“Start living a life based upon reason, getting the facts, doing the right thing rather than following others.” - John Brown
John Brown, Founder of Business Enterprise Institute (BEI), started working with business owners as an estate planning attorney in 1977. While working to manage owner assets, he soon realized a common problem: No one was helping those owners exit their companies. Without planning, how would these owners convert their largest financial assets into cash and move successfully into their post-business lives?
John created The BEI Seven Step Exit Planning Process™ which he successfully tested on hundreds of his own business-owner clients. In 1990, he wrote "How to Run Your Business So You Can Leave It in Style" and in 2008 wrote "Cash Out Move On: Get Top Dollar—and More—Selling Your Business." With hundreds of thousands of copies sold, John is the No. 1 selling author on Exit Planning for business owners. In 2016, John released his newest book, "Exit Planning: The Definitive Guide", which lays out the steps business owners must take to achieve all of their aspirations as they exit their businesses. John started BEI in 1996 for the express purpose of helping owners benefit from their lives’ work by supporting business advisors who share the same vision.
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Your liquidity event is the most important financial transaction of your life. You have one chance to get it right, and you better make it count.
But unfortunately, up to 90% of liquidity events fail. Think about all that time, money and effort wasted. Of the "successful" liquidity events, most business owners leave 50% to over 100% of their deal value in the buyer's pocket and don't even know it.
Our founders said "no" to a 7-figure offer and "yes" to a 9-figure offer less than two years later.
Don't become a statistic and make the fatal mistake of believing that the skills that built your business are the same ones for your liquidity event.
After all, how can you master something you've never done before?
Are you leaving millions on the table?
Learn how the 90-day Deep Wealth Experience and our 9-step roadmap helps you capture the maximum value for your liquidity event.
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[00:00:00] Jeffrey Feldberg: Welcome to the Deep Wealth Podcast where you learn how to extract your business and personal Deep Wealth.
I'm your host Jeffrey Feldberg.
This podcast is brought to you by Deep Wealth and the 90-day Deep Wealth Experience.
When it comes to your business deep wealth, your exit or liquidity event is the most important financial decision of your life.
But unfortunately, up to 90% of liquidity events fail. Think about all that time and your hard earned money wasted.
Of the quote unquote "successful" liquidity events, most business owners leave 50% to over 100% of the deal value in the buyer's pocket and don't even know it.
I should know. I said "no" to a seven-figure offer. And "yes" to mastering the art and the science of a liquidity event. Two years later, I said "yes" to a different buyer with a nine figure deal.
Are you thinking about an exit or liquidity event?
Don't become a statistic and make the fatal mistake of believing the skills that built your business are the same ones to sell it.
After all, how can you master something you've never done before?
Let the 90-day Deep Wealth Experience and the 9-step roadmap of preparation help you capture the best deal instead of any deal.
At the end of this episode, take a moment and hear from business owners like you, who went through the Deep Wealth Experience.
John Brown, Founder of Business Enterprise Institute (BEI), started working with business owners as an estate planning attorney in 1977. While working to manage owner assets, he soon realized the common problem. No one was helping these owners exit their companies. Without planning, how would these owners convert their largest financial assets into cash and move successfully into their post-business lives?
John created The BEI Seven Step Exit Planning Process™, which he successfully tested on hundreds of his own business owner clients. In 1990, he wrote, "How to Run Your Business So You Can Leave It in Style". And in 2008, "Cash Out Move On: Get Top Dollar—and More—Selling Your Business." With hundreds of thousands of copies sold, John is the number one selling author on exit planning for business owners. In 2016, John released his newest book, "Exit Planning: The Definitive Guide," which lays out the steps business owners must take to achieve all of their aspirations as they exit their businesses.
John started the BEI in 1996 for the express purpose of helping owners benefit from their lives work by supporting business advisors who share the same vision.
Welcome to the Deep Wealth Podcast. And as usual, I have an epic episode lined up for you. We have with us today, a thought leader and author, a changemaker, but I'm going to stop there. I'm not going to take the thunder out of my sales. I'm going to let you hear it yourself. John, welcome to the Deep Wealth Sell My Business Podcast.
It's an absolute pleasure to have you with us. And John, I'm curious, there's always a story behind the story. What's your story? What got you to where you are today?
