speaker 0

00:00:00

Episode number five business brothers. When is the right time to sell your business in one, two, three? Well, welcome back to another episode. My name is Purdeep Sangha and I'm 

speaker 1

00:00:14

Harjeet Sangha, 

speaker 0

00:00:15

And we are the business brothers. 

speaker 0

00:00:18

Well, wow hard as much as we try to get that in sync, it never is in sync. That's, that's the story of brothers. As much as we kind of look alike, it, it never kind of works out as well as we wanted to. But welcome back to another episode. This one is about when is the right time to sell your business? This is a really interesting topic. It's a very, very, you can say, I like to say there's a science behind it. There's an art behind it, but there's no real like perfect time, I think, for anybody to sell their business Harj. And those that have the opportunity to sell their business at a perfect time that, you know, we've talked about bull markets and excuse me, bear markets or whatever that may be. But those who have been lucky enough to sell off before the crash are just lucky. Let's just put it that way. 

speaker 0

00:01:08

Yeah. 

speaker 1

00:01:09

Yeah. There, there certainly can be advantageous times to, to sell everything, but certainly, you don't always get it right for, for some of the owners out there. 

speaker 0

00:01:17

Yeah. And I think it's just, it's similar. I would say a concept part. You come from the wealth management world. You're, you're the economics expert, you know, when they say you're trying to time the market right. You kind of lose. And, and in business it's, I wouldn't say it's not that volatile, but it is important to have a plan in place. I think that's one of the big things that we're going to focus here on this episode. There was a gentleman that I spoke to the other day that said, doesn't everybody who owns a business, build it so that they can eventually sell it. And I said, you know, it's a really interesting question. And from my personal experience, I would say less than five percent of the businesses and business owners that I've come across actually grow and develop their business very well to the point where they could sell it off anytime. What are your thoughts on that Harj? 

speaker 1

00:02:09

Yeah, I think I would agree with that. I think when most people enter a business, the thoughts that come into mind are certainly, you know, growing it and being passionate about it. But I think what they least are prepared for at least conversate about the beginning is, is the selling part. Right. It didn't. And I certainly do think that those conversations probably are left to be had until the backend. Very rarely. Do you see them at the front end? 

speaker 0

00:02:35

Yeah. And I think that's one of the things is, is be prepared to sell your business at a particular time. And I think this is a challenge for family businesses, because one of the elements that's part of a family business is legacy longevity. So people like to keep their legacy going. Right. I know a lot of business owners that want their kids to take over, their grand kids to take over in it, and it to go for generations because there is a legacy aspect of it. People want to see the hard work that they do continue on for generations, but in doing that, maybe they haven't structured their company effectively. Maybe they have missed out on some risk element. Maybe they're missing out on an opportunity to sell and take that capital and invest in something else that might be bringing them higher returns and maybe even more happiness. But again, going back to that question that the gentlemen asked me, most people don't build their businesses effectively enough to be able to sell them. And that's what we're going to talk about here today, because from my personal experience, Harj, there is no perfect time to sell, but let's talk about the l. Let's talk about the practicality behind it. How long do you think a business owner needs to think about selling before they actually sell? 

speaker 1

00:03:52

Yeah, that's, you know, a really good question for the professional accountant advisor in the mix. And hopefully every business owner has someone of the professional standard that they can trust and lean on for these types of conversations and, and transition plans. But I think generally in business practice to talk about 24 to 36 months in advance, and that's largely due to, to, to help lower any tax bills, you know, making sure that you can, you know, take advantage of, you know, capital gains, exemptions and any other platforms that may exist. But certainly when you're looking out for that transition plan, you know, the business cycle will continue to go through bulls and bears and whatnot. So I think that part you don't always have control on, but certainly if you're, if your earnings are interjecting higher or you're at a peak, those are, you know, those could be more favourable times to sell as opposed to what we've seen last year. 

speaker 1

00:04:44

And actually, some of the conversations we've had with business owners is that the worst time to sell is when it, everything is in the tank and you no longer have the passion to run the business. 

speaker 1

00:04:53

Yeah. 

speaker 1

00:04:53

So sometimes the earnings might be still going up and the business owner still has passion and they just can't see themselves doing anything, anything else. But to, to your comment, there may be other variables that they're unprepared for. Maybe there's another competitor coming in, or there's gonna be a legislative change. So if you can have that conversation twenty-four to thirty-six months in advance and say, that's probably good general practice for, for kind of time in a transition for your business. 

