1/30/25 Business Planning Insights with Scott Garrison, Founder of Planned Exits

The Moneywise Radio Show and Podcast Thursday, January 30th BE MONEYWISE. Moneywise Wealth Management I "The Moneywise Guys" podcast call: 661-847-1000 text in anytime: 661-396-1000 website: www. MoneywiseGuys.com facebook: Moneywise_Wealth_Management instagram: MoneywiseWealthManagement Guest: Scott Garrison, Founder of Planned Exits website: www.plannedexits.com/ email: [email protected]

• 0:00Speaker 00

  From the padded radio room off Stockdale Highway, here is Money Wise. Call or text in at 661-396-1000.

• 0:09Speaker 01

  I need a dollar, dollar, dollar, that's what I need. Hey, hey. Well, I need a dollar, dollar, dollar, that's what I need. Hey, hey. Said I need a dollar, dollar, dollar, that's what I need. And if I share with you my story, would you share your dollar with me?

• 0:30Speaker 02

  Securities offered through SCF Securities, Inc., member FINRA/SIPC. Investment advisory services offered through SCF Investment Advisors, Inc. SCF Securities, Inc. and Money Wise Wealth Management are independently owned and operated.

• 0:40Speaker 00

  Now, let's start the Money Wise Show.

• 0:44Speaker 03

  Welcome to the Money Wise Show. We are live from the affectionately named Garret Ellis padded radio room off Stockdale Highway. We're on ESPN, Bakersfield, 1230, 101.1 FM, and always streaming at MoneyWiseGuys.com. If you want to look at old shows, search different topics, you can find all of our chopped up and mixed up podcasts and shows from the past and some great guests.

• 1:16Speaker 03

  A little comedy bit I showed Mr. Stephen earlier because it was, the topic of grapes came up, and Brian Reagan has a really funny bit about...

• 1:26Speaker 00

  Raisins.

• 1:27Speaker 03

  Everybody, if you say you don't like raisins, everybody will remind you affectionately that, "Oh, those are just grapes." Yeah, dried up and shriveled and nasty.

• 1:36Speaker 00

  That's great.

• 1:36Speaker 03

  If you don't like raisins, and so it's a pretty fun little bit. So, thanks for that, Stephen. Yeah, so, do you like grapes? I mean, you like grapes?

• 1:45Speaker 00

  I love frozen grapes.

• 1:47Speaker 03

  Do you like shriveled, dried out?

• 1:49Speaker 00

  They're all right. The real question is...

• 1:51Speaker 04

  Frozen grapes are better.

• 1:51Speaker 00

  Do you like ham sandwiches?

• 1:54Speaker 03

  Let me put this ham sandwich on a park bench for three weeks and let it shrivel up. Do you still like ham sandwiches? For some reason, that's, that's a, that's a fruit that we like to do that with. Dry it out and get it all shriveled and nasty and still enjoy it. But anyways, I think one time when I was a kid, we found a grape that had like rolled behind one of my buddy's TV entertainment centers. So we found it and it had become a grape, I mean a, a raisin after, after a few weeks, sitting behind there and it was all covered in mold. And so like I, maybe that traumatized me where I'm like, oh, that's, that's where grapes come from, or that's where raisins come from. So no more for me. But, uh, but anyways, so I'm your host today, Chris Pelster, joined with

• 2:38Speaker 04

  Dustin Weaver.

• 2:39Speaker 03

  Mr. Dustin Weaver. We're making up your, uh, your host today. We are really excited today. We're actually gonna have Scott Garrison joining us from, uh, Planned Exits. Um, he's, uh, pretty, pretty popular, pretty well-known businessman here in town. Been in and out of a few, a handful of different businesses, some great exits, some okay exits, maybe even a couple really painful ones. So he's taken all that expertise and, uh, and has a new business venture as far as helping folks, uh, design the exit out of their business, um, the way that they want to, and hopefully under their terms. So really looking forward to getting a little bit more information, um, about what he's up to, what he's got going and what he sees in that, in that space.

• 3:20Speaker 03

  Um, I imagine lots of folks are getting to where they, you know, maybe didn't think that they would work into their sixties and seventies, but like their business and have been running their business for a long time. And, and, uh, some people either overplan or, or maybe not plan at all. And so, uh, excited to hear what he has to say about what folks are doing. Um, kind of planning those exits out of their small businesses, because that makes up a huge portion of our economy. Small businesses are the lifeblood of our economy. And so we love our local businesses here in Bakersfield. We always try to highlight different folks and, and obviously a lot of great clients built their wealth. Through a small business ownership and so really excited to talk to him.