[00:03:27] John Brown: Well, First of all, thank you, Jeffrey. It's a pleasure to be here. It started long time ago. My parents owned a small business in Michigan. So they started the business, they ran the business. I didn't want to take over the business. So they forced me to go to law school which probably was a good choice, but when they sold their business and it was a good business, they sold it to a key employee.
This was a long time ago. And they retired, like all people from Michigan due to Florida. And so they retired to Florida. And after about a year, they weren't getting their payments. They sold the business for a promissory note and installment note. My dad went back to Michigan and the business was basically gone. It had been depleted, a building they own was worthless at that point because one tenant was gone. They lost their retirement. That they could have had, and that kind of stuck with me, but of course, back then I had no idea of how to help them. It was just the luck of the draw, so that really started me thinking when I started practicing law I gravitated toward representing business owners because I liked business owners. I liked their entrepreneurial spirit, their willingness to work hard. For the most part, their honesty and diligence. And, but they needed help in areas where they didn't know what to do.
And one of those areas was leaving their business. Like my parents failed when they left the business. So I wrote a book back in 1988 called How To Run Your Business So You Can Leave It In Style. And turned out to actually sell a lot of books, which surprised everybody in the world. Of course, every new author thinks they're going to sell at least a million books, but after you've sold 3 or 4,000, you think probably as good as most average books itself.
So this ended up selling about 250,000 books, which was a lot. So it put me on the map. Yes, somebody who could talk about creating an exit plan for business owners who wanted to leave their business at some point. And so that really is my background. After I wrote the first book, I really focused my law firm and pulling my life toward teaching business owners and advisors, what needs to be done if an owner is going to be prepared to leave for business in style.
[00:05:50] Jeffrey Feldberg: John, that's a terrific background, but you're a modest fellow because you left some important points out there for our audience. Firstly, congratulations on a book with a quarter million sold. I mean that's tremendous. But you founded the Business Enterprise Institute or BEI, and you came up with a seven-step exit planning process and you've really been impacting thousands and thousands of lives.
Why don't you share with our audience? What was that all about? What was going on with that?
[00:06:15] John Brown: Thanks, Jeffrey. So practicing as a lawyer and doing exit plans for business owners I realized that I was pretty much the only person doing that. I develop the planning process through trial and error. I'm sorry to say for those past clients of mine, but eventually, we had a very workable process and I wanted to bring that to other business owners.
And so the way to do that was to start a company BEI, but our audience is not business owners. It's advisors. Because the way to extend my vision, I guess, or my reach was not through just representing business owners, one by one, but to train hundreds at this point, probably thousands of advisors around North America in a process to help an owner understand what they want to do, develop value and exit the business on their terms.
And so that's what the exit planning process is about. But what it also need in addition to understanding the process itself, our tools and the tools that advisors used to develop that value to in a text-sensitive manner, transfer ownership to make sure the owner doesn't lose control of her company when she's transferring ownership until she has achieved her goals.
Those are all different tools we've developed over 25 years that our members now use. Their brand, there's their own tools and they use the tools.
[00:07:51] Jeffrey Feldberg: So John, you are out there and you're training these advisors in your system, providing the tools. And so I'll ask you to speak on the advisors and also from your own experience and when you're dealing with business owners we have such incredible talent and qualities that we bring to the table. I mean, I like to say as business owners, we make the world go round.
We find people's problems. We solve them. We create jobs in the community and all those kinds of things. But when it comes time to exit the business, Like we're talking about offline. How do you master something that you've never done before? Because the skills that built the business, aren't going to be the same ones to exit it.
John, it's the good old Pareto's law, the 80-20 rule, you know, probably 80% of the issues that most business owners are facing when it comes to an exit are likely coming from 20% give or take of the same common issues. So what would be some of the low-hanging fruit, a business owner coming out of this episode, working with a BEI advisor, what would they be learning of where they're perhaps not getting it right where they should be getting it right?
[00:08:55] John Brown: That's a really a great question. My first thought is this, that owners, existing advisors are probably giving him no advice in this area zero. Probably if you're a business owner listening to this, ask yourself, has your CPA, your lawyer, your insurance advisor, ever talk to you about how, if you want to leave your business someday?
If so, how are you going to do that? And I would venture to say very few people listening to this have had that conversation. That's on the one side, on the other side, we have the business owner, they're not going to know the planning process they need to get through. That's not what they do. They're business owners, they run a software company, they have a construction company.
