Why Your Business Exit Plan Matters More Than You Think

What if after years of hard work, your business, your legacy fails to give you the financial freedom that you've been counting on? Most business owners assume that when the time comes to sell or to actually leave their business, everything will go magically fall into place. But in reality, so many people are blindsided. They're exiting for the wrong reasons at the wrong time and often without the outcome that they were hoping for. And most people underestimate how long the transition will take. And that's what we're talking about today on Marc Haine Live. Welcome to this episode. This is where small business owners and entrepreneurs develop new skills to help them create the jaw-dropping, show-stopping experience that their customers and their employees deserve. I am your host, Customer and Employee Experience Strategist Marc Haine. And I am so grateful that you are tuning in today because my guest for this episode is small business champion Canon Carr. And today, we are going to be diving into the essential strategies that business owners need to exit a business on their own terms, building financial freedom and avoiding the costly mistakes that can really derail hard-earned success. Now wait. If you're thinking, but Marc, I'm not looking to exit my business. I have many years left. I need you to stay with us. You have to stay with us because that's what everybody says. And it's kind of the reason why Canon's here to help us today. My one ask is that if you know anybody who could use this information, please make sure you share this information with them. Share a link to this episode and have them tune in because this is a really important conversation. You know, when I had my restaurant Oktoberfest in Montreal in the Grand Central Station, we had grand plans for turning the operation into a franchise. But at a certain point, we decided that wasn't going to be the case anymore. And our one handicap that cost us hundreds of thousands of dollars was we had no exit strategy. And that brings us to our Question of the Day. So, are you positioning your business for the kind of exit that secures your financial future on your terms? Or are you making assumptions that could leave you unprepared When the time comes. I'd love for you to share your thoughts. Why don't you go ahead and share this episode on your favorite social media platform? Hashtag it #ExperienceLeadership and be part of this conversation. As I mentioned, our guest today is someone who truly understands the high-stakes journey of building, growing, and ultimately letting go of a business. Cannon Carr is a powerhouse in the world of wealth management, having spent over 25 years in the capital markets and 15 years guiding wealthy families and business owners to build and protect their financial future. Cannon is a Small Business Champion, Regional Director, and Partner at EP Wealth Advisors, where he heads the Atlanta office and oversees the entire Southeast region. Previously, as CEO for CornerCap, he led a team managing over $1.2 billion in assets. And he brings a firsthand understanding of what it takes to really navigate major disruptions, rebuild leadership, and negotiate a business exit on your terms. Cannon is also the host of his own podcast, Business Owner Tales from the Trenches. And he's here to help us crack the code on achieving true financial freedom from your business. Cannon, welcome to the show! It's so great to have you.

Marc, great to be with you. Thank you for that great intro. I enjoyed watching the intro as much as anything I've seen in a while. So, well done!

Thank you so much. Before we get too deep into today's topic, could you tell us a little bit about how you serve your clients? How do you help them? How do you move them forward? What kind of services do you offer?

Yeah, well, so broadly, whether in my prior firm or with the new firm that we've merged into, EP Wealth, where wealth management means a lot of different things to different people. But when you think about the comprehensive scope of services, it's everything from investment management to tax planning and tax prep to executive comp to trust and estates review. So, you know, and touch on real estate analysis and whatnot. So, all those are tools that we can use to help solve problems for a variety of people. But in particular, interest of mine is the business owner, the small and medium-sized business owner.

So, what kind of misconceptions do business owners have about exiting their business? I have some As a previous Economic Development Officer for municipality, I've talked to many people and I've come up with a few of my own. But I'm really interested in what you come across when you start talking to people and the misconceptions that they have about how they're going to be able to get out of their business.

Yeah, no, I think a lot of people assume my business is going to be my retirement, right? When I'm going to build this great value. When I sell it, I'll be able to walk away and Continue a life and a legacy. And unless you're that Hollywood entrepreneur, it usually doesn't go that way. And we'll touch on that. And I think, but with that mindset, I think some people are saying, well, look, I'll deal with it later as I work in the business and build value. I think some people mistrust thinking about exit. They're like, why would I think about exit? I'm building a business. I'm building my baby now. And if I talk about exit, my clients are going to freak out or my employees will freak out. And maybe even that's disingenuous to me, right? I'm an entrepreneur. I'm a builder. And unless you're a serial entrepreneur, which again, yes, it is about exit, but many small business owners are like, hey, look, this is my life work. Why would I think about exit? It just seems to cheapen the effort. So, I think a lot of people just assume great things will happen and don't trust a process of thinking about exit.

Right. It's so funny. I was just at a keynote. I was keynoting a conference this past weekend. And I met a plumber who had a very successful business for the last 25 years. He bridged it that his son would take over the business. And within 3 years, the business no longer exists. And I could tell just by how he told me his story how hurt he was by that. This is not uncommon, is it?

No, it's very common. And I think if you do not— and this is why being intentional about thinking about exit It's so important because if you don't do that, accidental things will happen, right? And accident takes over and often puts people in a position that they look back and they'll say, how did I get in this position? This is not what I intended. And they end up exiting the business or selling the business on terms that are not theirs. The timing's wrong, who they sell to is wrong, why they're selling is wrong, and the financial implications are not optimal. So, No, an accident happens and it happens a lot more than you think.

Yeah. So, what are some of the biggest factors you think prevent owners from creating a really solid exit plan?