• 4:02Speaker 03

  We did have a couple of questions come in. We'll get to right as soon as we do a little a little update on the markets, kind of just a little overview. Market continues to, it was very volatile. We had a little bit of a pullback earlier this year. We did have a, you know, a fourth quarter cooldown. We've talked a lot about about big picture. S and P 500 closed today at 6,071, up about half a percent. So a bounce there on the markets. Sometimes what I like to try to do is is remind folks where we're at. So whether it's positive or negative news, just over the last one year, the stock market, the S and P 500, when I say

• 4:45Speaker 03

  stock market, excuse me, the 500 largest companies that make up the exchange, right, that are that are being traded there in our in our economy, 23.2% climb there over the last 12 months. So just to give you a little bit of perspective, right? Over the last five years with everything that's gone on, still up 85% over the last five year marker. So just a little perspective, right? You know, things have almost doubled in the last five years. I saw the VIX actually calmed down a little bit today.

• 5:21Speaker 04

  That's a volatility index for everybody listening.

• 5:23Speaker 03

  Right, right. Just kind of showing how much things are moving around, positive or or negative. So things calmed down a little bit. But I do try to remind people of that, you know, when you when you look at those numbers, when you see what the market has done, try to try to burn that into your brain to understand what's been going on. So if we do have some scary scenario or some news or some market fluctuations, just remember the last five years and where we're at.

• 5:50Speaker 04

  Right.

• 5:50Speaker 03

  What it should do is it should remind you to stay the course because obviously you're benefited by holding stock ownership.

• 5:58Speaker 04

  Over the long run.

• 5:59Speaker 03

  Over the long run, and we might see some short term volatility, maybe reevaluate how you are invested. Do you feel comfortable and confident where you're at? Do you need to? make an adjustment, maybe, maybe not, you know, it's, it's, it solely is based on your situation. I definitely say after runs like this, if you have short-term money, money that you're wanting to use in the next one, two, three years. Even retired folks, most of your money is going to stay invested for the next 10, 15 years of your retirement. But on that short-term bucket, or maybe where you're enjoying your income out of, um, you want to kind of go, okay, am I comfortable? Um, with my stock exposure, um, in that. So, um, hopefully that's just a good little, uh, overview of what's going on, kind of.

• 6:42Speaker 04

  Well, yeah, oil's up a little bit again today. Must be because Chad, we had Chad Hathaway on the show the last couple of days.

• 6:48Speaker 03

  Chad speaks, people listen.

• 6:50Speaker 04

  That's right.

• 6:50Speaker 03

  Yep. So yeah, the, the NASDAQ, um, technology obviously is one of the big mover and shaker with some of the stuff going on with the AI stuff that came out. Um, China's version or whatever, which, which kind of shook things up because of how, I guess, little, um, chip. Usage is my, uh, ignorant way of explaining why it kind of was a shaker because. You know, some of these humongous, um, computing abilities and these AI algorithms and different thing, it was done with very, very minimal.

• 7:22Speaker 04

  Yeah, I saw the amount of money invested was around 10 million compared to some of the big boys that put in billions of dollars to create the same thing.

• 7:30Speaker 03

  Yep. And so if you're able to create some of these technologies and stuff, um, without having to spend quite as much on technology as maybe originally thought. Um, why you kind of saw some of those, uh, um, yes, tech stocks pull back and stuff. So. But anyways, um, so that's a little bit of a, you know, kind of an overview of the markets and kind of what happened today. Obviously you're always welcome to call with any questions. 661-396-1000. You can call or you can send in a text and we can answer your question live. Uh, if it's, if it's after hours or you're listening to a podcast right now, then we'll definitely try to get to it tomorrow.

• 8:07Speaker 04

  We actually had one come in. I'm going to ask it to you.

• 8:09Speaker 03

  Yeah.

• 8:10Speaker 04

  Is a backdoor Roth IRA still allowed in 2025?

• 8:16Speaker 03

  Yes, very simple answer, yes. So let's break that down just a little bit and kind of talk about what a backdoor Roth is. And is it still allowed in 2025? It is. It's probably one of those things that will continually be thrown on the chopping block because what it basically is doing is for for an individual to participate in a company sponsored plan, like their 401k or 403b through work, you now have to have qualifying income to also go out and to be able to participate in a traditional IRA or a Roth IRA outside of you participating in a in a in a company sponsored plan. So there's income restrictions.

