In this strategic episode, Brandon Woodward, Managing Partner of Woodward, Kelley, Fulton & Kaplan, shares legal insights for building wealth management teams. If you struggle with exit planning or asset protection, you won’t want to miss it.
You will discover:
– What external advisors align for seamless wealth transitions
– Why a knowledgeable attorney maximizes stage 6 exit value
– How to reduce personal spending to boost business profit
Episode Transcript
Scott Ritzheimer
Hello, hello and welcome. Welcome once again to the start, scale and succeed. Podcast, the only podcast that grows with you through all seven stages of your journey. As a founder, I’m your host, Scott Ritzheimer, and today we’ve got an incredible episode for all our stage six business owners out there, for years, you’ve honed your ability to build your leadership and executive teams inside your business, but now, as an owner, you need to be able to build your team outside of your business. This is your wealth management team, and one of your first picks should be a knowledgeable attorney. Now, what does that mean? Well, you want someone who understands not only the business world and how it works, I’m sorry, business law and how it works, but also business owners and how they think and here to help us navigate some of the biggest opportunities and threats that you’ll face at this stage is attorney Brandon Woodward. Now. Brandon has been an expert in business, an expert business attorney, for over 25 years. He’s closed hundreds of millions of dollars of business acquisitions and is the current president of the Martin County Bar Association. In his career, he’s earned the AV Preeminent peer rating, that’s the top 7% of attorneys nationwide. He’s also taught Business Law at the University level for many years, and he’s passionate about business and aiding others in the success of their businesses. Well, Brandon, welcome to the show. Excited to have you here. Absolutely. There’s so much that we can cover in the world of business law, but today, what I really want to zero in is this world of late stage business ownership. So we’ve got this very real challenge that comes up of having time and money, right? Is it something we fight for all our career, and then all of a sudden we have it and we don’t know what to do with it. It’s a real challenge that folks often get caught off guard by. And so what I see happen a lot in this space is folks, business owners, very successful, astute businessmen and women, make some really bad financial decisions. So with over two decades of experience in this space, how do you help your clients to think differently about their business and their wealth at this stage?
Brandon Woodward
That’s a great question. Scott, it’s when I get them in my office. It’s usually because they are either starting to think about an exit strategy, and usually the spark for that comes from a wealth advisor, a financial planner. Might be their accountant, somebody like that. Or, unfortunately, a lot of times it comes from their doctor. And you know, they’ve gone through, they’ve done very well, but all of a sudden, you know that little, that little tick, that little flutter, is now something bigger, and they realize they either need to slow down. They, you know, they don’t want to be at the office or at the plant, at the at the shop every day. A lot of pressures come from internal in the family. You know, the spouse doesn’t want the business owner, you know, to go into work every day. You’ve given 2010, 2030, years, you know of your blood, sweat and tears to this endeavor, you’ve achieved some success. You’ve gotten some creature comforts. At what point do we say? Okay, let’s start enjoying them. Let’s think about taking some, if not all, of our chips off the table. And we were chatting just a bit before, before air here. A lot of things are out there. There. It’s, I don’t know if anybody really wants to go into business, to be a shoe manufacturer their whole life. I certainly don’t want to be a lawyer my whole life, till the with my last breath. No, I want to go see the Amalfi Coast. I want to go, you know, take my kids. They’re grown now, but, you know, I’ve got to take some kids and take the family out and do some cruising and things like that. Really enjoy, you know, some of the successes you have. It’s a much, much bigger world out there than going into the office every day. So that’s when they come and talk to me, generally, at the at the suggestion of, you know, one of their other advisors.
Scott Ritzheimer
yeah, and there’s a hand. There’s, like, an infinite number of ways to get some of the chips off the table, but there’s a few I want to dive into, because I seem to bump into them a lot with folks who listen to this show and folks that I work with directly. And one is the inside deal, if you will. Right? There’s the heir apparent, maybe not related. We’ll get the family stuff here in a little bit. But that trusty right hand man or woman who’s been with you all those years, who wants to buy the company from you. Where does that go right? Where does that go wrong? How should a business owner think about the next generation of leadership in an environment like that?
