch your business and buy your business. The business is transferred to you. You’re on this journey until you stop. When you stop is up to you. Everyone’s story is different but what I find so interesting is working with business owners on that journey and supporting them as a guide. That’s why I use the phrase, “Business Transition Sherpa.”

MTE Laurie Barkman | Business Transition

Transition is a movement from here to there. It’s not a moment in time. You didn’t build your business on your own. Why sell or transition your business on your own? My ethos for being a business transition and mergers acquisitions advisor is working with companies in the lower-middle market as the advisor or somebody to help you get all these swirling questions out of your head, articulate them out loud, and then find answers. Finding answers on your transition journey is my mission.

I watched a lawyer, a very close person to me, who specializes in the transaction paperwork associated with the transaction. We were on vacation together. He was working with a business owner and tearing his hair out with all the constant mistakes the business owner was making in the process. He was trying to help the business owner and the business owner kept cutting himself off at his ankles along the process of thinking, “I want out. This company that buys me seems honest. I’ll do whatever they say.” What’s wrong with that philosophy?

Step one, don’t sign anything that you’re not going to commit to. If it’s a non-disclosure agreement, do you need your attorney to review it? Probably not. Let’s have a sense of reality here but don’t sign a letter of intent or an offer for your business unless you have legal review. Don’t sign a purchase agreement unless you have a legal review. That will be my caveat.

MTE Laurie Barkman | Business Transition
Business Transition: Don’t sign anything that you’re not going to commit to.

The other thing on that would be until you have a non-disclosure signed, don’t share confidential information, especially if it’s with a competitor. There are lots of ways you could cut yourself off at the knees in a negotiation if you start to reveal too much information too soon. If you’re not protected from sharing confidential information, there are tons of pitfalls.

Somebody is thinking about the next step in their life and they have built their business up. They’re going to the point and reaching a part of their life where they’re saying, “It’s time for me to move on and walk away into the sunset.” This is an emotionally unbelievably disturbing time for them because that’s their baby. They’re getting rid of their baby. How does this work emotionally?

It’s very emotional, especially if you’re the founder. You might feel that your identity is very tied in with your business. If your family name is on the door, you feel very proud about your heritage with the company. You’re proud of the familial organization that has been built and the wealth that has been created over generations. You can walk down the street and people know your name. That feels awesome. What happens when that goes away? What happens to that feeling in your identity? There’s a fear about that. We fear what we don’t know and the uncomfortable. What happens? We don’t want to talk about it or work on it. The more you’re not doing the proactive work, all of a sudden, when the time happens, you can’t work on your exit plan when you’re exiting. That’s not a good time.

MTE Laurie Barkman | Business Transition

When should they start their exit plan?

Your business ideally should be ready to sell any day. That’s ideal. What does that mean? It means that you’ve got a well-run business where your financials are in order, processes are well-documented, you have a team of people who are accountable that you’re able to delegate to, and the business in and of itself can thrive without the owner. If we have a business that can’t do that because the owner is the primary salesperson driving more than 40% of revenue, or they are the main crux behind product or service delivery, and the company will fall apart without them, that represents a risk to a potential buyer or a transfer of ownership.

Ideally, your business should be ready to sell any day.

The main thing is to have a healthy business that could be bought at any time. That’s the concept behind it. There’s transferability, attractiveness, and risk mitigation that we’re balancing at any given time. There are lots of different reasons why companies have more value than their peers. We can take two companies, Company A and Company B, that are in the same industry with the same revenue but they will have two different valuations. There are good reasons for that.

What we try to help business owners understand is that when time is on your side, you can make changes and impact value but when you’re out of time, you tend to be out of options. How much time do you need? Ideally, you’re giving yourself 5, 7, or 10. If you’re at ten years, you’re being proactive, and that’s amazing. I see most commonly that 5 to 7 should be the minimum but in practicality, it’s probably more like 1 to 3, which is not a lot of time.

Most business owners do it, “I’m going to make it even six months.” They wake up one morning, “That’s it. I’m packaging my business and selling it. I want to be done. This is the month of August. I want to be done by January 1st.”