• 9:00Speaker 03

  And so to let you know those those numbers, for an individual filer in 2024, your modified adjusted gross income, which it's a little bit different than your adjusted gross income. It just means that even if you put money and got a tax write-off for your 401k portion, that does not go away when they're looking at these income restrictions for doing both company sponsored plan and a Roth. So 2024 individual file, it was $146,000 in annual income. 2025, it is jumping up to 150, 150,000 to be able to do a company plan and a Roth

• 9:39Speaker 03

  IRA. For joint filers in 2024, it was $230,000. In 2025, it's jumping up to $236,000. So that always kind of increases a little bit with inflation. And so those numbers will increase. So what is a backdoor Roth? What are we talking about?

• 9:57Speaker 04

  So if your income is such that you don't qualify for a regular Roth, you're able to make a contribution to a traditional IRA through what they call a non-deductible contribution, meaning you can't deduct it on your taxes, right? And then at some point in the future, you go in and you say, hey, that money that I contributed that I couldn't deduct, I want to now make that a Roth IRA. And so it's a way to come through the backdoor. That's why they call it the backdoor Roth.

• 10:23Speaker 03

  And that would be a Roth conversion. So you'd convert your non-deductible IRA over to the Roth IRA. Um, you know, and then you're able to, to do a backdoor method. Um, it is, there, there's some nuances with it. If you have a lot of money already in IRA assets, there can be a, uh, you know, they can decrease the amount that you're able to convert and some different things. But if you have most of your assets in your company sponsored plan, you might be able to do that because you don't have a lot of other IRA assets built up yet outside of your company sponsored plan. So.

• 10:58Speaker 04

  So because of the nuance, it's good to speak with experts on this stuff.

• 11:02Speaker 03

  Yep. Definitely would probably want to involve your tax professional. And if you're working with a financial advisor, this is a discussion you can have whether or not it makes sense. But yes, that is the backdoor Roth and currently you still are able to do backdoor Roth conversions. Um, so we also had another question come in. What was that one?

• 11:21Speaker 04

  Good afternoon, guys. I've been paying into my 401k for close to 10 years and I was wondering if I could lose all of my money in a 401k if the market were to crash. Just trying to be safe and know what to look out for.

• 11:34Speaker 03

  Great question. Um, by and large, I guess an overarching answer would be no typically. But there are ways that any of us can invest and lose all of our money in investments. So let me, let me explain why I say overarching. The answer would be no, you couldn't lose everything because the Department of Labor has the ability, or they kind of oversee the whole employer sponsored plan space. And the whole goal of an employer sponsored plan is to give you access to what would be considered a, a good menu of investment options, whether you wanted to be super aggressive and stock based, or whether you wanted to be conservative,

• 12:17Speaker 03

  they're going to try to give you a menu of funds to invest in. And so most of the time you're investing in fund strategies inside of 401ks. And so for you to lose everything inside of your 401k would be, hey, I'm putting my money in this growth fund that's going to be invested in. 1600 different stocks and all 1600 stocks would have to go completely worthless for you to lose every penny that you have inside of your 401k.

• 12:45Speaker 04

  So hypothetically, you could, but what are the odds of that?

• 12:48Speaker 03

  Right. And most of the time I explain to folks, like if you're holding five different cellphone companies or four different cellphone companies and two of them go bankrupt, what is most likely going to happen to the other two that are still around?

• 13:00Speaker 04

  They got all that business.

• 13:01Speaker 03

  They got all that business. And so that's why diversification, like really decrease risks. Sometimes it, you know, people go back and forth about whether to have super concentrated positions and because that's how you can make the big, big bucks. I actually watched, have you ever seen those master classes?

• 13:18Speaker 04

  Mm-hmm.

• 13:19Speaker 03

  I watched a little portion of the master class where the guy, you know, very smart businessman and a couple of different business folks, Ray Dalio and a couple of different guys. And one of them was saying like, if you don't know how to read a profits and loss statement and you don't know how to value a company, you can't look at it and make a really educated number and then go, okay, I think it's worth this and I'm willing to pay this for it.

• 13:41Speaker 04

  Right.

• 13:42Speaker 03

  Like if you don't have that knowledge and ability, you're so much better off just using a diversified mix of funds.