Well, I think a lot of it is being busy, right? So, they're like, all right, I'm working. A lot of ones that are just starting out, particularly like professional services or service-based companies, they'll be kind of the lead practitioner in a way. So, they'll be so busy working in it that they aren't working on it. And we'll get to that theme again in a little bit. But that's often common.

That's a theme nobody heard on this show before, Cannon. For 200-something-odd episodes, we've never mentioned that ever. No.

I tell you, it's so— everyone knows it. And yet, so often, you have to remind people, you're doing it, right? I'm doing it, right? I mean, all of us who are practitioners will fall into that trap if we love our work and we love just like helping clients, right?

Yeah.

But I think, so they'll be just busy working on it. And I forgot your— we were laughing so hard.

What was the question again? About why they have such a hard time kind of planning their exit and not being aware of it.

So, I think it's not trusting it. But I think sometimes ego gets in the way, right? And the sense of control that Again, they may not trust the exit process or they don't trust what it means if they spend time thinking about it. And I think they'll think it's a distraction. Sometimes I'll bring it up with a business owner or an entrepreneur and I'll say, what does exit look like? And they make it very vague. But like the example you used with the plumber, if you're not thinking who is ultimately going to succeed you, in your business plan, you're not building a sustainable business. And so, we'll certainly spend time getting to that. But no, there's a host of reasons that people will just kind of ignore the planning aspect of it.

And so, for those tuning in—

They'll wait till it's too late. They'll wait till it's too late.

Yeah. That timing is always the biggest one that I found when I was in economic development, when I was talking to people. It's like, well, you're 65 now. When do you think? Oh, 72. And it's like, so what planning have you started making? He goes, oh no, I'll wait. It won't take any. And it's like, no, you need to be thinking about it now.

Yeah, there's a lot to it. A lot you want it to go right.

There are just so many people to your point that I think they're in the day-to-day. They're not really thinking about how they're going to migrate out of it. And they might have grandiose plans of what that might look like. Yeah, yeah, I'm just going to sell it because I know my business is worth a ton of money. But yet, they're in it every single day doing all the work, not realizing that just their sheer involvement in the day-to-day kind of devalues them. So, what are some of the red flags or warning signs that a business owner might not be positioned for a successful exit when it comes time to it?

Well, there are a lot of warning signs. And I think the underlying nugget is and why it's important to think about When you exit a business, who will buy it, right? Because if someone's buying your business, they're going to want to own a business that's ultimately either independent of you or bigger than you. Because like, if you go away, you know, what is the business without you, right? So, you want to be building a process that's bigger than you. So, signs that you're not ready to sell or not thinking about the right way, if you think value on paper is independent of you and you are the key salesperson, if you are the key engineer, if you are the main leader of the company, of the firm, then it's too dependent on you. And so, you won't— that value doesn't transfer as well. If something happens to you, the whole value of the business is in you. So, if you're in too much If you're making all the key decisions, that's a sign it's not a sustainable business beyond you. If you are overly reliant on one customer or one market, I think that's a sign that the business may not be sustainable, right? You want to ultimately be able to expand and diversify from it. If you have a process that you can't really scale up, right? It's human dependent. This is, again, professional services firms often have this. There's only so big you can get around one person, right? So, you have to keep adding staff. But if it's not a scalable process, it's going to be hard for that business to be sustainable ultimately, right? So, all those kinds of signs show. And even physiologically, it'll affect people. I mean, if you're just under massive stress and you feel like you're not able to really You know, even pull money out of the business. You know, something is— the financial engine is not working, right? And something needs to be optimized. And maybe someone will buy it and clean it up, but you're not going to get a lot of value out of that either. You know, you're not showing it's a profitable business yet. So, you want to be thinking, what is the market going to buy independent of you?

Well, you know, and the whole stress thing about the fact that, you know, our businesses tend to be stressful and we call that a Tuesday. So, we know that that's a constant reality that businesses are always under. A lot of businesses fail to understand that the reason why the valuation of their business when they're hands-on, they fail to realize why their valuation suffers because of that. For them, in their minds, they're thinking that's the key. It's like, when I sell it, I'll work with them. And then, I talked to a lady who just sold her printing company. She goes, they want me to work with them for 5 years now.

Yeah, yeah.

And it's like, so now, it's no longer a retirement philosophy. It is now a, I'm going to be now an employee coaching them through the next 5 years. But there are inherent risks to that personality-wise because all of a sudden, You who used to make all the shots now are going to start seeing changes. And so, there's a whole big blowout of ego that will start to happen. Am I far off on this? Is this something that you've experienced yourself?

Oh yeah, I've seen it for clients and I've seen it for just friends in the marketplace. Not so much for myself yet on that one, just personally on it. Although, I'd negotiate a sale of our business into this larger firm now who didn't have a platform in the Southeast. And it was exciting and it's the right decision. But You want to think hard about what that looks like. And so, no, I see it all the time. People often, again, will assume 2 things. One, I'll be able to exit when I want and for how much I want. And 2, that means I can walk away. And an exit means a lot of different things in reality. I like the word transition better, and we'll get to that. But it may be not just an immediate exit. It may be 2 or 3 rounds, or it may be even if you're exiting, you're transitioning to another lifestyle.