Fortunately, because of the education and the outreach that I’m doing, I am talking to more people who say, “I understand your premise. I buy into it and I want you to help us.” I say, “What do you think roughly your timeline is?” They say, “We would like to truly be out in seven years.” I say, “Let’s back that up. If you’re going to stay with the acquirer for 1 year, 2 years, or 3 years, you take those years out.”

“Maybe we’re at 3 years and it takes us 1 year to get ready. There’s in some cases more than one owner. We’ve got lots of decision-making here. That takes time. We need to list the company next year because the process of sale could take a year.” All of a sudden, we’re close to that three-year mark. If we need to sell them in 3 years so they can retire in 5, we have to start now. I’ve been having that conversation more and people understand, “We don’t know enough about what we don’t know. We have to start working on this.”

We advise people all the time in our conversations to have good hobbies as they begin to enter their 60s or late 50s because they’ve been working a lot. Sometimes business owners’ hobby is their job. They have been there being dad or mom in some soccer games and things like that but every free moment, they were thinking about work or working. Sometimes even on vacation, they’re working. We’re our laptops and cell phones. We’re available 24/7. I could be in the South of France and doing this show with you. I’m working all the time and people in my office know that. I’m a very typical business owner. What happens when people like me enter retirement and the only hobby we have is work?

MTE Laurie Barkman | Business Transition

Unfortunately, for many, it’s not a good situation. There was a Harvard Business Review article that I read. It was initially published in 2015. At that time, the data was largely around White males in their retirement. The statistics around suicide and death by suicide for males over age 65, particularly in this segment of people who have retired from a corporate business, were fairly high. The gist of the article is if we can develop things before we retire, what does retirement mean anyway?

I was asked to contribute to a Yahoo Finance article on #NeverRetire. The journalist had reached out about this opportunity and the question she was posing was, “Why is #NeverRetire trending? What does it mean? Is it good or bad?” I answered it from my perspective of being an M&A advisor. The way I thought about it was it can be good or cannot be. There’s always a balanced view.

We are seeing more business owners holding on to their businesses longer than we would have expected in the Baby Boomer segment. We were expecting this giant tsunami of Baby Boomer business owners selling over the last few years. That rate has slowed. I don’t know for sure. I haven’t seen any data on it but I suspect that there’s a financial reason for that. There’s probably also this other reason that we’re talking about, which is there’s a hesitation to move on from what we already know, what we’re comfortable with, and what we find very tied to our identity. Separating that can be very lonely and challenging.

I go to Laurie to these economic and investment conferences all the time. I’m shocked. I’ve been doing this for many years. You might say I’m seasoned. I have a white beard. I look like I’m seasoned and all that stuff. I’m amazed by how many people are in their late 70s and 80s at these conferences from my industry. They’re like, “You have nothing to do in your life. This is it.”

Some of them play golf. They go once or twice to play golf. They might go to Florida for the winter or Arizona and do some snowboarding or something like that but in reality, this is their life and they can’t see themselves any other way. You’re in that business. You are advising the transition and helping them even find a buyer if that’s the case or finding somebody who can help find them a buyer if they want to do that. What are you saying to them at that point when they say, “I don’t know what I would do.”

A chapter very early in the book, The Business Transition Handbook, is talking about the transition mindset, what roles we play, what relationships we have, what’s important to us, what we might think about if we were not working in our business day-to-day, and what roles might we want to have. It’s an opportunity to think about how you might spend your time differently.

MTE Laurie Barkman | Business Transition
The Business Transition Handbook: How to Avoid Succession Pitfalls and Create Valuable Exit Options Paperback

Some of my clients say, “I want to focus on health and wellness. I’ve pushed it to the back burner for too many years and I want to be able to focus on that.” For others, it’s travel and meaningful experiences with their spouses. One person said, “Our travel has always been to these things and they’re amazing but we always do the same thing. I want some adventure. I want to have an adventure with my wife.” I thought that was sweet. His church and the mission of the church are very important to another client of mine. They give to that cause consistently already. He’s not retired but he wants to take that to the next level in his retirement and get more involved in the church and communities that he serves.

