“Off the Wall” Podcast

Exit Planning is a Team Sport, Part 1 | Why You Need to Run Your Business with an Exit in Mind

Jun 12, 2023 Business Exit Planning

Are you a founder or business owner looking to exit your business? Do you want to better understand the exit process and the types of advisors you need on your exit team? You’re in the right place. This is Part 1 of our series; Business Exit Planning is a Team Sport. (Access Part 2 and Part 3 here.)

In this discussion, Greg reframes exit planning in a whole new light, to illustrate how exit planning is just great business strategy. Listen in as hosts David Armstrong and Jessica Gibbs welcome Greg Maddox, a Senior Business & Exit Advisor at Cultivate Advisors, to talk about why you need to run your business with an exit in mind and the three key advisors you need by your side. 

You’ll also learn three common challenges business owners face and how exit planning can solve them. You’ll gain insights on how to figure out your “freedom point” in business, the exit plan action steps you should take while actively running your business, and how to build an exit team that will actually increase your ROI and make your exit process smoother and easier.

Bonus: We’ve teamed up with Greg to offer a free resource to help evaluate the health and value of your business. Get Cultivate’s Business Health and Value Assessment here: https://bit.ly/3COxTMW

“We’re all going to exit at some point. Hopefully, it’s on our terms and timeline.”  – Greg Maddox

Are you looking for clarity, conviction and unfiltered advice about your wealth?

You’ve come to the right place.

Episode Timeline/Key Highlights:

[00:41] Introducing Greg Maddox & the topic of today’s episode.

[02:19] The difference between exit planning and leaving your business.

[07:10] Why 75% of business owners regret selling their business.

[11:36] The mindset shift you go through after exiting your business.

[12:27] Why you need a business exit team & Types of advisors you need.

[20:47] Why do you need a wealth manager for an exit, not just a financial advisor?

[29:00] Why you need to run your business with an exit in mind.

[36:09] Don’t miss Part 2: Prioritizing your personal wealth outside of your business.

Resources Mentioned:

Learn more about Cultivate Advisors: https://cultivateadvisors.com

About Greg Maddox:

Greg is a Senior Business & Exit Advisor at Cultivate Advisors in Chicago, IL. As a serial entrepreneur, Greg Maddox provides his clients with the same long-term planning he used to make his own businesses successful. From owning a mortgage company that went through the housing bubble crisis to a financial services company during the ’08 financial crash, Greg steered his businesses with clear foresight no matter the turbulent environment. Now, as an advisor, Greg brings exit planning into the present and helps his clients live their Ultimate ExitLifestyle—even if they never sell! And for those ready to move on to the next chapter in their lives, he ensures they are mentally and financially prepared to fund their next step and live an amazing life.

Connect with Greg:

Connect with Monument Wealth Management:

Visit our website: https://bit.ly/monumentwealthwebsite

Follow us on Instagram: https://bit.ly/MonumentWealthIG

Follow us on Twitter: https://bit.ly/MonumentWealthTW

Connect with us on LinkedIn: https://bit.ly/MonumentWealthLI

Connect with us on Facebook: https://bit.ly/MonumentWealthFB

Connect with us on YouTube: https://bit.ly/YouTubeMWMFit

Transcript:

David B. Armstrong

Welcome to Off the Wall, Jessica. Nice to see you. It’s been a while since we’ve recorded, so I’m excited about this series. I’ll let you introduce it and tell everybody what we’re doing.

Jessica Gibbs

So we actually have a series of episodes today. Today is the first episode in a three part series of episodes where we’re going to be talking about business exit planning, which I’m really excited about. I think it’s something where we’re going to get into this, where I people think exit and they think “PE firm” or “earn out” and those sort of things like those buzzwords kind of come to play. But I love that our guest today is actually reframing exit planning in a totally different way, in a way that we think is just so important. So our guests, through these three episodes, our expert is going to be Greg Maddox. Greg is a senior business advisor with Cultivate Advisors, which is a small business advising firm that partners one on one with small business owners to provide tailored business advising solutions. And Greg, as a serial entrepreneur himself, provides his clients with that same long term planning he used to make his own businesses successful. He helps his clients understand how valuable their businesses can be. So welcome to the pod, Greg. We’re so happy to have you.