Brandon Woodward
The One of the problems with the key man is the kind of phrase we use for that you’ve got a trusty right hand man woman, and that’s a key employee that knows the business inside and out. Is the problem is they don’t have enough money to do it. And well, okay, how do we get them to have enough money to buy out the company, to buy out the owner of the company? At the actual value, or even close to it, setting up for seller financing. That is okay, this person is going to buy you out over five years or 10 years out of the profits the company already has. Well, that doesn’t make a lot of sense, because why would you do that? I mean, the company’s making money. The money be yours anyway. You’re buying yourself out with your own money now. And by the way, if it doesn’t work and the key man and key employee does not run it as well as you did, there’s nothing for you to get back, right? There is no funds. The company will founder, and you’re kind of done, however talented that right hand person is the solution to the key man problem is some is start working with that person to find them a source of income, or find them a source of funding, not yours. And that is SBA lending, that is conventional lending, that is maybe in three to five years prior to a takeover. Start increasing benefits to that or bonuses to that person, saying, Okay, your bonus this year is 25,000 your bonus is $100,000 I’m not giving it to you. I’m keeping it, but I’m giving you 5% of equity of the company, a rolling, slow takeover. Again, that that’s not a great solution. That does take documentation, usually drawn up by an attorney, you know, and some real stick with this, stick with itness to get it done. The easiest and cleanest way is to make it a cash sale. And the thing that makes lending popular is the success in the balance sheet of the business. So you are helping that key employee borrow the money to pay you and buy you out by having a well run low debt, if any debt, sort of business. And I mean, that’s how we get we suggest we start doing things for a key employee that just doesn’t have a rich uncle to hand them. The value of your company.
Scott Ritzheimer
Yeah, yeah, it’s so true. There’s a another approach, if you will, which I see a lot, and that is succession within the family. One of the things that tends to complicate that, as you know better than I do, is other family members and how all of that works. So you have the daughter who’s very active, and you’ve got the three sons who are surfing or whatever they do, I don’t know, but how do you help? How do you help owners to navigate that space, especially when family members are involved.
Brandon Woodward
I think the the the the trick to that one is, is to have a slightly uncomfortable conversation. But even before you do that, go talk to a very, very good estate and trust attorney, an attorney that’s going to help you put your legacy. I don’t use that word very often, but your your final wish is, what is it all going to look like on the other side of the great beyond? Okay, daughter got the business. The three sons are going to be pretty well. We got nothing. Is there a way to true it up, one way or the other, such that, you know, the business you know, writes a loan. You know, writes some lending document to each of the sons, so they do not get any sort of management control, but they still share in the proceeds of the company up to a certain point, at which point the company now belongs to the daughter and but they have gotten equivalent value that is absolutely a joint endeavor between your wills trust and estate attorney and a business attorney, because the business attorney doesn’t write the will or the trust, and the state and trust attorney should not be writing any sort of succession plan documents. So it’s a joint endeavor, and we do it quite often.
Scott Ritzheimer
I’d be remiss at not bringing this up, because likely the most common approach, but selling outside of the business, sometimes there’s a pretty big emotional toll on that. There’s a feeling of safety in your key man taking over for you or a family member, carrying on the legacy, to use the word that you just shared. Sometimes it can be hard for founders to let it go to the wild unknown. How do you help them process through that type of a decision?
Brandon Woodward
If there’s a key man, and the key man is either unwilling or unable to take it over, you got to have a good conversation with that key man, saying that I have to you. Do have to look out for number one at this point, you didn’t adopt your employees. You they may feel like family, but at the end of the day, they’re not. The logo for my law firm is a shark. So anything I say that sounds just a little bit edgy or a little sharp, it comes from a very, very black and white numbers business sort of mindset, not being hard. But the bottom line is, if a key man can’t afford it or doesn’t want it, then it absolutely has to go to a you know, outside of the company, Business Brokers exist out there in the world for a reason. I like a few of them. I don’t like most of them because I don’t think they have I think they are salesy and sometimes slick. But if you can get. Get involved with or close to a business broker that has experience in your industry. There’s an entire company that all they do is buy and sell veterinary practices, from retiring vets to new veterinary new veterinarians right out of school, and they even have the financing to do it. It’s a phenomenal and so those exist in almost every industry, area, manufacturing, professional, podiatry, I don’t care. It’s out there and you work with a broker. A broker gets a piece. They get paid for this, but then the sale happens, and it’s usually cash, and that does make it go, takes your company and out of your hands, and then, you know, puts cash in your pocket. Yeah, with family, like I said, if the family doesn’t want to do this, let’s say there’s, there’s no daughter, it’s just all surfers in it. That’s like, Hey, I’m selling the company. I have a private equity that wants to take it over. The company is going to, they’re going to install some manager to keep my pest control company running they just care about the book of business. It’s Insurance Agency. Insurance agencies don’t actually need an owner at the top. They just need people running it. We’re all going to make X, you know, seven figures, hopefully multiple, seven figures, maybe eight, and we all get to retire together. Yeah. I mean, that’s a great story to tell the kids.