speaker 0

00:05:19

Yeah. And you made some really good points. The one thing that really stuck out to me is that there is two different aspects to selling a business. There's a business in the financial aspect, and then there's a personal and emotional aspect. And both of those can cause challenges or both of those when they're in line can actually lead to a proper sale. But let's just say, for example, that your business is doing extremely well and you're making a lot of money, but it's causing issues at home and your relationship. And you're not being able to spend a lot of time with your kids or whatever that is. So what do you do in that situation? Or let's just say, Hey, look, you're not making that much money and your business is tanking, but you're so passionate about it that you don't want to let it go. 

speaker 0

00:06:05

And then you go down with the ship. So there's that fine balance between trying to figure out K the business and the financial and how to deal with it on a personal and emotional level. And what we've seen as you mentioned before is when both are not doing well. Wow. That's a recipe for disaster. That's when people get out real quick and real soon, some the examples like we talked about just recently, a gentleman wanted to get out of his business and it was like, okay, we asked when they basically said three months and it's like, cool, okay. Three months is not a long time that doesn't really give us a lot of time to help position and plan things, especially because this gentleman didn't really build it to sell. And, and that's, that's the bigger challenge. And I don't think he really thought about it. And at this point I think he just got to the point where he just was fed up and said, okay, it's time to move on. 

speaker 1

00:06:58

Yeah. And unfortunately, COVID has done that to a lot of business owners, caused a lot of burnout, not just on the, the employee side, but certainly on the employer, the business owner side. And unfortunately for that business owner, just the, you know, the supply chain disruptions that we've seen economically from, from COVID-19 really forced their hand, that they just lost all passion for the business. But I think, you know, for every business owner, as you're kind of in that mature stage of your business, it's gotta be in your back of your mind. You know, when, you know, when did the financials make sense? When do you see yourself actually looking at that next transition stage? So, you know, as you mentioned, there's, there's definitely the, the financial aspect of it, but the personal aspect of it too is vitally important. And you know, what I've seen coming from the wealth side is that when you have these big corrections in the market business owners sometimes fail to recognize, you know, the importance of having a financial plan, because they may think they're not able to retire, but actually having conversations with their professional advisors, they already may have the assets to, to store aside to enjoy the life that they've always planned for. 

speaker 1

00:08:03

But internally they, they just can't conceive that notion, you know, they may think they need to work another year with the business to, to kind of get it up and have those savings again. So it's always good to have these conversations in advance and, you know, to revisit them, you know, you don't have to revisit them every quarter, like you do the books, but you know, on an annual basis, just to kind of take an, taking a temperature gauge of where you are. 

speaker 0

00:08:23

Yeah. And I think that's a tough one in, in businesses because you may have, again, previous episode was about gen two. You may have one sibling that wants to hold onto the business and you might have the other siblings saying, let's just ditch it. Let's move on, let's do something different or let's just go our separate ways. And I think what you talked about heart is very valuable because if you consistently just touch base, then you know, where each other per which the, you know, where the other party is at. And I think that's, that's very important. So here are some of the situations that I've come across and hard, you can share too, when people have sold their business and it may or may not have been the right time. But here's some of the examples that I've seen. I've seen people been forced to sell off their businesses because of family disputes, seeing people having to sell their businesses because of health reasons, I've had people sell their businesses because their business isn't going well. Harj, What are some of the other examples that you've probably seen? 

speaker 1

00:09:20

Yeah, I'm, I'm going to kind of use one more, probably the happier cheery side. I used to work with this one family who was, you know, big into the construction and real estate side of the business and the, the first generation of the father always said to have a number in the back of your mind, that if someone came to you, if a potential, you know, market participant another buyer, your competitor came up to you with the check and said how much for you to walk away. And just a great story. You know, I really respected her conversations, a, you know, someone that I look up to for a lot of wisdom and said, he kept that number in the back of his mind at all times until one point then in twenty seventeen, not a routine stop at one of their apartment buildings, a potential investor came over to him and said, you know, how much ? Had a blank check. 

speaker 1

00:10:08

And he wrote a ridiculous number down he said. In his mind as a ridiculous number, it was probably at least, you know, five to ten million above of what he thought another competitor would pay. Lo and behold, that person accepted that number. And they transitioned the business over to this new individual. So it sounds like a great story. And it was great. I was so happy for him and the family to get the, the valuation that they thought they would never get it, you know to him it was a ridiculous number, but to somebody else that number was viable, but where they were ill-prepared was, well, what next? We got that number and financially they're very well and they didn't have to ever work again, but it was too early for retirement for him and the family. So they just didn't have the conversation of, okay, yes, this is a number that we want, but what will we do next? 

