The Exit Engine Podcast Episode 15: A conversation with Financial Planner/Wealth Manager Phil Heness

Welcome to the ExitEngine Podcast, episode 15. Good morning, John.

Joe, how are you today?

I'm doing great, man. Uh, I'm excited about today's episode.

I'm very excited about today's episode.

We have a, we have a very special guest today.

Yes, we do.

And, uh, we're gonna, before we get to who our guest is, let's talk a little bit about what we're gonna talk about today and why it's important. Um, so we're gonna talk about life, preparing for life after the exit, right?

Critical, a critical part of selling your business.

Such a huge piece. And again, often overlooked, right? So one of the, one of the issues that we come across all the time is that people are just not prepared. They wanna sell their business. They, you know, when they, when people wanna go, they wanna go.

Right, exactly.

The problem is, is that they're not always prepared, and there are some pretty significant issues that will arise, especially when you're gonna get a giant sum of money in like one shot.

And they think that's the end, right? They think that getting the money, getting the check, is the end. It's really the beginning of the end, right?

That's it. That's it. It's the— it's just the beginning. That's a great way of putting it. Um, and so today what we wanted to do was talk a little bit about What, how to prepare yourself for that eventual end. What's gonna happen? Where is the money gonna go? What are you gonna do with it? How are you gonna protect yourself? Stuff like that, right? Makes sense.

Yeah.

So, so we'll talk a little bit today about, uh, you know, there's some key steps, some key things you should take. We're gonna talk about the things that you gotta do, like right before, things you gotta do like right after. Um, and we'll talk about some ways to preserve the wealth, protect yourself. And then even talk a little bit about what you can do with some of that money that isn't— that might be charitable or legacy-oriented or something like that. Makes sense?

Yes, that's great.

That's awesome. So I want to bring in our guest today, is a good friend of ours, Phil Hanness. Phil is a wealth manager. Hey, Phil.

Hey guys, how are you? Thanks for having me.

How are you? No problem. Thanks so much for coming on and really excited to talk to you today. So I guess the first thing we want to talk about is that from your perspective, just give us an overview of kind of what you see and what is expected in terms of for someone who is basically going to come into like, you know, like a, you know, an F-ton of money in one shot, right? There's obviously some challenges with that. As fun as it is and as great as we all want to have that huge hit, there's some real serious concerns, right? Absolutely.

I would say, you know, first and foremost, the priority is going to be getting a plan together, identifying the path that that individual plans to take in the long term, identifying those goals, and then figuring out how to work towards them. You know, one of the biggest things we see in the market is a lack of opportunity. And so, you may, you know, a business owner may come into a large sum of money, and then all of a sudden, You know, they're not sure what to do with it and it sits, right? And it sits where it's not working for you, right? So we want that money to work for those, for those, uh, business owners, those individuals, um, and to continue to grow. And so there's some opportunity risk when you don't have a full-fledged plan, uh, when you come into those type of funds.

And, and is there, are there timing concerns and things like that? So, you know, for instance, um, there might be a situation where I'm in an earnout. Okay. So if I sell my company and I'm looking, you know, I might be making, you know, large sums of money over the next 3 years, kind of in an earnout thing. Is that, um, is that a different situation? Are you, are you, are there, are there different approaches to something like that as compared to like when I get like one big lump sum?

Yeah, there's definitely different approaches. Uh, and one of the strategies that we employ, uh, at Edward Jones is that, you know, we work in lockstep with, uh, full advisory teams, right? So we work with business owners, we work with their attorneys, their tax consultants, their accountants, you know, whatever the case may be. Because at the end of the day, when we are putting these plans together, you know, everyone needs to communicate to ensure optimal execution and suitability.

So what do you think are like some of the key steps that need to be taken like before exiting? And how long out and what's generally what you recommend in terms of people being able to examine this stuff and take action?

Yeah. So I would say there's some things, for example, legacy planning, right? So you want to identify your plan for those funds or the business when you are earlier in the stages of exit planning. know, 3 to 5 years prior to when you want to exit, really identifying, you know, the legacy planning, tax management, tax efficiencies, what are your short and long-term goals, and then working with those professionals to understand, you know, well, what is the, you know, what is the growth potential or what is the risks of all of these different strategies?

Right.

And then first and foremost, there's also an opportunity of protecting Those— the business, right? And so there's protection strategies that can be employed as well prior to exit.

And Phil, can you give us an example of one of those protection strategies that you mentioned?

Yeah, so there's a couple. You know, one is a buy-sell agreement that is completed through life insurance plans. And basically, for example, let's say there's 2 business owners in a corporation, LLC, whatever the case may be, you know, they may take out life insurance policies policies on each other should the unforeseen happen. I know you guys talk about the Ds, right? Yes, the 5 Ds. The 5 Ds. And so, you know, based on those, what happens is both business owners pay a premium, you know, monthly, annually, whatever the case may be. And, you know, God forbid the unforeseen happens, you know, then the life insurance policy can pay the business owner who is still part of the business and covers the value to the estate so that the business can continue, right?

Got it.

So there's your buy-sell agreement. There are some other— and typically that's for 3 or less business owners in an organization. And then there's other buy-sell agreements that are for larger ownerships where there could be 4 or more owners, and those are called entity Agreements. And then, you know, basically it's similar to the end of— the end is the same. But for example, the business is actually paying the premiums versus the business owners. And then one other one is like a key person insurance policy.

Thank you for that.

That's interesting. So, you know, I think one of the things that we come across all the time, Phil, is that people are just, you know, again, They leave things too late, right? We talked to that, you just brought up the 5 Ds. Obviously, we know that 80% of the time, that's one of those ways is the way that people exit. The importance of being able to plan from a legacy standpoint is very much overlooked. So as much as we're concerned about, hey, what happens to this giant lump sum you get in a financial harvest situation? The real lesson here, you know, is to be able to prepare yourself for the unintended exits, right? How do you protect the business when there are, you know, when there might be, you know, when the business owner dies, for example?

