Studies have shown that working with a niche is an excellent way for financial planners to narrow their focus, define their specialty, and become an expert in helping their unique client base. Josh Patrick, CFP®, has had first hand experience with this as a financial planner whose firm focuses on working with business owners.

In this episode, Josh discusses he combines business coaching with financial planning for a successful practice. He has a simple but effective approach to inspire clients to act and work toward financial freedom. He believes that honesty is key, and helping business owners work toward retirement (rather than perpetually saying they’ll retire without taking action) is a necessary goal.

Josh discusses business owners who are in the “permafive” stage continuously, which plagues many financial planning succession plans. This means that business owners are always thinking how they’ll retire in five years – but don’t actually take the steps needed to make that transition. Josh knows this applies to financial planners looking to retire, as well.

Financial planners who are in a “permafive” situation have often already lined up a buyer for their practice – and it’s usually a junior level financial planner. Josh walks us through how young planners can benefit from buying a practice, and how a planner in that “permafive” cycle can finally break free and act on their ideal succession plan.

We cover a lot of ground in this episode, and anybody who works with business owners, is a financial planning practice owner (or is aspiring to be one) will get a lot out of it!

Hannah's signature

It’s much safer selling to a junior planner…Because you’re doing an internal transaction, you can set the deal up so that a) it’s tax friendly to the buyer and b) you can stay in control of the firm until you sell it off.

What You’ll Learn:

  • How to work with business owners
  • How to buy in as a junior level planner
  • How senior advisors can set themselves up for retirement success
  • How succession planning can help both the buyer and the seller
  • How to get business owner clients to act on their financial plans and retirement plans


The Purposeful Planning Institute

Business Enterprise Institute

Exit Planning Institute

The Sustainable Business

Stage 2 Planning Partners


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Ep80 Transcript

Hannah: Yeah, we could just jump in. Sorry, you said that and I’m like, well hell, I’m a business owner. I want to know the answer to that. So maybe we’ll do that, we’ll restart. Okay. So thanks for joining us today Josh.

Josh: My pleasure.

Hannah: Yeah. So you have a passion around figuring out what makes businesses successful. So let’s just start right there, what makes businesses successful today?

Josh: Well, it depends on … I mean, here’s the truth about success. The beauty is in the eyes of the beholder, meaning that what a successful business is to one person would be a giant failure to another. So it really comes down to a personal feeling of what is successful. You obviously have to have a business that brings in enough cash to pay the bills, then enough money left over at the end of the day to pay yourself. So for some people, that’s a successful business. For others, a successful business, “I built my business to 500 people, I get to $100 million sales and I find a great big payday at the end of the road.” And for them, anything less than that would not be successful.

So the first thing is you sort of have to say, what does success mean for me? I mean, the obvious thing is obviously you have to have enough cash come in the door to pay the bills and have a reasonable lifestyle. I would say that the vast majority of people who own privately held businesses fall into that group, not the $100 million and 500 employee group. I’ll just give you some statistics to actually back this up. There’s 28 million businesses in the United States. Only 6 million have employees. That means 22 million businesses are solos. No employees, just the business owner by themselves. That entire group has, by definition will not have a business that’s saleable. You cannot have a saleable business until you have employees, so that really brings us down to the 6 million. And of that group, only 300 thousand do more than $5 million in sales and only 150 thousand businesses do more than $10 million in sales.

So the numbers get really small really fast for what is a, probably what people would think of traditionally as a successful business. Does that make sense?


Now I actually help most of the people I work with create a sustainable business, and among that is retirement planning. We do have a process we call ‘The Financial Freedom Project,’ which is part of our work we do with private business owners, because at the end of the day you have to become financially independent. And if you don’t, you’re really limiting your choice for what you can do as you age out of a business. And aging out can mean many things for many people.

Hannah: Yeah see, you really pair your financial planning practice almost with being a business coach essentially. Would you say that’s true?

Josh: I would say that is absolutely true, although I think of myself more of a thinking partner than a business coach. You know Susan Bradley, and that’s her term, and I’ve loved it and I’ve basically co-opted it for myself.

Hannah: And so your clients, do they really respond to that idea of a thinking partner?