Right.

think of it as a transition. But people don't understand that. So they'll think, yes, when I sell, it'll be on good terms and I can go do something else. The reality is the buyer wants to make sure what they're buying is sustainable. And if you are integrated with it, they are going to keep you around and they're going to make a 2 to 5 year payout. You know, they, you know, they, they'll, they'll find ways to keep you involved. And, you know, you better like your new employer if that's going to happen.

Yeah. And to your point, I mean, I've seen it happen time and time again where it ultimately ends up in clashes. In fact, I was part of a transition where we were coming in to take over a business operation. And the clash was toxic at one point because anything that we did to make changes in operations, in procedures, and whatever, He just couldn't understand it. He couldn't understand what the heck we were doing. And push came to shove, he actually ended up transitioning out after about 6 months. And because he couldn't stomach the change. And because of that, it broke trust or broke perception of trust. And it killed our relationship.

Yeah, well, which is sad. But again, that happens so much, so often. And some of it's ego. Some of it's just a clash of values. I think you can reduce a lot of that potential risk and ultimately regret by carefully upfront thinking through what are your non-negotiables, what are you willing to give up, make it clear what your values are and what the other party's values are, right? Whether you're the buyer or the seller, the other side of the table, and make sure that you both come together and can recognize those things. Because after the deal's done is not the time to discover This is a bad fit. So, you know, I like to slow things down, or— and not that I'm negotiating the deal for our clients, but, you know, I encourage them slow it down. And again, you know, a key underlying key point here just in my world is, you know, financial resources away from the business will give you options and liquidity to be able to put the exit on your terms. Because if you have to sell, That's when you start to rush things. That's when you start to make mistakes. That's when you get through to the other side of the transaction and you're like, gosh, I wish I knew now what I knew then. Slow it down ahead of time. I just remind people so much ahead before the event. And that's why I like to tell owners, you know, 3 to 5 years before you're exiting your business or transitioning to the next thing, let's start defining it so that we can start getting those things right and finding the right kind of buyer.

Yeah, one of my good friends out of British Columbia, Hugh Culver, says that we should set up our businesses with an exit plan at the kickoff because you don't know what's going to happen. Now, to be clear, we're not necessarily talking about retirement necessarily. There are lots of reasons why people exit. And one of the things that I find that people are most unprepared for is illness or a death in the family. And so, That in itself creates its own whack of considerations and challenges, doesn't it?

It does. Or a death of a partner, right? Or a key employee gets recruited away, or if you have a major client and they leave. I mean, all these unexpected events can happen that will change your assumptions of success and change your plan of how you might exit if you Have to in the near term. So, no, I completely agree with you. You want to be thinking early about your exit. Do you have to do it on day 1 when you start your business or buy your business? I'd like to think you want a basic sense of at least 5 or 6 years from that point, where do you want to be? Because thinking too hard about exit gets artificial on day 1 if you're literally defining what does exit look like, who am I going to buy who's going to buy me? What are the important values I have? I think you can be too artificial at first because you do need to evolve into the business. And I like to, in the earliest stages, say, all right, so 5 years from now, where do you want this business to be? But have a sense of ultimately what exit looks like. But as you start hitting 1 or 2 of those key milestones, and let's say you are a 10 or 15-year plan for your business, 7, 8 years into it, you're going to know enough now and the market well enough to literally start defining how do you want to walk away from this business. Because you will exit it. It's just, are you going to be able to do it on the terms you want to do? But every business owner exits one way or the other.

Yeah, I'd like to jump into some actual steps that we can take to get properly prepared. And we'll get to that right after this.

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I am speaking with small business champion Cannon Carr. Cannon, how does exiting for the wrong reasons impact owners' personal and financial freedom? So, by wrong reasons, it's when they were unprepared, right?

Right. Exiting for the wrong reasons means that you're not doing it when you want. how you want and to whom you want. And each of those is very important, right? But it usually means you're getting suboptimal value. And if you haven't planned it the right way, it means you are going to have a second career working for somebody else, right? Because you didn't complete the job the first time or think of how the transition to the next phase is going to work for you on terms that you're comfortable with. So, but yeah, it usually means the emotions of regret and dissatisfaction. It means less financial optimization. And it means a real struggle of identity sometimes. Those are the downsides.

So, for the people tuning in then, if they're not prepared at all, if they haven't really been thinking about it, what is the first step they need to take to start thinking about this idea of transitioning out of their business?

Well, the first step is to Sit back and say, how much is enough for me when I do transition from the business? So, we're not even talking yet what does that transition look like. It's just conceptually, how much is enough? And I call that a little bit the North Star because it starts giving you that target to work for. Because if your current business is valued well below that, then we have a gap, right? And now, our plan, we're going to spend our time building that business value up And actually, above that, because net of debt and net of taxes and whatever will get you to a number. But does your business cover that number of how much is enough, or does it get close? And what other assets do you have so that you can get the full picture? But that first question is, how much is enough? Because it often will tell a business owner, is this business going to be that engine for retirement, or is it that engine to get me to that next phase that I'll need to get to to continue to build financial independence. But that's the first question. That's usually where I start with people.

And so, once they've defined that because it's going to be based on what the outcome is for the business as a whole. And so, to your point is one of the challenges I see in a lot of small businesses is they might financially be really good on paper but they have huge cash flow problems.

Totally.

And so, how do they tell the difference between what their goal is and what is actually a reasonable expectation as far as what they have sitting in a bank account?

