Transcript

Ben:                 Hi there. This is Ben Smith. I'm joined by the Julian Edelman to my Wes Welker, Curtis Worcester. How you doing today, Curtis?

Curtis:              I'm well, Ben. How are you?

Ben:                 I'm great. I'm great. We're in Portland today. Really excited to be in Portland. One of the topics we're covering today is exit planning. I think a lot of this idea around retirement success is visualizing what are you retiring to. I think a lot of the issues that we see from a client perspective, from a lot of the conversations we have with folks out there, is this idea of, "How do I even exit?"

Curtis:              Yeah.

Ben:                 Is, "I built something, and my identity is wrapped up as being something." It's a really hard transition for people to go through. When we were thinking about designing the show and all the guests, one of the things we were talking about is we got to get somebody that was really an expert in the field of exit planning.

Curtis:              For sure.

Ben:                 Today, we have David Jean in the studio today. David is a managing partner with Altus Exit Strategies and is a principal at Albin, Randall, and Bennett. Welcome, David. How are you doing today?

David:              I'm doing wonderful. Thank you for having me.

Ben:                 Yeah. Of course there's this principle about exit strategies, and I think we wanted to get into, in terms of your background, why you? Why are you the person that we think we wanted to bring in and talk to about this? In terms of your business, you have a couple of business structures we want to make sure that people are aware of as well, but then really dig into this idea of retirement success and business succession. Those are the three parts we wanted to cover with you today. Maybe we could just dig into just first of all you and your background, where you're from.

David:              Sure. Actually, I grew up in Lewiston, Maine, and I went to University of Maine at Orono and decided that-

Ben:                 Go Black Bears.

David:              Yeah. Decided I want to make Maine my home. I lived in Auburn with my wife and two kids and several pets.

Curtis:              All right.

Ben:                 Excellent. Okay.

David:              Yeah. It's all good.

Ben:                 In terms of growing up, you have an accounting track that you landed into, but how was ... how did you find a passion for, at first, just accounting? Going through the University of Maine, of course, they have accounting tracks. Was that where you discovered that line of thinking?

David:              No. I think my interest in finance and accounting and taxes, I think it started relatively young. My dad was a teacher, and to supplement his income, like a lot of teachers do, he prepared taxes on the side.

Ben:                 Interesting.

David:              I would often go with him to his customers' homes and I would just watch him prepare tax returns. Even at an early age, I thought it was fascinating in terms of understanding the tax system and the whole process of the tax preparation. That's where I first gained some interest.

David:              In high school I took a couple of accounting classes. I took some economic classes and I said, "Geez, this is kind of interesting." Once I went to college, took some early classes, again, in accounting and finance and it just made sense to me. That's how it came to be.

Ben:                 Okay. Of course, I think when you get on this track and you start getting into career, I think there's a lot of pressure, which you find with Mainers a lot is there's more economic activity sometimes outside the state of Maine than in. We find that the theme that you have a lot with Mainers is, especially when you're from Maine, there's this gravitational pull towards Boston or New York or other center. Why Maine? Why did you stick in Maine?

David:              I think for myself I think balance is very important in terms of raising a family, the economics, the landscape. I never really had the desire to work in the big city. My mom grew up in London-

Curtis:              Oh wow. Interesting.

David:              I've been to London a few times. Maybe it was my mom's urging me not to go to the big city because her experiences weren't as good. There's nothing that would really drive me out of the state.

Ben:                 Got you.

David:              I felt that Maine was our home.

Ben:                 Nice. So, in reading your bio just preparing for our conversation today, it mentions that you have an entrepreneurial spirit, which I think we're ... if you're in the business of giving advice to people that are running a business, I think that's pretty helpful in terms of making sure you're aligning with them and understanding where they're coming from. How did you get involved in the growing and starting of businesses in your career and developing that spirit?

David:              I think it was just a natural tendency that I've always been more consultative in nature, very much more forward-looking. I like to look in the front view mirror and not in the rear view mirror. I guess I think of myself as a nontraditional account, where I happen to be more of a business consultant that happens to have some experience in the accounting and tax areas.

David:              Really, accounting is really the language of business. I think fundamentally the tax and accounting really provides a great foundation to provide for consulting services and to be able to be a little more consultative in nature.

Ben:                 Nice. Okay. Then, in terms of your profession and your specialization, how did you become interested in helping owners working towards succession in their business exit? What was the seminal moment for you, or moments, that led up to, "Hey, that's something I'm really interested in and why I want to help people with that issue."

David:              Probably happened about seven years ago I had a client called me. He was an owner of a manufacturing business. Called me up and says, "I'd like to come into your office and meet with you." I said, "That's fine." I just presumed it was a tax planning meeting. I remember it was on a hot summer day. Came into his office with my wife and he disclosed the fact that he had brain cancer.

Curtis:              Oh wow.

David:              He was anticipating that it'd be about six months or so that he had left, but ultimately it was about two months. Looking at how it all unfolded, he had passed away, very little life insurance, his wife who took over the business ... he was someone who was very entrepreneurial, but never really had systems in place. His intellectual knowledge really never shared it with others in the organization, so there was really quite a void when he passed away. At that time, he didn't really have a succession plan in place. He did pass.