There's nothing in their training or experience that would lead them to know what they need to do to transfer their business and style. The answer to that is, as you suggested earlier, they need to work with an advisor who is trained in the exit planning process, and then has the tools to implement the plan that the owner has decided he or she wants to do to embark so that's really why we create BEI and it's going to be conducted by trained advisors who will bring in other professionals. So let's say the advisor we train is, could be any perfection, a lawyer, a financial advisor, let's say it's a financial advisor. Well, they're not going to know everything about how to accept the plan, then that could notice some of the tax strategies, risk limitations.
So we have them develop a team of advisors. might be a business coach. It might be a tax CPA. It might be a valuation person. And it's the exit planning advisor who's trained to develop that team and efficiently from a time and cost perspective, use the team to develop a plan for the owner and then implement it, which might take 5 or 10 years.
But the advisor is there at every step. So that's the process. I could mention one more thing if I just kind of pulling on here nonstop. So if you interrupt me with.
[00:11:18] Jeffrey Feldberg: no, please go ahead.
[00:11:20] John Brown: So, one thing I think an owner can take away from this as well as the advisors is where do we start? How do I start this planning process? Most professional advisors. Would start with something they know what to do. It might be tax planning. If I'm a CPA, it might be doing an estate plan. If I'm an estate planning attorney.
It might be a life insurance if I'm an insurance advisor, but that's not where owners should start planning for the future. By talking to one advisor who is going to use their tools, their products to solve what they see as the issue, because they don't have the picture. So the first phase of planning, exit planning is for the owner to understand with accuracy. What do I want, when do I want to leave? How much money do I need? Who do I want to transfer the business to? Do I have other goals such as when I exited, I want to make sure my company stays in the community, that my employees can stay in their jobs, that the legacy culture we've created will continue? Well, those may or may not be important. All those to in order, but we need to discuss those because if they are goals and our job is to make sure those goals are achieved. It's not to sell a product. So that's the first step. The second step is what do I have? What resources do I have today that allow me to achieve my goals, my exit goals? What resources am I going to need? And what's the gap? What deficiency is there? And then once we know that we know when the owner wants to leave when she wants to leave, who she wants to transfer the business to how much money they need, and how much value in cash we have to develop. At that point, we can do exit planning.
[00:13:32] Jeffrey Feldberg: So crucial to be asking those questions. And for a lot of business owners is probably coming as a surprise. What do you mean? I have to think about the exit now all these years ahead. And so John, you've probably heard this time and time again of business owners saying, hey John, terrific story that you shared, and I'm sure you have some terrific tools, but I gotta tell you, I am just so busy.
I don't have enough hours in the day to get done what I need right now. Never mind, 5 years from now or 10 years from now, or 20 years from now. And how would you share with that business owner? Why it's such a fatal mistake? To leave the planning process, the exit planning process, specifically right until the very end where, okay.
You know what? I think I want to retire maybe in a year, maybe six months, maybe next two years tops. Why would that be such a fatal mistake?
[00:14:22] John Brown: We would have two responses to that. One, it doesn't take that much time. I mean, the owner's time spent in developing an exit plan. It might be over a course of a year, 10 to 20 hours at the most, the advisor's going to do most of the work. So it doesn't really take that much time so whenever an owner here as well, I may have worked with all these other advisors such well, they're going to be expensive. It won't be, especially in light of what needs to be done. So that's one thing. The other thing though, is maybe an owner should start with just what needs to be done today. So our members use a piece of software that we've developed.
It's an assessment. They can take the assessment online. It takes 5 to 10 minutes and it will tell the owner what's most concerning to the owner about his or her business today. It might be, oh, like I don't, my key employees are not really key it might be taxes are a real issue. It might be, I want to transfer the business to my kids, but they don't get along.
So there's 15 or 16 different areas we can address in a short assessment. We have longer ones, but that will tell the owner what's most important to the owner today. And that's what the exit planning advisor will work on. And resolve that issue. So rather than looking at this great, big, huge issue, I want to leave my business in 5 years.
But I'm too busy to make steps towards this. Okay. What's one issue let's work on that. They'll all be implemented with the view toward ultimately allowing the owner to leave at his turn. So it might be developing more value, reducing business risk, minimizing taxes, et cetera.