Well, you mean, in other words, what do they have today and how realistic is it for the future?

As they push forward into transitioning.

Yeah. Well, I mean, I think You want to know how much, if I understand your question correctly, you've got a theoretical idea of how much is enough. And then, you've got ready cash today, right? Is that kind of where you're getting to?

And then, so when you do finally transition out of your business, you're not turning over all the cash that you're getting from the sale or from the transition to cover things like debt load and tax passes and all that sort of stuff, right?

Yeah, yeah. No, Business owner will forget, you know, the gross value, enterprise value of the firm is not ultimately the equity value they'll retain, right? I mean, there's, you've got to look at the capital structure. You know, if you have debt, that's got to be paid back. You've always got to pay taxes and there are ways to like manage taxes. But, you know, a good CPA can help you with that. And we have people on our team that'll certainly help you with that. But you're going to pay taxes, you're going to pay fees. And, you know, for people who are involved, as they should be, to help you optimize. I tell most business owners, don't go it alone. There's too much at stake, right? And you want to be able to see around corners. And a lot of entrepreneurs I talk to are like, oh, I don't want to pay advisors. I get good advice from the guy I play golf with or my neighbor down the street or whatever. And I'm like, no, that's not in your best interest there. So, be willing to pay fees for people who can really help. And you don't want to be wasteful, but people can really help. But you net all those out and you're right, your equity number is lower than what a lot of people first see at face value.

Right. So, we have— I mean, obviously, setting the North Star is a really good first step. And that's something I think that they need to be setting up early on because that's your growth and your evolutionary plan as it were for the business. And so, the steps it takes to get there sometimes can be self-explanatory. Sometimes, it's not. Sometimes, you do have to bring in experts to figure out how am I going to get over this hump of the day-to-day sales. How do I evolve past it and so on? What would be— so once they understand that path, they understand the 5 to 7 years or the 2 to 7-year path that they need to take to transition. What else do they need to be doing? What's like, how do they emotionally become prepared for it. They're mentally prepared for it. And of course, their business operations is prepared for it.

Yeah, well, and there's a lot there, right? So, not only knowing how much is enough, close second to that is what does success look like? A, for the business. What's your vision for the business? What does the business success look like for you, for the employees, for the clients? And then, what does success look like for you as the entrepreneur, right? As the business owner, when you do exit, what do you want to have accomplished? And so, the first thing we talk about, how much is enough? That's a dollar value. These things now are getting more towards mission, purpose, and value.

Right.

And those are so important to success. And there's so many owners I talk to who are like, yeah, I'm going to sell for maximum value. Well, there's so many other things that can be part of that equation that, yeah, we can do an auction for your business and sell it for maximum value. Not we literally, I'm just saying you can do that. But usually, that can often lead to regret because they're like, wow, I got a big number. But you know what? I didn't realize that I was going to lose 20% of these cherished employees. I didn't realize that my clients didn't trust this new entity that bought us.

Right.

I didn't know that this brand in my local community that we funded the local whatever for years is no longer going to be supported, right? This brand disappears and suddenly, this legacy that I thought I was building is gone, right? So, there's so much more. So, what does success look like? And you want to be able to tie your number to those successes on values. But then also, as you were alluding to, those financials of the business, right? Success means a certain revenue number and serving a certain number of clients, even if it's mission-driven. I want to change clients' lives with this product or with this service. Fine. But ultimately, there's a revenue number. There's a margin number. And you've got suddenly KPIs, key performance metrics, indicators to start to define and hit. So, you start getting milestones along the way. So, if you have a value you need to grow into 5 to 10 years from now, well, yeah, let's have a plan that's an annual plan and a quarterly plan that's hitting those key metrics to make sure you're on track to get there. So, that's all part of that first step. And I call it the plan, right? The dollar value, the values, and those kind of those key company metrics that, again, if an entrepreneur is just letting things happen accidentally, they get 10 years into it and they're like, gosh, my business isn't performing as well as I thought it would. I'm ready to sell. The initial offers I get are way below what I thought I'd be getting. Well, that's because they've let these things happen accidentally without intentional effort.

Or on the flip side, they could be hugely successful without knowing why they're hugely successful. So, they don't know the components of it. They got into a business. So, it could be like I've come across hotels who were in small communities and their revenues over 8 to 10 years just skyrocketed. And they didn't actually have an understanding of why it happened. It turns out that because they were kind of on the lower spectrum of the hotels. They weren't these big branded hotels. That there was a lot of oil and gas exploration in the area. And then, when they went to— all of a sudden, as 2018 hit and all of a sudden, they couldn't understand why they weren't getting the kind of volume that they used to have because all of a sudden, oil and gas got affected. And then, that carried through, right? And all of a sudden, they're pulling out their hair going, now what?

Right. Yeah, yeah. Because they had— did they actually lose some of that value? I'm just curious because that is typical, right?

They lost a ton. And again, this is part of the problem, right? Like even watching, I'm up in Canada. So, I've been watching the political system and all things going on, let's say in the United States. And they're talking about how the markets are reacting to all these things. And over the last few years, the markets have been climbing. And now that the election has happened, the markets jumped up again. And there's all this optimism. But at what point are people wrapping their head around it can't always go up? At some point, it's going to come down. Right? And are they ready for it?