Yeah, I mean, listen, recent statistics, right? 80 to 90% of business owners, or 80 to 90% of a business owner's net worth is their business, right? And so if that doesn't show you the importance of pre- planning your exit, you know, I don't know what does, but making sure that, you know, you have a full clear picture of what is going to happen down the road where it becomes your choice versus an involuntary option, you know. And, you know, we understand, you know, business owners, they have a ton of time invested, right? And they may not, you know, everything sometimes when it's not a priority gets pushed to the side. And a lot of times it's these types of things, right? It's the way wealth management side. It's, you know, paperwork. It's, you know, things that just aren't the day-to-day business that you feel, I can get to it next month. Well, you know, the real basis and crux of all of this is, you know, initiating it earlier so that it's in place and you don't feel up against time.

And you can always change it, right, Phil? I mean, I can imagine that many of your clients come in with an idea about what they're going to do. They have a plan in place and then they think about it and they review it and they say, oh, I want to change it. And it's much easier to change a plan than to sort of then at the last minute than to create one or need to create one at the last minute because something happens, right?

Yeah, this is a work in progress. And I tell prospects, I tell clients, Edward Jones has a well-established 5-step process that really identifies when we start working with business owners, for example, it's, you know, where are you today? We have 5 questions. Where are you today? Where do you want to be? Can I get you there? How can we get you there? And can I keep you on track? Right? So these— this 5-step process is never one and done. It is an ongoing process where we utilize those questions to help identify your goals. And when you identify those goals, you're able to quantify your goals, and then you're also able to address the financial needs post-exit. Right. And so a lot of times these meetings allow a business owner to, you know, get better understanding on what expectations do they need coming out of the sale, right? Do I have, you know, and valuation aside, it's what do I need? What do I want in my— after my exit? And then that helps bridge the gap to identifying a sale price, for example.

Yeah, and I bet the plan, obviously the post-sale plan that entrepreneurs have, if they want to roll it into another business or they want to retire, the strategies you're going to employ are quite different in those scenarios.

Exactly. You know, and we provide customized approaches that are personalized, right? So we look at every individual separately, discuss their path, right? What Are they on track to meet whatever goals they had previously? Have their goals changed? Well, let's identify the new track and ensure, you know, again, tax efficiency for some of these business owners, looking at long-term bequests, you know, looking at charitable opportunities, depending on what their, you know, what their interests are. Sure.

What are, what are the, um, there must be, you must have, there must be a lot of mistakes that people make along the way, right? Do you know that some of the, can you, can you call out some of the things that you see that people kind of, uh, you know, the, the big mistakes that people make along the way when they're, when they're in this situation? Yeah.

You know, for me, I think, you know, the more I, I, I sit down with, with, with business owners, individuals, it's that they, don't ever feel like there's a path forward. They think they've made, you know, they've waited too long to do X, or, you know, they don't think they have enough to do Y. And, you know, really it's establishing that personalized approach to financial planning that it doesn't matter where you are in the stage of your life or, you know, what your past is. It's about moving forward and really identifying that plan and just working towards a goal. goal. And looking at, you know, a lot of people, they may think, oh, I have goals and I have, you know, I have this. But, you know, when you really start talking about it, you identify the difference between a short-term goal, a long-term goal, you know, what your needs, wants, and wishes are. You're really able to then establish a path forward. And, you know, at times, you know, even with myself, it's, you know, you think you have a plan and you realize actually this was just like an end result. But we didn't really talk about how we got there or how we're going to get there. And it's really just an evolving process that is continually being updated based on life changes, investment time horizons, risk comfort, and all of these types of things really make that plan come to fruition. And for a business owner coming into a lump sum, for example, better to have that plan You know, beforehand so that you're not feeling rushed or, you know, being able to work with your advisors to put you in a position when that, when that, when that money or those funds come in to put them in where they need to be.

Right. And Phil, are there any things that an entrepreneur, founder, co-founder should avoid right before selling their business? Right. You know, is there anything that they should just— they should absolutely not do or should minimize the possibility of doing?

Well, I mean, I think that that would probably, you know, work more towards like the accounting side. Okay. Working very closely with their accountant to make sure that their books are clean and that they fully represent you know, the, the business. Uh, from my perspective, uh, as a wealth manager, it would be, you know, minimize debt, right? Don't take on, um, don't take on a ton of liability. Don't overstretch yourself. Um, and don't plan for future success, right? We can't, you know, as a financial advisor, I'm, you know, I can't guarantee the success of the money that you're bringing into Edward Jones, for example. Um, but so you as a business owner don't assume you're going to, you know, earn X, you know, percent on this money unless you actually have a plan for that money and have it positioned to work for you.

Got it.

Right.

How much does diversification, uh, kind of play a role in this? I mean, obviously with anything financial, when you're investing and stuff, they, you know, obviously everybody always says that diversification is key, especially if you've got a long way to go until, you know, in your life, so to speak. Um, diversification's got to be a huge— play a huge role in whatever your wealth management plan is, right?

Yeah, absolutely. Uh, diversification is key, and that, and that goes for not only just the investments that you put in, but also the type of accounts you have, right? Or, or the placement of those funds. You know, when we work with, uh, with business owners, we, we know that some are seasonal, right? And they have high points and low points, and we want to make sure that they have about 6 months of an emergency fund established, right? And so making sure that you have cash on hand as needed, and that's just more diversifying, you know, your funds from a, uh, money I might need now to money that I don't need at all and can sit and grow for the next, you know, 5, 10, 15, 20 years.

Forever.

And so, you know, a diversified portfolio from that perspective, you know, ensuring that You have money set aside for your immediate needs, then your short-term needs, 3 to 5 years, and then your long-term, which is longer than that. And then from there, you're building portfolios that are— you have a portfolio objective tied to those investments. And so looking at what we call stocks and bonds, equities and fixed income, not necessarily trying to time the market.

Right.