[00:16:20] Jeffrey Feldberg: And what's amazing about preparation. It's really the gift that keeps on giving. So to your point, let's go to 40, maybe even 50 hours a year for something that's going to benefit you for a lifetime. I mean, The ROI on that, it's a rounding error for the amount of time that you're putting in.
[00:16:36] John Brown: Yeah, absolutely. It absolutely is. And if an owner is telling me he is too busy to plan. That means he'll never exit his business. That means he's doing too much of the work himself, and he's not learned how to delegate work to free up time. We have a lot of different concepts, Jeffrey. I could talk about one fundamental concept in exit planning, way we approach it is the need for an owner to develop what we call transferrable value. What is transferrable value? The short test for it is the ability of the business to continue its cash flow with minimal interruption.
If the owner leaves, the owner dies, he retires, he takes a six-month vacation. If the business can continue uninterrupted without the owner's presence, we have transferable value. And if you want to come in and pay me $10 million for that business, it may be worth it. But if I have to work 60 hours a week to develop value, who wants to buy that business because I'm selling it to leave?
[00:17:47] Jeffrey Feldberg: You're absolutely right. And unfortunately, as business owners, we, in our minds, we can become legends in our own mind because, oh, look at this business how great it is, but we can be selfish oftentimes as business owners and not think like the future owner or the buyer or the investor. Would you want to buy a business where once the owner has the money in the bank and maybe has mentally checked out, you don't have a business tomorrow?
Of course not. And I know certainly from our side, one of the things that we're seeing, one of the biggest things, the biggest obstacle for business owners, it doesn't run without them, the business. And John, I want to circle back to something that you said a little bit earlier, and I'm just going to.
Overemphasize, maybe sensationalized a little bit of what's going on out there. You know, a lot of business owners are saying John, okay. I know you have these BEI advisors, they got your seal of approval and everything but listen, my cousin, her second half-removed cousins, uncle, aunt friend's neighbor is my accountant or my lawyer, and they don't own the business from the beginning.
I get terrific rates from them. And now you're asking me potentially to change advisors is going to be more expensive and I have to start from the beginning. And okay, maybe I over-exaggerated there just a little bit but for our listeners, if you can just share with them why a BEI advisor in whatever area they happen to be in, but they've gone through your training, they've gone through your system.
They've now incorporated that into their practice as an advisor, why that's going to be a world of difference when it comes to a future business exit.
[00:19:20] John Brown: If the owner has that second cousin who is a good advisor, I mean, our members would want to work with that advisor that we often find that a good advisor and they don't need to be a tax expert, but just say a good CPA for the firm over the years, they may need to know more about the finances of the company than the owner.
So we are not, we don't have the mindset of replacing advisors, rather working with them. But if they can't do what needs to be done within their profession, we'll bring in another advisor to at least serve that purpose. Not even necessarily getting rid of the first advisor. So we recognized the need for most relationships to be maintained.
[00:20:07] Jeffrey Feldberg: And there was a saying that I absolutely love, it resonates with me. Unfortunately, I didn't invent it, but it really just speaks for what's there, when it comes to exit planning and eventually the actual exit itself when the team works the dream works and it's not a one-person show, it's not the business owner who is saying, hey, I'm going to exit this on my own.
I'm smart and I'm capable. I can do it. It's really putting yourself with that team. And John, maybe you can continue to walk us through, I mean, you have the seven-step exit planning process we're working with one of your advisors, a business owner is smart enough to say, yeah, You know, not tomorrow, not three months from now, maybe not even a year or two from now, but at one point I do want to exit the business.
If you could wave your magic wand, John, what does that look like for that business owner to actually do the process properly that it's going to be as stress-free as possible, and that we're maximizing that enterprise value when all said and done?
[00:21:04] John Brown: While you were just talking about is a very typical mindset of a business owner. I want to leave my business, just not now. So what do I need to do? I would get there first of all, to the first phase of planning that we talked about. So one question is when do I want to leave my business in our experience, most owners would say in about five years. That's fine.
And so we don't do anything next year. We come back and ask the owner. When do you think you'd like to leave your business? What's the answer going to be in about five years?
So we've learned that. So what exit planners do is we make sure that we make a line in the sand. Oh, Jeffrey, you want to leave your business in five years?