Josh: They do. When I use that term it resonates way more than a coach. I think people are sick of coaches. And I don’t think they should be, but I think they are. And the reason is, is someone thinks of a coach as someone who’s telling them what to do. I think the right thing is, I talk about this a lot, which is collaboration. And I work a lot on the topic of collaboration and work actively with an organization called The Purposeful Planning Institute, which is around collaboration. And my viewpoint is collaboration starts with your client, because if you’re not collaborating with your client, what the heck are you doing? And the problem being a coach is coaches really are not very collaborative. They more or less tell you what you should do, and then they yell at you if you don’t do it, and that’s not my style.

My style is to help you discover what’s important for you and develop strategies that you’re willing to do. And that’s a big deal is that I work with most of my clients who are over 50 years old. Somebody over 50 years old is likely not going to make a radical change in how they live their life. They are more likely to make changes around the edges, and it’s my job to help them figure out how they can make those changes around the edges and still have extraordinary results in the business. And a thinking partner is better to do that than a coach.

Hannah: So you have terms like financial coaches becoming a bigger term. What-

Josh: Yeah, what does a financial coach do?

Hannah: That’s the question. What does a financial coach, is it just a marketing term or …

Josh: Well to me, it’s not a positive term. A financial coach means to me someone’s going to come in and tell me I need to spend less money. And although that sometimes is something you have to do, in my experience it’s rare. If you think about your business, this is especially true for business owners but it’s also true for regular employees. If you’re going to be a good financial coach and you’re not an expert in the industry your client works in to help them learn how to make more money, you’re not doing a very good job as a financial coach. And the reason is, what’s the most valuable asset an individual has?

Hannah: Yeah, it’s their ability to earn money.

Josh: Right. And how many financial planners do you know that actually work with people on how to earn more money?

Hannah: Yeah.

Josh: I mean, for example if you’re working with an employee at Intel, an engineer at Intel, well, when is it time for them to leave Intel and go someplace else? How can they get their LinkedIn profile put in place so people think they’re worth more money than they are? These are all questions that financial planners in my opinion who are working with employees need to be answering, and the sad thing is they mostly don’t. Same thing is true with business owners. Instead of saying, “Gee, you need to spend less money,” “What can we do to help your business make more money? Do you have a good niche established for example?” I mean, any private business, whether it’s a solopreneur or just a few employees, if they say their answer in their market segment is everybody, that means nobody. That’s one of my favorite sayings about niches.

So instead, if I’m doing a good job as a ‘”coach,” I’m going to work with that business owner to say okay, who are the people that you most enjoy working with? Who are the people who are the easiest to make a lot of money with? And who are the ones that are most profitable? And then we look for the intersections of that and we say, “That’s your niche, and you should say no to everybody else.” Now, financial planners, just to use them as an example, have a really difficult time saying no to anybody that wants to invest with them. Well the truth is, when you’re saying yes to everybody, nobody really knows who you are. If you say no to everybody except people in your niche, the people who aren’t in your niche won’t know who you are but you don’t care about that. You only care that the people who are in your niche know that you’re the guy they should be going to or gal they should be going to. Person, how’s that.

Hannah: Yeah, I love that marketing perspective. We’ve been working on getting that narrowed down in our business right now as well, and it just focuses everything.

Josh: Yeah well, I mean, all businesses … Yeah, I mean, I only work with privately held business owners. If you don’t own a business, you’re not working with me. It’s not because I don’t like you, it’s just because I have to learn all these things I’m really not interested in learning about your business or about your life, and my peeps are business owners. I’m very blunt, I’m very … I tell you exactly what I think, there’s nothing that’s a secret about me, and that sort of approach works better with private business owners works better with private business owners than just about anybody I work with. So that’s where I go, and that’s where you should go with your business.

Hannah: So when you’re working with business owners, what are the unique things that business owners face that the average client for a financial planner doesn’t face?