It's more about, it's more about time in the market. You know, Edward Jones and, and our financial advisors, you know, we are more, uh, on the long-term strategy, uh, you know, really good investments, uh, and not trying to, you know, time the ebbs and flows of the market. You know, the market, election time, right? Everyone, you know, hears of the markets are going to go crazy. Listen, the markets are going to go up, the markets are going to go down, right? And, and, you know, we, we communicate that to, uh, business owners, individuals. You know, we, we try to help facilitate the long-term strategy.

I think the idea is that what, what people have to be concerned about is that you are— even if you get a lump sum or you have an earnout and you got a great deal of cash and stuff like that, You better be prepared in other areas of your life, right? In, in order— in terms of what you're gonna do and how this money's gonna be spent, the other things that you wanna, that you wanna do with your life, right? Because you're not— you're, as you just said, you— what you don't wanna do and what you can't plan for is, you know, a giant uptick in the market, right? To be able to give you the additional cash or whatever that you wanna do, that you, that you need to be able to live. It seems to me that there's a, a, a, a kind of a great amount of like financial discipline that's needed, right? Um, Lorne Michaels, I think, said, and I, I am a living example of this, that you always lose the first money you get. And I like that. I think that— I think there's a truth in that. And I think that, you know, that they're— again, being prepared is obviously the key, right? And knowing that you're going to get this money and having a plan for this money is So necessary because what you don't want to do is have money sitting around, whatever, or be whim-oriented or whatever you're going to do, right, in terms of that. So how do you work with people to kind of help them with this, kind of maintain this discipline?

Yeah, I mean, a lot of times maintaining the discipline is really an emotional check, right? And so a lot of times when you're working, when you're not working with a financial advisor and you're watching the news and you're seeing what the markets are doing and you see a potential opportunity, you're not 100% I'm not sure, do I sell out of this? You know, I feel like it's going down, but, you know, should I, should I stay in and wait for it to turn it around? Or, you know, a lot of times emotion is the downside of investors. And so what, you know, what we as a financial advisor do is help support those individuals and business owners, right? We are the, you know, stability in that relationship to help communicate effectively that, Hey, we see some turbulence in the market, but we positioned you with a well-diversified portfolio that takes into account these changes in the market in a given period.

Right.

And stay the course. We have a long-term strategy. And for every person, their personalized portfolio, their personalized investments have the risk comfort levels that they are comfortable with, that they have, you know, raised their hand and said, this is what I'm comfortable with from a risk perspective, and we stay the course with that.

Right.

And regarding like a— like we see it sometimes when we're working with companies and owners on valuations, and a business owner pays them— pays themselves a large, large amount per year, which is completely legal. And they, let's say they're paying themselves $450,000 a year or $500,000 a year, and they, after the sale, they no longer have that income. Have you seen that be a, you know, we talk about the sustainable income, but a sustainable income for an entrepreneur when they've been making $400,000 a year, you know, that must be a sort of, might be a difficult discussion when, you know, they could probably live on less. And does that change for entrepreneurs? You know, do you see that change? Causing a problem when they're— after they sell their business?

Uh, it could, right? It could. And, you know, one of the things that we do when we work with the business owners is, you know, for example, if we know that the exit is coming, right, you know, we plan ahead for that. You know, we, we, uh, we reassess spending needs, right? We assess, you know, does— you know, well in advance, does the business owner need to start saving more? Um, do they need to save more personally? outside of the business, right? And then, you know, just reassess the full picture as we get closer to that date where that income then is not available. And then we look at, you know, obviously investment vehicles that could help provide that type of an income or flow of assets to ensure that the business owner Post-exit can continue the lifestyle that he has, he or she has.

So also, I think what we see a lot is that when you are deciding, again, your timing of things, the value of the company, the money that you know you can get, obviously that's all kind of mixed up in how you're gonna be able to, in terms of the wealth that you receive and the ability you're ability to be able to make investment later on, and the amount you'll have to obviously play with and things like that. So the question is, how much do you spend working with other advisors and things like that in terms of the planning of this stuff? And I bring this up because obviously one of the things that's critical for us to provide as advisors is the ability to show people how they can actually increase the value of their business over time, right? So depending on how much time you have, You might be able to say, look, if you've got 9 months, well, you're going to be able to do X, Y, and Z, but not A, B, C. If you've got more time, then A, B, C become options and things like that. So how involved are you in that kind of, in the aspect of the planning of stuff with other advisors?

Yeah. Well, it's a great question. And that was sort of what I had touched on earlier about the pre-planning process being about 3 to 5 years out.

Right? Right.

That would be, you know, your prototypical timing. But hey, we know sometimes it could be a shorter period, you know, but at the end of the day, it's, you know, what we do is we help work— we work with those advisors or that advisor team in helping to close the gap from the lifestyle the business owner has or wants to have after the business exit to, you know, looking at the valuation of the business at that current period and assessing the needs and how we can adjust or, you know, make changes, uh, to, uh, ensure, uh, that the business owner is comfortable with the exit plan and the valuation.

Right. Let's talk a little bit about, uh, again, back to kind of legacy planning and like what to do. And from a legacy standpoint, let's talk about kind of what legacy is and what it really means, especially in the financial area, because I think it might mean different things to different people. What one of the things that we see is confusing for people a lot is, or not confusing, but maybe they don't really think about, is what happens to my, to the business if I should die, be disabled, you know, otherwise be incapacitated and unable to actually work in the business? The family of the owner. So we talked, you talked a little bit earlier about how you can, you know, kind of insure yourself with the partners and things like that to be able to protect the, the rest of the partners from that stuff. But talk a little bit about, about the importance of the legacy and, and, and, and, you know, and the family or, you know, piece of this. What, what are, what are some of the common things that you see, you know, in terms of people planning in terms of their families and stuff like that?

Yeah, it's always a tough— sometimes it can be very difficult talking about legacy planning, intergenerational wealth transfer. But, you know, for those business owners who have put their blood, sweat, and tears in their business, you know, over however many years, the commitment that they gave, they, you know, it is our responsibility as advisors to ensure that they have proper planning.

Right.

