Legacy, Liquidity, and the Long Game: Building Value Before You Sell, Ep #24

Generally, there's things that you care about beyond the money, right? You care about your employees, you care about your customers, you care about the legacy that you've built. And that's one of those things that can help keep that legacy. Manufacturers, what is your biggest headache? Is it measuring improving profitability, gaining efficiencies with AI and automation, maybe tightening up your cybersecurity, maybe getting your business ready to sell? That CLA, their goal is to know you and help you with challenges like these and more. Every day, CLA helps manufacturers tap into millions in revenue and cost savings, like one manufacturer that boasted capacity and revenues by 15 to 20%. Visit CLAConnect.com to hear real success stories and learn how you can grow your top and bottom line. Welcome to Buy the Numbers. Each week, we'll explore the numbers that drive your business from accounting at finance to operations and the exciting realm of mergers and acquisitions. Whether you're a seasoned veteran or just starting out, our discussions will equip you with the insights and strategies you need to rate in the power of data to elevate your manufacturing company. Let's crotch some numbers. Okay, so we'll let's start with introducing all of you. So Mike, you want to go first? Absolutely. Well, thanks for having us, Mike. My name is Mike Paul. I am a director in our Wealth Advisory Practice. I started actually the day that CLA technically became CLA merged. Yeah, Larsen Allen and Clifton Gunderson came together January 1, 2012 and that was basically my first day as an intern with the firm. I spent the first five years of my career really focused on, you know, manufacturing and distribution companies doing the, you know, call it the traditional public accounting audit and tax type of work. And after five busy seasons wanted to, you know, explore something a little bit different work with business owners in a slightly different capacity as, you know, just more personal relationship building. And that led me to some conversations within our Wealth Advisory team, financial planning team. And after hearing about what they do on a day-to-day basis, you know, CLA has always been great about building inspired careers. And that was something that I felt called to and ultimately transitioned June of 2016. So it's now been nine years within the Wealth Advisory Group. That's awesome. Aaron. Yes. Aaron Michaels. I am a principal here at CLA and have the great honor of being part of our, our deal services team and leading a component of our owner transition services team here as well. I've been with the firm for about 15 years, a decade of which has been serving in this capacity. So really working with probably the health businesses and their owners. There's a lot of you guys really helping to navigate. I'm going to say the financial specific complexities of a deal. So that could cover, you know, financial due diligence, quality of earnings and related topics, just exploring, you know, what that transition kind of looks and feels like. So pleasure to be here and look forward to the conversation. And go ahead. And and thanks for having us here today, Mike Britain, I'm a principal at CLA in the transaction tax area. So kind of Aaron's counterpart Aaron always says, you know, that's the Iki stuff. I find this stuff to be the fun stuff, you know, the tax stuff really energizes me to kind of work with people to on the succession planning to minimize that tax impact. Make sure that they after cash is the maximum that they can get and really get seamlessly throughout the process through the planning 10 years out, five years out and the day before the transaction where some little things always take place. Been doing tax work, gosh, getting close to 35 years down. So maybe I don't have as much gray as I look, but that's a good thing. So again, thank you. But I speak here. Yeah. So I mean, I think three perfect people to talk about company succession. Right. So, you know, I talk a lot about, by the numbers, a lot of what we're trying to do. When we talk about this type of stuff is how to kind of maximize the value of your company for a future transaction whenever that might be. You could be really short term could be 15 years from now. And you know, I like, I try to follow a philosophy personally where I want to always run my company like I'm ready to sell it. That's not entirely practical. I will admit, but, but I do think about different decisions I make and how that's going, how that would affect the value of my company. Right. So for me, that's probably in my mind that's a 10 to 15 year window. So there's some short term things that I do think about what it'll do to the value, but it may not matter 10 to 15 years now. Right. So, so it's a little outside that planning stage for me personally. But I think, you know, Mike, we've got to meet Mike's up here. I'm going to start with you. So I kind of go through that process with myself. So even just back when I bought Hill and I started doing my