Josh: Well, there’s three things. The first thing is the value of their business, and when I listen to financial planners in general do presentations, how they plan for business owners, I cringe. And I really believe that if you’re going to work with private business owners, you need some technical skill around how to value businesses and how to build business value. Because those are the two issues that business owners get wrong, and as a result have a false sense of feeling good about their financial future. Let me give you an example. Let’s say there’s a business out there who’s living on $150,000 a year and their business has a pretax profit of $200,000. And the business owner might say, “Gee, my business is worth $3 million.” Well, it’s not worth $3 million, that I can tell you, but most financial planners will say, “Oh, okay,” and they put $3 million down in the financial assets.

But what they don’t do … First of all, it’s not worth $3 million. It’s probably worth between $600,000 and $1 million if the business is even saleable, and most financial planners have no idea whether a business is saleable or not. And that’s where you get into the sustainable part of a business, not the successful start. So let’s say the business is worth $1 million. Well, it’s not really worth $1 million because you’re going to have to pay taxes and fees before you get to spend the money. So after taxes and fees, if we’re lucky we’re left with $600,000, and if we’re going to be aggressive we can spend 4% of that which gives us $24,000. Well that $24,000 is a long way from $150,000.

And most financial planners will miss that 100%. At $3 million with no taxes and fees, it looks like you’ve got $120,000 to spend. Well, financial planners will either close up the plan and say, “Hey, you’re in good shape, keep going, put a little money in your 401(k).” The truth is, that business owner is a long way from being financially independent. And a good financial planner will know that if they work with privately held businesses. Now, my niche is there, so I have a specialty in that. I don’t expect the standard financial planner off the street to get that, but I would expect the standard financial planner off the street to say, “You know, this is not my specialty, let’s get a business specialist in here so we can get the right numbers.”

And by the way, there’s tremendous opportunity with business owners because they often have excess cash while they’re running their business. And I call that pre-funding the buyout of my business. I use retirement plans for that. So if you’re going to work with privately held business owners, one of the things you need to do is you need to be an absolute expert on how to use qualified plans to help your client get to retirement, and I am. I mean, I can talk to you ad nauseam about different retirement plans and how they should be used in the appropriate manner depending on the size and the type of the business it is.

Hannah: So you had said three things that make working with business owners unique. The value of their business, what are the other two? Or did I miss, were they in there?

Josh: Yup. Doing a business owner’s financial plan, meaning when you do the financial plan you have to realize that business owners generally live their life in a pretax manner. The first is the value of the business, the second is doing the plan itself which is making sure you track expenses the business owner has accurately. So if a business owner says, “Look, I spend $75,000 a year,” they really spend most likely $125,000 a year because they’re burying a lot of personal expenses on a pretax manner in their business, meaning they make it deductible. When they sell their business, they’re no longer going to have that pretaxability, so you need to adjust that in the plan.

And then the third piece is, once you figure out a business owner is not going to make it to retirement or financial freedom with what they’re doing, what can they do in their business to make life better? And that’s where the business coaching partner or the business thinking partner comes into play. And in our ‘Financial Freedom Project,’ the third piece is if you’re not able to be financially free, let’s put a strategy together for you to do so. We don’t do the coaching to implement the strategy, but we help people identify the strategy. Now, I do coaching with some few people, but it’s very expensive.

Hannah: So I think that’s a really, I’ve heard you speak in other places and I’ve really been interested in asking you, so how do you talk about that uncertainty with clients when it’s, they might not be able to reach their goals? How do you approach that?

Josh: Well, because I really am not very subtle, I just tell them. So … I say, “I hate to tell you, but what you think is true is not true and here’s why.” Now, I have a tool I use to do this with, and I usually get this out of the way right up front. It’s called the four boxes of financial independence, and in there is a business qualified retirement plans, investment real estate, and other investments. And I just put what the after tax value is, what the cashflow would come out, and I say, “Well you’re spending $150,000 a year and you’ve got $40,000 in identifiable revenue when you leave your business. We’ve got a little problem here we need to fix.”

I’m a big fan of what I call simplification where I take the complicated and make it simple. Too often in any, if you’re working with anybody who’s really smart, they tend to take the simple and make it complicated. I like to do the opposite, because the folks I’m working with, they’re not financial experts. Most of them can’t even read a cash flow statement. They don’t even know what a cash flow statement is. So if I don’t make them understandable, we’re not going to get action. And understandable is somewhere between a third and a fifth grade level of complexity, meaning that somebody in the third grade to the fifth grade would understand what I’m talking about.

