We have not one, not two, but three awesome gentlemen chatting with us today. They are the authors of Your Next Adventure, which shows us how to take your business from pre-sale to post-sale by planning ahead, assembling the right professional advisors, and incorporating your values, legacy, and loved ones into every choice you make. They are Marshall Rowe, James Fitts, and John Weeks, and here is our amazing conversation.
Marshall Rowe: What I’ve seen throughout my career working with business owners is that their passion and their energy for life is really being sparked through their business. Watching those business owners try to figure out the transition from owning and running a business to the next successful and purposeful part of life has always been a real challenge.
We wanted to look back and collectively think through, what could we offer business owners that might help them more successfully and easily move through that transition?
Jim Fitts: We took on a client back in 2008, actually, at the exact moment of the sale of his business. We speak about it briefly in the book. We had no chance to develop a relationship with the client ahead of time or do any planning. Without any plan of what waited him, he fell into a pattern of watching his portfolio change value literally on a minute by minute basis for hours every day.
It is what we call hibernation.
He had no purpose or any other interest that he had developed or allowed himself to develop when he was in the state. He kind of fell into a funk and we constantly struggled with how we could help him. It’s clear to me that not only could we help people like him by starting, planning early, but it was almost malpractice for us not to try to help our clients in this way.
John Weeks: I would say I came to the point of participating and writing this book through my lifetime and gathering information throughout my life that contributed to what went into this book. That included growing up in a family business and a business that my grandfather started, my father ended up taking over and running it, we had other family members in there, and then my career started out working with business owners on growing the value of their business.
I transitioned in my career over to help business owners after they’ve realized the value of business that they’ve built up over time. All along the way, with these business owners, I’d keep going back to the life that my father has lived both in the family business and then afterwards. While he would say he wouldn’t do all of it the same over again, he did so much of it right.
When we started talking about writing a book and what could go into it and as we talked about building out the chapters and everything, I just kept going back to my dad. He was really the inspiration for me to want to write a book like this and really was a great example that I kept going back to as we wrote the book.
Your Next Adventure
Rae Williams: What is the actionable, unique idea of this book? What are we tackling, what are talking about, what are we dealing with?
Marshall Rowe: One of the first elements of the book is to recognize as a business owner that this transition process goes beyond just the business owner. It involves his spouse or her spouse, it involves the whole family, it involves the employees of the business, it involves the community in which the business resides.
The transition is going to have a major impact on the business owner and his family. Just recognizing that will be really helpful in thinking about how will we approach this process.
Jim Fitts: Following up on that, we have found how important communication is within the family. We spent a lot of time this book talking about how to bridge the gap between the generations and even between spouses as communication around the sale of the business.
Business owners frequently are by definition successful. They’re the decision makers, sometimes they make decisions without incorporating their family. When you sell a business, the relationships within the family change.
Communication is a foundation of how you can make that change successful. Our thesis here is to help business owners understand how important communication is, and we give them a lot of tips and ideas on how to do that effectively.
John Weeks: Another key message and theme that runs throughout this is that all of this—all the things that we cover in this book are not discussed enough in enough detail and in many cases are forgotten until well after the transaction. We want to work with the business owner and their family on helping them to get through the transition of their business ownership.
Many advisors out there are dealing with the business and getting the business through that transition and transaction. There isn’t anyone that is solely focusing on the business owner, the family, the dynamics, the technical aspects of it whether it’s legal or accounting, estate or otherwise.
This is an unmet need out there, and that we’re trying to address that by focusing our book on this topic and this business owner and his family.
First Steps toward Transition
Rae Williams: When we’ve decided we’re going to sell our business and this transition period has to begin, what is that first thing that we can or should do?
Marshall Rowe: One of the first aspects of thinking about the transition of a business is clearly to start early, but it’s to recognize a concept that we introduce in the book called the three clocks. When you’re thinking about selling a business, it’s very common and important to recognize that you need the business to be running well and to be showing good profit margins when you want to sell it. That’s one of the clocks—the business clock.
The second clock is the industry clock. You want your industry to be in an upswing and evaluations in the industry to be strong, and business owners think about that frequently.
The third clock is the one that business owners don’t think about but they should, and that is the personal and family clock.
For a successful business transition, all three of those clocks need to be aligned when it comes time to sell a business. When the industry evaluations are high, you want the business to be functioning well, but most importantly, we truly believe that the family has to be prepared and ready for this transition. To prepare the family, it takes time.
We introduce not only the concept of the three clocks but the premise of the transition minus five years. Meaning that that period of up to five years before the transition is when the business owner needs to start thinking about their family and their spouse and identifying how they’re going to think about life post transition.
