Exiting Your Business AMA | Creating an Exitable Business (Part 4)

How much more successful would you be if you had lunch once a week with insanely successful entrepreneurs who share their biggest secrets on how they think and achieve success? Grab your seat at the table because this is business lunch with Roland Frazier and Ryan Dice.

Okay, so let me look at a couple of your guys questions. Let's see. Okay, Jay, so I have a training website and then my digital marketing agency and then I do coaching and consulting. So these be three separate entities. Absolutely. They should be three separate entities. They do. Like your training website is your media j and then your digital marketing agency is a service company and then your coaching and consulting is a separate service company not related to the digital marketing agency. So I would have for sure your media, which is your website and the list and everything that's related to that separate from your digital marketing agency, separate from your coaching and consulting business, which gives you the ability to have three cap tables plus liability protection among those different things. And in the event that you ultimately sold one, if you're filling all of those from the media of the website, you still will have the media of the website even if you sold the digital marketing agency or the coaching and consulting company. Okay, let's see. Alem, I'm curious about the holding company structure. I have two legal entities. One has my ip, the other has my training and consulting. Yeah. So who owns those would be the question there. Lm so for us, as you can see in the structure diagram here, you would actually ideally to me have a holding company that was in between those things. So that holding company would be the owner as opposed to you individually, again, not giving legal or tax advice or financial advice. So definitely talk to your, your people about those things. Let's see what would fall under media properties under the share co. So any of the websites that we had, we, we consider those to be media companies. And so there to us we're considering those shared resources. Boris, how can you make a company attractive to a buyer if they don't get the team, if the team is in another company? Well, you can always have the team go with Boris, but most of the time the buyers have their own team. Like with Traffic Conversion Summit, when Clarion and Blackstone bought Traffic and Conversion Summit, they already own hundreds of other events. And so they've got team leads that like they've got their event manager person which would be the person that does now what Deanna did for us before. And the cool thing is we still run about 60, 70 events a year. So we didn't really want to lose Deanna Because Traffic Insert and Conversion Summit was only one event that she ran. Right? And they already had somebody that did that. They already have a group manager, they already have an ad manager, they already have a sales team, they already have a media team. Like, they already own several other events that are very similar to the one that they acquired from us. So that they would have most likely. And all of those people are in the uk, by the way, so they would most likely have just let everybody go. So what we were able to do because of having this fractalization of the business, we were able to keep 100% of our team and not let anybody go. Now, if they wanted those people, then they would be able to have conversations with those people. And we would say, absolutely, if you guys want to go as part of the deal. And they might even say, a condition of the deal is we have to be able to sign employment contracts with these key people, then that would be part of the negotiation. But the problem to me is that it's really hard to take things out of a deal and it's really easy to add things into the deal. So if the deal starts with the minimum viable structure, the mvs, right, then what you can do is you can always add more to it, but it's really hard to take away. So, like, if Digital Marketer was an integral part of Traffic and Conversion Summit, and all of our people were there, and all of them were employed by Traffic Conversion Summit, and that was the thing that they came and said, hey, we're interested in buying that. And we said, well, okay. Is it okay if we pull out all the people and do you mind if we take out the media and do you mind if we take out this intellectual property? They'd be like, yeah, we mind. This is what we're buying. We're buying this thing, so you can't take stuff out of it. Right. At best, it would have been a long, protracted negotiation and would have definitely suppressed the purchase price. But the way that we had it, with the minimal viable structure, we were able to say, if you need anything else, let's talk about it. And we did. And we are currently still talking about the possibility of them buying other bits. Right? So that's going to give you the maximum flexibility and put you in the optimal position when you're negotiating. All right, So I spent a lot of time on this because what I want you to do is you've got your holding company that is going to be the primary entity that has everything that you've got in it, okay? Then I would love for you to consider that your intangibles, including your intellectual property at least go into one company. And then that's a holding company that licenses to your main operating company, that's the main business mp. And then the hard assets and services go into a separate company. That would be kind of an easy beginning to the goose and egg structure. And every business is different. So feel free not to use this if you don't want to, but I think it's a good guide for you to just get an idea of how this thing works. Then you have those separate cap tables that you can create on the right side and then in the middle where it says ops, that's just separating for liability or geography or joint ventures or strategic partnership. Okay, so that's what that's about. And your homework is to take the time to go through and create your own goose and egg structure for your business so that you can create maximum liability protection and maximum exitability protection, as well as give you the maximum flexibility for incentivizing the people who actually have the impact on each different segment of the business. Okay, so that's a five minute exercise that I want you guys to do at home where you will optimize your structure. So let's see, Rob, you said, not sure that Digital Marketer would work without Ryan. Kind of like a Top Gear without Jeremy. I will tell you, Rob, that Ryan is not working in Digital Marketer really at all anymore. And so we have created a company that has actually taken him completely out of that in terms of his importance to the company. So he's able to exit that company. And as we have conversations with people that are interested in acquiring it, his staying is not a critical part of that. So that was one of the really important things that we did when we came in. Okay, so yes, Greg, you would need separate books and accounting for each entity. That is correct. Now, if they're all under common ownership, depending on the jurisdiction you're in, they might file a consolidated tax return so that they can all basically offset the profits and losses from each of them. Check with your accountant to be sure. But typically if 80% or more is owned by the same structure in the United States anyway, that all gets consolidated. So let's see. Greg, is it okay to hold IP as a solo person? So ideally I would follow the structure that we use, talk to your attorney. But from an estate planning standpoint and a tax standpoint, it almost never makes sense for you to own anything as solo person. Okay, Would you recommend having a Lot of personal umbrella insurance to cover personally over the business. Yeah, I think it's a good idea, Kimberly, for sure. And gcl, which is general comprehensive liability, is another really good one as well.