Hannah: And I like that idea of if we can make it simple, then clients can act on it.

Josh: Well, that’s absolutely true. And the truth is, the meaning of your communication is the way it’s received, not what you thought you said. And if you’re speaking in jargon, you’re speaking in a complicated manner, you’re talking about things that are over the comprehension of your client, they’re not going to understand what you’re saying and they’re going to feel dumb and they’re going to resent you. And I don’t think we want to have our clients thinking that way.

Hannah: How do planners help business owners as they move into retirement? Because that’s a really big transition for business owners. What can we do better as financial planners to help them in that transition?

Josh: I’m actually working on this project with Sudden Money right now, and there’s two things which I have discovered in the last year or so. As you know, there’s four stages of transition. The first is anticipation. The problem with working with business owners, and I think this is one of the reasons they don’t plan appropriately, is that business owners are in anticipation of leaving their business for somewhere between five and 20 years. And if someone’s been in anticipation for 10, 15 years about leaving their business, they’re probably going to think they’ve done the planning to leave their business successfully because they’ve thought about it so much. They actually haven’t done anything, but they’ve thought about it.

And this fits in with business owners thinking strategically but not acting strategically, which is a big problem I have. So we have the anticipation stage where they’re anticipating forever, thinking they’ve done planning when they haven’t done any. So that’s one issue that you need to be talking about with a business owner, and actually go through the four stages of transition. So anticipation, ending, passage, new normal, and say, “You know, you’ve probably been in anticipation for a long time. You may think you’ve done all the things that are necessary to do. My bet is you haven’t. Just because you’ve been thinking about it, you’re thinking you’ve done it.”

And most business owners believe it or not are going to be positive about that conversation. And then the second thing we can work with is as business owners go through the transition, 100% of them are going to experience seller’s remorse. And for the last 20 years, I’ve been trying to get people to avoid seller’s remorse, and I’ve finally come to the conclusion I’m not. They’re going to have seller’s remorse. My job is to help them get through that, which is passage. You have a loss. When you sold your business, you have a loss. And before you get to your new normal, you’re going to go through all this passage stuff, and that’s where seller’s remorse lives. So we need tools for helping people to get through the seller’s remorse portion and pop out the other side in the new normal where they have a life that’s satisfying and fulfilling.

And the truth is, business owners, even more than employees of any company, much of their self worth comes from them being a business owner. And when they’re not a business owner anymore, they have a hard time figuring out who they are, and that’s where seller’s remorse comes in and it’s our job to help people think through seller’s remorse and come out the other side. And there’s a bunch of tools that are available for doing that. Doing a bliss list is one thing, what makes you really happy, how do you spend a lot of time doing that versus a couple of hours a month which is what most business owners do before they sell, and after they sell they really haven’t figured out, “Well, how do I take this passion and put a whole bunch of time into it?” And our job is to help them figure that out.

Hannah: It’s so interesting, because I’m hearing you say all this and I’m immediately applying it to succession planning within financial planning and see how so much of this is relevant in that space as well. So would you say that same seller’s remorse is true of financial planners who are selling their firms?

Josh: Oh God yes, of course. Even more, it’s a bigger deal with them than it is with somebody that has 100 employees because their customers are intimate related with them and they feel a real connection, and there’s a lot of guilt around financial planners retiring. In my opinion, and we’re going off a little bit topic here, is this is not the best strategy for young advisors because they’re not going to be able to buy in. But the truth is, most financial advisors don’t have a young advisor waiting in the wings to buy in. So they’re better to do what I call an 80 20, or the wind down strategy. They take their bottom 80% of their clients, find a new home for them, and just keep the top 20% so they go from working five days a week down to one day a week or three days a month or whatever.

It’s an easy way and a good way to leave your business. Now, if I’m a younger advisor and I want to buy in, it’s important for that group of people who are your peeps to understand that the industry dramatically over values wealth management businesses. There’s a valuation firm and an MNA firm, same company, and they basically value businesses as about 2.4 times the revenue. And you should never value a business based on revenue, you should only value a business based on free cash flow because that’s what you pay for the business with. And there’s a risk for the buyer, lots of risk for the buyer, and it’s even more risk for the seller. So if you’re a young advisor and you agree to buy the stock of your senior partner and you’re paying 2.4 times the revenue, you’re actually going to end up paying closer to 3 and a half times the revenue, because if you buy stock you do it with after tax dollars which people don’t remember.