• 13:47Speaker 04

  Professionally managed.

• 13:48Speaker 03

  Professionally managed, you know, mutual funds like inside of a 401k and trying to stick as much money as you can in there.

• 13:53Speaker 04

  Yep.

• 13:54Speaker 03

  That is going to give you a much higher chance of success and not necessarily running into the wall. Now, do the markets, you know, fluctuate?

• 14:01Speaker 04

  Yes.

• 14:02Speaker 03

  Are there quote unquote crashes? You mentioned if a, you know, in the market crash? Yes. The biggest one that we saw that is still kind of talked about, especially by folks in retirement or nearing retirement is 2008, 2009. We mentioned the S and P 500 from a high to low. I think it was about a 54% slide or so and, and obviously painful because if you were 100% in the S and P 500, whatever your account balance was at that point could have slid as much as 50%.

• 14:31Speaker 04

  Yeah, about half.

• 14:32Speaker 03

  Yep. Now I do say, a lot of times what people don't remember is the years leading up to that, a lot of that growth that was in your account might've just been growth that was accumulated over a five-year period. You gave up some of those gains and then for the next 10 years, we did go into an elongated bull market from 2009, 2010, all the way up until 2020. Um, did, did something big happen in 2020?

• 14:57Speaker 04

  Something little, yeah.

• 14:58Speaker 03

  I don't know. I don't know. Maybe. But yeah, so it is, it is good to educate yourself to understand what we're talking about because technically, could you lose all your money in a 401k? Yes. And let me explain how. Some 401ks have that menu of options that I mentioned and then they might say, but you know what? For those that are more astute and want to, we'll open up a brokerage window. And now you can go out into the world of, of picking from thousands and thousands and thousands of individual stocks and you can do whatever you want to do.

• 15:29Speaker 04

  Right.

• 15:30Speaker 03

  But that's going to be in that brokerage window that we're going to allow you the access if you want to go over there and do that yourself. So then if you took your $200,000 or $100,000 that you had in your 401k and you go over there and you put all your money in one stock and that stock went bankrupt, you literally could lose every penny.

• 15:50Speaker 04

  That's right.

• 15:51Speaker 03

  That you put into that 401k. So, uh, is that advisable? Probably not. You know, you definitely, unless you're somebody that, like I said, is very astute, you know how to really go through and dig through the weeds of, uh, profits and losses statements and, and, and can go in and look at corporate earnings and different things that they make public to all folks. Um, and you, you have a really great idea of what you think the value of that company is. And then you can make, um, large stakes or concentrated stakes on certain stocks. So hopefully that helps you. You're definitely being safe by using, um, the 401k. One of the things I'll tell people is because of the nature of how most 401ks are and the menu of investments, sometimes people are too conservative then because they're scared

• 16:35Speaker 03

  because they don't feel like they understand things. And it's like a 401k, if you're using a mix or a target date fund, you almost want to just be, be aggressive that makes sense for your age and your time horizon. Educate yourself as much as you can. So you feel, you have confidence to, to stick with that strategy. But at the end of the day, by, by nature, you're diversified most of the time. You know, you're in a target date fund that's going to have hundreds and thousands of different holdings. It's based on somebody that has 20 years until you're going to use these funds.

• 17:06Speaker 04

  Have we talked about target dates on here before?

• 17:09Speaker 03

  Um, yeah, I mean, I'm sure we've talked about it pretty extensively, but you mentioned what it is.

• 17:13Speaker 04

  Yeah, the 32nd on it is you select a date that is just that. It's a targeted date for retirement. So for example, if you're 20 years out, we're in 2025 and you select the, you know, target date for 2045, they're going to make your portfolio in alignment with somebody that's retiring in 20 years. And so when that's 20 years away, that likely has more stocks. You can get more growth over that time period, most likely. But if you're going to retire two or three years from now, you know, it's a lot more conservative.