Identifying what the business owner wants in a succession plan or legacy plan. You know, we work with attorneys on the development of trusts. You know, that could be, you know, that could be an avenue that they want to go down. And also, it's bringing, you know, when appropriate, bringing the family, for example, into the conversation. Legacy planning is a group effort. And again, sometimes it can be difficult conversations. Other times it could be the family's already entrenched in the business and it's just a matter of identifying the next step. And so for me, talking with business owners about legacy planning, it's a group effort. We want to bring in spouses, we want to bring in children that are likely going to be the beneficiaries. for the, you know, next, you know, man or woman up to lead this business. Uh, and we want to ensure, uh, a smooth transition.

And obviously one of the things that we see a lot too is that especially with families is that there ends up being, especially if there is a sudden death or something like that, when people aren't prepared, this, you know, it's a, it's a fighting over who gets what heir gets the corner office. Uh, you know, everything from that to, uh, you know, to obviously, you know, fights over if your will is not updated as well or something like that, you know. Boy, it could be a real mess, right?

Absolutely. You know, I think one of the things that, you know, business owners and individuals, you know, included, is just, you know, trying to limit court time, right? Not having, not having, you know, that, the type of, you know, the documentation, uh, the legal documents, the signatures, the, you know, having them updated regularly. You know, these things can you know, make for a— even, you know, an uncomfortable situation like an untimely disability or passing, yeah, make it even worse, right? And so it's a little bit of effort to ensure that these plans are completed, followed through, everyone is transparent and has, you know, clear visibility into, you know, legacy or transfer And not waiting until— you're being more proactive than reactive.

What about charitable giving? Talk a little bit about that. Obviously, there's tax implications to that. There's sheltering of tax stuff from that. And again, you're not a tax planner, so we're not going to get into the tax situation today. But from your perspective, what are the strategies and stuff that people can kind of employ when they want to do that? And what are the things that kind of benefit them?

Yeah, I mean, working with tax advisors and accountants, you know, when you have a client who is passionate about an organization or community support or, you know, feels, you know, very strongly about, you know, the environment or anything, you know, and they are coming into a chunk of money or you know, know that there's an opportunity for them to do good with, with some of their, you know, holdings, you know, there's an opportunity for charitable planning where, you know, they are able to, you know, provide this funding at the same time also limiting tax liability potentially. So there are some, some really, you know, opportunistic areas or strategies where not only can you help yourself from a tax efficiency standpoint, but you can also help something that's near and dear to your heart. Excellent.

That's cool.

Go ahead, John. Yeah, I was going to sort of based like sort of on the charity and the— and not so much the tax aspect, but the the implications of coming into a lot of money and sort of doing something, not impulsively, but doing something right after the sale. Like, does that— has that come up, Phil, in your— when you're dealing— when you've been dealing with owners and entrepreneurs?

Buying a boat.

Yeah, exactly. Like, how do you either plan for that or— you plan for it, obviously, but if it's not in the plan, that must be a difficult discussion when you're talking to an entrepreneur about buying a boat or doing something crazy with the money that seems sort of irrational to you.

Yeah, and hey, we all, you know, we all like those shiny, shiny gifts or, or, you know, those shiny toys. And, and, you know, we have to be flexible. You know, a business owner, you know, may come to us, or, or, you know, an individual, and says, hey, it's your example, uh, Joe, I want to buy a boat. Oh, okay. Well, we were not really set up for you to buy a boat. And so here's where we are. You know, if these funds come out, this is your current standing. This is how on track you are to meet your short, long-term goals. Are you comfortable with this? If not, we can make some adjustments or, you know, maybe wait a few months, save a little extra, you know. And so it's It's that ongoing conversation because we have clients calling us all the time. Hey, I need this, or, hey, I just saved a little extra money. I'd like to put it into this investment. So that ongoing conversation allows full transparency between the advisor, the advisory team, the client on if they want that boat, that's great. This is what— this is the cause and effect of it.

Here's what you tell them next time they tell you you're gonna buy a boat. It's only gonna be the second happiest day when you buy the boat because the the the happiest day is when you sell it.

That's that's what you tell them.

That's exactly right.

It's not a good.

It's not an investment.

I just tell them find a friend with a boat.

Even better, even cheaper.

Much cheaper. Yep, exactly right. It's a a boat is not a boat is a good investment potentially in your happiness except that then you turn that then it turns out actually not to even to be that.

The fuel, the costs of—

oh my God.

Yeah, but to your point, you know, sometimes someone's car breaks down and all of a sudden they need a new car and, you know, it wasn't really in the initial plan. And, you know, you, you look at, well, what are our opportunities?

Where are we?

You know, and, and you just, you know, some— sometimes, you know, you're on track and that's great, but sometimes, you know, that track has to take a right turn or a left and, and just Continually being available for your client, having those conversations, sometimes difficult, sometimes easy, just always being there from an advisory standpoint, similar to what you guys do, you know, just always being there to support their needs.

It's not something you think about. I don't, I don't think, I mean, in terms of, I mean, look, we all have, you know, investment stuff, but a lot of times what we're doing personally is investing in products. We've got 401. You're not really ever talking to anybody. You know what I mean? It's not like you're in an ongoing way where I pick up the phone and go, hey, Phil, I'm thinking about this today. And, and you're like, yeah, Joe, uh, you should do X, Y, and Z or whatever. Like most of us don't have those kinds of relationships with, with, with financial people. So the fact is though, that this is the kind of thing that you, you would, the, the services that, that guys like you provide, and, and obviously you in particular, Phil, 'cause I know, I know how, you know, tied up with your customers and, you know, in, in their lives you are, um, to, to a great effect, by the way. Talk a little bit about the importance of that in the relationship and what people should be asking of their wealth advisors, especially if their wealth advisors aren't Phil and Esz.