Greg Maddox

Yeah, thanks. I’m excited to be here, guys. Obviously, I love talking about this stuff.

David B. Armstrong

A lot of the people that we work with and what we in the biz call our target market, most of them are coming to us because of an exit from a business. So this is going to be very valuable to future Monument clients or just people who are listening anyway, because a lot of people go through this. I mean, the reality is at some point I’m going to go through this. I’m a small business owner. Jessica’s a small business owner. So this is applicable to a lot of people. I’m really excited about it. So thanks for coming on.

Greg Maddox

Yeah, we’re all going to exit at some point. Hopefully it’s on our terms and timeline.

David B. Armstrong

Think one way or the other. Ended up six feet under. So, you know.

Jessica Gibbs

So I kind of tease those in the intro. But Greg, you’re really clear that exit planning, quote unquote, should not be confused with actually leaving your business. What’s that distinction?

Greg Maddox

Yeah, so a lot of people believe that exit is about the transaction. And if you’re familiar at all with the stats that of all the businesses that try to sell, only 20% actually do. Like, why is that? Why is it that it’s such a dismal outcome? Well, that’s because most people are not preparing their business or themselves for an exit. So at the end of the day, exit planning is just about great business strategy. If I think about it at a high level, no matter how many commas in their personal income or revenue that a business owner has, I found that there’s three common challenges that they all face at some level. Number one, they really own a job, not a business. They were ever to leave for an extended period of time and have zero contact that that business is unlikely to need to grow and thrive at the same level without them, unless they’ve really put in work for it. Number two, they have all their financial legs tied up in that business basket, so the vast majority of their net worth is usually locked inside of the proverbial walls of their business as opposed to liquid separate. And the vast majority of their income is derived from that operating company. And the third problem in pursuit of trying to solve the first two, they tend to over sacrifice on the personal family and health front. And it’s really the combination of those three things that in solving those is what exit planning is all about. It’s not necessarily about getting you and your money out of your business at some point in the future. It’s getting what you want out of this business starting right now, you know, with an eye towards the future. Because as we just talked about, we’re all going to leave at some point. The stats tell us that 50% of business exits are not on our own time. And choosing life throws a curve ball in the financial planning and in the estate planning worlds they refer to as the five D’s write death, disability, divorce, disagreement with partners, distress or disruption in the marketplace. So think about COVID as one of those. Think about technology totally changing landscape of your business. So Uber comes in and kills your taxicab company. Something like that I never thought was going to happen to me. And then it just happens really quick. So the purpose of exit planning is just bringing that to the present and saying, What do I have to do now to turn my business into an asset that runs without me, that solves that. We call that business freedom and it gives me an abundance of time and money. So however I define that, that level that works for me, if I’m working with wealth advisors like Monument, I should be able to take some of that time and money and create liquid assets and income producing assets that are separate from my operating company. I need to have more than one horse pulling the wagon that leads to financial freedom while we still own it. And you guys know there’s lots of ways that. There’s different playbooks for successful entrepreneurs that aren’t available for rank and file or even executives who are employees. So there’s lots of advanced saving strategies that really allow a business owner to stack up money if they want to separate from their business. And then it’s hard work being an entrepreneur and it doesn’t get easier as the business grows. What happens is the owner has to get stronger at the end of the day, and I’ve owned two businesses. Every advisor at Cultivate has owned a business for at least a decade. Many have exited some monstrous, some smaller, some multiple. We know what it’s like to have to lean in and work really hard, and that balance doesn’t mean equal. There are times where work or aspects of the business really need some extra TLC from us. But the truth is, we can all white knuckle it for a minute. We can’t do that for extended periods of time and assume that we will continue to get great results, especially if we realize that if I’m burning the candle at both ends, that will work for a while. But I am at risk of burning it all down because I have my health, I have my family, I have a life separate from the business. All of that is required to kind of put the oxygen mask on myself so that I can show up with the capacity to pull off big stuff inside of my business. I like to say I want to be able to be more, do more and make a bigger impact. And that’s not just in my business, that’s in other areas of my life that I care about. And the business is a big part of that because it’s the goose that’s playing the golden egg. So it’s very easy to get tunnel vision as an entrepreneur and social media hash tag grind and all this stuff that it’s all just about. If you’re out there crushing it at work, then everything else is okay. And for some people it works that way for an impressive time. But for a lot of people it doesn’t. So just being mindful that there’s three general areas that have to come into alignment to actually have a successful exit at some point, hopefully in your terms and timeline, you need to be ready, the business needs to be ready, and then financially you have to be prepared to accept what the market will bear for your business. When you add that to the pile of resources you’ve already stacked up.