Let's see that, you know, June 10th, 2027, or whatever the five years is. Now we have a definitive date and we can start marching towards it. So, some of the inability to take the first step is to just being lax, not really to put a line in the sand. So we make sure that gets done. And so if the owner's willing to do that indicates to us, usually they're willing to start doing some planning, but then the planning process, as I pointed out earlier, it doesn't have to be a huge process.
Initially, it can, we just do a few steps that would tend to increase the value of the company or reduce risk. It could be. Do you have a key employee? Yes. Have you done anything to motivate that key employee to grow business value or cash flow or do more of whatever he or she is doing in the company? No. Let's design and then set the plan to do that. What would happen if your key employee that you have, which suddenly leads Jeffrey tomorrow and take your good employees and your good customers?
[00:22:59] Jeffrey Feldberg: And that will be a real problem.
[00:23:01] John Brown: That's a real problem. We could combine an incentive plan with a non-solicitation agreement so that your key employee would be motivated to grow a business value, stay long-term, do rewarded for growing the business, but should they leave for any reason they can't harm the business.
So there's dozens of things like that. That would you call it exit planning? Actually, it's just good business planning. It's part of exit planning. We have to have that key employee there. But there's so many things that owners can do that they never benefit the business that will not take up very much time provided they've got a good guy.
[00:23:44] Jeffrey Feldberg: And John, you bring up such a salient point for our listeners because most business owners don't realize that when you're planning for your exit is not just exit planning because that preparation it's also business continuity. And increasing both your top line and your bottom line and getting that peace of mind that goes along with that, I'd love to hear some of your thoughts on that.
[00:24:06] John Brown: Well, those, you just mentioned steps in our exit planning process. So after we've established the first phase, the owner's needs And their gap, we tend to look at that value building and value protection process. That's really the third step in our planning process. So it'd be things like how do I motivate key people to grow a business value?
How do I reduce business risk? How can I pay less in taxes? The CPA firm from my company, they prepare our taxes. That's all they do. They've never said, hey, John, you know, looking at your business. I think there's some ways maybe we could minimize some taxes. Are you interested in learning about that?
Yeah. Well, they've never asked. So that phase is part of it. Tax planning, minimizing risk owners don't need understand the amount of risk that they're facing, that they could ensure that they're not, that they could create documents that would minimize risk. They don't know about growing value.
I want my child to come into the business and be an owner. That's another step in the exit planning process, but there's a lot of different ways we can transfer ownership to children, our general thesis, for example, on that is let's make sure that child can run the business. So maybe we transfer ownership either by a sale or a gift over a time period.
Increments provided the child has performed pursuant to a schedule. Maybe it's growing more business value in their department or increasing the number of widgets as being sold or for the, in the sales department. But we'll have on the objective standard to measure the child's capability to become an owner. So there's all of those things are part of this exit planning process.
[00:26:05] Jeffrey Feldberg: And John, you bring up another terrific point an episode full of incredible insights and wisdom. And we're going to keep on going along with that. And I understand it's going to be specific for every business owner and there's no right or wrong answer. Generally speaking though, generally speaking, when it comes to who your members are helping with the business owners, that exit planning, is it a transition to primarily family members or to employees?
Are they looking to bring in an outside either investor or a completely new owner? What's that looking like? Generally speaking.
[00:26:36] John Brown: It's evolving as the short answer. So historically, and we do surveys every other year historically about 25% of the exit plans are members to written exit plans have been preparing a business for third-party sale. About 40% have been either a transfer to key employees or transfer to children.
Probably, actually, it's probably more than 40%, probably 50 or 60%. And then a small percentage have been ESOPs keeping the business indefinitely things like that. Historically third-party sales have been a minority, a significant minority by the minority. I would say today, it's probably 50-50 between third-party sales and transfers to children.
Key employees keeping the business or an ISA. So it's switching it's because as you're well aware, the EBITDA multiples that third-party buyers are willing to pay. So that's the biggest difference, but those would be for extra plans, for owners whose businesses are probably worth $5 million or more that businesses where the business value is a million or $2 million.
It's very difficult. Those businesses can be sold, but it's very difficult to have enough money left after the sale with combined with their personal assets and allows the business owner to maintain their lifestyle post-exit.
[00:28:09] Jeffrey Feldberg: And John, you bring up another terrific point for all the business owners out there. And we've heard these horror stories. Someone goes ahead and they have some kind of an exit. They never really planned ahead of time. They didn't look at the taxes they didn't look at. Okay. What do I need to live without the business?