strategic planning for where do I want to take the company? One of the first things I looked at and I think this relates straight to use. When I sell this to then retire, essentially, what do I want? Right. So I as the owner had to sit there and say, okay, I want this net. And I've got a business partner, right? So that's a different number. And from there, like, how do I decide that? Like, I mean, I know how I decided that number. Yeah. And in some ways, I picked one out of the air. The honestly, because it sounded good. But yeah, I mean, maybe maybe we just start there. Like, how do you know? Like, this is where I need to be to live my life. So now I can, from there, we can start talking about how do we build that enterprise value to reach that? Yeah. It's great common, like, and I think that is not a typical of a lot of business. Owners, you know, they, they might have a particular number in mind that they want to sell at or exit at. And when I, you know, initially start talking with clients and working through that financial planning process, it's trying to understand the why. What is it that is driving you towards that particular number? And as you start to kind of peel back some of the layers of why they want a particular number, you know, we might come back and say, you know, you don't, maybe you don't actually need to sell for that much to be able to accomplish all of the things that you actually want to accomplish out of life. You know, the, the whole title of this talks about legacy, right? What is your legacy going to be? What do you want it to be? And as you start to go through the process of, you know, say, okay, maybe we do want to sell for that number, but let's take a few steps back first and say, okay, if you do get that number, you know, you can run some of the numbers to say, all right, 4% safe withdrawal rates, you know, all of the fancy financial terminology that goes into that. But at the end of the day, what do you, how do you want to spend that money? Is it charitable? Are you charitable and client? Do you have a family you want to be able to support and provide for? You just want to go, you know, jet setting and see if I want a private jet. Yeah. Hey, absolute. And for some folks, that's what they're aspiring towards. I got a long way to go. But that's really where we want to start that conversation. It's just putting some of those goals on paper and making it a little bit more real as opposed to, I just want to sell for 10 million because that sounds nice. Right. Because it's a nice, even number. Right. And the reason I wanted to ask that question first is I think lots of times, you know, when we were trying to talk about show structure on this, we talked about, you know, what are you doing? You know, 10 years out, what are you doing? Five years out, two years out, no years out from a transition. And, you know, sometimes it's unexpected, right? Someone just pops up and says, Hey, I want to buy your company. And maybe it's a great offer and you work through that. But, but if you're really planning it out, I, to me, the first step is just really understanding like what do, what am I building and why am I building it? And like you said, do I want to, do I want to leave, you know, a fair amount of money to some local charities? Do I want to have, you know, generational wealth? Do I just want to be able to retire and go to the lake on the weekends or whatever? So, and all of those are going to change what you need to sell your company for, right? Mm-hmm. There's really only three things that you can do with money. You can spend it. You can leave it to either charity or family or you can give it to the government. Yes. And we're going to talk about how to minimize one of those. Yeah, I bet you all can guess which one, leaving it to the kids. I want to minimize leaving it to the kids. Yeah. Yeah, you and I are on the same boat. A funny story on that. And this will lead into a conversation we talked about later when I bought my primary, that first manufacturing company, Hill Manufacturing. I had known the owner for several years. Matter of fact, speaking, you know, I'd mentioned I was in private equity and investment banking before. I was helping her sell it when I bought it. Not in the billboard that says if I can't sell your house, I'll buy it. Type away. No. But it was funny. We were at close. And I like said, I had known her for several years. She was, you know, of course, it's something to celebrate, right? So we closed it like 10 in the morning and then she and I went to launch and we're sick. And at the time, we still had written or a check. So we had an even wider money. We'd written her a very large check. And she and I are at lunch and she pulls it out. She goes, what am I going to do with this now? So here's someone that had been in business for 40 years and didn't necessarily know what she was going to do with that. So I'm introduced to her to my wealth advisor. And a couple of weeks later, we go meet with them. And he runs the numbers, right? Like wealth about, you've got all your formulas and you're like, how much