Jim Fitts: Further on, that is to be able to take a look at what life after the sale of the business really is going to be. Up to this point, the business owner in the family has built their social structure and their relationships and their days and years around the business. When that goes away, there is going to be a void, and that void has to be filled with something.
The temptation I think is for business owners to say, “Well, I’m going to be alive for 30 or 40 years after I sell the business, I’ve got plenty of time to figure that out.”
We feel that that’s a lost opportunity. If you spend some time thinking about that ahead of time, you develop a plan for the future and then you move to something as opposed to away from something.
You have a goal that makes the transition and a willingness to sell the business that much more easy.
John Weeks: Along the lines of taking the time to think about you as the business owner—what am I going to do after I go through this transition, after I sell my business? So many of them get caught up in the transaction itself and just thinking about the business that they just keep putting it off. As you’re all doing here, emphasizing that think about yourself, you know?
Don’t first think about the business and what do I got to do about the business. Think about yourself. Because if you’re not ready personally, all that other work may go by the boards. Because again, back to Marshall’s three clocks, the industry is ready, the business is ready, but if you’re not ready, it’s not going to happen.
Carve out that time, focus on what do I need to do to be ready, along with the business clock and the industry clock.
The Struggle of the Sale
Rae Williams: What are some of the negative things that may come out of somebody not preparing properly for the transition of selling their business?
Jim Fitts: I think the most common example of what happens if you don’t plan is you go into a prolonged period of hibernation where you shut yourself off from society, from your friends, from your social network. You realize that you don’t have a clue as to what your purpose is in life anymore.
As a business owner, you bring purpose to your life every day and you bring purpose to the business every day. You have employees that you care about, you have a community that you care about, you have a business to run, people know who you are and the community, you have social stature, your phone rings.
That’s all part of being a successful business owner. When you’re no longer a successful business owner, your phone stops ringing, the email inbox becomes empty and you are searching for purpose in life. This has had very detrimental effects in some cases. You know, full on detrimental effects. Now, that’s not the usual but it’s possible but there’s always a period of time over which you’re going to struggle.
The business owner’s going to struggle and by extension, their family is going to struggle with what the new status is going to be. Sometimes it takes years for them to get their bearings and come out the other side with a family relationship that are strong and new purpose in life. It’s a shame to waste that. The longer that thing goes on, the more detrimental it could be to family and social relationships.
Proper planning will help prevent that.
Marshall Rowe: Another impact of a transition of a business, not only to the business owner but to his family, are changed expectations. A spouse of a business owner will have built a life that has been influenced by the business and the relationships associated with the business. A number of things change, and there may also be the recognition of family wealth that was never really understood previous to a transaction. That perception of wealth can impact the children, the adult children of the business owner, and the expectations from community members of contributing to various philanthropic causes. There are a wide array of impacts on the family, and without understanding some of those potential impacts, preparing for them, they can cause significant stress in the life of a family.
I truly believe that with preparation it can be significantly transformed into opportunity and adventure rather than stress and challenge.
John Weeks: Another way that we see it manifest sometimes is they converted this operating company into liquid funds and that is what is going support them in this next adventure that they are on, and many of them don’t have experience managing a pool of capital like that and how it can support a lifestyle going forward.
If they’ve got nothing else to focus their time on, they get overly focused on the ups and downs of the public markets, which is where probably most of this capital will be redeployed.
They can watch TV every day and see the value of this pool that is going to support them go up and down and as we all know, there are stresses. There are really good times in the market, but there are also difficult times.
To be so wrapped up in something that they are used to running and having what they feel is control over what happens and how it happens—then to have this pool of capital that they feel much less connected to, that they feel like they are going to have much less influence on, really starts to wear on them mentally and in their lifestyle and relationships and things like that. So it is another area where to find other interests, to look at other things that they want to be doing other than looking at their portfolio every day, that also can be very beneficial to them. Just from a peace of mind and lifestyle standpoint.
Success with Your Next Adventure
Rae Williams: I would love for you guys to share a few of your success stories if you can about some of the lessons in your book and how they’ve affected people’s lives.
Jim Fitts: We have worked with a variety of families, and a fairly typical example that is true in many of our client relationships is parents have a real apprehension about the impact that the wealth is going to have in their children. Nothing is more personal than their children, and this apprehension frequently gets in the way of effective wealth transfer that empowers the next generation. They’re hesitant because they are not sure of the next generation’s ability to be effective stewards of wealth.
So many of the success stories we have involve multi-generations of families, and not only are we working with the senior generation and the wealth creators generally, but we work with the rising generation to help educate them about the responsibilities that go with wealth. It takes some time, but in doing so, we find that the parents relax and become accepting of their children’s capabilities in this area.