And it was a life's work. It all of a sudden when they sell the business, it's all my goodness. Even though I sold it, I don't have enough money left over to now live without working. And they've got to start all over again. I mean, what a nightmare.
[00:28:38] John Brown: Quick story to tell you about one of our members. He was an M&A person. He represented the business on them and sold this lumberyard for roughly $3 million. And he was up in a Northern party, I think if they were from Maine or Vermont. So they sold their business, got their money, paid their taxes, a husband and wife moved to Florida. And so our clients, our member's name was Mike and Mike says, he told me, said John, about two years later I'm going into Home Depot to buy some stuff and they're in that orange apron. Is my former client working at home depot and I went up to this, what happened? He said Mike, we've got a little over $2 million after we sold the business net of taxes.
And so on, we went down to Florida, we bought a home for half a million dollars. I bought one, a nice RV for a couple hundred thousand dollars. And we really lived the good life, but suddenly we realize, we're running out of money. He's come back to me and he's working at home depot, so that's not a success story.
And so as a result, I experienced Mike became an exit planner, a BEI member to make sure that when he's representing a business, that's going to be sold. The owner could leave in after all expenses, hold backs, taxes, stay bonuses, et cetera. The owner has financial security.
[00:30:08] Jeffrey Feldberg: And speaking of security, when I think of security, I think of peace of mind. And for our listeners out there, what's it worth to you to get that peace of mind? You may have been saying, coming into this episode. You know what, I'm pretty good where I am. I have some good advisors around me and I'll just figure it out as I go along.
But what would it mean to you? If you don't have to figure it out as you go along. It's all done by professionals and whatever it costs, it's a rounding error relative to the ROI that you're going to get and knowing, okay. You know what, if I'm going to have an exit as a minimum, it's gotta be at X dollars and not a penny less because otherwise, it's going to be back in the home depot with your story, John and not such a great ending on, on that side.
And John, I'm wondering. We've come out of some extraordinary times with the Coronavirus pandemic. And we really have seen the good, the bad, and the ugly. That's all gone in there. And firstly, my heart goes out to all the families that were affected in such a negative way from that. And I'm sure you must have heard all kinds of members' stories of what was going on.
Anything that you can share of maybe on both sides of the coin, how the lack of exit planning had such a negative impact in the exit planning during the pandemic really made all the difference.
[00:31:23] John Brown: I'm not sure I would be a good person to ask on that, Jeffrey. It seems to me that most of the adverse effects are in the retail world. Not entirely, but now owning a restaurant, owning a small store. Those people got hit really hard, but the businesses for whom, for which we were doing exit planning, our members were doing exit planning.
They tend to do well. They were more stable. They were growing in value. Some of them were hurt not getting supplies that they needed, but they realized that was relatively temporary. So they survived as far as I know quite well, many of them even prospered it's the owners who were not living hand to mouth but relied on their own efforts to earn money that got hurt.
[00:32:11] Jeffrey Feldberg: Just heartbreaking stories that are out there, but again, I think with the right preparation and perhaps the right BEI advisor, you're in a particular business now can come along and say, hey Jeffrey, I don't know if you thought about this, but the industry that you're in long-term wise, is that going to be okay for you or the way that you're running this business is that really something that you're going to be able to keep on doing heaven forbid, should something come along and there's such a value when you can do that preparation so well in advance and to see where that takes you. But John, let me ask you this because you're saying 50% give or take either side of that.
It's some kind of either a family transition or an employee transition where the business owner is leaving in handing the keys, so to speak to a family or employees. So how do you deal with the value in that kind of situation? With the planning process, because in some ways you have two competing points of view, the business owner, I need to get as much as I possibly can and the family or the employees, we want to make sure that we can get the best possible price.
That's still good value but isn't going to break the bank for us. How do you deal in those kinds of situations?
[00:33:19] John Brown: So very differently than you might expect an insight transfer. The owner is transferring her business to somebody who does not have any money by at large. Unlike a third-party buyer who's well-funded so we have to change our thinking as owners and his advisors, his exit planning advisors to saying well, is value really important, or is cashflow important? And what's important. And insight transfers is income cash flow to the owner and to the business itself, not business value. So if I'm an owner I'm taking out $300,000 a year. As income and there's probably profit there's EBITDA. In addition to that, I'm receiving. So let's say it's a million dollars of EBITDA.