David:              There was a key employee who had a lot of the large customer contacts, and we tried to structure a buy/sell agreement with him. In doing so, as time went on, he wanted less ... he wanted to purchase the company for a real bargain purchase, which created a lot of tension, which ultimately led to his dismissal. So he essentially left the company and brought along a lot of that business with him because he ended up being hired by a competitor. I was thinking here, you lost your major sales person to a competitor, you've lost the business owner who had a lot of intellectual knowledge, and you have a wife who is really not prepared to run the business. The way it unfolded, it took a few years for her to get the company back online.

David:              They're now profitable, they're doing quite well, and through that process it was really ... I guess it was one of those turning points where I said, "There's got to be a better way for comprehensive exit planning." At that point in time, I really wanted to move away from transactional planning, to really a more comprehensive exit planning, and really helping business owners out three or five years out. To help prepare for their succession, for their exit. It's more about transactional planning, it's really about preserving the value of the business, enhancing the value of the business, making sure that we have a written plan.

David:              Whether or not it's a third party sale, inside sale, [inaudible 00:08:17], but to work through that process and plan for that. Or at least have contingency plans in place. That was really the turning point where I really want to develop a practice that was not just about the transaction, but really about long term planning.

Ben:                 Can you wrap that into ... I just want to just give for those that haven't heard of Albin, Randall and Bennett before. Albin, Randall and Bennett is located in Portland, and Altus Exit Strategies, there's a relationship there. Can you just walk us through just your relationship and your role at both of them, and then how Altus Exit Strategies is related to Albin, Randall and Bennett?

David:              Sure. Albin, Randall and Bennett is located in the old port in Portland, and Albin, Randall and Bennett really was formed in 1977, and I guess the founding fathers of our firm were folks that had left at that time one of the big eight CPA firms, and really wanted an alternative in the Portland market, because at that point in time it was largely populated with large firms, and they really wanted to have a big firm mentality, but having the service delivered locally and personally, so that's really how it came about. About five years ago we formed Altus Exit Strategies as a subsidiary of Albin, Randall and Bennett.

David:              So for all intents and purposes we're one and the same, but we thought it was important to position ourselves in the market place and to differentiate ourselves. So we thought it would be important to really create a separate entity, market it separately. So it was really done for ... to be quite honest with you, for branding purposes and for recognition.

Ben:                 What I like about that structure just personally and seeing that out there where you have ... Again, a lot of people are looking for independent advice. Is they want something where they can go to somebody, they've been through this, they understand what it takes to put a successful succession plan in place. I think from what I see in the industry is, I see a lot of financial advisors that step into that role, because they're looking to unlock value of the owner in order to manage more of their assets. So there's other formations of how to do that, but again which is why we wanted to have you come on the show today is, again, we really appreciate this.

Ben:                 It's a consultative approach I'm taking here. I'm really just trying to work through a problem and our fees are measured by how we structure this today as an arrangement. So, again, I like that the structure that you're helping them with is around solving the problem of succession, and not solving succession in order to get other business. Of course there's a good play back and forth between having an accounting firm, or you may have relationships and now they need me this moment in time. But can you talk about obviously in terms of founding the firm five years ago, the subsidiary five years ago, Altus Exit Strategies. How has that grown from five years ago to today?

David:              It's been exciting and probably maybe a little unexpected. I thought there was a great opportunity to bring these services to market. I think you've said too before, there's a lot of consultants out there that do certain pieces of a exit plan, but often times you really need a quarter back, and we work very collaboratively. What happens is we work with a lot of the other advisors to develop a single comprehensive plan, as opposed to advisors working in silos. So what ends up happening is the business owner gets very frustrated because there's no one person that's delivering the plan, we're getting different opinions.

David:              Sometimes a political opinion or different opinions. The frustrations what's the business owner going to do, like anything else, you're going to delay it and there's no ... You stop moving forward. Something's got to be the catalyst, the quarter back. We really serve that role, is really being the quarter back for the exit plan, and we work collaboratively with the other advisors to get everybody on board in developing a single cohesive exit plan.

Ben:                 A nice segue into this whole concept of retirement success, is I think when people are solving things in silos, is if my expertise is legal, my expertise is purely accounting or it's financial advice, or it's business advice, that if you only operate in your only silo, that's the expertise you're going to bring to the table, and we're all 360 degrees. We all have issues and we all have things we're trying to work through, and very rarely is it ... It's this what am I solving in terms of the exit, it's also the why. Why am I exiting and what am I exiting too? Again, which is why I like the concept and you and I have spoken offline a little bit before.

Ben:                 That's what I wanted to get to in terms of when you're seeing these first generation owners up there, and they're trying to consider succession options. It might be family. We had Susan Ware Page on a few episodes ago, and it was a family succession is what they did. But in terms of succession, what would you say are elements of success for succession from again, from the first generation owner that's exiting to the next party? What would you say would be the elements of success there?