do you want this? And she sits there and she sees it all, which she was going to be totally fine. And she goes, well, I don't want to leave that much to the kids. [LAUGHTER] She says, that's too much. So she started to have to look at other options. That's how CLA-- it was Larsen Allen financial at that point. But that's kind of how Larsen Allen financial was born. Yes. You know, trusted advisor and business sale happens. And they looked at their CPA across the table and said, now what? Yeah. I'm glad we covered that first because again, I think it's a step that a lot of us skip. We don't think about that part that early in the process. And I think when you are talking, maybe in that 10-year window, that's really what you need to be planning on. It's not so much like, how do I build-- I mean, you want to always be building enterprise value, but at that first phase of like, OK, I'm reaching that point where I want to start thinking about this. I think you need to start thinking about it, like maybe my partners or my family, whatever, like what are we trying to build for us? So Aaron, from there, if we kind of go into that enterprise value, and Mike, too-- I'm going to call Mike one, Mike two. I'm Mike three. OK. It's not a knock. Talk a little bit about CLA. Has their OLS services where-- so now maybe we've kind of established our goals. So now how do I engage with you guys to start building that enterprise value and building towards a sale? Sure. Yeah, I think you guys hit it on the head, right? I think one of the first questions from just the personal financial planning side of the house is, what do you need? Just trying to fill that question first. I think maybe, fortunately or unfortunately, I think sometimes our clients are left with also the question of, what is my business worth? And is there a gap there? And I think oftentimes when we get involved, if we are brought in, I'm going to say early enough, we have the opportunity to consult to that gap question specifically, right? What do you think you need? And the importance of working through that personal financial planning process. And then secondarily, but probably equally, if not more important, right, what is the business worth? And if there is a gap there, do we have enough runway? Do we have enough time to solve for that? And that's where I think we spend quite a bit of time with our clients to just understand what are those growth drivers and lovers that we can pull to help to fill that gap. And again, that's not going to happen overnight, right? That's going to happen over an extended-- generally, a fairly extended period of time, right? That might be two years, that might be five years. And I think that could be very industry-specific consulting kind of a long way as well, just to make sure that you're thoroughly thinking through, OK, is that it's not only how do you drive top-line revenue, right? But how are you increasing margin profile? What is-- probably even goes back to the broader strategic planning of the business. And if there is sound foundation there, what can we tap into an even certain components of that strap plan that would help really crystallize kind of that picture? So I think just highlighting the importance of what you need from a personal financial planning standpoint. And what is the business worth kind of moves us into this business readiness topic that I think is equally as important to be addressed? I'm glad you brought that up. And it's one of the things that-- so all those years of investment banking I was doing, that was such a-- I can't even tell you how many times I sat down with someone that was maybe in that three to five-year out range that why I need to grow my business. OK, what does that mean? That can mean a whole lot of things. Do you need more people? Do you need more revenue? I mean, there's a lot of things, you need more customers. In today's world of everything as a service, you need more subscribers. But to really answer that question of how do I grow my enterprise value, you have to understand how your business is evaluated. So in my world, it's generally a multiple of EBITDA and/or sellers discretionary earnings. Kind of however you want to look at that. So I need to grow that. That doesn't mean I have to grow my top line revenue. I can reduce expenses and become more efficient and still grow the value of my company with my existing work. And maybe I don't need to make more capital expenditures to increase capacity. I just need to get more efficient at what I currently do. And that could have a huge multiplying effect on the value of my business. In other industries, again, if you were a software as a service where you're getting paid 12 times subscribers, you need to grow subscribers, right? So you're going to have to dump a bunch of money maybe into your marketing and grow that subscriber base so that you're getting paid that multiple. Now, Mike too. There's things now, again, if I'm still sitting out, I'm feeling like we're still kind of talking in that five to 10-year range maybe. There's also a lot of things I could start doing now