First and foremost, hey, business owners, right? Are you planning for your retirement? It is not just a, do I have enough to pay myself a salary? It's when you're a business owner, you don't have, you know, an employer-funded 401 unless you create one, right? And so, you know, having the, the, um, the support to help provide those opportunities or those, you know, strategies from a, you know, sole proprietorship to an LLC to a corporation— well, what makes the most sense for you? Well, it could be, you know, it could be an owner 401, or it could be a simplified employee pension plan. You know, it could be a simple IRA. You know, there's— it could be an employer-developed 401, right? So there's so many different strategies that these business owners can take to help, you know, utilize and leverage the tax-deferred, you know, opportunities for retirement planning, right? And a lot of times business owners don't think about that. Obviously, we work closely with accountants and their CPAs, and they may bring those conversations up, but sometimes they don't. And it's, you know, the responsibility. If you see an opportunity and we bring it up to a client, it allows for then transparency where we all then become, you know, create this cycle of efficiency. And we start identifying, you know, we're working together on a regular basis to identify opportunities over a long period of time. And sometimes it could be retirement plans. Other times it could be, you know, charitable giving, you know. But the benefit of having a team around the business owner is that it's not just one person's ideas. It's a group of ideas that come together and work seamlessly.

Yeah. And given that there's, you know, there's that tax person, there's the financial advisor, like there's you, there's the legal person, that some of those things can be in conflict, right? I'd imagine some of the times where You know, in achieving the goal that the entrepreneur wants to, wants to get to, there can be some sort of— I mean, you all are working in harmony, but, but there can be some tax versus legal issues that probably come up in some of these discussions.

Oh, absolutely right. And so if there isn't a, you know, if there isn't that level of exploration from the subject matter experts, You know, a ball could be dropped and that could become a long-term challenge. Right. And so, you know, with every opportunity does come risk. And it's just making sure that everyone is doing their part to provide their expertise.

Yeah. And just one question that, you know, dawned on me during this call, you know, 80 to 90— you said 80 to 90% of owners' net worth is often tied up in businesses. We've seen the same thing. And it's interesting, we've seen owners that have already planned for retirement, right, have had— have 401s, have retirement investments, as well as the exact opposite situation is they look to this sale to fund their retirement sort of in its entirety.

Yeah. And, you know, there was another stat that I looked at today while preparing for this call, and it's, you know, 50% of business owners, uh, are— have to leave their, their business involuntary, right, for whatever reason. And it's those, you know, death, disability, uh, you know, and what— I don't know. I finally got them.

Death, disability, disagreement, divorce, divorce, and, uh, and, and, uh, distress, right?

And so That, you know, that is a huge thing in that, you know, if half of those business owners are not properly planned for that significant life event, you know, what's next?

Well, because it gets worse, because the reality is, is that so only about 20% of businesses that pass on to another, to another owner, especially after the original owner dies, actually make it past 2 years. So the, the, it's not just about the financial wellbeing of the, of the individual, but, uh, you know, and then the, and their family. But the reality is, is that the chances that the business survives are actually really low once the owner dies. So the original owner rather. So, you know, the ability to plan for this stuff ahead of time. And, and, and look, I, I'm, I'm one of those people that just, I, I stand on this stuff all the time. And John knows this. I'm like, you know, it's one thing we're all expecting a huge financial harvest and isn't it great when we sell the company and we can do that? And, And maybe hopefully I've been doing, you know, you can't expect that you're going to, you know, uh, you know, only make, you know, only be able to pay yourself whatever, $100,000 a year or whatever. And then suddenly you, one day your company's gonna be worth $50 million, right? That just doesn't really work. The math on that isn't right. But at the same time, there is the, this, this notion that, that, that We're trying to get people to plan for the best-case scenario as well as the worst.

Yes.

Because, you know, at the end of the day, right, it's the chances that you actually survive to the end. And I don't mean survive necessarily just like by living, but I mean survive that the company itself survives for whatever reason past then is actually, they're not great odds when you think about it, considering how many small businesses get started every year and the 33, 34 million-some-odd, you know, businesses that are out there right now. Um, you know, I think it's, uh, it's scary that the fact that, that the reality is like, just like life in general. And, and again, it isn't like, it's not like it's just being in a car accident or just be, you know, or, or just if it's just dying, it'd be one thing. The odds of that are relatively low. It's the other 4, right?

It's the— Absolutely.

It's the distress. It's the, that's the most common one is actually the, the distress and then the disagreement with other people or, uh, you know, with other partners. Right?

Yeah. We always say plan for the expected, prepare for the unexpected.

Right, exactly. Because the re— you know, the reality is, is that most people are not losing their businesses because they're not getting great deals or, or not making enough money on a sale. It's because they are losing the business to the other, one of the other 5 Ds. And that's the, that's the thing that exit planning, I think, you know, John and I are always saying that this is the, this is why this is so important. Again, there's so many ways to skin the cat of selling a business or, or exiting a business rather, right? You've got potentially, you've got, you know, you've got heirs, you've got the ability, you've got partners, you've got management staff. There's all kinds of ways. There's charitable stuff. There's potentially trusts. There's all kinds of things that you can do with the business that aren't just selling it outright for a financial harvest. The problem is, is that what people, even if you're looking at that, you're probably not looking at what might happen to you along the way. And preparing yourself for those things, I think, is actually one of the best, biggest advantages of exit planning that there is.

Yeah, I think preparation is key. And, you know, you guys could probably speak to this a little more, but it's the, you know, what are your— you know, you have about 3 options, right? It's an internal exit plan, uh, it's an external exit plan, or it's a liquidation, right? And each one of those buckets is pretty much going to give you a different valuation. Right. So, right, you're— the benefit is planning for all 3 options, uh, with the hope that you maximize those valuations and you're put in a place to have a financial plan after that exit.

What do you think, Phil? You know, we work with a lot of different business owners at a lot of different levels, okay, in terms of the, the amount of money they make, their, their total revenue. You know, we work for people that are basically— that are making, you know, $750,000, you know, in EBITDA up to, you know, $30 million in EBITDA. All right. I mean, the reality is, is that it's a very big range. From a financial standpoint, what is your, you know, we talk about wealth management and I think that might be a, a little bit of a misnomer. I mean, what you're really doing is financial planning. You guys may have a threshold in terms of, uh, uh, you know, uh, an account, uh, you know, value. Or, right, or a financial value to, to, to get involved with just because— why? Because you, in order to have to have a certain amount of money to really make a dent in, in, in something moving forward or in a timeframe. What's, what are your thresholds around the, the amount of money that I have to invest in things like that?