• 17:47Speaker 03

  Right. It might have more of a retirement fund, income fund in there that's going to be the bulk of the holdings if somebody's close to retirement. Now, one of the things that we did talk about back in the day was, um, there was a lot of confusion about target date funds because you could have one 2045 fund that was 80% stock and another 2045 fund that was 60% stock because they kind of looked at the percentages a little bit differently. So you do want to kind of educate yourself and understand a little bit that the target date funds are basically just alluding to a, a mix of stocks versus bonds, your allocation. And if it's longer duration, like we have time to go, it's going to be 80% or 90% stock,

• 18:30Speaker 03

  maybe even 100% stock, no bond exposure. And the thought process is as you get closer to that date, those, those, uh, numbers are going to kind of trail off and you're going to start to slowly get more conservative. And if you're somebody that's okay with aggression or, or, or aggressive portfolio and wants stock exposure, well, you need to know that because then as it gets 10 years to retirement, it may start getting a lot more conservative than you're even wanting to, but you can still use the target date funds to understand how those are allocated and how those work. So it's a way that you can do a little bit bigger, um, you know, allocation planning inside of your portfolio with, with a couple clicks of a button. So usually those target date funds might have 10 funds in there and the percentages

• 19:12Speaker 03

  exposed to each of those is just based on that timeframe, so.

• 19:16Speaker 04

  Good stuff, Chris.

• 19:17Speaker 03

  Yeah.

• 19:17Speaker 04

  I think we've got a guest coming up.

• 19:18Speaker 03

  Yeah, let's, uh, let's take a break real quick. When we come back, like I said, we're going to be joined with Scott Garrison, talking about exiting businesses.

• 19:25Speaker 00

  Are you curious to learn more about how you can be money wise? Check out the Money Wise website at MoneyWiseGuys.com.

• 19:36Speaker 03

  That's right. Welcome back. This is Money Wise. The Money Wise Show. You guys are what make it great. So keep the questions and comments coming. We are going to have a wonderful discussion now with Scott Garrison from Planned Exits. Um, and I did, uh, we were just talking a little bit about whether or not Scott's everybody. Scott, how you doing?

• 19:54Speaker 05

  I'm good. Thank you, Chris.

• 19:55Speaker 03

  Good. Thanks for joining us. I'm, I've been really excited to, uh, to have a conversation about this. And I think at one point, we even tried to say we were going to do it in lunch, but I guess now we're just going to do it with, uh, microphones in front of our faces.

• 20:06Speaker 05

  We might as well have some, we'll have some listeners, right?

• 20:08Speaker 03

  Yeah, that's right. That's right.

• 20:10Speaker 05

  Do it publicly.

• 20:10Speaker 03

  Yeah. So, but we asked if you'd been on the show before and you said, yes, it's been a while. So I thought, well, maybe it was the, uh, the studio on Ming. By Olive Garden. Of course, that's what I'm going to allude to. There was a lot of bread baskets and, uh, salad in my past. Uh, but it was even before that. It was when Money Wise very first started and we were off California and, uh, and so you joined in the, the, uh, way back in the day. And so now this is affectionately called the Gerro Ellis padded radio room off Stockdale Highway.

• 20:41Speaker 05

  I love it.

• 20:41Speaker 03

  Yeah. Cause, uh, we, we, we want to keep sending, uh, gee, positive love and vibes and, and prayers and, and, uh, hopefully his, uh, recovery keeps rolling along. And so you were one of the first folks to reach out when, uh, some of the stuff went on. So really appreciate that for you.

• 20:56Speaker 05

  My pleasure.

• 20:56Speaker 03

  Yep. Yep. You guys, yep. You guys have been doing a lot of good things in our community for a long time. And so definitely some businessmen I look up to.

• 21:04Speaker 05

  Thank you.

• 21:04Speaker 03

  And, uh, and so really, really excited to kind of get the update on, on what you got going on. So for those who don't know, why don't you share a little bit about your, uh, your, your business history, the, the history that I mentioned, uh, impressive resume here in, in, uh, Kern County and kind of what weaved your way to where now you're doing Planned Exits.

• 21:24Speaker 05

  Yeah. Well, thanks, Chris. Uh, appreciate you and Dustin having me on the show and gosh, you want me to go back to the start, right? So I'm a lifetime entrepreneur.

• 21:34Speaker 03

  Yeah.

• 21:35Speaker 05

  Started, co-founded ACN Communications back in 1991 when I was 27 years old with a gentleman named Jim Bowman. And I was having a conversation with Michelle out front while I was waiting to come in and we were talking about that was back in the days when people actually had to pay a lot of money to make long distance telephone calls.

• 21:55Speaker 03

  Yeah.

• 21:55Speaker 05

  We were a resale company and helped primarily local businesses save some money on their long distance calls by using us. And that was my first exit. You know, I've had six, so that's kind of what set the stage. I feel like God has been preparing me my entire career for this opportunity to go out on my own and start planned exits. Where I help other business owners prepare to sell their companies and hopefully get, you know, maximum dollar for their life's work. But yeah, after ACN, I became VP of Sales Marketing for Lightspeed Systems.