Jessica Gibbs

It’s interesting that you kind of see you mentioned a lot of people see their business as the goose that laid the golden egg. And I think that’s what you hear. You hear a lot of happy stories about people selling their business. Oh, so-and-so sold their business for X millions of dollars. But you shared a really interesting statistic with me that 75% of business owners regret selling their business one year later, which really took me aback. Why is that?

Greg Maddox

If we go back to what we just talked about, generally speaking, why do business exits fail to begin with? Well, the business isn’t ready or the owner isn’t ready. Well, if the business isn’t ready, then the buyer doesn’t want to buy it. If the owner isn’t ready, but the business is, I can still sell it, but I’m not ready and I’ve now exited. And what does that mean? To not be ready? I could not be ready financially. I accepted whatever I got and it might not have been as much as I wanted, or I could not be ready. Mentally. You think about what it takes to, especially if you’re a founder and you thought up an idea started from scratch and really ground it out to build something that was significant that somebody else wrote you a check for. It’s very common that your identity and the social circles that you operate within, that the things that you do for fun, that the way that you spend your time is related or sometimes just entangled with the business. And what happens when all of a sudden you go from work and whatever it is, 40, 50, 60 plus hours a week to having more time and more money at the same time than you’ve ever had. I have a buddy who’s a wealth manager like you. He’s has a niche of working with business owners. He talks about a story of a client they’ve worked with for years prior to exit. Probably 10 to 15 years, they built a very detailed plan. They funded it, they did everything right. But this guy was not mentally ready. Financially, the business was right. Financially, they were ready. The amount of money they sold it for was enough to fund everything in their plan the way that they wanted to do it. He wasn’t mentally ready not to be Mr. Big anymore. He didn’t know how to do it this time. And so every shiny object looked like something worthy of his attention, and his money started investing in stuff he should invest in. Every family member had an idea that he wanted to fund, and he just started blowing through his cash at an alarming rate. There was a bit of an intervention that was able to pull it back, but not after he put a big dent in it.

David B. Armstrong

Yeah, we’ve seen that personally.

Greg Maddox

And that’s not uncommon. Yeah. And so that’s not that you guys didn’t put an awesome plan together. It’s not that the business wasn’t ready to be sold at the appropriate dollar amount to fund the gap, the wealth gap that most business owners have because all of their wealth is tied to the business. I had a client who had a business close to $100 million in revenue and pre 2008, 2009 about 20% net margin. So just like printing money and this guy lived that kind of lifestyle, not over his skis, not he wasn’t spending willy nilly. He had cash to spend. And so he had $5 million liquid. The rest was in real estate. He like fancy homes all over the place, things like that. And so for him, for a lot of people, 5 million could be enough to be done right and fund all their tomorrows. Not at his level. 5 million was not going to last a couple of years. And so this is a common challenge that we see business owners making is like, okay, when I finally do get that pile of dough and I’ve got all this free time, how do I spend my time now? And I always talk to our clients and listen, you don’t have to have another operating company, but you do need to figure out how to create value in the world. You have to define what that is. That could be that spending time with the people that you care about and on your own health is creating value in the world. It could be in your community giving back in some way. There’s no right or wrong to it, but there has to be something that the individual believes. There’s only so much golf or “insert fun stuff” that you can do before you start getting bored. And with a big fat checkbook, you could start making some ill-advised decisions on how you spend your time and money.

David B. Armstrong

Yeah, we say that a lot. We have a different way of saying it. People who are listening that our clients will know this refrain, but it’s “never risk what you have a need for something you don’t have and don’t need.” And that happens at different degrees, right? One end of the spectrum is no, people don’t risk what they have a need for the things that they don’t have and don’t need. And then there’s other people who we have just seen honestly just spend an incredible amount of net worth, essentially down to relatively zero relative to where they started from just to a level that can’t even sustain their basic lifestyle anymore.