Roland, can I have a quick question?

Yes, sir.

Okay, going back and in continuation of the last week, remember, I am a baby boomer. I am assuming most of what you have described today is for people still transitioning, you know, from one layer to next. And in my case, I am at the last layer of merger and acquisition and exiting, not the key, you know, holding. So I have a feeling what you have described today, maybe half of it, or 60%, is a kind of transition from the, you know, going from one layer to another. I am at the last layer almost. So can you clarify to me if I've been watching exactly every detail you talk, But I have a feeling it has an over, you know, overlay on transitioning, which can you.

So, yeah, I understand the question. No, the truth of it is that this is super applicable to everyone at every step, unless they've already done it. And the reason is it will cost you so much in terms of taxes and loss of momentum if you don't do these things. For example, the, like, the last five people that I've consulted exiting their companies, where I've kind of helped them go through the negotiation process with the other side and consummate a sale. We restructured every single one of those companies before they sold. And it was really critical. It was tens of millions of dollars in cumulative savings from that, just in terms of taxes. Plus, in two of those cases, we were able to hang on to a lot of companies that they could then sell separately that would have otherwise just gone to the buyer. So even at the very end of your journey, if you don't plan to do anything else ever, being able to have multiple sales instead of one can be a huge difference. There's no point in giving away something that somebody doesn't value. It really is frustrating to watch people give that stuff away and then watch the other companies shut those parts of the business down and fire the people that were in them.

Great, great. Okay. So it's a matter of reallocation through different. A legal structure.

Absolutely. Yeah. This was all about structure for that exact reason.

Yes.

Great.

Okay. Thank you so much, Roland.

Thank you. You're welcome. Awesome. Okay, everybody. Well, looking forward to seeing you then. Do the homework, run through that capability assessment and create your own structure. And then when we log on next week, we'll start by any questions that you've Got by kind of thinking about how you want to structure that. And we will have Deanna schedule something with Jim so we can talk about all the insurances and other stuff like that that you should have at the end of the program. Thanks everybody.

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