David:              Yeah. That's a great question and at least from my perspective, I think it starts with strong family values and open communication. When you think of it, for some families it's very difficult to weave business and family conversations on an everyday basis. When I look at some of the successful clients that we have that are multiple generations, I always go back to strong family values, sense of family, commitment. Those things that I think are really important that really bind a family together. At least that's been my observations. Again I recently was involved in, we have a client, third generation, and their transition process of third generation was really to some extent quite simple.

David:              Strong family values, very much core values that aligned, commitment to the family. This is a family situation that has many children, grand children, some are in the business, some are not in the business, so how do you balance equity and fairness? It's sometimes difficult to balance, and they're just a really strong committed families, and I think that really speaks volume. When a family member gets involved in the business, they start at the bottom, there's no preferential treatment, and if they're going to get promoted, they're going to get promoted on their own merits, and there are no guarantees. There's nothing at that time. So you work for it and you get rewarded for it.

Ben:                 So, to pause it there, that may be opposite than I think from the external party perspective is you go, hey, you obviously you have the family name, and you're coming into your family business, that you must be just walking in at senior management just day one, and is that ... and maybe that is some families treat it that way. But I guess the opposite there in terms of you talked about family values and those things were there, they're starting from the bottom and they're having to work their way into it, what would you say would be the opposite in terms of what would cause say a family succession to sour?

David:              I think the ones that I have come across with over the years, are in situations where perhaps ownership, responsibilities, was given to the next generation too quickly when they weren't prepared. They didn't have the skillset, the experience, the leadership, the management skill set, and sometimes just being premature, and quite honestly there are some cases where the next generation doesn't have the skill set, and I think at that point in time, I think the matriarch, the patriarch, needs to be honest and open to say, "You can still be an owner, or perhaps we need to be professionally managed."

David:              There's nothing wrong with bringing in a CEO or a CFO to bring in the skill set that perhaps the next generation doesn't have, and that there's nothing to be embarrassed about, it's still very honorable, but we have to embrace that concept is that, the most important party to any succession plan transaction is the company, so we have to make sure that the company remains strong and so forth. So, I think we just need to make sure that we need to really evaluate objectively the skillset of the next generation and make sure they're prepared.

Ben:                 In terms of that agreement on maybe the capabilities of the next generation, and how they're being assessed on that, in terms of the conflict, obviously family conflict anyway is between parents and kids, and it's always not cool what your mom and dad are doing anyway, that's regardless to say, that's going to happen.

Ben:                 But is that something where you see where things are not going well, is there just a value difference where you're seeing, "Well, I am capable," and they're not really self aware enough to know that they're not able to do the job, but other parties are saying that. Do you see that as a major friction point at times?

David:              It is and sometimes what we'll do is we employ a number of different assessments to really assess the behaviors, the motivators, the skillset of the next generation, but also we'll do that for the earlier generation to line up. Our motivators and behaviors, are you aligned, you're not aligned. I think from those assessments, which are very objective, we can say, "Look, these are some of the areas for the next generation that you need some coaching on, some counseling, some development."

David:              Then we evaluate can we get you to where you need to be, or do we need to look for outside support, bring in someone else to help in some of those areas that you may not have the skillset for and so forth. Again, it's making sure that when we look at the management team development, we're really evaluating not just the successor, but also the rest of the management team as well. So perhaps there is some movement that maybe needed to help balance everything out.

Ben:                 Okay. Zooming out a little bit, we're just talking family succession there. In terms of if I'm maybe a majority owner of a company or a business, or I'm maybe part of a team, or I'm a leader of a team, or I'm a CEO, or I'm an executive in a certain role, what range of emotions do you see those people go through as they're getting ready to think about retirement, or what range of emotions are then preventing them from actually admitting, "Hey, maybe I'm losing capability here, or maybe I'm not the best person to be leading the organization at this time," and I'll keep going just for a quick second here.

Ben:                 Is what was pretty fascinating about Susan's story is you hear there's three generations. The grandfather was starting the business in very much from a start up and that was his skill set, he was really good at being a start up. Susan's father comes in and the next level of growth he's very good at and they all have to be very different managers at different periods of time, because they're different organizations. That's a tough thing to then let go off, is "Hey, I was the person calling this, and maybe I'm not the best person." What emotions do you see around, with that preference, about someone exiting from their business?

David:              Yeah. Actually when we talk about exit planning and the process, one of the biggest barriers is really some of the emotional barriers. Often times the financial implications or the financial objectives of structuring at ... that tends to be in some respects easier, because we can put numbers to it, we can do some projections, forecasting tax planning, there's a lot of things that we can do. But when it comes to the emotional side, there's nothing I can really do to move the business owner to the next stage of retiring until they're ready. Sometimes they'll do it on their own, sometimes unfortunately it could be a major life event.

David:              The birth of a grandchild, maybe health issue, sometimes you'll see a lot of pressure from the spouse wanting the business owner to protect the business, protect the family, so forth. So sometimes it's life changing event. The reality is for a lot of business owners, it's their child. They started at 50 years ago, they worked seven days a week, they put their house at risk, they put everything at risk to build the company, and you just can't walk away from it after 50 years, or 25 years or whatever. A lot of business owners don't have a lot of outside activities, so the fear of, "What am I going to do the day after?" Golf, I don't do a lot of volunteering and there's a void. How are you going to fill that void?