Greg Maddox

Well, just think about the mind shift that a business owner goes from owning an operating company if it’s successful, just this huge pipe of never ending cash. And to them, even if the cash lulls a bit, I can always build it back up. Now I exit. I have a pile of money that I need to manage to pull cash off of. That’s a totally different dynamic. And so making decisions. Most successful entrepreneurs made lots of bad decisions growing their company, but were able to build revenue and profit again to get out of those decisions. It’s not as easy when you’re managing a pile of resources as opposed to creating income off of an operating company.

David B. Armstrong

Yeah, never discount luck as a component to your success. I don’t started a business, but if I started a business and there were ten year bear market, that would have been bad luck. And I’m not so sure we would be sitting here, but there’s always something like that. Greg, I’m interested if you could talk more about maybe how you see is exit planning more of a team sport than it is an individual sport?

Greg Maddox

Yeah, absolutely. I preach that to our clients all the time, and our clients don’t come to us because they’re thinking about exiting. Our clients are with us to grow and build an asset. And yes, we have our fair share that do sell, but we’re not transactional. So if people don’t come to us like six months ahead of time and say, Hey, I want to sell my company, can you guys help me? Although we are very involved when they do get their business to that point. So what does it take to actually pull that off? Well, you need a business advisor who could help you scale the enterprise value of this company in a way that is considered valuable to somebody else or less risky to somebody else. As an owner, we don’t see the risk. We don’t feel it. To us it’s natural, right? And I’ve already worked through it. So it’s my normal state. But they have a hard time realizing that somebody else will look at your normal state as very risky to them. Because what if I extract you from the equation? There’s a whole bunch of tax, legal and wealth planning that should happen years in advance, and most business owners totally fail at this. I don’t know why. I think when it comes to separating wealth, they feel that, hey, my business is my best asset, especially if we’re in a little bit of a down market and like one of your staff is trying to talk to them about money management, like, well if I gave you money where would it be at right now? I’m crushing it at my business. I’m just going to double down on me. And they’re right. Their business is their best asset. But where they’re missing the boat as it can’t be their only asset. You know, we go back to those five D’s, life can throw us a curveball. Or there could also be an opportunity, the unsolicited phone call that it’s just good planning to have more than one horse pulling the wagon, to have some liquid wealth, some separate income producing assets, and not having all those eggs in one basket. But most buiness owners are not aware of the level, the tax advantage ways that business owners can stack up money. You know, I’ve got several clients put in multiple six figures a year into their retirement accounts working with people like Monument Wealth. But prior to them setting that up, they had no clue. They thought they were limited to like the $20k or $30k grand a year into a 401k. That’s inconsequential to most successful entrepreneurs. There’s a bunch of legal work, and when I say tax and legal, usually I’m referring to a great tax attorney who understands advanced planning for successful entrepreneurs.

Jessica Gibbs

Why a tax attorney and not a CPA?