Scott Ritzheimer
Yeah, for sure, that’s awesome. There’s another thing that’s happening at this stage, and kind of going back to our intro a little bit, but one of the transformations I see folks make successfully here is going from being a business owner to an investor, right? And having an investor mindset in terms of either how they deploy capital after a sale, how they invest their time into other into family, or into other pursuits, and they there’s this mindset shift that has to happen from like my business to my enterprise, if you will. Have you seen that happen? And how do you see business owners, particularly approaching the space of mergers and acquisitions.
Brandon Woodward
A couple things, a lot of times in the physicians practice, if the physician is younger, a lot of times that physician will be given an executive position somewhere upstream in the company, either to find other businesses, or as a floating physician amongst, you know, all the, you know, a dozen practice areas. They don’t have to run it. They can call their own. They work the days they want on a per diem, so that keeps their hand in the practice or in the what they like to do. And a lot of guys, men and women find, you know, some satisfaction and joy in that if they are simply selling out, then it’s retirement like any other. And then, while I’m not the best advisor for that, that’s a financial planner. You know, it’s like, okay, did you always want to go see Spain? Can now go you know? Now what’s interesting is, is when I get husbands and wives, and I’m not being sexist at all, but husbands, particularly in manufacturing or or one of the service industries, air conditioning, pest control, you pick it. They want to go down to the shop. They want to smoke cigarettes in the shop, disperse the crew, the roofing crews are all going to go out and he’s going to kind of putter around and do some inventory. But it’s the, it’s the hard working wife or spouse. Again, I’m not being sexist one way or the other, but she’s been HR for all these years. She has been, you know, doing the books, arranging for a line of credit when you know the covid happened and we couldn’t afford anything, all these things happen out there. So that’s why you want to make sure that you know it’s time to go. And when it is time to go, you’re kind of ready for it. Nothing lasts forever. It’s just you want to be out of your business, you know, with, you know, with your health, your wealth, you know, and your mind all intact. And I do advise them, money now is way better than money later. Well, I’ll just run it for another couple years. Maybe the market gets better, or I’m just close to getting that next big government contract, and I’m like, what if it doesn’t happen? You can pursue two tracks. Every I tell folks be be for sale all the time. At some point somebody wants it more, wants to run it more than you do.
Scott Ritzheimer
Yeah, yeah. It’s so true. It’s so true. Well, Brandon, there’s this question that I have asked all my guests. I’m interested to see what you’d have to say, but in the context of everything we’ve talked about here today, what would you say is the biggest secret that you wish wasn’t a secret at all? What’s that one thing you wish everybody watching or listening today knew?