thinking about a transaction as it relates to taxes, as it relates to even corporate entity structures and stuff like that, right? Absolutely. Now, I don't have an hour. Right. After this, yeah. You're going to have to hit the high points on that one. That's a big question, I know. Yeah. So absolutely, there is a lot of things you can do and we'll hit the high points as you said on that. But I think in terms of five to 10 years out, you've got to be thinking about how do I want to sell? What is the structure of the transaction? A lot of folks kind of go, all right, I need X amount. And I think it's going to all be capital gains tax. So I take that gross amount times the 20%, 23.8, whatever it is for the federal, less my state. Okay, that works. But then what happens is later on, they're thinking about this through the process and no one's told them that, wait a minute here, the buyer's not going to want to buy your stock. They're going to do a deemed asset sale or an asset sale, which will subject to you to rates up to 37% on the federal level. Plus, states have some ordinary and capital gain differences as somebody gets. Yeah, so like me as a buyer, I almost exclusively buy assets. Exactly. The buyer gets a step up and they get this amortizable tax yield, so they're going to want that. So I was thinking about that, looking at that from your structuring knowing what that net number is, when you're planning five to 10 years out, saying that, and then also thinking about it, okay, what does this mean if I'm going to sell that way? Is there some advantages? Is there something I can do now that, you know, looking at this, the investments I'm making, saying, okay, when I go to market, I'm going to go to market, saying, I'm going to sell my stock buyer. Now you're going to have to gross me up for the differences. Sure. Or are there certain benefits like the state tax deduction? Who knows where that's going to go? Don't rely on it. But, you know, from the entity level, that we can avail ourselves of that might turn out to be better. You know, you mentioned earlier, you know, the kind of the, what do you need? And what's that level and what your business is worth? And it reminded me of a story that, and kind of plays in the tax as well, that back in 2006, 2007, again, I'm aging myself, you know, we had a client that was going to market, and he was like, going, I need 40 million for my business. And he kept saying this, this is why I believe it's worth and the broker kept telling them, no, the IVs kept telling them, no, valuation folks were saying, no. And when we looked at it, we kept going, okay, well, here's your net. And we can get there. And it's 2006, 2007, the multiples are going up. And the comment I'm having on this is, you know, the multiples are going up, and you're almost there. You know, do you need that? And is this right about the time? And because you got to look at the cycle, because sometimes the multiples are up, they're down, depending on interest rates, it's going to be an economy, depending on tariffs. And making sure that, you know, if you're in that three to five window, if your multiples are up, it's like, you know, having that savings account the last second for your 529, that maybe you don't want it to roll the dice in very risky stocks. You want it in something the CDs, and the 529 as your kid goes to college. Same way here, thinking about that, you know, the long term with those multiples are high, listen about that because they may not say high. And just an additional note on this. So the individual, we asked him why he wanted this 40 million. Why he had to have it? Why did, you know, why your business is, maybe he's not there. - It's private jet. - He's telling it. - It all goes back to the private jet. - His brother sold his business for 40 million. And he had to do at least what his brother did. - That sounds just as logical of what I said. (laughing) - And unfortunately for this, if it was a 2008, happened, he held off because we almost counted to the 40 million. Yeah, no, I can do better than my brother. - There you go. - Little competition. - And it wasn't until a decade later where the multiples actually came back. (dramatic music) - Hey guys, it's Mike. Are you thinking about upgrading small equipment or expanding your business? You need to talk to my friends at Burnett, commercial capital. When we needed some new equipment, they made the financing process fast, smooth, and actually very enjoyable. What impressed me the most was how well they understood our industry. Burnett offers flexible terms, quick approval, and they were just great to work with. If you're interested in the future, You want a true partner of your corner, check out Verdant Commercial Capital. Go to verdantcc.com/numbers, v-e-r-d-a-n-t-c-c.com/numbers, or find them on LinkedIn. Couple things that you've reminded as you guys were talking. One thing, again, being involved in, I don't even know anymore how many either buy or sell side of a transaction of it's been. 150 plus, probably something like that. The of closed deals, much more of that that