Yeah, you know, it all depends, I think, uh, on the financial advisor, uh, and their, their ability to service clients.

Right?

So when you first come out, you know, you're eager, you're ready to sign everyone and anyone, right? But as you start building your book of business, you just don't have the time to really be able to service every single person that comes through your door, calls, sends an email. So you may at times be a little selective, you know, as you become more experienced. as an advisor, as you build your, your, you know, your assets under care or management. We typically try not to have, you know, minimums, but, you know, every advisor is different. Our accounts don't necessarily have any minimums. In fact, you know, we have opportunities for all different levels of investment, right? And we also have some opportunities for those you know, that have a significant amount of investment, you know, our high net worth, our ultra-high net worth, where it's, you know, really a white glove service, right? And, you know, again, we have those opportunities to, you know, build customized portfolios for each of our prospects and clients that is specific to their needs. So be it $750,000, $20 million, $100,000, $50,000. You know, there are, you know, the strategies, you know, may be tweaked a bit, um, but the, the structure, uh, at times can be very similar.

And, and the sooner— and again, another reason to start soon, right? The reality is that whatever money that you can be putting away and talking with someone like Phil or any kind of, you know, financial planner— and again, the financial planner thing you have to be careful with because, again, you know, I sell insurance, and so therefore I'm a financial planner. That's the kind of stuff that you have to be careful of. But not that that's necessarily bad, but just to understand that lots of people call themselves financial planners who are actually just selling products. But the idea is that if you can start off early and start to invest even money that you're paying yourself, invest bonus money you're giving yourself or things like that, you can start to build that portfolio way, way, way before you're getting ready to sell.

Right. Yeah, I mean, much of, uh, much of, uh, the wealth that we see accumulating, uh, with clients is because of the amount of time in the market, you know, allowing that, you know, allowing for growth, for income to compound year over year. That's where you start seeing the significant growth, you know, when someone first starts you know, an IRA and it's, you know, they're starting from scratch, it might take them a little time to start seeing significant change. But then, you know, after 10 years or 15 years of in the market, you're starting to realize, wow, look at these big chunks, you know, every year that I'm seeing in a year, you know, in a—

Compound interest.

Annual growth and the compounding interest. And again, you know, it's one of the pri— one of the main you know, bullets of wealth management and investing is time in the market.

Yeah. How often are you working, Phil, with entrepreneurs and they come to you with sort of not unique investment opportunities, but sort of ones that are not the vanilla stocks and bonds that I can imagine make up most of your portfolios? What's your guidance about those types of either like private partnerships or specific investments in small companies or anything like that? What is your guidance typically When an entrepreneur has a ton of money and they've made a ton of money with those types of sort of more unique investment opportunities?

Yeah. I mean, this day and age, there's a ton of alternative investing options, right? From crypto to private equity to who knows what, right? And so it's really just a matter of if someone like a client comes to me talking of these types of alternative investments, You know, we may not at Edward Jones have the ability to put those funds in those types of investments, but if a client, you know, is looking for a recommendation, you know, that— and they have the ability to invest in those funds, and, you know, we don't necessarily say we think it's a good idea or a bad idea, you know, we just communicate the fact that, you know, you have a diversified portfolio here. should you want to take, you know, an opportunity at this type of investment. It might have a higher risk profile. You know, you may be locked in, you know, and not be able to maybe pull that money out. Or, you know, we really just give very high-level, you know, recommendations on where they are here at Edward Jones. But, you know, we don't necessarily look to providing recommendations on crypto or, you know, anything that we don't necessarily hold ourselves.

Got it.

When it comes down to, uh, the, the spouses, uh, like you said, children of the, you know, of, of an owner or whatever, live or dead or whatever, you, you were talking earlier about they're getting them involved, uh, you know, in the process and stuff like that. Um, how does that look? I mean, I, I think part of the thing I remember, uh, you know, You know, the businesses that I've had and, and things like that, you know, it's, again, my, my kids were much younger for most of it, so it wasn't really an issue. But I'm starting to get to a point now where my kids are starting to be adults. And, you know, and one of my, you know, my son is an economics major, and I'm thinking about, you know, how do I bring him into the business? And if he wants to do that and the whole thing, he may not wanna do that, which is fine. But those questions, how, how, how are the questions around, around the, around other family members in the business and stuff like that? How does that kind of affect the planning piece?

Yeah, I mean, I know from my own perspective, when I work with clients, our meeting frequency tends to be a little more than other financial advisors. I like to meet 2 to 4 times a year at a minimum. And so that's outside of general phone calls or email interaction. But in those meetings, you know, we assess the life changes, we assess, you know, those opportunities. That's the time to have those conversations of, hey, you know, it'd be great, you know, if, you know, your spouse, you know, wants to come in and talk to us about anything, ask any questions. Do you, the client, would you like to bring anyone in to provide them transparency or to see if You know, if they're interested in utilizing these services, or, you know, getting more insight into the business finances or where the holdings are, just, you know, bringing that into the conversation on a regular basis when we're meeting with clients in our annual reviews or, you know, performance updates, just always Bringing it up to a client, um, to keep it top of mind.

What about, uh, I would imagine that bringing these people into the— so I, I think that there's some resistance potentially out there, and I think it's, you know, potentially a male situation, kind of male modeling thing or whatever, to kind of protect everybody from the dirty financial end of things, right? Um, the, the problem with that obviously is that when, if something is to happen to you, now nobody knows what's going on.

Right. Yeah. I mean, we, we, we hope our clients are not in those instances. Right.

Right.

But, uh, yeah, I mean, there's nothing like having these situations and then all of a sudden it becomes worse because of, you know, lack of transparency, not being, you know, in the know. And so I think it's imperative to, to ensure that there are— your family is, you know, has a good understanding of the business, the modeling, you know, where things are, even from a, you know, legacy standpoint. Like you said, it's, it's really just, you know, making sure that everyone is on the same page.