• 22:36Speaker 05

  They moved out of the area and I joined a Stria about 12 years ago. And that's a pretty sad story on an exit where we sold to a fraudulent company called Bitwise Industries. So, yeah, I've seen the good, the bad and ugly, you know? I was an owner slash donor of the Bakersfield Bilets Arena football team, you know? So I've taken a couple of zeros and I, you know, I'm an entrepreneur by DNA. So I swing for the fences and some I hit out of the park and sometimes I go down swinging.

• 23:04Speaker 03

  Yeah, well, I love it. I love it because I mean, some of those, like, I mean, a lot of people know some of those stories, like even when you said blitz and stuff. I mean, like the fact that you were in there, like you were trying to make it happen, like that's, that's amazing. So why don't you talk a little bit about, so some of them were painful, the exits. How does all that work together to where now when you go into a company, do most folks have an idea of what, what they think is best for them? Or, or when you go talk to business owners, I mean, do they have a good idea of what it, what they think it's going to look like? Or are you like ground zero, let's start from A to Z?

• 23:41Speaker 05

  Yeah, I mean sadly, more often than not, I'm ground zero. Like they've never, they've kind of kicked the can down the road and been focused on their operations and revenue and all the headaches and stress that come with being an entrepreneur, you know, making payroll.

• 23:56Speaker 03

  Right.

• 23:56Speaker 05

  It's like, that's what I think people like about working with me is I've been in their shoes before, you know, I know what it's like to. To have to do a capital call to be able to make payroll for the week, you know, it's uh, it's not all glamorous, you know, a lot of people think, oh, I'll just start my own business and I'll do a lot more golf and a lot more traveling.

• 24:15Speaker 03

  Yeah.

• 24:15Speaker 05

  And it couldn't be further from the truth.

• 24:17Speaker 03

  Right, you're wearing all the hats.

• 24:18Speaker 05

  Yeah, typically, you know, people that are in small business, which is 97% of the 33 million businesses that are in the United States are considered small businesses.

• 24:29Speaker 03

  Wow, did you hear that?

• 24:30Speaker 05

  Yeah.

• 24:31Speaker 03

  97%.

• 24:33Speaker 05

  And that's literally 5 million in annual revenue or less, right? So 97% of all businesses make 5 million or less revenue, but 90% make less than a million dollars a year. So it's not all about, you know, fast cars and airplanes and everything else. It's a grind.

• 24:52Speaker 03

  Yeah, squeaking out a living.

• 24:53Speaker 05

  Yeah.

• 24:54Speaker 03

  Yeah, I loved, you know, on your bio, it says 81% of business owners aspire to stop working within the next decade, yet less than 20% have a written plan for ownership transitions. And so, you know, I mean, is that, is that part of the process is right off the bat, we start getting things down on paper?

• 25:14Speaker 05

  Yeah, I think so, uh, for sure, Chris, and that's one reason why I got into this industry, cause it's kind of a taboo topic in this market and I'm not sure why. Uh, in fact, a kind of a funny story, I conjured up, oh, I'm gonna have the best name ever, right? I'm planned exits, so we're gonna get people to openly talk about, cause 100% of us business owners eventually exit, right? One way or another, good, bad or ugly, we're going to exit our business. Um, so I thought planned exits was a brilliant title and people were like, oh, uh, can I write a check to a name different than planned exits? I don't want my accountant or my bookkeeper to see.

• 25:52Speaker 03

  Yeah.

• 25:53Speaker 05

  We're considering exiting. So it's still a taboo topic. I think that's going to change. Um, exit planning is actually an industry, right? I have two certifications, I'm one of those guys with too many initials at the end of my name on my business card, but I'm certified by B I and E P I, there are two international organizations for exit planners. And it's a pretty open topic in most markets, but here it's still, you know, if you're thinking about selling your business, you you meet the broker in a, in a dark alley, not really a dark alley, but somewhere off the beaten path, not for lunch.

• 26:27Speaker 03

  Yeah, a lot of times.