never closed. A lot of what all three of you just said can probably go right over your head and you go, "What in the hell am I getting myself into?" I think one thing for people to understand is too, and I've sat down with so many buyers and sellers that go, "Man, I'm really stupid." I thought I was good at business, but I don't understand this. But I would always tell people, "Yeah, you shouldn't." If you're really lucky, you do this once in your life. If you're really, really good, you do it two or three times. That's it. Reliant on the people that have done it hundreds of times to guide you through this process. It's not as scary to them. It's not as shocking. Lord knows how many different structures you guys have seen and sizes of deals. They're all big to you. Whether you're talking about a half-million dollar acquisition or a $500 million acquisition, it's big to you. In most cases, especially if you're the seller, because it's your life's work that you are monetizing. I'm sure all the business owners here and they're listening on the podcast, not only is that your life's work, but it's like your baby. It's who you are. It's what you've done. You want to do good by it and you want to accomplish these personal goals. You also want to maximize your value as you should. One thing there, because again, you guys covered a lot of really great technical topics there. You could start to sit there and go, "Oh my gosh, I don't understand this at all." Really, you shouldn't. You should be listening to things like this. You should be talking with your advisors, talking with these advisors about how to manage that process well. We've talked a lot about that. Again, I feel like we're just getting to that five-year range. We start talking about getting maybe in a two, three, five-year range somewhere in there. One of the reasons I always pinpoint a three-year range because I've never been on the buyer sell side of a deal that didn't involve three-years historical financials. Those are the last three years is probably your most critical in maximizing your value. That's when your numbers need to look the best. Economy can change. There are a lot of things that can change that. Aaron and I were talking earlier. If 2020 is in your three-year historical, you were thrown for a loop. Most companies were on one end of the scale or the other in 2020. They either blew it out of the water and did amazing or they were like me and they were down 60 percent. I didn't want that in my three-year history if I was in a sell position at that standpoint. I loved it if I was in a buy position because it knocked down my three-year averages. Let's talk about. We know what we think we need out of our company. We've thought about what we're going to do with it, all those types of things. We've maybe positioned ourselves from a tax standpoint to capture the maximum we can. Now I'm sitting in that three to four-year window. Let's say it's 2025 right now. I want to sell and I want to be able to give 26, 27, 28 financials. I'm going to sell in 29. What am I looking at? I'm going to start with you, Aaron. We're now in your special. What I would say is invest in your finance house. Invest in the accounting and the finance team within your organization. What I mean by that is it's not necessarily the need to go out and get an audited set of financial statements. I don't think that's going to be the best bang for your buck as you're embarking and maybe with the next three years it's going to look like. I think where there's absolutely value to be had is refining a monthly close process. Crisp accounting, books and records. Consistency in accounting policies and procedures. That's a really, really key one that I cannot emphasize enough. I think that's probably where surprises come most frequently. There were operating on the financial side of the house either from a sell side or a buy side is we've had changes in accounting policies over the last maybe three to five years that are skewing the earnings of the business and ultimately provide a different valuation answer. Yes, gap is something that folks maybe will ask the question, do you have gap based financial statements, do you have an audit, do you have a third party review and for some folks they do, some folks they don't. If you don't have any outside lenders and there hasn't been a historical need to have that level of compliance, I think there's ways to get crisp and clear from an accounting bookkeeping standpoint that doesn't require you to invest 30 or 50 grand in an audit of the financial statements. I think that's a really, really important piece because again, I think what we oftentimes see is it may be inconsistencies in accounting. And maybe, you know, timeliness of financial statements are not there, right? You might get a monthly set of books like 90 days later and is that really impactful, you know, to you as a business owner to be making some timely decisions. Maybe, maybe not, right? But I would say from a buyer perspective, they're going to want books as fast as they possibly can once a month that is closed. So when