David:              Again, what we try to do is when we talk to business owners, we help them visualize, "tell me, what is the morning after going to look like?" If they say, "Gee, I've got plans. I want to work on my camp, I want to go visit my grand children." Then I know that they're very much looking forward to the next part of their life. But the person that says, "I don't really know what I'm going to do." That's pretty difficult.

Ben:                 That's a theme, we've had several episodes at this point, and that's what you hear a lot is this whole again retiring from something, those people that are retiring from are having a really difficult time with what their purpose is, who they are, and what they're trying to do, and the ones that really have identified, they visualize, they goal set, they've really figured that out, they seem to be at much easier transition there, so it's that back and forth has been an issue.

David:              Yeah. One of the exercises that I suggest, and I know that some people roll their eyes, and think it's a bit corny, but I do tell business owners, "Look, go to Staples and buy yourself a white board." I say, "put together a vision board. Cut pictures out of a magazine and what do you want to do? If you want to go bowling, take a picture of a bowling ball. If you want to go on a camp, do a camp, take a picture of a camp. If you want to go to vacation to Maui, take a picture of Maui. Your grandchildren, put a picture of your grandchildren in there. If you want to volunteer, whatever. Put some of the organizations there." Really what we're trying to do is we're trying to have the business owner think through and visualize what the morning after is going to be.

David:              It's a really great exercise to get them thinking about the future and vision it, and the reality is and when we think about exit planning, the word exit planning it has a really strong connotation to it. For a lot of the exit means mortality. So you're looking at to some extent your mortality because it's just another part of your life that you're letting go, and it's the latter stages of your life. So there's just a lot of emotional things that go into an owners head. Then the other thing you got is you got some of the family dynamic issues that are difficult.

David:              So perhaps you have two kids in the business and one is a high performer and the other one is not. You got to make a difficult decision. Is it going to be common ownership, majority ownership, how are you going to deal with that? How about the children who are not in the business? That from the state planning perspective how do you balance that? So there's just a lot of family dynamics and a lot of family tensions that need to be dealt with.

Ben:                 So do you say for those that maybe are delaying that decision, that retirement, that those would be the examples you just gave about here I have tough decisions to make, that that's a lot of what they look at is, maybe not going to retire because I don't really want to face this decision. This is a tough one and I'm not going to go through other things because that's going to force me to have a difficult relationship or cause a different relationship with my kids and vice versa. We see that with retirement as well is I'm not going to retire because I don't want to retire and then have to face something that I'm scared to face, because the next may be the thing after retirement that I'm facing is my mortality, and that's something else I don't want to be facing either.

Ben:                 I think all of it is emotional really honestly. The financial is a lens to it. It's a tool to be used to solve the emotional part, but I think that's something where we find that there's a lot of things that people are anxious about that cause them not to leave the business. Are there other things you would say that people are anxious about right now, or other triggers that they say other than just maybe there's a family situation or facing retirement that you see in your work that are causing delayed retirement?

David:              I think the key is again, I think you've alluded to the family dynamics of it. The reluctancy to let go because they don't know what they're going to do the day after. Some business owners just truly enjoy doing what they're doing, their concern there is that if something unexpected happens to them, we're in a really difficult position. So sometimes it's financial, it really depends. We've been in situations where financially the business owner is financially independent. Any [inaudible 00:25:15] for the business ultimately is probably going to get passed down or perhaps some of it is going to get donated so forth.

David:              Sometimes financially it is important that there is a gap between their retirement assets and their business, in terms of what they need to live comfortable. Sometimes there is a financial gap and they need to build a value of the business, and maybe they need another three, five years to achieve the financial independence that they need. Sometimes there is some reasons for that delaying. One thing I've learned over the years is that when people retire they don't want to have a lower standard of living so to speak. Nobody wants to sell the house and live in a yacht. Although there's nothing wrong with living in a yacht. I've attempted a yacht, it's very enjoyable, plus living in a long term.

David:              Again, sometimes there's emotional reasons and sometimes there are non-emotional reasons for that delayment. I think the other thing too is, another reasons why we often we'll find a delay is that often times we'll have business owners come to the office and we have a first sit down discussion, and the business owner is overwhelmed. I don't know where to start, I don't know what questions to ask, I don't know who to go see. Because for most business owners this is the most significant financial transaction of their life, they've never been through it. So, where do I go, who do I see, what question, I don't know where to start. What happens is like anything else, the business owner gets frustrated, why do it today when I can do it tomorrow?

David:              Then you become in a five year rolling time period. Five years comes up it's another five years. I'd say that is trying to get past that uncertainty, helping them explain and educate them. This is the process. We can do this for you, we do this all the time, and I think when you diffuse some of their concerns and it's a process, and it's a proven process that we use, that I think at that point in time, once you get a little buy in then they're better.