So for example, if you’re in the 40% tax bracket state and federal, now in Texas you’re not but in Vermont you would be, that means that you’re not paying $1 million for business, you’re paying $1 million 8 for the business. So when you factor the cost of taxes in, it becomes unaffordable to buy a business valued that way. So there are other strategies you need to learn. You need to learn how deferred compensation works as a strategy to buy a business, because you make a significant portion of it pretax. Now the seller of the business is to say, “I don’t want to pay ordinary income,” that’s where you need to be thinking about what’s the difference between an average tax rate and a marginal tax rate? And it’s huge.

When you buy a business, you’re using marginal dollars to pay for it because the last dollar you earn is a dollar you have available to pay for the business. But when you’re getting money from the sale of a business, it’s not the last dollar. It’s a first dollar. So if I have a way of deferring all my income while I’m getting deferred comp, there might not be that big of a gap between capital gains and ordinary income. Typically it’s 4 or 5%. And I can raise the price of the business a little bit if I’m using a pretax methodology and I’m saving the seller a huge amount of money. And again, this is basic exit planning 101, but most financial advisors have never been trained in this stuff and they don’t know about it. So if you’re a junior trying to buy out your senior partner, you have to understand the cost of taxes in the transaction and you have to understand the cost of whether you can actually afford to pay for the business and afford to pay yourself.

I’ve consulted, I actually used to be a blogger for The New York Times, and I’ve written a bunch of posts about horrible financial planning firms’ transactions that just went terribly wrong because nobody thought about cash flow. Which is hard to believe from a financial planner, but it’s true.

Hannah: As a financial planner, it’s just assumed that you could sell your practice. There’s … It’s like, “How much is your practice worth?” I don’t know, maybe the conversation right now, the assumptions are-

Josh: It’s the dumbest conversation in the world. “What’s my practice worth?” Well the way businesses are sold, they’re worth what you get paid in cash up front, and that’s 35%. Now again, it’s the same firm that’s now made standard in the financial services business, unless you’re a big big firm, meaning 5, 6, $7 million in revenue, you’re going to be selling your firm for 35% down and you’re going to be holding paper for 65%. Well, that’s about the dumbest way to sell a business that has ever been invented, because what you’ve done is you’ve sold all control of your business, and most of the time these sellers never even bother to get a personal guarantee from the buyer because the buyer doesn’t want to give it to them. Well, then don’t sell the business to them.

Now, I get crazy about this. It drives me nuts. I mean, if you go to a bank and you borrow money, if you went to, there’s a bank called Live Oak that is lending money to people to buy financial service firms. If they’re not getting a personal guarantee they’re being irresponsible as a bank. Well if you’re lending money and you’re holding paper to a buyer and you’re not getting a personal guarantee, you’re being irresponsible to yourself because without a personal guarantee, why would somebody pay you?

And the truth is, for most people in the financial services business should not be thinking about selling about their business, they should be thinking about winding it down. It’s a much safer, much more profitable, much more satisfying way to leave your business on all levels.

Hannah: So I talk to people who, they’re the junior advisor being told that they’re going to buy the business and it’ll be five years away.

Josh: Right. Oh, you just hit my favorite thing. Anytime somebody’s talking about five years, you have to question whether that’s true or not, because what you get into is what’s called permafive. And permafive when a business owner tells me, this triggers anytime I hear this word, anytime a business owner tells me anything is five years away, I immediately think, and they’re going to have to prove to me I’m wrong, I immediately think that they have no idea what needs to happen for whatever it is they want to have happen because they said five years away, but they believe that whatever needs to happen over that five year period will magically appear and will magically implement itself without any work from the owner. So when you say five years away, that junior partner’s likely to hear five years away two years from now and then hear five years away five years from now and hear five years away 10 years from now.