Everybody’s perspective on that is different but it’s important to have a balance. It’s so hard as a business owner. How many hours a week are you working? When you do take a vacation, are you turning off your phone and not checking emails? It is tricky because we are trying to make sure that the train stays on the tracks but at the same time, isn’t it one of life’s ironies that when we have the time, we don’t always use it the way we would like to? Later in life, we might not have the health.

It’s time and money trade-offs when we’re younger. As we get older and maybe we have more money, it could start to be other things. We can find things that we enjoy in our lives and take that with us as we go into whatever retirement means to us. Retirement is one of those words that for some means, “I want to go to the beach or travel.” For others, it’s, “I want to start another company.”

I’m involved with a nonprofit organization. It’s called the Center for Ageless Entrepreneurs. What we started to see in COVID was a huge spike in new companies being formed by people over 55. Maybe they are lifestyle businesses or consulting practices. It’s just one person or what have you but there was a very interesting trend happening where people were leaving their corporate jobs and going to do something different. There’s a growing segment of entrepreneurs who are over age 50.

There’s a historical thing to look back at McDonald’s and other companies founded when that person was not in their twenties. It wasn’t the tech entrepreneur but they were experienced people who decided to leverage their skills in a new way. To me, retirement might mean you’re leaving behind what you had done in the past but that doesn’t mean you need to sit home alone and watch television for the next twenty years.

There are a lot of skills that you have. How can they be leveraged? SCORE is a mentoring organization. There’s no charge to the mentee but it’s a wonderful way for business executives to give back. There are lots of other advisory organizations that probably need support or take up real estate. There’s an infinite number of ways that you might “retire” but not retire. That’s my encouragement for people.

There’s an infinite number of ways that you might “retire” but not retire.

Those are great tips for people in retirement. We handle their money so I can appreciate that. Here’s one of the issues that we talk to people about that I’m sure you come across as well, and that is charity. Some people are charitable by nature, whether it be their church, synagogue, or something else but they’re going to come into some money hopefully by selling their business and have a chunk that they can donate or leverage with life insurance, irrevocable trust, or annuity gifting and so forth. Is that a conversation worth having with business owners?

The conversation with business owners is on different dimensions. There’s the value-building and growth side of the business. We should baseline what your business value is. We should come up with an understanding of what your financial goal is and your target. If we have a gap, how many years do we have to close that gap? Can we double the value of your business in five years? Is that something that you want to do? Do you say, “I’m going to ride it out. It is what it is.”

The value creation side is important as well as the business continuity side of this. That’s where your question starts to lean in. As we think about tax mitigation strategies for once we sell, what are tax mitigation strategies before the sale? If you and your family have come up with a mission around giving and causes that you care about, and you want to create a donor-advised fund, you can do that before you retire. You don’t have to wait until you’ve sold the business if you have the funds for that.

There are other mechanisms for giving that you might set up in your estate plan but it’s smart to take a holistic view and try to look at, for the business and your giving strategy, the legacy that you want to leave, what’s important to you for your employees and these causes. One of my clients is considering an ESOP because he feels very strongly about his employees and the culture that they have built. They annually give a percent of their profits to the charities that they have designated. He wants to maintain that in the future for the company even if he’s not the owner.

There are mechanisms also to explore, whether as a company or an individual. CRUT stands for Charitable Remainder Unitrust if people are familiar with that. There are lots of mechanisms for how to do it but the most important thing is to be on the same page with your family. It’s a great opportunity as a family to align on this mission of this giving side. Spend, live, and give. As you manage your money day-to-day, we are setting aside a percentage at the end of the year for those checks that we write. Big picture, if your family is fortunate to have an opportunity to set up a foundation or something that gives in perpetuity, it’s so powerful.

You’ve got a book. Tell us about it.