Ben:                 Yeah, which is again why again I appreciate you coming on the podcast, is some of it is there is a difficult topic that we're all facing, and because maybe Mainers as a group we maybe don't like talking about vulnerabilities because we don't want to say, "Hey, I'm raising my hand and I have a problem, and I don't want to just admit it." Is giving up for people to connect to this is, I don't need to go research everything of what's right for me on this difficult situation, but if I know that there is, hey there is David, I can go talk to him about this and I can just have a conversation, or here's another thing that we are having an issue with. You can just piece people together.

Ben:                 It's what I love about Maine, is again, we're in Portland, we're in Bangor, we're in all these different places and it's a pretty easy conversation to have with everybody and everyone is very approachable, so why not just connect people to those problems and then just start from there? That's the hardest part of the whole thing.

David:              I think I have found over the years that one strategy that I find to be very successful is start with little pieces. Have little successes. So talking to the owner about doing a comprehensive three to five exit plan. Perhaps we just help you put together an emergency operating plan. How about if we just plan at least so the unexpected happens to you, you got safeguards in place, looking at insurance coverage. So all of a sudden the business owner gets some success, it's like, "Well that wasn't too bad." Okay, look, how about if we do this? That's sometimes the only way to make it work is really do it in chunks.

David:              You're ultimately going to get there, it may not be the most sufficient way to get there, but I think a lot of these things we were more concerned about effectiveness and efficiency, just as long as we can get there, and it's based on the owner's timetable, and I can only push them so hard. I feel that sometimes if you take the universe and you make it a little smaller.

Ben:                 It's easier to absorb. It's easier to bite or chew on, it's like hey. Also sometimes you get momentum. I get a success, then I get another success, and I go, "Okay, I'm feeling good about it. I'm actually making progress towards what I'm thinking about." If it's overwhelming I maybe don't do anything at all. On that theme of Maine though, I really want to dig in here because again, Mainers I think from the outside, I think people in Maine or people attitude towards Maine they say, "Geez, Mainers are a little bit of a different group. I think we say that ourselves.

David:              We're special.

Ben:                 Yeah, we're special. Even within Maine, we have the coastal regions and the mountain regions and way up North with the farms and maybe a little bit more urban for Maine and Portland. You have all these different pockets, which are very different as well. In terms of Maine, what are you seeing that in terms of businesses and succession, that you're seeing maybe whether it be exiting or struggling to exit that you're seeing maybe specific domain as well.

David:              Yeah. Of course Maine, a lot of small businesses, a lot of family business, a lot of multi generational businesses. I think legacy for a lot of Maine businesses is important, and I've certainly had some situations with business owners that will say quote Jerry McGuire, "Just show me the money." That the legacy was not really important to them or relevant, they just didn't want to cash as much as possible, and that's fine, but I do find that with a lot of Maine businesses. Legacy of the name, community, a member to the community or job in the community, really important. Family, and a lot of loyalty to employees who have been with the business for many, many years.

David:              Often times when the business owner does depart, they want to add some protection for the employees perhaps that there is some state bonus or incentive plans in place to really say thank you for all the effort. Again, being a smaller business it's a little more personal in nature. I think that's unique, at least that's been certainly my experience.

Ben:                 In regards to I think with the state of Maine, and one of the things that we see is with the median age in the state of Maine is pretty high relative to other states in the country. Do you think there's going to be difficulty in owners exiting businesses? It just seems like for young professionals, there's just maybe less and less of a crop of young professionals maybe even staying in Maine, and, which is maybe exasperating the problem here of you have an aging community and then less young people.

Ben:                 So finding succession options maybe without may be a third party sale or internally, it just seems like that might be a difficult proposition for maybe going forward. What are your thoughts on that?

David:              We're surely seeing some trends. A lot of experts believe that in the next 20 years there's going to be about $10 trillion worth of business value is going to be transitioned on a lot of the baby boomers obviously retiring. So, we've never seen this in the history of our country in terms of this inter generational transfer. $10 trillion, I don't know how many zeros that are, but it's more than what I have for fingers. So, it's going to be a tremendous amount of wealth transfer, and there's a couple of challenges here. One is the reality is there's going to be more sellers than buyers.

David:              So there really going to be a glut. You're going to have business owners here, and again, during the next 20 years, where there's not going to be a lot of bonafide buyers. It could be more sellers than buyers. They're on top it never should affect business values. Like anything else, supply and demand. Then you got the millennials who are less risk tolerant, and the baby boomer generation. So we're finding is that there are few or young people moving forward that want to own a business on their own, take the risk, sign on the paper, sign with the bank and so forth.

Ben:                 Interesting, yeah.

David:              That's why we're seeing an uptake in terms of ESOPs, where it's more of a collaborative approach to buying a business where it's risk diversification.

Ben:                 Can you just for maybe those that are listening right now that don't know what ESOP stands for, E-S-O-P.

