Exit Planning Strategies to Maximize Business Value | Insights from Rick Krebs

Welcome to the B2B Growth Blueprint podcast, where we talk with entrepreneurs, founders, and leaders at B2B services, tech, and SaaS companies to learn the systems and processes they've used to create success for their business. And we'll also learn from marketing and sales experts to provide insights to help you grow your business. I'm your host, Mark Osborne. And the podcast is brought to you by Modern Revenue Strategies and their 10x ROI B2B Growth Guarantee. Schedule a free diagnostic call to learn the fastest path to double your B2B revenues in just 90 days. Hello and welcome to another episode of the B2B Growth Blueprint Podcast. I'm your host, Mark Osborne, and today I'm very excited to welcome my guest, Rick Krebs. Now, Rick is the co-founder and Chief Mergers and Acquisitions Advisor at Business Sales Group, where he has led sell-side engagements for business owners preparing for an exit. He's been a CPA since the early '90s, and he spent more than 3 decades advising clients on business sales, valuation strategy, and advanced tax structuring. He's also co-owner of MyBizValue, which is a business valuation firm designed to give owners an affordable, data-driven starting point for exit planning. And he serves as the president of the Utah chapter of the Exit Planning Institute. Rick has been quoted on Forbes as an expert on selling businesses, teaches continuing education courses to CPAs through the Utah Association of CPAs, and is known for combining buyer psychology, competitive auction processes, and sophisticated tax strategies that can materially increase what owners keep at closing. So, Rick, welcome to the show.

Thank you, Mark. It's a pleasure to be here today. Thank you.

Yeah, absolutely. So you've obviously spent a lot of time in the murders and accusations— I mean, mergers and acquisitions space.

Slip of the tongue, right?

Why don't you tell our audience a little bit about your background, some of those previous books, and a little bit of your expertise?

Sure. So before I do, you described what I do as murders and accusations because that's the title to my podcast.

Right.

And you know what? It was a slip of the tongue, but too often that's what it is, right? Too often there's a well-intentioned advisor or there's something that from the outside that no one saw that comes in that's a threat to the transaction. And some of those things do murder it and do kill it and the transaction dies. And then it's about accusing, you know, who did it, whose fault it was. And that's— we take every precaution to make sure that that doesn't happen, but sometimes it does. And so I appreciate you mentioning that. Um, background. So I started in, in the CPA world as a bean counter, counting other people's money, and I got tired of it. So I had to go do something on my own, and I left and I got into the mortgage business. And I made just about every possible mistake you could when I sold. I had the mortgage business and, and there were 3 partners, and one of the partners wanted to grow. We were licensed in 23 states and we had a decent-sized operation, and one partner wanted to grow and 2 did not. And so the partner that did brought in an investor from California, and we didn't— like I said, I didn't know that there were business brokers out there. I didn't know there were people that helped others sell their company. And so I didn't enlist their help. We didn't enlist the help of an attorney. I was 30 back then and I knew everything. That was back in the day when I was a lot smarter.

Right.

And so I went alone and it got clobbered. You know, you learn more from your mistakes than you do from your successes. And that was a painful an expensive tuition that I paid. But after that experience, I, I'm like, I am not going to let other people go through what I did. I need to make a difference. I need to get the word out so that other business owners don't. Luckily, I was in my early 30s and I had plenty of time, right? Plenty of runway. But a lot of times this is the single largest financial transaction of their life. Most of them have never done it before. And never been there. And so they're marching down a path which is just— it is, um, it's a minefield, you know. And someone mentioned this the other day, I thought it made sense. It's a little gross, but it points— that like hits the point home. He's like, don't march through a minefield and get blown up and then come back and ask me to put you back together.

Yeah.

And, and all too often that happens. The business owner won't know that they can get help. We have a map. We have a proven map for them to show them what to do and how to do it. And these are the mistakes that you can make. And in doing so, we make it so it is where they will harvest. We say that our value proposition or our mission is to help business owners. We empower business owners to harvest the wealth which they have created. And what happened was I was selling businesses for 10 years and I noticed that we would close a transaction. And I'm not going to say anybody can close, but a lot of people can close and cash a check. But—

Sure.