I think about the financial house and just getting things in order, that's what I would focus on with a highlight of consistency and application is critically important. Yeah. So Aaron, you and I were talking earlier and to kind of put that in a real world perspective. So the size of deals I do, I don't generally see audited financials. And I think if you're of a certain size, and if we had a banker in the room, we could ask him, but, you know, I mean, that is a requirement, right? If you're, you're starting to get up there into tens of millions of dollars, you're going to have to have audited financial statements. And your bank probably already requires it if you're of that size. You've got reviewed, you got, but you know, to talk about that, the gap. So I was telling Aaron earlier, you know, I looked at a deal sometime in the last month on the West Coast. It was a machine shop out on the West Coast. Owners decided this year he's ready to retire and went by the end of the year. So we're not in that five to ten year window. We're in the five, we're in the four to six month window. And it was actually one of my listeners of the podcast that was looking at buying it and said, Hey, would you mind looking at this with me and just said, Sure, send me the financials. And they were, you know, they were a printout from QuickBooks, scanned back in with hand-written. Yeah, but this isn't on the balance sheet. And this, this amount of revenue was, I didn't cash. And, you know, like, I mean, okay, confidence in financials went out the window, right? There, there are none in that situation. And I just, I told my listener that was looking at it. I said, Look, I, you know, it's worth asset value. I mean, what is the equipment worth? And that's probably all it's worth. Like you can't, you can't pay for like a multiple of EBITDA on a business that doesn't even have financials. There's, there's no faith in those numbers. Then the other of the scale is, yeah, pure, you know, audited financials from a firm like CLA that's going to have trust of every bank in the country. I mean, like, those are the two obsidines of the scale. Generally, you're going to find something in the middle. You know, I would certainly highly recommend looking at even just reviewed financials, like annual financials. So that like I, when I return from this trip, I'm actually closing on buying another shop. And their financials are in really good shape. When I asked for three years, I was thoroughly impressed with what was delivered to me. And as I was telling Aaron earlier, you know, so I start, I mean, I think most buyers are probably in the same boat, whatever industry you're in, you know, there's norms of valuation models, right? So I think, you know, manufacturing right now, sitting at somewhere around like a four to four point two multiple. So that's going to be like my baseline. I'm going to be sitting there somewhere in that neighborhood. And it's going to go up or down from there based on what I look, what I get from the seller. If I get terrible financials, we might drop all the way down to two. If I get great financials, it might go up. And then there's lots of other things, you know, the equipment, the state of the equipment, the company and the automate, you know, all sorts of things. But any buyer that you'll ever be talking to has that same, they have their model. It's not the same model, but everybody has their model. And financials are, it's the baseline of it all, right? So like you want that to be as absolutely solid as possible. 100%. Like you need to focus on that in that. Again, when you're delivering three years financials, you want them to look good. Because it could have a, and I think Aaron and I ran, you know, like we just kind of jokingly made some math, but I mean, what would it take to have, maybe, what would I, I mean, five to $10,000, probably a year to get, like, reviewed financials? Maybe, I mean, that's not even a fair topic. That's not a small company. That's not a fair question. - At a multiplier. - I mean, it can be 30, depending on your size. But, but think about, so just put that in perspective, like, let's put it more like in the, let's just go on the small end. You're a million dollar EBITDAW company and you might sell it a four X, right? So you're a four million dollar company. If your financials are terrible and it drops you to a three, right? You're a three million dollar company. If your financials are great and get you a four and a half, you're a four and a half million dollar company, right? So, if you spent $100,000 a year to get those financials lined out, it was a good ROI, right? It's a great investment. So yeah, I mean, it's unfair to ask what it would cost it, like, 'cause it's, that's a huge spectrum. But, but just like on the valuation side, think about that, right? If it just drops you, if it drops you from a 4.2 to a 4.1, it was still worth it, right? So, I would say generally at a very minimum, look at the last three years at like good financials from someone else that's reviewed them and said, these are good, 'cause you're gonna buy