They start to embrace the opportunities to move wealth in various ways downstream to the next generation and this process all involves a lot of communication and building those bridges between the generations. So we have found that in several of our families, we wind up with closer family units, better communication, strength and relationships, and much more effective estate planning strategies when we have the opportunity to work with both generations.
Marshall Rowe: I think an interesting family situation is one where the patriarch was very successful in building a medical business and he was fortunate and that three of his adult children chose to work in the business. The fourth child, a daughter, chose to become a lawyer. When the time came for him to think about transitioning the business, his original plan was to identify one of the three children in the business to be his successor as the CEO.
He faced a number of challenges, the first being that within the family there was originally the sense that the eldest son anticipated becoming the CEO. In fact, one of his daughters became the CEO of the medical business and the son played a different role in the family. He worked within the business and was very important, but played a different family role. Then the question was, “Well, our daughter is not in the business, so how is she going to participate in this?”
Originally the plan was that basically her participation would ultimately be some financial consideration, but it was not well-defined. In this case, the communication within the family really involved the mother of the four children and the wife of the founder of the business. She felt that they needed to consider new avenues for participation for their daughter who is a lawyer, and their estate plan was drawn and the transition plan was established so that she would become the owner of the real estate, which the business leased for their business activities so that she participated in that business transition.
It was in the end a way to bring the family closer rather than pushing family members apart. I think that’s an example of good communication, good planning in advance and engagement with all of the family members through a process to arrive to a transition, which really felt successful to everyone in the family.
John Weeks: Another example is one where not only was it helpful to the family in getting through a transition, a transaction of selling their business, but also helpful to the advisor team that was trying to get this business through a transaction. It was a complex family situation, family business started by the patriarch then owned by two of the children, two sisters. There was a third sister who was disabled and had a lot of medical issues.
They were concerned about her and how she was going to come through all of this. The founding patriarch was suffering failing health at the time and had this vague lifetime contract with the business related to transitioning the ownership to the next generation. Also he had a girlfriend who really wasn’t appreciated by the daughters and who wanted to be sure that maybe she was going to get her share out of the transaction.
One of the daughters’ ex-husbands was still involved as a senior manager in the business, and he was determined to get to basically re-write the divorce settlement to reflect the value of the business as it started to come together.
So obviously, a very complex situation, and the investment banker recognized early on, at pre-transaction that they needed some help. So we were invited in and basically, again along the theme of communication, getting the right people together. Having the right advisors, talking about the right things.
We were a significant contributor to this team that ultimately got a family and a business all the way to a successful outcome on the other end and successful on all of those fronts from a personal family standpoint as well as for the business. Again, it pulls in so many of the elements that appear in our book to basically bring it together and that deal team, the advisor team that includes someone looking out for the family and their interest.
And representing those and helping to facilitate getting to solutions on all of those is why that will get done in the end.
A Challenge for Listeners
Rae Williams: If you guys had to issue a challenge to people who are selling their business or eventually will, what would that challenge be?
Marshall Rowe: Working with business owners, there is an obvious passion they have for the business, their focus is on the business. To me the challenge for them is to think beyond the business. As a business owner myself, I know this challenge. The challenge of helping them step back and think about finding the path to real purpose and joy for themselves and their family post the transition of the business but it really requires that they step back.
And step out of the business and think about themselves and their family in the long term and just getting business owners to step back can often be a major challenge.
Jim Fitts: The challenge I would offer is read our book, and at the end of the first chapter, we have a series of questions. I would encourage the reader to answer those questions and then read the rest of the book and come back and answer those questions the second time. I think the answer is going to be different, and that could be part of the growth process that Marshall alluded to that allows the business owner to step back, think about the future.
Incorporate his spouse or her spouse, incorporate the children, think about all of these other constituencies, which are impacted by the business and the answers to the questions that we pose are going to provide a clear path that is going to make the transition of the business ultimately nothing to fear and something to look forward to.
John Weeks: The challenge that I would propose really goes back to an organization that I have been involved with business enterprise institute. It works with advisors to business owners helping them with the transition of their business ownership and is the foundation of their work.
You know they say that a business owner has to answer three questions: How much do I need to sell my business for, who will I sell it to, and when will I sell it?
And to me that is very business focused. It is all about the business and thinking about the business and how it is going to go through those transactions, my challenge to the readers, potential readers is to ask the three questions but in a different way. The three questions are: What do I want to do for my next adventure? Who do I want to do it with, and how much do I need in order to support this next adventure?