David:              Employee Stock Ownership Plan, where essentially over a period of time the employees own the company. Whether or not it's 100%, or whether or not it's a lesser percent, and we're seeing a little bit of rise in cooperatives particularly in agricultural industry, similar concept. It's a different animal, but similar concept. Then a lot of the inside transfers that have been in that are family, even smaller businesses, it takes three, four people, a key employee group to want to purchase the business. Whereas in the baby boomer generation, there would be more individuals that are willing to take on that risk and so forth, and now it's much more collaborative where you've got more people that are willing to purchase, but have more risk diversification.

David:              Really, what we're saying here is that I'm finding that a lot of new young buyers are willing to take less rewards for less risk. There's nothing wrong with that, it's just a shift. It's a paradigm shift to some extent. The other thing we're seeing, and this is primarily with larger businesses in Maine are private equity. We've had a lot of transaction have been involved in the past couple of years that they're outside, private equity groups are coming in and buying up Maine businesses. Again, that's another source of capital and we're going to see more of that. That's just the reality. There's a lot of cash out there, there's a lot of private equity money that's going out there and they're going after good profitable businesses.

Ben:                 We hear again from businesses where we work a lot with is there is this ... and Susan alluded to this in our previous podcast, is there's pride about having control and ownership, and having things located in the state of Maine, that we're doing business with other Mainers, and that we're not doing business with ... Yeah, they may have locations here but they're really controlled out of Atlanta, Canada, or Omaha, or Texas, or wherever.

Ben:                 Is that a theme you see as well as a value of, "Well, I built my business here and I want to continue to have it be in control here. Is that something you're hearing people say as an exit?

David:              Yeah. What people say, what people do are-

Ben:                 Sure. It's two different things.

David:              Two different things, and the situation that have involved in. These were offers from outside private equity groups, or basic consolidating certain types of businesses, and basically rolling them up. You're paying five to seven times multiples to get that in the local market place, or to have it do an inside transfer, you're not going to have employees who are going to be able to come up with five, 10, 15, $20 million. You get to the point where it has to become a third party sale, so you do both through private equity, or you do both through some intermediary, some business broker, and these are companies that are five million plus, most of them are 10 million plus, and they're really good candidates for these private equity group.

David:              To some extent the private equity groups, at least the ones I've been involved in, they try to keep things as much local as possible. They try to retain the management, obviously employees, but there are certainly some consolidation of services. Maybe it just has to be those things, and we're going to see more of it.

Ben:                 Okay. In regards to again the name of this podcast is right Return Success in Maine. How do you think business owners right now are envisioning retirement success, and then as the follow up, then how do you think they should be envisioning it? What are they seeing today, and what do you think they should be looking at for their retirement success?

David:              If we're talking within the business ownership group, we always talk about the fact that the biggest fear is dying, a close circuit is the fear of running out of money, and I know that's where you folks, investment advisors play an important critical role. When we start the exit planning process, we do a lot of work in the discovery process. Part of the discovery process is we try and identify what the business owner has for assets. We do that in collaboration with the financial advisor. We don't provide personal financial plans, we do a lot of cash flow modeling, forecasting those things, but when it comes to individual financial plans, we don't do that. We look to financial advisors such as yourself to do that.

David:              What we do is we try to do a GAP analysis like you've got your retirement plan assets, what is your retirement needs based on all these various assumptions, life expectancy, what do you have obviously for retirement assets, what standard of living do you want, what are some of the things that you want to do, those things. When we find out what they need, what they have for retirement, existing retirement assets, that means that the rest of it has to come from the business. So what's the GAP? If they'd say, "Well I really need $3 million from my company in order to achieve what our retirement financial objectives are," we then value the business so the value is two million, we have a GAP issue.

David:              If the value of the business is five million and that's easily achievable, we're probably good. So, early on we do that GAP analysis. At that point in time, that will then illustrate to us what we need to do. Do we need to value the business, do we need to wait another couple of business to get the value where it is, what are some of the things that we can do to grow the business, add some value to the business? So we do a lot of what we call presale due diligence, where we look at a lot of different value drivers of the business, we look at the operation of the business, look for areas of under performing, set a strategic plan where we identify how can you get your numbers to where they need to be.

David:              So we do a lot of financial modeling, back into the valuation saying, "This is where you need to be." That's a critical step. Without doing that step, I don't know how anybody can move forward. It's just impossible. So, a lot of the important things that we need to uncover is early on the discovery process, and again we always look at A, what's the GAP, what do you need out of the business, when do you want to retire, both fully retire as well as scaling back and the who. Who do you plan transferring to? Is it inside, is it outside? With our approach, we're agnostic, whether or not it's a plan, an inside transfer, a third party sale, liquidation, it's not really important to us which door we're using. It's whatever door makes the most sense for this particular business owner.

Ben:                 So there's two things you highlighted there. Is obviously there could be the here is what you need to make your retirement plan work and determining that success, also here is what the value of the business is worth, and then identifying those two differences. Don't you find that there's sometimes a third element there of I think where owners have a pride of what they've built and they maybe have in their own internal metric that they use to value their own business, which has maybe nothing to do with any industry metric. It's like, "Well, I want this to be worth $15 million," but you look at the market out there and it's only worth five. But they have this ... I don't know.