How much did the owners regret after? You know, and I do exit interviews and see how they're doing. And, and many— I'm with the Exit Planning Institute and that's who we have our exit planning chapter through. And they did a survey The survey said that 80% of the business owners regretted selling a year after. And me, I take that to heart. I'm like, oh man, I suck. I didn't— I'm not as good as I thought I was. But what we found was that many of these business owners, one of the reasons they regretted is they hadn't planned properly for that sale. And they had left— we want to call it low-hanging fruit. So it's like the farmer. who plants the seeds. First they got to determine which crop they're going to plant, right? And then they plant the seeds, they water it, they nourish it, they fertilize it, they pray for sun, pray for rain, not too much wind, all of these things. And they've done this their whole life, and now it's time to harvest. And they were going in and, you know, shutting the tractor off when they were half done and leaving the rest of that harvest for the buyers. And I saw this time and time again, and I'm like, okay, not only do we need to plan, but we need to be careful so that that harvest can be 100% for the seller.

Yeah.

And we had a— we had in one of our chapters, we had 3 buyers, and we had a Q&A panel with the buyers, you know, let business owners ask them, what do buyers look for? What do they like? And one of them admitted, Rick, we don't really like exit planning.

I'll say.

And I was like, what? This is an exit planning chapter, you know? He's like, yeah. He says, if you've done exit planning, there's a lot of low-hanging fruit which you've picked already. And it was that moment I'm like, you know what? I love planning. I love planning for the sale of a business. We call it exit planning. It's just planning for the sale of the business. It's about being thoughtful. And intentional with that sale, right? It's like, okay, let's get smart about this. Let's not just throw it out there. And you, you had mentioned earlier the difference between listing a business and launching that business, right?

Yeah.

A lot of people just take a business and they talk to the business owner and they're like, yeah, you want to sell? Great. What do you think it's worth? You know, $20 million. Yeah, me too. Let's put it out there. So they slap it together, put it out there. And honestly, that was me for the first few years that I was in business of selling businesses. And I just, I realized there was a better way. But what we do is, in fact, more often than not, I'm telling business owners, I know you want to sell, but you're not ready.

Yeah.

Right. We call it business puberty. They've got pimples, braces, you know, they just, they're not quite mature. And you may have a 50-year-old business that's still in business maturity.

Yeah.

And what I mean by that is you haven't formalized your processes. Accounting is a big one, your books, right? You're just— the wife's still doing it on QuickBooks, you know, which is fine for tax reporting, but when you go to sell, it's a different matter. And another one is operationally. We look and de-risk operationally, financially, and legally. And so there's some of these things that business owners don't pay attention to, but buyers pay attention to. And I call it moving your attention from income generation to value creation.

Yeah.

So perfect example of this. The other day I'm talking to a CPA and she's thinking about selling her firm, right? And she's like, hey, I talked to this guy the other day, Rick, and he's like, if you do this and this and this, it's going to be worth this and this. And I'm like, yeah. It's like, I never knew that before. Why? Because it's different. Running and owning a business is entirely different than selling a business. The metrics that you pay attention to are not the same metrics that a buyer is going to be paying attention to. We had a software business the other day, and I asked him about some of the key value drivers for a software business. And I knew that he didn't know them because he was asking me, he's like, well, what is that? How do I calculate it? I'm like, okay, in running the business, you don't— this isn't information that you need.

Yeah.

So I don't wanna say neglected, it's just not looked at, right? But in selling a business, the buyers are gonna be hyper-focused on a few key metrics. For software businesses, it's things like customer lifetime value with the customers, customer acquisition cost, what is your retention rate, what is your turnover, how much is your recurring revenue? Those certain things, if you watch them and they meet certain thresholds, you can see that value of your business go up 20, 30, 40%. And so that, that's what we're about. We're about helping business owners be thoughtful on their sale of their business and be intentional about it so we can just squeeze it for the most money we possibly can. Because it's theirs, they just as well— the fruit is theirs, they just will pick it, right?

Well, and you hit on something earlier that's worth kind of doubling down on, which is that, you know, there is this statistic that 80% of folks that sell their business, you know, are disappointed by it. And the other statistic that is, you know, sort of connected with that is that for most entrepreneurs, 70% or more of their wealth is tied into the value of their business. And so not only is it, you know, something that they have a lot of emotion with, but it's a big financial impact. And the other sort of dynamic that makes what you do so important is for most business sellers, they might sell one business in their life. As you said, they spent their whole life building it and then they get ready and they sell it and that, you know, may be it for them. They're gonna go off and do something else, maybe not run another business, maybe be retired. But for most business buyers, they buy many businesses. And so there's definitely a lopsided sort of expertise and skill that they're up against, you know, and it's kind of, you know, their disadvantage without the help of advisors like you. And I know that you've put together a lot of resources for, you know, business sellers and you've talked a little bit about sort of like a checklist of all the things that they should think about as they think about not just listing but actually launching their business. Talk to us a little bit about that. What are some of those things that You know, someone who's running a business today and thinking, well, one day I want to make sure I have that successful exit. What are some of the things they should be thinking about?