• 26:27Speaker 05

  And you have that conversation because they, you know, and when you think about it out loud. You don't want your customers, you don't really want your employees to know that you're thinking about a sale, but and I think that causes for a lot of people to procrastinate and wait too long and get the can down the curb until devastating D's happen. So you have, you know, a divorce, or you have a disease diagnosis, or you have a disagreement of a partnership. I'm forgetting one of the D's. It could be die. But death, right? Yeah. Or disability, I think is the other one. Yep. And then at that point, you're in a situation where you have to have a fire sale. I mean, you're talking about a liquidation of it, you know, bring in the auctioneer and sell

• 27:12Speaker 05

  the assets or whatever you get for them. And that's not the best. Not higher than what you can get if you planned ahead, right? If you plan ahead, then you're prepared. Yeah. And the best, the most opportunistic time to sell is on a strategic acquisition, right? So if you have a big national player that wants to expand to Kern County, and they want to buy, you know, they want to get in the roofing business and become the dominant player, if they're going to go to the most reputable roofing company here in town and say, hey, we're interested, we're doing a roll up, we want to be in your market. And if you don't have your financial statements up to snuff, you know, if you don't have org chart, if you don't have standard operating procedures, they're on to the next one. Right.

• 27:57Speaker 05

  Right? So my goal is like, look, you may not be thinking about selling this thing for five, 10 years, but let's be prepared. You know, let's have all that stuff at a data vault. And if that opportunity comes along, I simply invite a prospective buyer after they sign a mutual NDA, non-disclosure agreement, into this data vault to look at all the financials and make us an offer. Because that's where the big money changes hands when you have a strategic acquisition.

• 28:24Speaker 03

  Yeah, so you mentioned some of your certification and stuff. So, I mean, a lot of your education was just being an entrepreneur and school of hard knocks and you went through all that stuff. What did going through the certification process, how do you feel like it sharpened you or what do you think you learned differently on how to look at things? You know, because I think experience probably makes up a lot of it and being able to resonate with other business owners. But getting this certification, how did that kind of sharpen your skills?

• 28:55Speaker 05

  Yeah, I mean, it's just going through the process, right? And learning how to build your deal team. So it's not a solo sport, right? It's a team sport. So, and I have to be good at working with existing CPAs. Most business owners have CPAs that they're accustomed with. Quite often, their most trusted advisor, they might have a business law attorney that they work with. They might have a wealth management professional that they work with. So it's an orchestrated event to do it right and get maximum dollars. And I find ironically that the wealth management folks are the ones that are the most fired up about me coming in and helping a business owner sell.

• 29:38Speaker 03

  Yeah.

• 29:38Speaker 05

  Because guess why?

• 29:40Speaker 03

  Yeah, usually going to free up some capital.

• 29:42Speaker 05

  That's right. Yeah, so assets under management for you guys, right? So, and the stats are, and that's to answer your question, one of the things I'm learning about these national organizations are some of these alarming stats. So a lot of business owners have up to 80, 90% of their net worth tied up into their business and that's illiquid.

• 30:02Speaker 03

  Yeah.

• 30:02Speaker 05

  And it's unlocked. But yeah, the wealth managers, yeah, let's have a liquidity event and then I will invest their funds going forward.

• 30:09Speaker 03

  Yeah, and one of the, one of the things I'll say is like, I mean, when you've been in business, working with folks, a lot of our folks have built up their wealth through small business ownership. And the crazy thing is, is I've seen the gamut. I have seen individuals that know their industry. They know exactly what their sales are. They know what their company is worth. They have a really good track record of keeping good numbers so that if anything ever happened to them, they may not ever want to sell. But, but it's all in place and it's ready to rock and roll. And, and I've, you know, as a financial advisor, I'm sure a lot of others have seen it. Is where like you're almost paying. To still work, you know, and so like when I do get excited is trying to help people

• 30:52Speaker 03

  understand like let's exit your business like you've built up all your savings, you've done a great job, you're almost, you know, and there has been so much change with technology and in different industries. I mean, some of these folks are like pulling their hair out and I'm like, you don't, you don't gotta do this anymore, you know, but they don't understand that. They've never sat down with somebody like yourself or just kind of really crunched the numbers and thought about what, what they want from an exit, um, you know, and the days of going like, oh, I'm just gonna slowly kick back and somebody's gonna do all the work for me. That's a very challenging dynamic, I feel, you know, I don't know what your thought has been. Do a lot of people just think like, I'm just gonna pull back and hire somebody to manage it for me? And have you seen that work efficiently?