Greg Maddox

The tax attorney who specializes in this lives in that forward planning world. The CPAs are out there, but they’re harder to find because their practices are built around compliance work, audit work, doing taxes, lots of things. Right? And so finding the ones who actually do forward looking planning, tax planning, and legal planning. And just the nature of the beast is when you’re talking about planning for an entrepreneur and a lot of the tax stuff has to do with multi-entity based planning and now we’re getting into the legal world. Not that there aren’t CPAs who are experts at this. It’s just tougher to find. So it’s easier for me to find an advanced planning attorney who I need anyway who does tax and legal to actually build that thing. You still need the CPA as a critical component, but I’ve just found that when it comes to actually building the system (the tax, legal and wealth system), it’s a tax attorney who understands this and a wealth manager who understands this and a business advisor of some sort who understands how these components work together because we can’t give advice and silos, which is what usually happens. Number one, most business owners don’t have the right teammates. Not all tax legal and wealth advisors are created equal. There are more W-2 employees in the world than there are successful entrepreneurs. And I used to own a financial services company. So if I want to get into tax, legal, or wealth as a professional, the training that I get my job, the companies I work for, are likely to be focused more on the masses than they are on the niche of planning strategies that are available to really successful entrepreneurs. So unless you just happen to stumble out of your training into one of these companies that focuses on that, those are few and far between too. So normally they don’t have the right advisors on their team and even if they did, those advisors are not coordinating in any way. So they’re getting advice in silos. Each professional is for whatever reason doesn’t want to collaborate with the others. I don’t know exactly why that is, and they leave it up to the business owner to be the conduit and the decoder ring. Okay, so I’ve given you my lane of expertise. Now, when you go talk to your CPA, you go talk to your wealth manager, bring that information to them and let them know. And how often does that happen? Like never. The business owner is just never going to be able to have the time, energy or capability to fully explain these other lanes of expertise to each other. So to actually to build the plan the right way. It is a team sport, meaning that the business owner is the team owner and they need to have those technical experts in each of those areas. But those technical experts need to be working together because if you’re trying to fund a wealth management plan or we’re doing something on the tax and legal side, if the businesses, the goose is laying the golden eggs, we cannot just operate one without understanding what the other’s doing. Because what if we have a need to grow this business? A certain amount of capital next year is needed, but then we’ve already allocated it into some aggressive tax or savings plan. Nothing wrong with that. It just needs to be coordinated so that the outcome that the owner wants is actually achieved. And I found that you get much better results when the team works together and the business owner realizes that this is an investment, not a cost, that the ROI that they will get by hiring the right attorneys and paying to get the right plans built, coordinating with a wealth manager and actually separating some wealth and tying that into the way that they’re growing their business, the ROI that they get is exponentially better than if they didn’t do it that way. Not just while they’re growing the company and the tax efficiencies, asset protection from frivolous creditors and lawsuits, wealth creation through the business and separation of wealth from the business, but also with an eye towards the exit. At some point we’re going to transition out and talk about that tax day. Right? If there was something that we could have done that needs a number of years, that has to be in place before you can do it, all the tax attorneys that I work with, they normally get the phone call months in advance and they want wave your magic wand and fix my tax problem because I’ve got a $50 million gain now that I have to deal with. Well, if you came to me a while ago, there was stuff that we could probably do.

David B. Armstrong

Yeah, we see the most success when people have that team in place and functioning well together well in advance of an exit. And it’s not saying that you’re going to have a terrible exit if it’s not in place, but it’s just one more thing going on in your life when everything is so compressed and an exit to opportunity comes, whether it’s from the five D’s or even planned. But yet the success stories that we see are always they always include having that team in place beforehand. I think that’s critical.

Jessica Gibbs

To put an example on from what you’re saying, like I’m thinking about this, I’m like, Gosh, this is resonating so much for me as a wealth planner, thinking about clients we’ve worked with and the benefits of not working in silos is first off, like you said, you’re not having to play a game of telephone with complicated jargon where you’re trying to explain what the trust and estate attorney said. Having to explain to me, I mean, who wants to be in that position? So let me talk directly to that person. But then I also think it’s different perspective. So the Trust and Estate attorney, for example, may say, hey, this makes a ton of sense right now: the estate tax exemption is super high, let’s set up a spousal lifetime access trust, also called a SLAT, and fund it and you’ll save all this on estate taxes. And then from my perspective as a planner, who’s a wealth manager working with a client, I may say yes, that may be good for estate planning. But you said you want to do all these other things, and you need that money for these other goals. There’s more to your picture than just saving on estate taxes. You say you want to do all these other things with the rest of your life. So is a SLAT really what you want to do? You want to lock your money up there? So I think it’s good to hear different perspectives and then you can make the most informed choice. One thing I keep kind of coming back to, you were saying, okay, three most important people on your team, the business adviser, tax and legal and I think you said wealth manager. And I want to hear from your perspective why a wealth manager and not just a financial advisor?