So I want to give you an analogy. So I'm a football fan. Picture the Super Bowl, the biggest game of your whole life. The opposing team shows up with 11 players and you've got 4, right? What are the chances? What are the chances you're going to win? Right. And we were on a phone call just, just last week with a, with a private equity group buying one of the businesses we're selling, you know, and there's over 20 people on their team. 20.

Yeah.

Financial, you know, financial people, uh, CPAs, tax people, attorneys, you know. And I know that call on the buy side, that, that hour phone call, that thing must have cost them, what, $2,500, $5,000 just for the one phone call. So they can—

Right.

Well-heeled, experienced. And I use this analogy, and it is, it's like the business owners are letting their 14-year-old daughter date a 30-year-old man. You know, and we don't— you laugh because you probably have kids, right? But, but think about that. Would you ever let your daughter do that? No way.

Why?

Because the guy knows what he's doing. And I don't— it goes saying without saying, right? They, they're smooth and they're going to swoon her. And, and another analogy, it's like they're Cinderellas. at their first ball. And what I see all too often happen is they, um, they fall in love with the first handsome prince that comes asking and asks them to dance, right? They're just— they think they're pretty. They're, they're at their first ball and they go out there and here comes the handsome prince. I mean, he looks right, he says the right things. Why? Because he's done it many times before.

Mm-hmm.

And if you could see, he has a little earpiece where people are telling him what to say and they're watching her and watching for the most vulnerable moment and they know exactly what to do. They're calculated. And they're cunning, and they come up and they say the right things, they do the right things, and Cinderella is just like, oh, I'm in love, and you know, I'm clickbaited. And then boom. An example of this, I had a phone call a couple weeks ago from a guy, and he got the handsome prince came up, right? And he's like, oh, I just signed this LOI, Rick, I'm so excited. And I'm like, oh, you didn't. And I had to tell him, well, You know, that cost you $2 million.

Right.

Had we run a process, worked with these other people, we could have got you another $2 million. And he was, he was down a little bit about that, but he's like, well, you know, this is an all-cash offer. I want to go with it. And I'm like, okay, well, maybe I can save you some on some of these other things. So there were some loopholes in the LOI, and oftentimes they have loopholes intentionally so that they can beat you down Through due diligence and everything. And then once you're at a lowest possible point and your energy levels are just way down and you just want to get it done, they just hit you, boom, like a bombshell. Oh, we got to have this. You know, working capital is one of the favorite. Oh, working capital. Oh, but I got to give up $500,000. And they're just like, oh, just get it done.

Yeah.

So they wear you down intentionally, leave the loophole, wear you down intentionally, and then it's your most vulnerable moment, man, they come in and just take it away. And they were planning to do that. So we were able to close that loophole and, you know, get him another $300,000 back. But he called me a while after and he's like, Rick, the deal died. Like, what? Tell me about it. It's like, yeah, I told him that my numbers were down a bit. I was down $250,000. They lowered my price $3 million.

Yeah.

They retraded and they were just waiting. You know, they're just like the tiger in the side of the riverbank waiting to pounce. And they're like, the minute that came down, whoosh. You know, they go in for the attack. Luckily, he didn't bite and he backed out of it. We're going to go find him some other buyer to work with. But all too often this happens and the business owners just get tired and they're just done, or they're in love, or they believe things. We joke and say, you know what, we have a written NDA, non-disclosure agreement, to keep everything confidential. And they love to say, you know what, we have a new form. It's not an NDA, it's called a friend DA, and you don't even have to sign it. You just believe us. Just send it over. We had a client one time that before I got with them, they had the handsome prince came up and they— and there was a competitor and they had given them their client list with contact information and phone numbers without an NDA being in place. Oh no. And I pointed it out and they, they felt stupid, right? They were business owners and they— from the business they were Really good, but from a selling perspective, they just never been there before, and they believe the buyer. You know, we don't sign in. You got a friendie. It ended up being okay for them, but it could have been horrible. So hold on. Go ahead.

Yeah. Well, you you tell them those stories. I've heard the phrase said before: You tie them up, then you beat them up. You tie them up with a. letter of intent or with some sort of indication that we're gonna work together. And then, as you say, you beat them up until they take their eye off the ball. And in that protracted time, they aren't able to keep all of the plates spinning. And so their revenues fall off just a little bit, which gives them another baseball bat to beat you up with.

Yeah. Oh yeah. And they do it. So I wanna go back and answer your question about what business owners should do. When they're thinking about selling. So if I were you as a business owner, the first thing I would do is get a valuation. Everything starts with evaluation. And we started offering valuations because people needed an affordable option. It's $800, you know, $1,500, big deal.