speaker 1

00:10:58

You know, we're going to move to Hawaii and live comfortably, or we want to roll those assets into another business, or, you know, what is our passion that we see? So, you know, just because things are great on the economic side, you know, you kind of have to come back to that personal side too, because for them, it was an identity crisis as, okay, this is something that we built for 30, 40 years, and now someone's writing you a high number to walk away, but you just don't write that new identity, you know, four weeks before. So it's a great story. It's one of the show that, because that is something that you don't see as often, but certainly when they do happen, they certainly do bring a smile to your face. 

speaker 0

00:11:34

Yeah. I'm so glad you shared that because that is an awesome story and a great point there having a number in the back of your head because I'm a firm believer of having goals. I'm a firm believer in, if you put it down, you work hard for the universe will eventually give it to you. And so that is, that is an awesome point. So though, for those of you who out who are listening, if you've got a family business or you've got a business, write that number down, what do you think that number is? And it's really interesting because I think when people go through this exercise, it's not as easy as we think, right? Because may some people may over state the numbers. Some people may understate the number and that's the really interesting part. And then the other part to that Harj is, you know, you're really good in terms of having those conversations with people, obviously having that wealth background, you know, you're always good with, okay, well, what is the next step? 

speaker 0

00:12:25

Right. 

speaker 0

00:12:25

You're gonna sell this business. You're gonna have all this cash. What are you going to do with it? You know, are you going to, like you said, you know, are you going to be a philanthropist? Are you going to be building another business? And that's something that I think is important too, because if you do retire too early life, isn't always great, especially for the go-getters out there. And so you got to have that next challenge. And so it's kind of like reading a chapter in a book, you got to figure out, okay, what does that next chapter going to look like? So really good points there, hard Jen and you're right, because there's hopefully a lot of good new stories out there for people who are selling to businesses. And if you have a good news story, we would love to actually have you on the podcast as a guest, I'd love to hear your examples and maybe the tough times that you went through and ultimately the good times that you went through, because we're great as we continue to build out this podcast, we're going to have more and more guests on because it's important. 

speaker 0

00:13:23

It's important for the people out there who are listening to be able to get in touch and in tune with the real-life examples. And that's what this podcast is really about. This podcast isn't about two guys who help business owners optimize their business, elevate their wealth and, you know, deal with the family dynamics. It's really about the real day-to-day stuff. It's about the nitty-gritty, right? What keeps people up at night? What allows them to sleep and be happy. Those are the things that we're talking about in this podcast. So thank you Harj for, for sharing that good news story. And I think just on a couple of notes there, when it comes to good news is how a positive outlook for your business when it comes to K when that time is coming, you know, what are the good things that we can do in life? Because I've seen people get to the point where they are going to sell their business, they are going to cash out, but it's almost like a state of mini depression for them because they're like, okay, now what? Right. There's that fear of the unknown because they've worked in this industry business for so long. Do you have, do you have a piece of advice for people out there that may be going through that Harj? 

speaker 1

00:14:33

Yeah. You want to have open dialogue with your professional advisors for sure. And your family. I think it's great to have that ability, that flexibility to enjoy the comfort of the wealth that you've worked so hard for, but also having that communication with the next generation is as seen as well. Purdeep that sometimes there's a child who thinks that that business was going to be transitioned down to them. So, you know, even though the first-generation may have built or the second generation might say, Hey, what about me? Why wasn't it sold to me? Or why didn't you think of me as a potential buyer or maybe someone who could have partnered up with another entity or individual to, to purchase the business. So it's not all economics is certainly does involve deeper, deeper conversations, not just with professionals, but certainly the individuals within the family and even the business itself. 

speaker 1

00:15:27

We've seen too many cases where, you know, sales have been made without even telling the staff and the next purchaser, you know, the acquirer, some of those dealings were done on, on the faith of a, a holdback where, you know, you have to earn certain earnings to, to receive some of those proceeds of sales. So if you have disgruntled staff that maybe were not communicated to, and the new purchasers, you know, running the, the company, their organization with a different style, I mean, that can also be a recipe for disaster as well. So, you know, it's not just the communication with advisors or the family. You also need to look at the business itself and the staff and kind of help create that value. 

speaker 1

00:16:09

Yeah. 

speaker 0

00:16:09

So the thing that picked up on that, what you just said is one open communication, always keeping the dialogue open and always be optimistic and look for the future. I think that's the one big thing is just see what your future can bring you, whether you stay in the business or whether you sell off. So one other point there, you said Harj, and it's not just about the money. It's not just about the numbers. And that is awesome because that is our saying when it comes to business brothers, because it's all about prosperity because it's beyond just the numbers and actually it's the reverse it's our tagline is actually it's beyond the numbers. It's about your prosperity. And we truly believe in that. And that's what we hope you get for your life. And your business is just prosperity in all aspects of it. So thank you for tuning into this episode and we'll see you next time. 

speaker 1

00:17:01

Take care, everyone.