Greg Maddox

Well, I guess it depends how you define that. I would define it as somebody who actually understands the advanced planning requirements of a successful entrepreneur. There are things in your lane like stack your retirement plans, things like you just described, right? There’s also things in the lane of the tax and legal that you don’t need to be an expert in, but you need to be aware of and understand how it fits in. You made a great point that understanding the goals which typically the wealth managers is one of the best to really do get into the goals of what they really want for themselves, their family, their community, legacy, whatever is important to them. And then, well, what if that wasn’t shared to the tax attorney who’s going to build the actual entities that make that system work? What if it’s not shared with the business advisor and how we’re growing this company? But we actually need to earmark a certain amount of wealth being separated every year of court or whatever, so that we’re funding that while we’re growing. Everybody knows about, oh, I’m operating at a loss because I’m just reinvesting all my money. Well, the vast majority of entrepreneurs are not. It’s their first time. They haven’t like scaled and sold multiple companies, in which case they know how to efficiently make those decisions about operating at a loss and reinvesting everything. Most are just making inefficient decisions with their money, and it’s not being coordinated across the other professionals, like how should we be spending this cash flow that’s the best for the business, the best for them personally and is in alignment with their asset protection, tax reduction and wealth transfer plan both now and down the road at an exit and come legacy time. And we could build all that stuff on the front end years ahead of exit and be funding that system over time. That gives them more peace of mind today, More choices tomorrow. Yeah, I just think it’s the best way to do it. And just very few people do because the kinds of attorneys that do this stuff are not cheap. The kind of things that you guys need to do requires separating wealth. And most business owners are not wired this way. They’re wired to think about an attorney only if they have a problem – it’s an expense they don’t want to pay. And why would I give a wealth manager my cash? Because I’m crushing it in my business. I was going to double down on me. They’re not wrong about that. But they’re wrong about having that be the only thing.

David B. Armstrong
Yeah, that makes sense.

Greg Maddox
So there’s some nuance there. What I found is that when we are looking at kind of that phase one, right, you know, identify their freedom point, that’s not the wealth gap. That’s what wealth managers do. The freedom point is when we understand the wealth gap, what’s the size of the business, what’s the target sales price we need to get to? What’s the enterprise value we need to get to so that net of taxes, net of fees, net of debt, and their percentage ownership, they can walk with enough cash to fund that wealth gap. So that’s the freedom point, is understanding that usually that freedom value is significantly higher than the current value. And most business owners think “I’ll never achieve that”, unless they’ve done it before. And then we could usually show them within 3 to 5 years how they could grow the value of the company for what it is to that value. Not that they’re going to sell, but they could either exit operationally and have a pipe of cash big enough to fund the lifestyle need without them being in the business, or if they decided to sell (or if life gave them an opportunity or a curveball and they had to sell), they would walk with enough cash to fully fund the plan that you guys put together. That’s the key, is like once they see that, that is an achievable thing within a reasonable amount of time, 3 to 5 years that, “Oh gosh, I could grow the value of this company that quickly?” They get super motivated and they understand. Well, I’ll give an example. The client current value is three and a half million and the freedom value is 23 million. We built the five year plan to get there and she understood it because we explained it’s called “business owner math”. It’s about multiplication, not addition. A founder is used to adding a dollar of revenue, adding a dollar profit. And so they equate the hard work it took to grow the revenue to the current level with the valuation. In her case, the valuation was 3 million. And to get to that, she’s like, “Oh gosh I have to get to like seven x.” Like, oh my God, if I have the seven x the revenue, the work it took, there’s no way I could get there”. But when you explain this about the multiples, the stuff that actually increases the multiple, extracting them, adding people process systems from the equation. If the revenue and the profit are growing at a normal pace and the multiple is increasing with doing the right work, that’s what we do at Cultivate – that kind of stuff. Well, then we have this acceleration that happens, this hockey stick of valuation increase, not revenue increase, a valuation increase and that shrinks the timeline. And there’s a big “AHA” that happens for the business owners once they see that, that they’re like, holy crap, I can grow the business to that dollar amount from a value standpoint in a timeframe that’s not like 30 years from now. So now they’re motivated to be like, well, not just how do I do the business work to make that multiple grow, but now it’s like, okay, we’ve got a plan to add a $20 million gain to your world. Like, when do you want to deal with that? Should we wait until the end and just take what you get based on the tax situation? Or did you know there’s a different set of playbooks for people like you and we should be talking to the right wealth managers and the right tax attorneys to deal with it now, because sometimes the solution requires it be in place for a number of years before you can get the benefit. And all of a sudden now they’ve reframed their thinking about this work and they see it because it’s tied to their lifestyle objectives from this business. So just kind of bridging the gap, I found that that is the big motivator for them.