Ben:                 There's an anchoring, like a psychological anchoring that they have sometimes to a number and that there's something that they're trying to achieve there. We see it on the wealth side as well, on the wealth management of, "I'm only going to retire when I achieve a certain level of liquid wealth." When I achieve that, now I have my AIG number that you see people carrying on the commercials, is I have it, I can do it, and now it all works. It's not always that way, but do you see that from a business valuation side too? Is that something that comes up?

David:              We do, and to be honest with you it's all over the spectrum. I've seen situations where business owners come in and they think their company isn't worth that much when in fact it's worth more than they think, and there are certainly those situations where they have false sense of valuation where they think the company is worth 100 million, , but when it's really only worth $5 million. But a lot of that we can illustrate why it is what it is, and we have to look at it as an investment. What it's spending off our cash flow.

David:              You can bring it to something that's a little more objective, and as to why it's valued as it is, and I think most people come around eventually to the reality of the valuation. Yeah sometimes we're starting from a real valuation gap, and we try to again use a little bit of practicality and common sense, and explain to it this is why. You have to separate the realities of the business, versus the emotional realities of it.

Ben:                 Got you, okay. Do you feel like sometimes I'm an owner and I'm looking at my own retirement success, and a lot of times that owner can be the rain maker of the company because they're the ones that they got the contracts, they got the clients, or they develop the business, and they feel like my personal retirement success, I have my spouse maybe chirping in my ear, I have family member saying, "You're old enough. Come on. Why don't you just retire?" And moving on. Do you feel like there's a lot of this ... that there's mutual exclusivity between if i can't achieve my own personal retirement success, because if I do, this hurts the business and vice versa.

Ben:                 Maybe there's a tagging that's going on between them of, "If I remove myself because I'm a key man, I'm so important to this organization, if I remove it it's all going to fall apart and now my legacy is gone, but I might be okay personally, but again I have employees that have been here for 30 years and I don't want to see them hurt, and I don't want my reputation to go away." All those things. Those are conversations we have a lot I think with clients as they're exiting, or they're thinking about is, they feel like those are exclusive ideas. How do you go about challenging that or really showing them here is the methodology to get to that point. I know you covered some of that already, but I want to explore it more.

David:              Yeah. Sometimes we have to hit that topic hard, and we talked a little bit about having a vision board earlier, sometimes what we'll also do is talking to the business owner and say, "Walk me through what happens if something were to happen to you tomorrow." Visualize, "Tell me what's going to happen to the organization. Who's going to take over your place?" Could be sales, could be marketing, could be finance, one of the case. Maybe who's going to make those difficult decisions? What is your wife going to do? You want to keep the business ... walk me through the process. What's going to happen to the business, who's going to tell your customers? Who's in charge, who's the CO, who's going to be the decision maker, who has the authority to cut checks and turn contracts?

David:              Does your wife know, does she want to keep the business? If so, if you wanted to sell it, where are you going to go, what path are you going to take? I think if you visualize what happens the next morning, if something happens to the business owner unexpectedly, they will tell you the realities, the harsh realities, "This is going to be a problem. I don't know what's going to happen. I don't even know if my right hand person Joe, or Sal, or whoever it may be, they may jump ship. I don't really know. I never had that conversation with them." Those are real challenges, and I think you have to have that honest conversation.

David:              I think getting back to your earlier point, one of the bigger challenges is when we have the business owner who is financially independent, has no need to sell the business, just loves doing what he's doing, and really not motivated to do anything.

Ben:                 Right, yeah, because there's no pain. Because when there's enough pain, then people make changes.

David:              There's no pain point. At least in those situations I say, "Look." I said, I understand you're not ready to make that difficult decision, but put together what we call an EOP, an Emergency Operating Plan, which is basically a written plan that's designed to be given to family members and to all your advisors and saying, "If something were to happen to me tomorrow, this is who is in charge, this is the CFO, this is the CEO, this is how we're going to tell our customers, this is where all my bank account information is, this is my passwords, these are all the listing of all my advisors, this is how I would like to transition my business.

David:              Perhaps it's through a third party sale, this is the name of the broker, this is what I think it's worth, and maybe have some state bonuses, state bonus plans in place so that your key employees get incentivized if they stick around for one or two years through a successful transition and maybe monetize that. So we want something in place until they're ready to make that decision to transition.

Ben:                 What I really like about that whole process is I think we're from the personal side, and we had this conversation with attorneys at Rudman Winchell on the estate planning end up in Bangor. One of the things that you find is, again, people don't want to adjust mortality so they delay that. But a lot of what you're doing is a lot of the same thing of it's succession and estate planning almost for the business, right?

David:              All together.

Ben:                 It's the same, it's the power of attorney, it's who's going to step in and who's going to ... It's this whole package, and it's just an extension of just personally what happens with my assets and my things and who speaks for me. I like that again it's a very similar vein in terms of that thinking.

David:              Yeah, you hit it. Estate planning, business planning, personal financial planning, they are all interconnected, intermingled and those things. So when we do these, it's really important that we hit all those areas simultaneously so that they are in alignment. I don't know how someone could do exit planning without estate planning, without business planning. I just don't understand how that can be done effectively.