that confidence with your buyer. And sometimes, I mean, you as may have heard the terminology of quality of earnings exercise, whether that's on the sell side, which has become, I'd say, very standard in today's world, right? Or, you almost have to expect in today's environment, again, depending on size and scale of a business, right? But any potential buyer is gonna do what Mike just said. He's gonna, they're gonna do their own level of buy side due diligence, right? So, that in my opinion, just depending on kind of where you're at in the journey and, you know, the time that you might have prior to an exit, I think investing in something like that over a review or an audit could make a heck of a lot of sense, because I think what the quality of earnings does is it's not only a vetting and validation process of the, I wanna say the free cash flow of the business, but it's also gonna help tell the story, right? If you're going back three years, typically a quality of earnings is gonna cover the two most recent calendar years and what we call a trailing 12 month period through the most recent date. It's gonna help not only vet and validate the numbers than what we're seeing, both from a balance sheet and a P&L perspective, but it helps with the story, which I think is also impactful as we think about, you know, as Mike describes kind of what really moves the needle from like a multiple and multiple range. I think the story of what these numbers are telling them is very, very important to understand as well. - Yeah, and I would say the same even like for your customers, especially if your customer base is relatively small, and it's consolidated in a small handful of large customers. A buyer's gonna wanna, I mean, they're gonna wanna know a few things. One, is that customer gonna come along with the business? So we've experienced that where like that's a hurdle. And in a matter of fact, back to, you know, you were talking about an asset versus a stock purchase. The one stock purchase I've done in this manufacturing space is because if it had we done an asset purchase, we would be a new vendor that would be subject to all the new, and well, in this particular large global OEM, they weren't taking on new vendors. And so we would have lost, like a million and a half in revenue, if we did a stock purchase. So as a buyer, even though I prefer an asset purchase, there was value in doing a stock purchase in that case, because I was able to retain that customer. But I would tell you even start to build like a profile on those large customers that your company really depends on. So that the buyer and maybe their bank has comfort with who's are bringing on, right? Like how is this revenue gonna sustain with my purchase? And how solid is it? And I know in the manufacturing industry, especially the larger you go up the food chain with like global OEMs, like that I deal with, even their terms, right? So you think about like when you're talking to your bank and maybe you're positioning, you know, the debt stack to buy the company and build a line of credit and all those types of things. So it'd be very traditional that a bank on a line of credit is going to ignore anything net 90, right? Like anything over net 60 on your AR. Well, these global OEMs, they don't even start talking until net 90, right? So you need to be able to show your bank, like these are good investment grade, like in the case of the ones I'm talking about. These are investment grade customers that deal in net 90 and they pay in 90, right? So it's like you can still count on that 90 in this calculation of putting together this whole, capital stack, capital and debt stack to fund this business. But you gotta build those portfolios and let your investors or your bank or whoever that might be, no, or the potential buyer and their investors and or banks. No, like this is okay. You have anything that on that, like in this range here from a, yeah, from, you know, stepping even outside of the business for a little bit as we get closer to that, you know, presumed transaction three to five of it and this can really apply to the five to 10 as well. But thinking about what are the other areas of my life that I maybe need to de-risk and, good point. As you get closer to, as you mentioned, Mike, Mike three, you know, this is likely going to be business owners largest financial transaction in their life. And, sure. As we start to build towards a potential value, you know, there are other pieces outside of that that you really wanna be thinking about. And, you know, we talked about how the trailing, you know, three years of financials are really important. But what are the other pieces that drive some of the value in the business? How important am I as the business owner to this actual value? Do I, if something were to happen to me tomorrow, does this business value go from five million to two million or five million to zero? Because I own all of these relationships. And, do we want to put some, you know, whether it's insurance or something else in place to help protect against that risk as we get closer to