David B. Armstrong

Yeah, there’s a term that Jessica used that I do want to clarify real quick, because you just use it too, which is wealth manager versus financial advisor. And there’s there’s a lot that people can read on this. We don’t need to make the podcast about that. But it is worth clarifying that when you’re doing this and you’re assembling your team for an exit strategy and hopefully it’s in well in advance of the exit strategy. You really do want to make sure that you’re dealing with a wealth advisor versus a financial advisor because one is going to have a team that is qualified and experienced in all aspects of wealth advice and a financial advisor will tend to be somebody who just focuses on the portfolios and managing those portfolios for you and don’t really have the ability or the expertise to get involved in tax advice. And you’ll know it right away. If somebody says, I’m not allowed to give tax advice, you’re probably talking to a financial advisor. Versus a wealth advisor is going to say, Yeah, we should be coordinating with your attorney on these things. There’s people on the team that are really good with trust and estate, and have real experience. But you’ll always rely on your lawyer for tax advice and always rely on your CPA as the final authority, but a wealth advisor is going to be able to talk about those things and integrate and actually give you some advice on those things, even if they’re not the ultimate authority on them. And that’s that’s a litmus test for figuring out who you’re dealing with.

Greg Maddox

The ability to create an effective, integrated plan. That’s why it’s a team sport that entrepreneurs world is not so simple, that one person can solve it all. It’s very complex. And so even beyond the big three that we talked about, tax attorney, wealth manager, business advisor, there’s probably in that orbit, depending on their world and their needs, a bunch of other people who kind of come in and come out of that orbit as needed from different technical specialists. Even with your family businesses, you’re getting into sometimes the psychology of having multi generations of family members running an operating company and there’s like a lot of stuff, when you own a business, there’s no clear delineation between work life, personal life, financial life, fuzzy gray at best. And so a lot of times that leads to areas that need to be coordinated across multiple people to get a good outcome.

Jessica Gibbs

So, Greg, I want to go back to something you were saying before, because I think it was really interesting. You were talking about you’ve identified where you need your business to be from an exit, but you’re not there yet. What should you be strategically thinking about over a 3 to 5 year period? You talked about maximizing profit margins, picking your exit date and improving multiples. I think that was a good sort of summary of some actual specific action items to do, not just “think strategically” but to actually focus on those three things, but I am kind of interested in in a broader question as well as it just struck me listening to you, is that you’re talking about you need to be thinking about these things while you’re actively running your business. You’re thinking about your exit. And I’m just curious, can you talk more about why you need to be running your business with an exit in mind? It’s not what people normally do, right? Or feel selfish or, you know, like there’s different, I don’t know, ways you could think about that If I’m just thinking about the exit, what’s in it for me? It’s not that I feel like I’m getting. It’s a different mindset from you.

Greg Maddox

Totally. The industry. And you know, I used to own a financial service company, so I’ll take our fair share. The financial service industry at large, not just wealth management had made exit all about the transaction because there are so many transactional advisors involved. So Exit was going to be like, How do I get paid? I’m going to sell it and I’m going to pay for it with the contracts, I’m going to be the banker, all those kind of things. And so all of the resources, all of the training, everything was about the transaction. And so we made it very much that. And it’s not about getting you and your money out of your business at some point in the future. It’s about getting what you want out of this company starting right now. You know, we’ve helped thousands of business owners and I’ve asked this question hundreds of times, like, why did you get started in this? Like you could make a lot of money, do good work and make an impact working for somebody else. Why take the leap and the risk of going out on your own? And it’s usually some version of if you boiled it down to one word, it’s freedom. “I wanted to have freedom control over what I created. I want to be able to create freedom in my life. I want to be able to innovate. I want to do it my way. I want to be able to be in control and have choice over how I live and the impact that I make inside and outside of work.” And so the irony is the more successful you become as an entrepreneur, the less freedom that you have because we’re so focused on just grinding it out in the day. We’re not building an asset, we are creating income, we are building a job for ourselves. And so if we were to reframe, exit is not necessarily about the transaction. It’s creating a business that is an asset that allows you to live a life of significance. How would you define that? And so I can’t do that if I’m grinding 80 hours a week just to create income, if I extract myself for a minute. And the thing comes to a grinding halt, the wheels fall off. So I need to be able to build this where people, process, and systems that aren’t me as the owner are actually running it. That I’m leveling up the team and their ability to lead inside of guardrails, that we put up, tech enablement and otherwise, so that they have the ability to shine with their own genius on how to get to the destination which I establish. And then in their lane they could figure out the path to get there with my help, but not with my, not from a dictator of making every micro-managed decision for you that’s turning the business into a real asset that grows and thrives without the owner. That, by the way, makes it way more fun to run while you own it. It gives you more time, more money. It’s easier to run. You’re not involved in every little thing. You can actually enjoy a lifestyle and have a little of that freedom while you’re still building it. It’s not like, well, when I get to 10 million or 30 million or whatever, then I’ll see my kids when they’re awake. Right? Stuff like that. And so if we understand that exit is not about the end, if you want to get someone to be able to write you a big check in the future or you want to pass this business on to your kids or sell it to the management team. The kids and the management team don’t have the cash to pay you a big check. So unless you want to be involved until you die to make sure that they can pay you the quarterly, monthly or annual payout, you better build an asset. You know, you don’t want to pass them your problems. You want to build the asset that runs without you so that they can take it and build upon your success instead of relying upon it for a meal ticket. Allow you to exit mentally, even if you basically pass it on in the family, etc.. So does that answer your question?