Right.

But get a handle on what your number is, or even a range of value. Get a baseline number on where you're at now. That's the first step of exit planning. The second step of planning for the sale of your business is we do a personal financial plan and we determine how much money you need to recognize from the sale of your business in order to meet your financial goals. Right? If you're 70 years old, 65 years old, you want to retire, is that business going to give you enough money in order to support the lifestyle that you want? And so We recommend you get a personal financial planner involved, do the personal financial plan, and then we call it the wealth gap, the difference between where you need to be and where you're at. And some people are okay, you know, they could get zero from the sale of their business and be okay. Others— I did one, the biggest one I did was $13 million, these 2 brothers, and they needed, they needed a lot. So It just depends on how old you are, what your financial picture is. Do you have other assets outside of the business? I had one business owner, a man and a woman, and I left that appointment with them, just my heart was hurting because we went in, we did evaluation, we sat down and I'm like, okay, what is your wealth gap? Is this going to get you where you need to be? And he just looked at me sadly. He's like, Rick, it's not enough. It's not even close. And he was really tired. He was old. And he's like, I'm probably just going to be working the rest of my life, you know. And I let that— it hurt me so much, Mark. I was like, oh man, if I— And, and the woman said it. She's like, Rick, I wish we'd have met you 5 years ago, you know. We could, instead of running the business, working on the— in the business, we can start working On the business and having a better retirement that doesn't say, okay, I'm just going to have to work till I die. I'm like, to me, that is not retirement. It's like paying taxes. CPAs will tell you, oh, just pay the taxes. No, the answer is never just pay the taxes. It's like, let's do something about it. So back to this step, valuation, personal financial plan, wealth gap. What is a wealth gap? The next thing we want to look at is how old are you? How much energy do you have in your tank? Are you blinking on empty? You know, is that gas pedal— you know, it's the price of gas right now, we're blinking on empty most of the time unless it's paycheck, right? But that's another topic for another day. But anyway, we assess the energy levels and how big that wealth gap is. And then we make a determination about a future time to penetrate the market. For some people, they'll come in and they'll be like, Rick, I'm tired, I'm done, or, you know, have healthcare and they need to sell right now. I call them TOPs, tired old people. I get it. We run those processes and we launch them out to the buyers, but we don't maximize the selling price. Sometimes they don't need to, and sometimes they don't have the time and energy to. Sometimes they don't care. They're just like, you know what, this is enough.

Yeah.

Right. I get $10 million, that's plenty for me. I don't care. Just take care of my employees. And so once we've assessed that, then we look at an exit plan. Is it an internal sale? You know, is it an external sale? Is it an ESOP? Do I have a son or daughter that wants to buy it, an employee? There's a lot of different ways to exit the business. I sell companies for a living, so that's the one that I know about, but that doesn't mean that— that's the only way to exit your business or way to sell it. There's a lot of different things. One is a recapitalization where you sell to inside parties and you exit and sell your interest to them over time and you maintain the ownership and majority say in the business till they're ready. But that's the next step. And then we thoughtfully make a plan and we make 90-day sprints. So we're like, okay, this is what we're going to work on. This is what we're going to do for the next 90 days. We're going to run, run, run and focus on that. At the end of 90 days, we reassess. Do we build? Do we sell? Right? If we build, go another 90. And one thing I want business owners to know is there's a lot of handsome princes out there and they're getting very aggressive. So, you're going to see these people come around and they're going to be wanting to have meetings with you. And that's okay. Keep their information. Because when we are ready to go to market, we're going to utilize that information and combine those people with my buyer group and let them compete against each other. You know, let— the best thing we can do with a handsome prince is to let him see Cinderella dance with another handsome prince, right? What happens? You get jealous.

Exactly.

You're like, hey, that's my Cinderella, get out of here. So we have ways of building that jealousy in that moment. And I love it when they're jealous because it pushes the prices up. That's right. Buyers don't like it, but the sellers love it.

So you mentioned something a minute ago that I know you've got a lot of expertise on, and that's, you know, sometimes CPOs will say just pay the taxes, and then your answer is never just pay the taxes, always figure out how to, how to not. And I know you've got some specific tax strategies that can make some pretty big impacts at closing. I, I would be remiss if I let you out of this, uh, conversation without getting you to share some of those with our audience. Tell us Tell us a little bit about that.