Ben:                 Which is again from our end, where we're saying, "Hey, I'm sitting down with you, you're a new client, we're doing financial planning and you have this situation. You are a business owner, you do have significant liquid assets, and/or you own properties in multiple estates, and what does an estate plan look like?" We can't give you very good advise if we don't know all the pieces and how to treat them, and we want to be very good in a certain area, you can't be good in everything. So you got to partner with the experts in each of these fields to make sure you're doing a really great job for the client.

Ben:                 Which is why we really appreciate you coming on today David. I think this is a really fantastic conversation to have. I do want to wrap up with a personal question to you. This is the strategical question. Is you personally retirement success. You of course are sitting in the really great seat where you're seeing business owners struggle with the emotional stuff, you're helping them find their own retirement success, you have the ability to see and forecast yourself a little bit and what your attitudes are. What are you thinking about your own retirement success as that approaches well in the future?

David:              Everybody defines retirement success differently. As a partner in a CPA firm, we have a retirement plan in terms of how our partners are ... how we exit and so forth, and that's very much in place and very solid. But when you go beyond that, I enjoy what I do and I'm going to continue working until I no longer want to go to work Monday mornings, and that's really my barometer. It could be five years from now, 10 years from now or 20 years from now. But I'm a firm believer in being active, and I can honestly see myself working at some ... maybe reduced schedule in my 70s.

David:              For me I enjoy work, I enjoy people. I think that the service we provide are critically important, and it makes a difference in people’s lives. So for me that brings me a lot of joy and fulfillment, and I'll continue doing as long as I can.

Ben:                 And continue to balance out the other pieces in your life too, right-

David:              It is and I don't see myself working six, seven days a week during in my 70s, but I think retirement is also retiring on your terms, and I think that's really important. My term is to have obviously a work life balance. I hope to have a lot of grandchildren, I don't have any right now, and that could certainly be ... we talked about one of those life events that could certainly be life changing. But i enjoy what I'm doing today and I'll continue to do it until it's no longer fun. Whenever that's going to be.

Ben:                 Okay. David thank you so much for coming on today. I really appreciate the time and we'll keep you in mind for another one as we deep dive into the next topic.

David:              Great, I appreciate it. Thanks so much.

Ben:                 I was really happy that we were able to sit down with David today. It's a good conversation get to know him. The first part is I know from our client perspective, we see enough people that are in a certain role and they don't necessarily need to be business owners or an executive, they just have an identity with their role in exiting.

Ben:                 So I know obviously David and Altus Exit Strategies is really focusing really on a certain clientele, but it's really great to hear that process and hear how they attack that idea and how a lot of people who are having difficulty exiting from their professional career. Personally I'd gag at a lot of that today.

Curtis:              Yeah. It was great to hear certainly his side of the transaction if you will. We previously had that conversation with Susan, and we saw the situation from her perspective and it was really cool to see it from the professional, the execution perspective as well. One piece that stuck out to me was as David was going through their process and how he sits down with the business, or the individuals running a business, it ran pretty much parallel with those conversations that you and I have with our clients.

Curtis:              He was talking about the gap in their retirement and finding a purpose for them to ... something for them to retire to. It literally was treating the business like a person, which I think is what needs to be done.

Ben:                 What was pretty fun is using this concept of a story board, and using the white board and going through and cutting out things that you want to do in your retirement, or people that are important to you, and that you're really filling up a space of all the things that are important to you. I really like that concept and I think that's an exercise that we like to do with our clients at times too, is just sitting down and writing it, but again I like the extension.

Ben:                 He went even further like here's the visual, and you can fill up the whole white space of here's what we do and here's why do we want to go here, what are we working towards? I guess it's uncomfortable and I'm happy in my professional role today, but these are the things that are really important to me in my life and my value system. That's a really cool exercise they had.

Curtis:              It was.

Ben:                 I do want to give the audience a little bit of a plug here too. David wrote a book with John Brown, which you can find on Amazon, it's called Exit Planning the Definitive Guide. I think if those are out there that hey, maybe I'm not ready to have that conversation with David and his team at Altus Exit Strategies, but there is a book that you can look at and browse. There's lots of really exercises, and activities, and checklist, to help start that process and start you thinking through that. Altus on their website as well has a resource that you can go through and it's a quick 10 to 15 minute exercise that you can walk through.

Ben:                 For those that again, maybe you are in the business succession area is what you're thinking about, or maybe here in my small business, or here in my role, maybe it's just one of me and my organization. There's lots of situations that you could sit down with and get some utility from that. So I want to make sure that people were aware of those utilities out there, but for us so you can get to more resources for the show again, that link to Amazon for that book will be on our website. You can go to Blog.guidancepointllc.com/7, and you can see more of our conversation with David, and you can get all those resources there and see for yourself.

Ben:                 I appreciate everyone listening today. Again, always happy that you're tuning in. If you have any comments or suggestions, please free to reach out, but we'll see you next time.