Well, it just— I see it in the investment world. I see it in the business planning world. You know, people ride momentum and they assume it just keeps going. And it never happens that way. And that's why, you know, again, having an exit strategy so that you can do it when you want. Not because you have to, because things are cyclical. And you may say, you may realize, hey, 2 years ago was better than it is today. And if I can, some point over the next 3 to 4 years, it'll come back and I'll have better value and I still love the business. Well, then wait, right? Be very cognizant of what's driving values, you said, and knowing where you are in the cycle.

But part of the challenge as well, though, is not to keep falling backwards. Because what I do see in entrepreneurs is I will see that they did really well 5 years ago. But then, since 5 years, they made all these changes. So, let's just go back to what we did 5 years ago.

Yeah.

And that's a huge mistake as well because they've evolved in the last 5 years. And they evolved for a reason. And going backwards is not necessarily going to be a key that moves them forward.

That's very true. Very true. You see that in business cycles. And we can talk a little bit later in the program. You even see that in business stages, right? If you've really successfully grown your business and let's say you started out at $2 million and you— and just generically here, it doesn't always work exactly this way, but then you pass the $5 million revenue mark and then you grow to the $10 million revenue mark. You know, what gets you to each stage has to be different in a way, right? No business just infinitely scales. So, you know, if you're still trying to do what you did when you were $3 million in revenue and you're at $8 today, It's not going to work, right? You will at least be performing suboptimally. But you actually could be hurting value.

Right, right, right. And so, for the owner-operators, people who are tuning into this, are there any kinds of system that they could be falling back on to know that, okay, they've taken the first step. They understand what their North Star is. They understand the plan. Is there a system that they could follow to be able to kind of checklist what they need to do to be able to exit properly?

Yeah, I think there is. And I've got a personal framework that our team uses. And I'll outline that. But then, you can make that just even a little more generic because a lot of it's just awareness about key things and being intentional about it because you can't control the future. But you can certainly handicap it to give yourself options along the way. I mean, the key thing along your journey to exit is to have options along the way. You always want to be able to have options and not forced into a corner or forced into doing something you don't want to do because disruptions are inevitable to a business owner, right? And over a 10-year period, and just look on your own journey, right? And anybody listening to this podcast, think of the last 10 years, and I'm not talking just COVID, although that's obviously a disruption. But just think about how your business has been affected by things beyond your control, good or bad, right?

Mm-hmm.

So, but the process I use is centered around something I call the 3 Rs, which is basically a capital allocation model designed to help you grow your business, but at the same time, build your own financial liquidity for options. And by financial liquidity, I'm talking about diversified wealth away from the business, not just that rainy day fund. It's actually got to be a strategic asset. But if you're a business owner, you know this, right? Let's say, and this happened to me, 5 years ago, one of our co-founders left in a hostile way and took about 15% of the business with him, passed straight to our bottom line. And that changed the economics of our firm for a certain period and certainly the way I was funding my own family's obligations. Fortunately for me, I had liquidity, but I used debt as well and other capital means to help fund gaps in our own lifestyle. So, all I'm saying there is it's important to build diversified wealth away from the business that you can turn to cash to provide options during tough periods. So, I call it the 3 Rs framework, and it's based on this principle. For every dollar that your business generates, you have 3 options for that dollar. You can reinvest in the business, you can reward yourself, Or you can repurpose that money to diversified strategic wealth. And again, what that means— so reinvest in the business means you're investing to grow the business, maintain the business. You're using that capital. When you're rewarding yourself, it's a distribution. It could be a W-2 salary, but it's allowing you to fund your current living. And then, of course, the repurpose is creating that diversified wealth away from the business. And as your business hits key milestones, You can dynamically allocate those across those 3 so that by the time you're exiting, you know the value you're creating that will complete the picture that your diversified wealth is a key element of. You bring those 2 together and you've created your financial independence when you sell your business if that's your goal. If you're looking at that exit and sale to the next step, then it's just part of that journey. I'll pause there. I call it the 3 Rs.

I love that. For me, that was the goosebump moment, by the way. So, anybody tuning in, that to me was the value of this episode right then and there. So, before I go any further, Cannon, can you let people know how they can get in contact with you if they want to explore working with you a little bit if this becomes that magical tipping point?

Sure, yeah. And it's this formula. Again, you can implement it yourself. But it helps To at least have what I'll call an accountability expert help you drive your KPIs in your business, as well as creating that diversified wealth alongside the business. So, so key to help understand that. So if you want to learn more, a little bit more about me, you can find me on LinkedIn, Cannon Carr on LinkedIn. You can send me an email at ccarr@epwealth.com. You can also go to the EP Wealth website, and you know our team has. its page there. And you can find some of the resources we have for business owners there as well.

I love that. And all the links will be in the show notes. So, you don't have to panic because all you have to do is just scroll up to the show notes. It's all there. It's really interesting because these 3 Rs, is there an optimum when somebody's first getting started with it? Is there like an optimum kind of percentage of what they should be looking at for each of those dollars that they should be Because it's going to be highly strategic how you manage this.

Highly strategic, highly dynamic. So, no, there's no obvious formula. Broadly, in the early stage of a business, an owner tends to reinvest more heavily. And they should. They're getting the business to a point where they're building that sustainable business intentionally. And some owners underpay themselves. And so, they'll keep reinvesting at the expense of— many owners do this. I've even done it.