My business might be worth $5 million. Plus I'm taking out another $300,000 in compensation. If I sell that to a third party, that entity that was producing more than a million dollars of income to me and I pay taxes. Now I am left with, let's say $4 million after taxes. I was $4 million of money going to replace over a million dollars of income.
It's impossible. A financial advisor would say will afford a 5% withdrawal rate would be reasonable. So that's 5% of 4 million is $200,000. We need to look at owners, want to maintain their lifestyle as a goal, almost always. So we need design and ownership transfer to insiders who don't have money in such a way that it's going to be a transfer over time. Maintaining the owner's income level accumulating wealth and as a condition of selling the business to an insider, usually it's designed and we have software that does all of this, that the business needs to grow at the pace necessary to allow the owner to leave her business. And, so that at the end, they've made they're out of the business, but they have enough in the way of assets to maintain their lifestyle that they enjoyed.
Pre-sale. So it's a multi-year process. Usually increasing cashflow is required. The owner maintains control until they've sold 30 or 40% of the business or gifted 30, or 40% of the business. And then when we have an ultimate exit, usually there's bank financing. The kids are the key people that will own a substantial minority can get the financing in that amount of money. At closing less taxes is enough to, along with the other assets that have been accumulated, provide the owner with financial security.
[00:36:16] Jeffrey Feldberg: And you know, what is a terrific insight for our listeners who perhaps haven't been a part of that before, but they've created a successful business and okay. Now what, how do I go from here to over there? And so for the listeners that are coming out of this episode saying, okay, you know what, John, congratulations, you've done a terrific job on educating me on why planning today for the exit is so important. I was really putting it off. It was every year, it was five years from now, five years from now every year, but no, it's actually going to be a definitive date and time. And I'm going to just get this thing going, where would they start, John?
In terms of beginning that process with BEI, how would they do it? Would they be coming to your website to fill in that questionnaire? Or what does that look like?
[00:36:59] John Brown: It would go to exitplanning.com and ask, you know, see if there's an advisor in their area. They can check for that and just make an inference and thinking I'm in Rochester, New York. I'm thinking of leaving my business. Can you suggest names of exit planning advisors you've trained in that area? We can do that all the time.
And the other thing is a lot of our advisors work around the country. So it's not really important that an advisor be next door to you. If you're a business owner, you're not going to see that exit planning advisor more than a few times in the course of an exit plan. So, we can match up an advisor's skill set and experience with what an owner needs. And one of the things I would say, Jeffrey for smaller businesses say worth less than a million dollars. It's premature to develop an exit plan for them. There's just no way they're going to be able to exit what they need to do is build value. So we have a value builder platform it's simpler and easier that the owner does himself or herself that will give them some concepts and tools to use, to develop the value of their own company.
[00:38:12] Jeffrey Feldberg: And John, what's nice about this? When I put myself in the shoes of a business owner when it comes to your website, I described my situation and I get a recommendation of one of your approved advisors. I'm really getting your seal of approval for that advisor. It's a system that's been in place for decades now, and it's thousands and thousands of transactions and business owners that we're not reinventing the wheel.
For this one specific case. So you've seen really the good, the bad, the ugly, and you've taken all of that and put that into the system to make sure that we're really getting only the good in that. And after all, that's really what we want. When we have one chance at our exit, we want to make sure that we make the absolute, most of it.
[00:38:51] John Brown: That's exactly right. And we're still learning every time. So I did do a lot of the training for almost all the training for incoming members. I learned something every time I teach a course. There's a member of who's got a different concept, a different idea, a different approach, and shamelessly, we just then incorporate that into what we're doing. So the body of knowledge is expanding all of the time.
[00:39:16] Jeffrey Feldberg: And a certainly a huge advantage when you're working with a group like BEI that you have that depth of hearing those stories and building that into the system. And it's a terrific takeaway for our listeners. And John, we're at the point where we're going to start to wrap up this episode, although I can keep on going down all these rabbit holes, and you've been so gracious with your insights and your wisdom and your answers.
But I'd like to do a quick thought experiment with you. I'd like you to think about the movie Back to the Future. And in the movie, you have a magical DeLorean car that can take you to any point in time. So John, imagine now it's tomorrow morning and you look out your window, and not only is a DeLorean car there, but the door is open waiting for you to hop on in.