And the reason is, is the senior partner knows they can’t afford to leave, they know there’s something wrong, they don’t know what it is, but it’s magically going to reveal itself over the next five years so they can fix it. And that just doesn’t happen, so that’s where permafive comes in. So anytime, if you’re a junior advisor, you hear “Well I’m going to sell it to you in five years,” don’t believe it.

Hannah: Oh man, so many questions here. So what would be your advice to that junior planner in that situation?

Josh: Well, start educating your senior planner on what the business is really worth and what can be afforded to pay for it. Now, they may decide that “I’m not going to sell to you, I’m going to sell to a third party,” in which case they’re going to get screwed, meaning that they’re going to sell for 35% down and 65% they’re going to hold paper and they’re not going to get paid because people don’t pay earn outs when they can’t afford to. But there’s a belief in the financial services world that everything is going to be rosy and we all live in a land full of unicorns. My experience is that’s not true. I’ve done at least a dozen conversations with business owners in the financial services world who sold to a third party and it went bad.

Now there are some deals that work, so I’m not going to say they all go bad, but enough go bad where you can’t afford to have your business sale go bad. It’s much safer selling to a junior planner. You may not get paid as much or you might be holding more paper, but because you’re doing an internal transaction, you can set the deal up so A, it’s tax friendly to the buyer, and B, you can stay in control of the firm until you’ve been paid off. And you do that by a reclassification of stock where you do voting stock for 1% and nonvoting stock for 99%, you sell the nonvoting stock, and when it’s paid off you sell that last 1% and you’re all done. Now, that would typically take five to 10 years. You have a chance to wind down your involvement in the firm, you have a chance to see what’s next in your life.

You’re not going to get rid of seller’s remorse, but you’ll limit it. And you have a much safer transaction, because if the junior planner starts doing stuff that doesn’t make sense, you’re there enough and you get reports on a regular basis that you can step in before it’s too late. You do a third party sale and you’ve got a personal guarantee, it might be two years before they stop paying you and you’ve seen no statements, you don’t have a personal guarantee, there’s nothing for you to do to get your business back, and frankly if you do get it back it’s in shambles. So you don’t have anything to take back.

This is not a business that’s got a bunch of manufacturing equipment. The value in the business is your client base, and if the new owner screws that up, that client base disappears and you have no recourse.

Hannah: And so really that retention is one of the biggest risks on succession planning.

Josh: It’s a huge risk. It’s a risk for anything for every business. Now, when I sold my food service company, I had a vending and food service company. We fed people that worked in factories. Not only did I have recurring revenue to sell because the vending machines and cafeterias were in place, I also had contracts to sell because all our big accounts were on a contract. There was relatively little risk for the buyer because they could just point to the contract and say, “Gee, I’m sorry, we have a contract with you, and you can get rid of us but you have to wait for six months,” or a year or two years or three years, depending on what was left in the contract. And that gives you a chance to fix what’s wrong. And the contract had a way to get out of it, and there was also, we had clauses in the contracts for fixing problems and they have a 30 day and a 60 day notice before they could get rid of us.

In the financial services business, we don’t have that. So if your clients don’t like what you do, they walk. They go to the advisor next door, they sign an ACAT, boom, the money’s gone. You might not even know it. So, but the truth is, client retention in the wealth management business is very high. You have to try to get to lose your clients. And it happens a lot in the transaction because the new guy says, “Well I’m going to do what I do and forget what you’ve done with your clients for the last 20 years,” and the clients get annoyed or nervous or … And they move. But if you do an internal transition, the people who are taking over the client base, they know the deal. Their clients aren’t going to be uncomfortable because it’s the same thing they’ve always had. And everyone expects advisors when they get older to retire, and if they have the same people who they’ve come to meet and know and trust, they’re likely to stick around.

And it’s easier for me to go to you if you’re a junior partner, say, “I’m happy to sell you the business, I’m going to loan you all this money, but you’re going to have to give me a personal guarantee if you want to buy.” And you might say, “I don’t want to,” and then I’m going to say, “Well then don’t buy it. I’ll find someone in the company who’s going to.” But if I’m a senior advisor, I want to be talking to my junior advisors immediately if I’m thinking about selling the business about a personal guarantee long before I get the paper signed. And if they don’t agree, then I need to move on and find other people I can sell the business to.