I have.

And they reward themselves less. You've done it, right? And there's a strategic reason for it. The problem is, at some point, if disruption happens, you can't pull money out of the firm, out of the business. You haven't created liquidity to help with options and you're underpaying yourself and you're even more squeezed now. And we've all been there in short periods. It really hurts though when your business really takes a hit and can't get over it. But in the early stages, reinvestment tends to be stronger. And incidentally, if you are thinking about what does a buyer want, they don't want to be buying you underpaying yourself because they're going to be like, well, ultimately, I'm replacing you and I'm going to have to pay the market rate. So, don't be surprised when your multiple comes down because you're underpaying yourself. They're going to be saying, no, I want you to pay yourself a market rate. So, I remind business owners that once you've reinvested and you've got your business up and it's kind of a good level, Elevate your reward part, your salary part. Make it market-based because that's going to be required at some point anyway. You might as well get your P&L used to it. And then, as you really— once you get up on your skis that way, now you can say that— go to that question of, all right, so what's my North Star? How close am I to that? And if you're getting close or let's say you're even above it and things are cyclical. So, if you're above it and maybe you might come down below it at some point in the future. Take advantage of being above it and start really building intentionally that third R, that repurposed wealth away from the business. And there's a variety of ways to do that. I mean, there's qualified retirement accounts, there's after-tax accounts you can do, you can do Roth IRAs. I mean, there's— but even just a taxable account. And again, these are strategic assets. They're not emergency rainy day funds. And when you build these accounts, I tell owners to make a mental bucket and assign the money to that bucket, strategic asset. So, you're not tempted to use it as a checking account because it's there to grow long-term. It is also there though if you do need liquidity. You can use it and help get over a certain downturn in the business.

And in Canada, we have the tax-free savings account, which is perfect for this. It's perfect for long-term savings. But it still has in the case of COVID-19, where all of a sudden you realize that you are in a really challenging state. It helps build resiliency because you know you can always pull out of it if you need to.

That's right. And that means options for the business owner, right? I really think this is an underappreciated thing. And well, I know it is because people say, wow, I didn't realize it. And you're right. So many entrepreneurs think I've just got to keep reinvesting in the business, reinvesting in the business. And they ignore building And they'll say, oh, and I got my emergency fund for 6 months. No, that's not what I'm talking about. It's really that diversified wealth away from the business because when disruption happens and you get squeezed, you're going to probably have to sell at the wrong time and it all doesn't come to fruition like you planned.

Right.

So, whereas if you have some liquidity and it gets you through those tough periods, you get back on track. You start building your North Star and hitting your targets. And it's you sell when you want, how you want, to who you want.

Now that hindsight is 20/20 and we look back to COVID-19 as being kind of a once-in-a-generational challenge that might not be once in a generation. We never know. But how does one prepare then? Overall, how would you suggest that people start looking at their business to be able to become more resilient so that we have less businesses closing because of circumstances beyond their control? Yeah.

Well, here, each— I never pretend to tell an entrepreneur how to literally run their business. They know it better than I do. But I think we can step back and say, what degrees of freedom does your business have? How much cushion does your business have? Because when disruptions happen, Whether it's a market event, maybe a competitor enters your market, whereas before they weren't there, or maybe you have an employee or a customer that leaves that's big. You want to be mitigating those risks actively along the way. And what I do for clients is let's make a list of those 8 or 15 things that could go wrong. And this is always a great exercise and it doesn't take long.

Yeah.

Let's put it on a scale of 1 to 5, 5 being very painful, 1 being not too painful. How painful would it be? And then how likely would it be? 5, very likely, 1, not likely. Score each one, multiply those 2 numbers together, and now you have your priority of what the real risks are that matter that could really affect your business. So, with that in mind, because again, you can't control the future, but you sure can be aware of the risks. And do those things today. You're not attacking every risk. If you got 15 on the page, you'll go nuts, right? But what are those top 3 or 4 for now that matter? Address those. A year from now, do this again. It'll be a new set of risks bubble up to the table, but it's at the top. But it's a constant refresh, not of paranoia, but of just practical anticipating what could go wrong.

I love that. You know, we have so many businesses that have been affected because of COVID because of wildfires. And especially here in Alberta, we had one of our national parks was heavily affected. And to some points, some of the businesses will never get business back. They will never be able to take what they have in spite of insurance and everything else. They'll never be able to re-establish kind of what they had because the road they were on is gone.

Well, I've got a friend, for example, who owns hair salons. And And she, during COVID people stopped going to hair salon. No surprise, right? And she franchises. She's got several franchises as an operator, and the business still hasn't recovered. You know, it's still, you know, roughly 50% below what it was, and it doesn't seem to be coming back. So yeah, sometimes a permanent impairment happens. On one of my podcast episodes, you know, I do talk to an owner who. who had a health equipment business serving nursing populations. And this was back in— I think it was COVID too, where nurses became so in demand they had to go somewhere else. And just get into more details if you want, but they weren't available to them anymore. And it permanently changed their model long enough to where they couldn't come out the other end. Sometimes the industry forces change enough to where You can't rebuild your business and it's just unfortunate.