And it potentially actually helps the business actually in a way. So, you know, the, the other thing to consider about that stuff is that, is that if you're not telling your, your, you know, if you're not up regular updating your family or next of kin or whatever on what's happening here, It's actually hard to have people even be involved in the business if they are not themselves transparent in terms of what your plans are. So if I'm, you know, if my son wants to take over the business and I haven't kept him abreast of everything that's going on or what my plans are or what I want or any of the other stuff, well, gosh, it's just, that's just, it might as well not even be in the business, right? And the reality is, is that it's difficult enough to be the second generation of a company with the pressure that's on that, because especially if you've built something that's, you know, remarkable, because again, you know, the odds of the next generation taking it off and continuing success are, you know, relatively low, right?

Yeah.

Um, I was gonna say, how, how often do you see, you know, again, the, the importance of, of, of the family and stuff and being involved in that? But more importantly, you know, can it, can it potentially help the business to be able to have that transparency happen?

I think it can actually, because, you know, when you look at, you know, if, if your family is involved in the business, uh, and they become an up, you know, one of the, you know, paths to exit planning, uh, and you get that internal, you know, not takeover, but the where your family takes over the business and you're doing it internally, well, there's a good chance that you've just saved however many jobs at that company versus an external purchase, right?

Right.

Because you never know what's going— what that new owner is going to do. And so, you know, aside from the fact of, you know, being able to, you know, provide insight and information to the family, the family, you know, if they're involved in the business and they have the opportunity to take it over for whatever unforeseen circumstance, Think about the entire company, not just, you know, the business owners, but everyone then become maybe in a better position with that. And, you know, we talk a lot from the financial advisor standpoint of the greatest amount of wealth transfer coming and, you know, the silver tsunami, right? And that also applies to businesses.

Right.

Now is the time to plan for those transitions.

That's right.

What about tips for entrepreneurs that have just like, what are some good things? Like, are there any tips to keep people disciplined, excuse me, with that new wealth that they're acquiring?

Yeah. And I've seen this a good bit and it's really just making sure that you stay the course. from an expense standpoint, spending standpoint, knowing that how much is coming in, how much is going out, and that you're properly allocated. You know, again, working very closely with a tax accountant can help because, you know, a lot of times that money is coming in and, you know, you need a professional to ensure that, you know, payroll is being managed and the proper taxes are being paid out. And so, you know, making sure that, you know, Although you're seeing this influx of money coming in, you know, making sure that it's being distributed where it needs to be distributed for. And again, always saving for a rainy day, having that emergency fund, you know, and then also looking at opportunities to, you know, if you are a business that has employees, you know, how do you keep turnover rate low, right? Well, maybe that's providing a retirement plan for your employees. And looking at all of those opportunities and strategies to continue building your business.

So it sounds to me, you know, as we kind of sum up here, Phil, that basically the most important thing obviously is starting early, right? So the longer you are, your money is in the market, in whatever market it's in, chances are the better it's going to do. And right, and with compound interest and stuff like that, obviously it's going to make a huge difference over time, right? So the biggest takeaway probably is obviously is start early.

Yeah, I think so. And, you know, and to your guys' point, it's work together. It's, you know, build your— you know, every business owner needs to build their center of influence. They need to build their advisory team. And then the advisory team then is working for you in that they're bringing the opportunities to the table, uh, while you have the time to continue dedicating to your business. The advisory team works on finding all those opportunities, working through, you know, headwinds, tailwinds, uh, and ensuring, you know, that the success of the business is, is on everyone.

And looking at the— looking again at the, the— look at all the avenues, right? So the other thing is being able to, again, is to keep your options open as you move forward in time, but to be able to Explore all the different things that you can potentially do, whether it's with the business itself or with your own financial windfall at the end.

Yeah.

Uh, absolutely. You know, uh, I imagine, you know, me, you know, I think I know, I know a great deal, but there's a ton I don't know. Right. And I don't know what I don't know. And so I need to bring people into my world, uh, that can help, uh, advise me on those things. Right.

And, and people who can give you ideas and the whole thing. And of course there's the, the overwhelming, but keeping that core team of advisors is key because they know you. They get to know you. They get to know what your, what your, you know, what your goals and what your ambitions are. They also get to know, frankly, what your weaknesses are. Um, and I think one of the best things that a team of advisors around you can provide you is that, you know, that kind of gut check moment when you're like, I want to buy the boat.

They're like, yeah. And also options, Joe, right? Like you mentioned earlier, it's like, it's like you may, you may proceed down a path, and we've seen this, you know, we've seen this with some of our clients, is they have, they have a, a goal in mind that maybe I don't know where it came from, but once you meet with tax people, once you meet with attorneys, once you meet with people like Phil, they open your eyes to a whole different options of sales, right? ESOPs and all sorts of things we're not going to get into here, but there are so many options for business owners when they decide to sell, from get— from, from having a son or daughter take over, to obviously a traditional sale and all those other options that these advisors can open their eyes to.

Yeah, you're absolutely right. I mean, the reality is we spend a lot of time, you know, because it's the money part, we all spend a lot of time talking about that perfect, you know, exit when you're selling the company outright and, you know, and getting a giant, you know, and getting millions of dollars in your pocket, which is really great. By the way, not mutually exclusive. So it's not like, you know, that's the only way. And it's not like if you don't, if you can't do these other things if you do that. Often what we find, it's actually for everybody, it's a unique combination, but it is a combination of being able to look at some of the things that I want to do. And if you're lucky enough to have made enough money or been able to have a company that generates enough money, you're in a situation where you can give money away. You can potentially set up a trust. You can set up potentially some kind of ongoing charitable organization, you know, to something that matters to you. So, you know, the ability here, I think the big lesson is that what we're trying to do is, again, like any planning, exit planning in general, wealth planning in general, the earlier you start, the better off you're going to be. When you're starting a business, if you're an entrepreneur out there and you're starting a business today, you know, know that one of the things that you want to do is start thinking about right away, what is your exit strategy going to be? And along with that becomes, how am I gonna manage the wealth and the money that I make as I go? It may be too early to have a conversation with Phil about where you're gonna put that money, but it's never gonna be too early to have a conversation about the potential and about, and, and, and getting the learning so that as you come across these milestones, as you grow up, as you, as your company grows, You are now better prepared to be able to actually reach out and say, okay, Phil, now that I've spoken to you a year ago about what all these things are and the whole thing— and by the way, Phil is very gracious about doing that, in case anybody wants to know. If you're— even if you're not ready, Phil will talk to you about the things you need to be— to do to prepare. The fact of the matter is, is that that's, that's, that's a key thing, right? Start there, understand what your options are early. And then as you go, you should be looking at it every year. Did I have a good year this year? Have I, have I been able to bonus myself some money? What am I going to do with that bonus money and the whole thing? Am I going to buy the boat or am I going to put it away, uh, you know, for the rainy day, right? Or everything in between?