Hannah: It’s like succession planning done well is what I’m hearing.

Josh: Well, there are best practices. And by the way, this is not unique to the wealth management business. Wealth management business is more egregious as an industry towards selling their businesses than any other industry I’ve seen. But every industry has a bit of this going on, it’s just the fact that if you think that you’re going to sell your business for an inflated value, selling your stock on an after tax basis and you expect to get fully paid, you’re kidding yourself.

Hannah: I have seen, I’ve had many friends who are 10 years plus into working for a firm where they have been told that the owner will retire in five years. At point from your perspective do they just cut their losses and move on versus trying to stay and make something work?

Josh: When they go to the senior partner and they come up with a plan that is a reasonable plan and they show the senior owner how they’re using 35, 40% of their free cash flow to pay them … If you use any more than that you’re putting yourself at risk. That’s a whole different conversation, which is making sure your business transition is financially viable with a down term, so I don’t like to see any more than 40% of free cash flow going to the retiring owner. That gives us a safety realm. But if you put that plan together and you understand how to structure a deal, and you go to a structured deal and the owner says, “Well I’m not ready yet,” and the question you need to be asking that senior owner is, “What would it take for you to be ready, and how will I know?” And if they don’t get a good answer, then it’s time to move on.

But the truth is, the senior advisor is not being an adult, so then it becomes the job of the junior advisor to be the adult in the room. And we see that in our relationships with clients. A lot of times, you find that parents are not being the adults and the children have to be the adults to keep things moving forward in the family. Now, I’m talking about adult children, not children children. And it’s the same thing with senior owners versus junior owners. Now, just because you’re a senior owner and you’re older by 20 30 40 years doesn’t mean that you’re wiser necessarily. You should be wiser, but most people have not gone through a business transaction and they really don’t understand what happens in there.

Now I’ve done hundreds of them, so to me, every time something comes up, I say well, that’s not unusual. Sort of like due diligence. One of the rules I think needs to be held, and this is with a larger business transaction, say a $10, $15, $20 million transaction, there needs to be somebody in that transaction who’s neutral, and that’s a role I often play. So as I’m going through this transaction with an owner they say, “I want to pull my business,” I think they’re being rude during due diligence. And my job at that point is to help them evaluate whether what they’re saying is true or not. They might be being rude, and that’s part of due diligence, but nobody likes to have their business taken apart and put under a microscope which is what you do in due diligence.

And I often have to say to people, say, “Look it, gut it up, get through this, it’s part of the process. They’re going to try to lower the price on you, we’ve done the right things to keep that from happening, because when they ask you, they say, ‘Well you don’t have employment agreements, we have to lower our price,’ you can say ‘Yeah we do and here they are.’ Or they can say ‘You don’t have contracts with your clients, we have to lower our price. We thought you had contracts.’ You say, ‘Well actually in the letter of intent, you saw that we said there were no contracts, so you can’t change the price based on that.'”

So it really comes into somebody who is working with you that understands the process. And even though if you’re in the wealth management world and you say you work with business owners and you’ve been through this, unless you’ve been trained specifically, and I’ve got lots of training in exit planning, you’re not going to understand what the process is. You’re going to say, you’re going to go through this with your being confused. So if you’re a junior partner and you want to buy the business, learn what it takes to do a successful transaction and use it.

Hannah: So where would somebody go to get resources for transitions like you’re talking about?

Josh: Well, there’s two organizations, there’s actually three organizations that train exit planners in the country. One is Business Enterprise Institute which is out of Denver. I’m good friends with those folks, John Brown’s been a good friend of mine for a year. John actually invented the exit planning world as an academic structure. There’s the Exit Planning Institute which is out of Chicago, they were recently sold … I’m told they do really good stuff. I have not talked to anybody out there so I don’t know that personally, but I’ve been told by people I respect that they do good work. And then there’s John Leonetti who’s in Boston. And I don’t know if John’s actually doing exit planning training right now or just doing exit planning himself, but those are three people.