And sometimes, it means maybe you just have to rethink it altogether, right? Rethink and reinvent altogether. And that's some of what some of the people did through those different crises. When we come back, I'd like to talk about—

There are creative options. I will say, interview customers, interview vendors, talk to some creative strategists. I've even had people on my podcast where they have reinvented the business and actually come out better on the other end. But it wasn't with a lot of fear and a lot of hard work. But yes, it worked.

Yeah, and to that point, I mean, we had restaurants who became bakeries. They started selling groceries right now instead of the dining room. They put up shelvings and they became a grocery store. But then, that itself created new openings for them because all of a sudden now, Not only do they have a restaurant today, they have a bake shop as well that they are supporting, that they're selling their bakery to other restaurants and other properties as well as domestic use. And so, like all these other opportunities popped up because of the crisis.

Well, and just in the creative spirit, I don't want to burn too much time on this. But I have a good friend who runs a large national retail chain. But when she was turning around the business, when she bought it basically out of bankruptcy, Cash was so tight that they actually were like, she was worried, I think, like a month or two from now, how am I going to get around this? And she went to this old inventory that wasn't used anymore and she came up with an amazing solution. And this is, her name's Stephanie Stuckey, but she doing, running the Stuckey's brand and you can hear it on my podcast. But she created, she took old inventory, put it into a grab bag type box and said to people, you know, pay a small amount Whatever's in the box, it'll be a surprise. And people loved it. And so, they raised cash just by taking this old dead inventory by turning it into a surprise. And they had enough attention, enough cash flow from it that it helped kind of continue to help the business in the short term.

Yeah. And it fulfilled something within a marketplace that was adventurous and curious and completely different than what anybody else was doing.

Curious and fun. And that helps. I know that's some themes you talk about a lot too on your own show. And it's just wonderful.

Yeah, yeah. So, I'd like to talk about some pitfalls and cautionaries. We've been talking a lot about getting prepared for this. But as people start jumping into it, I do know that there can be some disillusionment and even some myths around everything that they're doing. So, I'd like to cover some of that and we'll get to that right after this.

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We are having a phenomenal discussion. I hope you're getting tons of value from it. As you can tell, Ken and I are super focused on serving you and your team. So, if you're planning a leadership retreat or a conference, or you'd like to explore how we could be of benefit to you and your team, drop us a line. Our contact details are in the show notes. Cannon, we've really dug deep here I think in what we've been talking about today and even branched off a little bit on this idea of business resiliency. What do you believe is the most critical factor for achieving financial freedom from one's business? The number one critical factor.

I think the number one critical factor is having options. to be able to navigate disruption. If you are that Hollywood entrepreneur who has a great idea, and there are celebrity movies about this, who could hole up in their parents' basement, they had no obligations outside of their business, and they just worked 24 hours a day, 7 days a week, and had a celebrity IPO, and now have funded a college. For most entrepreneurs, it does not work that way at all. Life gets in the way of your of your business, right? And obligations happen, unexpected things happen. You have to have options to be able to navigate to success. And you will get there, but it means pivoting. It means adjusting. It means adapting. A key component in the seat I'm in, which is in the wealth advising world, is having that financial liquidity that is strategically placed alongside the business. It doesn't mean you have to have tons of wealth, but I'm talking about enough that it's going to be able to allow you to plug a hole in the business for a little bit personally if you have to until you get third-party capital to be able to fund. If you're sending your kids to college and they've chosen expensive schools, how do you fund it? If you've used your 529 plan and that's over and your salary got cut from your business, do you have to drop out of school?

Right.

That happens. But if you have some strategic financial liquidity alongside, you can maintain at least a basic lifestyle without having to really do drastic things. So, options and what I call in my seat, that strategic financial assets that are liquid to run alongside your, what I call illiquid wealth tied up in your business.

So, that becomes the desired state that we're all looking for. We're looking for having kind of building up this both of these so that you have the ability to fall back and be resilient. But you also have kind of building a future that you know full well that when you step out, you'll be okay.

Right. And here's the beauty of it, going back to exit. If you have options, some of which comes from liquidity, some maybe comes from some creative solutions elsewhere. But if you have the liquidity, it can help give you a premium on the value you get at exit. Because you sell when you want, how you want as opposed to accidentally or in a rush or on terms you don't like.

Or because you have to. Yeah, yeah.

If you have to, you're not going to get the best dollar.

Yeah. So, the cautionaries and pitfalls. People stepping into it realizing they don't have an exit plan. They haven't been really good at this planning component to it. What are some of the things they should be cautious about as they start this journey? of evolving to the point where they can walk out of their business?

Well, they want to be cautious about thinking they have to make all the decisions themselves as an operator. And I hope I'm answering your question here. I mean, so just some things I often look for. Don't make all the— feel like you have to make all the decisions as an operator. I think some entrepreneurs tend to do that, right? And if you're going to grow your business, you have to be able to release. I think, you know, you asked me earlier, what are some signs that you're not ready for exit? One of them is you've got skill gaps and you're not addressing them, right? And you keep trying to cover them yourself. With growth, you need to build out a team. And the bigger your growth, the more team you have to build out. And there's a wonderful book called Who Not How by Dan Sullivan.

Yes, so good. Get that book.

Yeah, it's a great book. It's such a great reminder. I hand it out to entrepreneurs all the time. Find the who that's going to do your business and help you get to greater heights. Guess what? It's not you, right? And stop thinking how because how means I got to figure out how to do this. No, find who's going to do it and it is powerful. So, skills trap, avoid that. And I'll stop and see anything come to mind on that for you or where you want to go.