Both.

Both, right? Why not both? Exactly right. We love it. We love boating in the rain. Um, in any case, uh, Phil, really, really helpful stuff, man. Thank you so much for being here. Um, and really appreciate you coming on. Um, Phil Hines, Again, is with Edward Jones. Um, and you can find— Phil, shout out where we can, uh, where we can get in contact with you.

Yeah, yeah. First, uh, John, Joe, thank you for having me on here. Uh, anyone wants to, you know, have any information, uh, there's a website. It's, uh, edwardjones.com/philip-heness. P-H-I-L-I-P dash H-E-N-E-S-S. So edwardjones.com/philip-heness. Can take you right there. Also on LinkedIn, on Facebook, um, you just search Edward Jones and my name, shouldn't be a problem to find. My office is here in Wynwood, uh, and, uh, anyone can reach out through, you know, Google for the phone number or, uh, or anything like that.

Awesome, Phil. Thanks so much, man. Thanks for being here. Really appreciate it. Um, and, uh, we will talk to you very soon. John, uh, hey, uh, takeaways from today?

Yeah, I mean, the, the takeaways are prepare, right? What I heard Phil consistently say throughout the, our, our episode today is prepare. Get in touch with your advisors, um, make sure that you have all your bases covered from a tax, wealth, finance, and legal standpoint, and, and realize that Whatever your goals are, whatever you want to do, there are professionals and experts like Phil that can help you get there, whether it's buying a boat, which I don't recommend, or investing, you know, for the future that you realize that with 80% of your wealth tied up in this business, if you're typical and you're an average entrepreneur, you need to prepare for life after the sale and the finance, you know, your financial means need to come from somewhere, and it's probably going to come from the sale of the business. So you need to speak with professionals to make sure your life doesn't change drastically from an income standpoint after you sell the business you've built up.

That's right. So your advisory team, however that is, should at a minimum probably be made up of, again, of an exit advisor like Exio or ExitEngine, a wealth manager like Phil, A tax, a tax, uh, uh, a tax attorney or tax accountant, uh, that's specifically on taxes, as well as your CPA. And remember, your CPA and your tax accountant are not always the same thing. So that's something to be very wary of.

And obviously an attorney, right? You didn't mention that specifically, but an attorney is obviously key. And, and again, I think what Phil mentioned earlier is he can work with any of these people. If you have an attorney that's very close to you, a CPA that's very close to you, Phil's not going to come in and say, oh, you have to work with our attorneys. They are, you know, they will work with you. You are the, the center of attention as the entrepreneur in this whole situation. So remember that. We didn't mention that, but it's obviously key, and it's an important aspect of you call the shots, and Phil can arrange whatever you— whatever your goals happen, uh, happen to be.

That's right. I, I think that the— again, we'll, we'll leave it here today, but I think that again, you know, guys, I can't stress enough the importance of being able to think about this stuff early on. All right, there's so many people that get to the stage that— and Phil was being very generous, but I know Phil and I've heard some of the stories. And the reality is, is that there are, there are, there are so many times when, when it's too late, you know, and too late to make a big difference. Look, you can always invest money, right? It's never too late to make the investment, but the realization of the investment and the ability to have that money work for you We all know this, right? The con— taking advantage of compound interest is everything, and being able to start that as early as possible matters. But at the same time, I think what I loved about what Phil said too was that, guys, it's not just about the money. It's also about potentially about the, about the, about the family, about how you can protect yourself, protect the business, protect the rest of your employees. And all that stuff happens kind of within the exit planning and wealth management process. Kind of all together. So, you know, the big takeaway is here, get yourself some advisors, okay? If you're a business owner who's even contemplating an exit at any time in the next 3 to 5 years, you should be, you should be out there contacting these people right now and making sure that you have this team, you know, available to you at any given time.

Yeah.

Awesome. All right, John, thanks so much today. Thanks to Phil Hannes, wherever you are. Thank you so much for coming on today. I really appreciate it.

Thank you.

Appreciate it, man.

Thanks, guys.

And, uh, we— oh, good, he's still there. Excellent. Um, anyway, we, uh, we really appreciate it. Remember, uh, this is the Exit Engine Podcast. I'm Joe Stapleton. That was John Kniff. Uh, our guest today was Phil Hennes from Edward Jones. Uh, you can reach him at edwardjones.com/philhennes. Um, and then, uh, at the same time, you can reach us at, at, uh, info@exitengine.com. Myexitengine.com. Ask us a question. Uh, please, uh, you know, please share this podcast with a business owner you love. Uh, and, uh, and also if there's any comments or any questions you have, you know that we're always available. Uh, we got actually got a— we have an episode coming up that's going to be a pretty significant kind of mail, uh, answering, uh, episode as well because we're getting a lot of questions and stuff through our social media channels. Uh, you can find us on LinkedIn, you can find us on YouTube, you can find us on Instagram, uh, @ExitEngine or ExitEngine, my, uh, ExitEngine Community. One of those 2 will get you just about anywhere. Thanks so much for listening. Again, this is the Exit Engine Podcast. I'm Joe. That was John. Guys, have a great day.

Thanks, Joe.