Absolutely. So I don't practice tax anymore, but I work with business owners to introduce them to tax saving strategies. And I'm going to talk about 4 or 5 today that we utilize. One is that— and I'm heavily involved with this— it's when you sell a business, you have to— usually it's on an asset sale basis and you have to allocate the assets that are sold. It's on Form 8594, IRS form. Both buyer and seller fill out the form and they agree on the allocation. One of the things we do is we push that allocation number into your favor. Some of the assets which are sold are subject to ordinary income rates, which are 40% at this, you know, at these levels we're talking about. And so we try and push as much of that sale towards the capital gains rates of 20% versus 40%. Save, you know, saves you half on your taxes.

Yeah.

And so that's, that's number one through the transaction itself on either the asset allocation Or how the purchase agreement is worded to your favor. Number two is there's something called a CRT or CRUT trust, and these are trust charitable remainder trusts that need to be set up usually prior—not usually—but have to be set up prior to the LOI being signed, and the business owner has to show charitable intent. And so, if you want to minimize your taxes, you can't just. In fact, I got a call. A while ago. He's like, hey, I need to do something with my taxes. And I'm like, great. And he's like, yeah, I closed last month on my business. I'm like, I'm so sorry, too late. Like, oh, we needed you a year ago.

Yeah.

Now, there are some tax-saving strategies. Some financial advisors have some tax-saving strategies that you can still implement where you have— the owner has gains. And you combine those gains with people who have losses and they're able to mutually benefit from that. And just talk to your advisor about that. The other thing we see is something called donor advisory funds, DAFs. And that is where you donate a portion of your stock towards a charity and you get a more favorable tax deduction by doing it prior to closing versus after closing. I just met one of the people who designed the Opportunity Zone law, and those are coming back into favor. Opportunity Zones, basically you're able to defer capital gains and sometimes even eliminate capital gains by investing in blighted areas and businesses or capital assets in blighted areas. And so that's another way. There's another one out there called the asset exchange. And that's where you put the— you sell the company into a trust and the trust turns around, sells it to the buyer, and then the seller has a note and they get paid on an installment sale basis. And the ones that I'm talking about are not anything out there. This is— none of this is in the gray area. This is all just clear black and white, a new application to old tax law. And just being more smart about, about, and intentional about your sale and about your taxes. That one, that one's great because it potentially pushes more of the income towards lower income tax brackets and lets you just take that money out in the future versus getting clobbered with taxes all in, mostly in the higher tax bracket at the year of closing.

Yeah.

Another one a lot of people don't think about, and that is closing earlier in the year versus later. You know, we had a couple of transactions this year that we bumped over into January, and then the business owners have use of that money for, what, 15 months? 15 and a half months before it's due.

Yeah.

And so that one, that one is just a simple one. It's just like, okay, instead of closing the last of December, let's close the 1st of January. And then our taxes are due the following April, not the April that's coming up.

Yeah.

In the year of closing. Right. And most of these, you know, we're talking about millions of dollars. I don't know about you, Mark, but for me, a couple million, that's starting to be real money.

That's right.

It's starting to add up. So, you know, if you have, you have use of $5 million for a year, 5% is $250,000 more in your pocket just by closing a couple weeks later.

Wow.

That's what I mean.

You're obviously an expert on a lot of rich areas that we could spend all day talking about, but I got to be mindful of your time. But before I let you go, tell our audience a little bit like Who specifically do you work with? How exactly do you help them?

So I work with business owners who have businesses usually $2 million in revenue to $40 million in revenue. And if you're smaller than that, you're gonna want a business broker. They do the smaller ones. And if you're larger than that, you're gonna want a good investment banker. So $2 million to $40 million in revenue is really my sweet spot. And we work with businesses all across the country.

And what's the best way to connect with you and get in touch?

So my email, Rick, R-I-C-K, at the letter B, B Sales, S-A-L-E-S Group, rick@bsalesgroup.com or www.bsalesgroup.com. Or you can hop in the— pop into the, uh, podcast Murders and Accusations: The Good, the Bad, and the Ugly of Selling Your Business. Or you can find my book if you want to learn more about how to sell a business. My book is called Sell Your Business by Design, Not by Default. It can be found on Amazon Kindle and Audible.

Awesome. Well, Rick, thank you so much for taking some time to join us today. I learned a lot. I'm sure our audience did as well.

Well, you're sure welcome, and thank you for having me, Mark, and thank you to the audience for tuning in.

Talk to you soon. Thank you for joining this episode of the B2B Growth Blueprint Podcast. We hope you've gained insights to grow your business. If you enjoyed this discussion, please rate, comment, like on your favorite platform, and share to others who will find it useful. Do you know a CEO, founder, or leader at an early-stage B2B services, tech, or SaaS company who would like to be a guest and share their story? Send us a note. Let's schedule a conversation.