Brandon Woodward
The one thing I wish wasn’t a secret. We touched on it briefly, as you don’t have as much time as you think you do. And again, it sounds like I’m wearing the black hat. I’m certainly not death incarnate. But at the same time, like I said, You do not know what tomorrow is going to bring. Like I said, be for sale all the time. Be always looking for your way out. Out. A friend of mine always said, The ride’s always a little smoother when you know where the emergency exit is. And that’s true. The other thing is that you’re not alone in all of this. You have, and you mentioned that your executive team, you know, by this stage of your business, you should have a bookkeeper, and probably now a CPA, if your CPA is also functioning as your CFO to say, Okay, we’re going to buy some more x we’re going to get rid of some vehicles. We’re going to have some we’re going to have new equipment. We’re going to renew all of our government contracts on long term contracts. We’re going to own real estate versus rent real estate. We’re going to rent real estate. We’re going to do it on a long term lease. All of those position yourself for sale, and that’s what you know. If you’re just focused on just grinding every day and hustle and the struggle, I hope you pass that. But you’re not alone. You lean on that team you’ve developed. Add, you know, add a, essentially, maybe a business broker, that contract, CF fractional, CFO business lawyer, and then absolutely your financial planner. And those are the ones that are like, Okay, what is it going to look like four years from now, three years from now, two years from now, now, and start with the goal, five years from now. What does it look like okay, to be there. What do you have to do in two years? To be there in two years. What do you have to do now? And that really, if that exercise doesn’t crystallize what you should be doing at your desk every single day, I don’t know what does.
Scott Ritzheimer
Yeah, there’s probably some folks listening who are like, yes, absolutely still don’t know what that next step is, but you have a white paper that you’ve made available. What is it? And where can folks find it?
Brandon Woodward
Sure it’s at the end of my website, which is wkfklaw.com. Whiskey kilo, Foxtrot kilo, l, a, w.com, and we wrote it for the folks that are, you know, thinking about selling a closely held business, a family business, whether it’s a physician, single owned mom and dad, a couple of brothers, maybe it’s Mom, Dad and son, things like the you know what we’ve kind of talked about, it’s the team you want to have around you, and the steps you want to take in the two, if not three, years prior to even thinking about exiting. There are things you want us do to really position yourself financially, to get the highest number, get the largest market value for your company, and then address some of these other issues we’ve talked about. I tell you the number one thing is, is stop putting expenses through your business. And when you’re an S corp, everybody loves this right off the bat. You need to stop doing that three years out, because we want to blow up that profit line. I don’t care how you measure profit, EBITDA, anything, but how you want to make that very, very large and then take that and then, yes, you’ll be paying some taxes on it. But from the outsider, when I look at a set of financials, I see growing very large profitability. I will buy profit. I’m not going to buy the fact that you have two of your kids working as billers, or they’re they got no show jobs. The spouse, again, I’m going to pick on husbands. You know that the husband is slapping the American Express down at Costco, you know, for $500 every other week, the boat, the vehicles, the trips. Look, you’ve done that for a long time. It worked. That’s tax efficient. Now I need you to not do that for a couple of years. So that way, your profit goes from 100,000 or 500,000 to 700,000 to 900,000 because most industries, and if you talk to a broker or somebody like me, you’re gonna get a multiple of that. I would like a multiple of 700,000 versus a multiple of 300,000 every single day, that multiplier is 234, medical practices are getting eight, nine and 10. Yeah, 10 times that. That’s real money, and it’s a very hard thing for people to see that. Hey, I need to throttle back on living in the business. Hey, look, we do it here at my law firm. Each firm, each partner has our own little fund of things, but our law firm isn’t for sale. Yeah, same time your your listeners, businesses generally should be. Don’t do that. My white paper gets into that a little bit, but also talks about, have an attorney, have a book, have a CPA, a business broker, if, if you want to have that conversation, and all three of us will tell you exactly that same that same point.
Scott Ritzheimer
Yeah, fantastic, fantastic. Well, on that note. Brandon, thank you so much for being on the show. Really a privilege and honor having here just great advice and wisdom in each of your responses. I appreciate it. And those of you watching and listening, you know your time and attention mean the world to us, I hope you got as much out of this conversation as I know I did, and I cannot wait to see you next time. Take care.
Contact Brandon V. Woodward
Brandon V. Woodward, Esq., has been an expert business attorney for over 25 years. Brandon has closed hundreds of millions of dollars of business acquisitions and is the current President of the Martin County Bar Association. In his career, he has earned the “AV-Preeminent” peer rating (top 7% nationwide) and taught business law at the university level for many years. He is passionate about business and aiding others in the success of their business(es).
Want to learn more about Brandon Woodward’s work at Woodward, Kelley, Fulton & Kaplan? Check out his website and get a free copy of his Whitepaper at https://www.wkfklaw.com/