The Business Transition Handbook was a culmination of many things. It’s my experience over 25 years. I served as CEO of a division of a privately held third-generation company that sold to a Fortune 50. Seeing from the inside pretty significant mergers and acquisitions processes, going through the integration on the other side, and going into private equity, I learned that I’m a deal junkie. I like being on both sides of this table, “How can I serve entrepreneurs?” That’s how I got my start in working in this field years ago.

The practice of exit planning is complex. There are so many moving pieces and parts. When I launched my podcast, which is called Succession Stories, years ago, little did I know that all this time later, I would have 120 episodes of this amazing content and stories from successful entrepreneurs who have gone through transition and the trials and tribulations of that. I thought, “What’s a way to get this message out in a larger way? Why not put this in a book?”

I call it the handbook for a reason. I want you to write on it, dog-ear the pages, and keep Post-it notes on it so that it’s useful to you. Every chapter is a pitfall to avoid. The subtitle is How to Avoid Succession Pitfalls and Create Valuable Exit Options. Every chapter is a pitfall. As you read it, you’re learning something but then there are also some stories that I’ve included as excerpts from the show or things from my experience with clients. It ends with takeaways. What’s your plan? What’s your intention? In every chapter, I’m trying to hold you accountable for that.

I’ve even created a PDF that people can download from my website. It’s a digital toolkit as an accompaniment to the book. If you get the Kindle, you can’t write on it. For the Kindle people out there or anyone, I took all the exercises from the book and put them as a special document that people can get for free on my website. I hope that they write in it and use it actionably.

It’s like having this virtual guide, Laurie Barkman Sherpa, guiding you through your journey. It’s meant for business owners who are in this zone of 5 to 10 years away but I’ve gotten some amazing feedback from the less-tenured entrepreneurs who are reading it. On the growth and value creation side, they love it because they understand what will drive more value in their business in the longer term. It’s getting great reviews. I would be so honored if people take a look at it. I’ve written it for you to help you avoid these very common transition pitfalls.

Laurie, how do people reach you?

They can go to TheBusinessTransitionSherpa.com and reach out to me there. They can also connect with me on LinkedIn. My email, if they want to email me directly, is LBarkman@SmallDotBig.com.

Thank you for being here, Laurie. We have been talking about the business transition and how this works with business owners. We know realistically some people want to sell it. It’s August. They want to be done by January. That’s not a good plan. You want to take two years at least and work this out. Some people take five. For people who are preoccupied, it might even take ten and say, “My goal in 2033 is to be out.” They have a business plan. The more time you give it, the more time you have to adjust to it to build up the value of the company and understand what you’re doing.

We handle the money of it. Laurie does the M&A and all this great advice on that. It’s fabulous. I work with people like Laurie around the United States because your money, your life, and this transition are probably the single biggest change that you will take forever. We want to make sure that we’re doing it right, doing it on time, and doing it smartly. That’s very important that we do it smartly.

This has been fabulous. If people need to reach me, I’m at Elliot@ProsperityFinancialGroup.com. The website is ProsperityFinancialGroup.com. The phone number is (925) 314-8503. I have to make a shameless plug. If you haven’t gone to Amazon yet, DRIVEN by Elliot Kallen is a number-one bestseller on Amazon. It’s about leadership and entrepreneurship.

I am what I consider a very typical entrepreneur. Laurie and I have talked about this before. This is the third set of entities that I have started from scratch. I’ve got three of them. As business owners, some people look at the Wall Street Journal and think, “Why isn’t my life like Mark Zuckerberg’s? He starts in college and has a straight line going up. Why isn’t it somebody else like Bill Gates? He started in his twenties and then he has Microsoft.”

The reality for most entrepreneurs is that your life and business are a series of zigzags. It’s sometimes straight, sometimes backward, sometimes down, and sometimes strikingly up but you want to be prepared for all of them, not just the financial toil but also the emotional toil that you are going to experience here. That’s why people like Laurie and myself meet with you, get to know you, and work with you on an emotional level. Laurie, thanks so much for being here.

Elliot, thanks so much for having me.

Have a great day, everybody. We will see you soon.

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