The first two, Business Enterprise Institute out of Denver and the Exit Planning Institute out of Chicago, are the two academic programs that have certifications that go with it if you want that, and my guess is they both do pretty good work. And they’re not all that expensive to go through. I know BEI has a bootcamp that’s something like $1,500 for a day and a half. And you learn the basics of exit planning.

Hannah: And then if you’re going through a transition yourself, you can find somebody who’s been through their program.

Josh: Yes. Or call me because I actually understand the stuff.

Hannah: Yes. So … So I had a conversation with you several years ago, and it really stuck out with me, so I’m going to try to frame the question right to get the answer, and if not I’ll tell you what I’m looking for. But what does it take for there to be a successful succession plan?

Josh: A business that’s transferable sold at an affordable price.

Hannah: So one of the things that you had told me before was about gratitude.

Josh: Yeah, I’m a big, oh yes, that’s a big deal. This is especially true in a family business by the way. It’s more true in a family business than a manager buying out a business. But it’s true under both, and I often find juniors in a business, could be a wealth management firm, could be a manufacturing company. They don’t really appreciate what the founder has done to get the business to that point, and most business owners will not let go of their business until they feel the juniors are being appreciative of the work that they’d done before them. I just finished up an engagement with a firm, it was an engineering firm, and the son was absolutely unappreciative of what the father had done. And that wasn’t the reason the father said he wasn’t selling the business, but I would tell you pretty much that’s the reason he’s not transferring the business. He doesn’t feel validated for the work he’s done, so he’s saying, “Screw you” to his son, “I’m not selling you the business.”

And the other issue is that seniors come and go, whether they’re willing to sell their business or not, and that window is open for a relatively short period of time. So when the window opens and that senior says to the junior “I’m ready to do the deal,” you better have your team ready to drive that thing done, and do it quickly. Because sure as heck, that window will close again if you don’t put the deal in place fast.

Hannah: Yeah, I think I’ve heard you say also that most people when they decide they want to sell their business, they want it done in two months or a very very short time period.

Josh: They do, and it usually doesn’t happen. If somebody comes to me and says “I want to sell my business,” I’m going to say, “When?” They say “Yesterday,” we have a good laugh, he says, “No really, I’d like to be out in three or four months.” I say, “How about 12 to 18 months? Let’s get a realistic timeframe here,” because frankly, most people don’t have a buyer waiting in the wings and due diligence takes time and lawyers get in the way, and I can give you a whole laundry list of stuff that slows down the process, but it’s not a fast process. It’s not like buying a house.

Hannah: Great, well thank you so much Josh. So where can people find you? I know you have a blog, you write, you’re very prolific online. Where would be the best place for people to follow you?

Josh: I’ll give you two places, an email address, and a phone number, how’s that?

Hannah: I love it.

Josh: I have two websites. Our wealth management company website is, that’s the number two. My business coaching consulting thinking partner site … And Stage 2 by the way does have a blog, it has tons and tons of eBooks on it which I’ve written over the years. My other site, which is, that’s, is where the thinking partner site is, that’s where my podcast lives, I also have a blog there and tons of videos that I put up about how to create a sustainable business. That site focuses on taking a successful business and making it personally and economically sustainable. Which leads into my new book which is coming out next month, and it’s called ‘Sustainable: A Fable About Creating a Personally and Economically Sustainable Business,’ and that’s at You can find out more information there, you can join our Facebook group by clicking on the button. Soon we’ll have a button there that you can actually pre-order the book.

And if you want to contact me, my email address is [email protected], that’s the number two, and my phone number is 802-846-1264 extension 2. And if you happen to be- I have one more offer for you, this is actually something people can get. If you’re interested in learning about what it takes to create a sustainable business, I have a free one hour audio CD I’ve made which we mail to you. And if you text the word ‘sustainable’ to 44222, you’ll get a link where you give me your name and address and we mail you out the one hour free audio CD, and it’s about the five things you need to do in your business to take a successful business and make it personally and economically sustainable.

So that’s a big mouthful, sorry I went on so long, but there’s lots of ways to find me.

Hannah: Well I love it, and I just want to add the tidbit, if you want to see an advisor doing online marketing well, follow Josh. He gets it.

Josh: Thank you. And I’m old on top of that.

Hannah: Even better.

Josh: Yeah.