an ultimate transaction date? I think the other piece too, from a consideration standpoint, is just thinking about a state planning as part of the broader tax conversation. You know, we've talked about this wide range of, you know, selling for 500,000 to 500 million. Obviously a state planning tends to come into play a lot more as you get into the, you know, north of $30 million type of transactions. But that is a piece where, you know, if we can do something from an estate perspective to start getting some of the value out of an estate, knowing that maybe we get some discounts on that, if we are going to grow it for the next three to five years. And then ultimately we can pass that on to the next generation if that is something that is a part of that broader financial plan and really help the lifetime tax picture, which is really what I think all three of us, when we're talking about taxes, it is that total tax that we're trying to help reduce, not only at the business tax transaction level when it happens, but then over the course of your entire life, including a state that's excellent. Mike, take. - I just want to point out this is what happens in deals too. As the three to five years out, you start, you think about the financials. What do I need? What I need to do, make sure my finances are ready. Then you think about the individual. Am I ready by an individual? But people go, okay, the tax, I think we're good on my taxes. I've got my tax account, he does my taxes every year. I know I'm good and you don't do a tax readiness. And I would want to say, this is something you don't want a shortcut. You want to do at that three to five years out, do that tax readiness. Just as the buyer's going to come in to look at the financials to make sure those financials look great and your EBITDA is good for the multiple, they are really going to scrub the taxes. This is where purchase price can go from $4 million to a lot lower depending on the exposures. And having been on both sides of the taxes, sell side and buy side, coming in the buy side, it isn't, is there something here and is it maybe great or not, we just come in and say, all right, you didn't file in 50 states. Therefore, take your revenue times the estimate tax rate. This is your exposure, you need to ask for it. Or you're going to have to do filings in all those states even though not. And it's better to get ahead of that stuff. So do we tax readiness meaning take a look at, do we next a study? Does that, and with that, you're going to see, okay, yes, I'm good. I'm filing in all the states I should, or if I'm not, I'm far enough out. Now I can start beginning filing. Because when the buy side comes in, they're looking at the same three year period. But if you start filing six months prior to a certain, they're going to go, okay, you start there, but you had revenue, it looks like, yeah, next is for the last three years, six years, here's your exposure again, grind purchase price. And the same thing with, you know. Personal expenses. Yeah, I probably no one in here has personal expenses run into the company which is fantastic But what happens is both is R&D You know the financial you go to financial guys and they're going Ebid on multiple. Oh, yeah, I don't I don't really need to make that much the next guy doesn't need to make that much and oh Yep, that really isn't that you know, that's not really Painting for here that was on my house or whatever it was and you start and these things back so you get a better multiple What this means is this is exposure tax purposes and they see this thing. Okay now you owe tax on that Here's another way that they're gonna grind the price and say you have that and another thing on taxes in terms of that three to five years We're talking about thinking about family and charity and over where you want to go a lot folks think about employees too Is there employees I want to take care of that have been with me for a long time and There's really great ways to do that But there's also bad ways you can't just suddenly gift them About a money at the very end. That's gonna be taxable to them But if you plan for enough to advance you can give them you know, profits interest a stock Option plan a stock bonus plan something like that that they can participate at an exit and if you Structure correctly you might also be getting a deduction for that on exits All right listeners, so we're gonna take a break right here. There's a lot of good information the CLA covered in the first half of this But I think you and everybody else myself included need a little time to digest that So we'll come back next week with part two with the same group and we'll keep this conversation going I am fired up for top shops 2025 and you should be two It's happening November 11th and 12th in Charlotte, North Carolina and it's one of the most impactful events in manufacturing Nick Mike and I will all be there connecting the shop owners Sharing what's working and learning right alongside you you can't register yet But head over to top shops event.com and sign up for updates so you don't miss out