Jessica Gibbs

It’s it does. I think it’s thinking about the positive, thinking about what you can do rather than thinking about, okay, I just want to leave with this certain dollar amount, which is important, I guess, to accomplishing your other your other goals. But it’s more than that.

Greg Maddox

It’s reframing how you build the business. It’s not focused on income, it’s focused on value. If I had to distill it, it’s focused on value. And so if I focus on income, I can make a lot of money. I could be making millions of dollars a year personally as the owner. And I can have a big team of people underneath me, but I’m not really creating a lot of value in the business because it’s all dependent on me or a couple of key people. I don’t have anything documented. There’s no systems. Very little tech enablement. Everything is kind of scattered. Everything’s in the hands of me and the key people. So if any one of them walked out the door, all of that institutionalized leaves with them. So what’s left over for the next person to buy? Like, it’s super risky, but if I focus on value, then the only way to actually create value is to solve those problems. Otherwise, values that get created in the business, the enterprise value does not move up. So you take profit times some industry multiples that are on a range, generally speaking to the six for most traditional businesses. Why is there a range?

David B. Armstrong

And I think that’s great personally, because what it just made me realize is, Jessica, I think I’m going to take a three month vacation starting today and it will allow you to solve all these problems of me being around. What do you think?

Jessica Gibbs

We’re going to do some wild podcast episodes then!

Greg Maddox

I know you’re making a joke, but I tell all my clients that they need to have 104 free days a year on top of their plan. Vacation days. And a free day is a free day. I’m not talking to work. I’m not texting. I’m not emailing. I’m not thinking about it. I’m just doing me, whatever that is. How do you think I came up with 104?

Jessica Gibbs

Yeah, I’m wondering. That was very specific.

Greg Maddox
Yeah. How many weeks in a year?

Jessica Gibbs

52.

Greg Maddox

What are those two days at the end of the week called?

Jessica Gibbs

Weekend.

Greg Maddox

How many entrepreneurs do we know are still working evenings and weekends? At some point we have to draw a line in the sand and say that we’re not going to let the tail wag the dog. I’m going to build the team and myself in a way that’s going to force us to make better decisions during the hours allotted, as opposed to saying, I will solve my inefficiencies with more time. And just because I made a lot of money at the end of the year, I can justify it. There’s not a lot of value that’s coming out of that approach to building the company.

Jessica Gibbs

I think that focus on the value, I think that’s a good place to pause for this first episode. We are going to be diving into the second and third phases of Cultivate’s Exit Lifestyle Accelerator process in our next two episodes. So I want to encourage everyone to stick around. Subscribe to the Off the Wall podcast on your favorite podcast player or Monument’s channel on YouTube. If you prefer to watch via video so that you’re alerted when our next episode is out. In the meantime, Greg, where can people find you?

Greg Maddox

They can reach out to me via email. Greg at Cultivate Advisors dot com or they could check out my personal website at my exit lifestyle dot com.

Jessica Gibbs

That’s great.

Greg Maddox
Thanks guys. Really enjoyed it.

Jessica Gibbs

Thanks Greg.

About "Off The Wall"

OFF THE WALL is a podcast for business professionals and high-net-worth investors who want to build wealth with purpose. A little bit Wall Street, a little bit off-the-wall; it’s your go-to for straightforward, unfiltered wealth advice on topics that founders, business owners, and executives care about.

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