So you'll hop on in and you can now go to any point in your life. It's John, as a young child or a teenager, whatever the point would be. What would you be telling your younger self in terms of life, wisdom or lessons learned or, hey, John do this, but don't do that? What would that sound like?
[00:40:16] John Brown: You know, I have given that a lot of thought, but if you get me in that car certainly tell you you know, I think probably would have nothing to do with exit planning. And if you look at our country today on either side of the political divide, there's just a lot of people who weren't very appealing to me because they're listening to others.
They're not thinking through, they're not using reason So, I suppose if I were to get in that car, I would want to start living a life based upon reason, getting the facts, doing the right thing rather than following others.
[00:40:54] Jeffrey Feldberg: Well, Some terrific insights to get us back to our moral compass and just get things back on track. So here, here to that, and John, I'm going to put this in the show notes and we'll have all the links for our listeners. There'll be a point and click it'll save them time.
It'll be really easy if somebody would like to either reach out to you or BEI online, what would be the best place to do that?
[00:41:13] John Brown: Well, I would go to exitplanning.com. The other thing they could do is they could always send me an email jbrown[at]exitplanning[dot]com and I will get them in front of the right person to talk to. that would be the easiest way jbrown[at]exitplanning[dot]com and I would probably forward their email in most cases to one of our coaches or perhaps a BEI member in their locale, et cetera.
[00:41:37] Jeffrey Feldberg: Well, It doesn't get any better than that for our listeners right from the thought leader and author and founder himself, putting his email out there, I would definitely take John up on his offer, reach out and see where that can take you. John, we're going to officially wrap up this episode of the Deep Wealth Podcast, a heartfelt thank you for spending part of your day with us.
And as always, please say healthy and safe.
[00:41:58] John Brown: Thank you much. That was wonderful. You did a fantastic job.
[00:42:01] Sharon S.: The Deep Wealth Experience was definitely a game-changer for me.
[00:42:04] Lyn M.: This course is one of the best investments you will ever make because you will get an ROI of a hundred times that. Anybody who doesn't go through it will lose millions.
[00:42:14] Kam H.: If you don't have time for this program, you'll never have time for a successful liquidity
[00:42:19] Sharon S.: It was the best value of any business course I've ever taken. The money was very well spent.
[00:42:25] Lyn M.: Compared to when we first began, today I feel better prepared, but in some respects, may be less prepared, not because of the course, but because the course brought to light so many things that I thought we were on top of that we need to fix.
[00:42:41] Kam H.: I 100% believe there's never a great time for a business owner to allocate extra hours into his or her week or day. So it's an investment that will yield results today. I thought I will reap the benefit of this program in three to five years down the road. But as soon as I stepped forward into the program, my mind changed immediately.
[00:43:03] Sharon S.: There was so much value in the experience that the time I invested paid back so much for the energy that was expended.
[00:43:14] Lyn M.: The Deep Wealth Experience compared to other programs is the top. What we learned is very practical. Sometimes you learn stuff that it's great to learn, but you never use it. The stuff we learned from Deep Wealth Experience, I believe it's going to benefit us a boatload.
[00:43:27] Kam H.: I've done an executive MBA. I've worked for billion-dollar companies before. I've worked for smaller companies before I started my business. I've been running my business successfully now for getting close to a decade. We're on a growth trajectory. Reflecting back on the Deep Wealth, I knew less than 10% what I know now, maybe close to 1% even.
[00:43:45] Sharon S.: Hands down the best program in which I've ever participated. And we've done a lot of different things over the years. We've been in other mastermind groups, gone to many seminars, workshops, conferences, retreats, read books. This was so different. I haven't had an experience that's anything close to this in all the years that we've been at this.
It's five-star, A-plus.
[00:44:12] Kam H.: I would highly recommend it to any super busy business owner out there.
Deep Wealth is an accurate name for it. This program leads to deeper wealth and happier wealth, not just deeper wealth. I don't think there's a dollar value that could be associated with such an experience and knowledge that could be applied today and forever.
[00:44:31] Jeffrey Feldberg: Are you leaving millions on the table?
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As we close out this episode, a heartfelt thank you for your time. And as always, please stay healthy and safe.
Enjoy the interview!