Well, one of the things that I've told people many times, told entrepreneurs many times, especially when they're the hands-on leaders in there, is you hire your boss. Hire a business manager to come in because what got you starting your business doesn't make you the great person to be able to figure out how to build the business. Because if you're a welder that you love doing the welding and you build a welding shop and you are the foreman, by hiring somebody to actually run your business will give you new insights and new opportunities. It doesn't mean that you don't own the business. It just means that you have hired a boss who has the capacity to help you build that business. Is that fair?

Oh, totally. Some of the best owners who own the majority stake in the business realize that, yep, all right, my business now is worth $10 million in revenue. And I see all tracks to go to $20 million in revenue. And they hire. And you may have to give equity to them too. Not always. But you pay them a lot. But they hire somebody they report to now. Right? Because it's an operator who brings scale expertise that goes beyond what that entrepreneur could do, right? They brought the spirit. They may still provide all the vision. But they pull themselves out of operations. And that's the right call for many entrepreneurs.

What are your thoughts? And this is, again, this has nothing really to do with exit. It does have something to do with evolution. But what about this idea of looking out and building a board of directors?

I tell you, I've got 2 episodes of the podcast dedicated to that guy named Joel Koblenz. He's just a good friend who excels in this area. It's very interesting. A board of directors is such a vital role as you get bigger and need to incorporate intelligence and awareness about the market, about your business, and about you into the business. For smaller firms, sometimes it's hard to have a full board of directors who you pay and have a regular meeting cadence. But you want to build at least a peer group or maybe even a board of advisors in the early stage who are not your business attorney, who are not your CPA. I mean, you go to those guys for specific advice, as you should.

Yeah.

I wouldn't build a board around or a board of advisors or a peer group of those guys. I would bring in peers from other industries who can help you see around corners as you operate your business and help you make better decisions as an operator, but who are also empowered to point out where your weaknesses are showing and where you're getting in the way of achieving optimal success. So I agree with you. I think whether it's an informal peer group, whether it's a an advisory board, or whether you've gotten big enough to actually put a board of directors in place. Those are vital inputs to growing a successful business.

And to your point, there are organizations that do this. Vistage in the U.S. is very big on doing this CEO group where they bring non-competing businesses and business owners together to be able to shake their own trees to see what falls out. In Canada, it's called Tech Canada. Brilliant ways to be able to do that. And at the very least, be part of your local Chamber of Commerce where you can create some relationships with people in your community. You never know who's going to be there.

That's right. No, getting a good sounding board is just so important. And don't be afraid to build and pay for good advisors, right? I mean, that becomes a privilege when you are getting good advice as opposed to random advice.

Right, right. And again, part of what we want to do— random advice is really great when it's like, oh shoot! We had a flood last week. Does anybody know a good flood mitigation specialist? A strategic advisor is going to be there to help you create the strategic outcomes that we're looking for, right?

That's right.

And if you can't afford to be able to do that, then you're not ready to exit your building. Your business anyway.

So yeah, you still 100% agree.

Yeah, this has been such a good discussion, Cannon. Do you have any last thoughts about what we've been talking about today? I know we've just been going, woohoo!

Well, we've been— we have been all over. I think we've covered the main points. I mean, again, don't assume an exit is going to create financial freedom for you, right? Do those things deliberately ahead of time even if it feels early or strange because they're so important to be thinking through so that you build options to navigate disruption and unexpected events. You want your small business owner clients to succeed. I want my clients and all business owners. I mean, business success creates strong communities, right? And doesn't create just personal wealth for that business owner personally, but it benefits communities. It provides jobs. I mean, we want success like that. And so, anything that helps people intentionally create that value on terms that they can succeed on is something that really excites me. So, I'll just let that be my closing thought and certainly am here to help people think through that in my own part.

Lovely. Could you remind everybody one more time how to get a hold of you?

Yes. So, you can find me on LinkedIn and you can always message me on LinkedIn and you can just email me at ccarr@epwealth.com. And, uh, and just let, just let me know that you heard from, uh, us on the Marc Haine episode, and, uh, and we'll take it from there.

Lovely. Cannon, thank you so much for being on the show today. It has been absolutely brilliant.

Marc, I've had a, I've had a blast. Uh, you know, you, you just create such a great environment to talk about things that are positive and helpful for people. So thanks for letting me come to your show.

Thank you for being a part of it. I have immense gratitude for experts like yourself. Excellent!

Thank you.

Why don't you let me know if this was of value to you? As always, my offer stands. If you would like 30 minutes of my time to brainstorm your business with you and your team, feel free to book yourself on my online calendar. The link is down below, as is the link for Cannon Carr. His link is down there. Make sure you reach out if you need to pick his brain. Really tap into the expertise that he brings to the forefront. I know that we are here to serve you. And so, it would be our pleasure to make that happen. And while you're at it, why don't you go ahead and leave a comment or review about this episode? I'd love to get your feedback. Was this of value to you? Did you pick up any nuggets that would help you in your business? Please let me know. And while you're at it, please go ahead and subscribe to this podcast. Follow me on LinkedIn. It's a great way to stay connected. It has been so great being here with you today. Thank you for joining me. My name is Marc Haine. I hope you stay safe, stay healthy, and I hope you dare to be the exception.