• 31:36Speaker 05

  Well, I mean, if it's a family business, there's that, right? You have the next generation coming up that you have kids that are working in the business that potentially take it over, but they're, man, some of the messiest deals out there are the, the family operations because typically you have work in the business kids and other kids that think they should have equal percentage ownership and they're not working in the business. So I charge more for family business because of the, the potential dynamics, right? And it gets a little bit messy and there's heated conversations because they're passionate and they know each other. Um, yeah, yeah. As you were talking about, and I think we talked the, about the national stats is 20% are like the customers that you define that actually have a plan

• 32:19Speaker 05

  and they're locked and loaded and they know what's gonna happen if something bad happens. But what I see more often than not, Chris, is people just ride this thing, you know, until it starts to fade and then, and they're at the burnout phase and the revenues have gone down, the expenses have gone up, the income that they're able to take out of the company is dried up. And that's the absolute worst time to sell your business, right? Because any educated buyer is gonna come in and say, look, I'm, I'm buying your future cash flows based off your historical financial performance. So you want to sell that business when it's on a, you know, hockey stick upward trajectory, right? So the forecasts are going

• 33:01Speaker 05

  up. If you ride the thing, it makes me think of a, um, quote, a guy told me 25 years ago at a retreat, he said, if the horse that you're riding dies, get off.

• 33:16Speaker 03

  Right, yeah.

• 33:17Speaker 05

  Kind of simple, but yet profound, right? And a lot of people just ride that horse until it dies and then they're like, okay, sell this for me. It's like, well, you don't have anything to sell. You're, you've got a dead horse, right? So that's when you have the liquidation event and there's no value. And the sad thing is, is that most owners think that their business is worth more than it actually is because they played golf with the guy at the country club who sold it time, you know, three times annual revenues or whatever.

• 33:46Speaker 03

  Right.

• 33:46Speaker 05

  But the reality is, is in this day and age, all the valuations are done off of cash flow. You've got fancy terms like EBITDA and sellers discretionary earnings times a certain multiple. But the reality is, is it's all based off cash flow. And if you're turning three million a year in annual revenue and it's costing you 3.2 in expenses, you're losing 200 grand a year and nobody wants to buy a loser, right? You want to cash quickly.

• 34:14Speaker 03

  One of the things I was going to ask you about is a lot of times I see, I see a lot of individuals, they have so much of their life, lifestyle and expenses wrapped up into the cash flow of the business. So a lot of times, do you have to like go through and work with a CPA to like try to clean that up? Because it's like, if you're going to sell the business and you're used to 80,000 of your annual expenses are being paid for by the business, yeah, you may only claim $50,000 of income or $80,000 of, you know, but so much of your lifestyle is wrapped into that. Is that a common thing where there's just a lot of, you know, kind of overlap? And there's not a clean kind of picture as far as being able to sell that?

• 34:54Speaker 05

  Yeah, that's a great question and often the case, right? People, it's all legal till you get caught. So people run as much as they possibly can through their company. And that's an advantage of working with an exit planner before going to market with a broker or a M and A advisor, is I like to catch people at least a couple of years out from when we go to market. So we can do that kind of cleanup. I mean, every business owner does it, including myself. You push envelope on, you know, what's a defendable expense if you get audited. But if you're doing like a lot of cash and you're trying to tell the prospective buyer, "Oh, well, you know, I do 300 grand a year in cash deals." I'm like, "Well, where's it at? I don't see it in your financial statements."

• 35:39Speaker 05

  "Well, I don't claim it because I keep Uncle Sam out of that equation." "But you have a side ledger?"

• 35:45Speaker 03

  Yeah.

• 35:45Speaker 05

  "No, I just, I have a bit, but it's like, you can't sell that, right?" "Because if I represent that guy..."

• 35:51Speaker 03

  "I pinky promise. I pinky promise I do it."

• 35:53Speaker 05

  Yeah, and always, you know, the comeback from the prospective buyer is like, "Okay, if you're going to lie to IRS, why would I believe you?"

• 35:59Speaker 03

  Yeah.

• 36:00Speaker 05

  So it's an opportunity to minimize that. I mean, it happens in every single business. So there's a reasonable amount of add backs to get to your EBITDA, which is earnings before interest, taxes, depreciation and amortization, are kind of the funny math that the accountants do to help us

• 36:18Speaker 03

  Yeah.

• 36:18Speaker 05

  not pay a big tax burden. But to get to seller's discretionary earnings, which probably is a synonym for cash flow, you do the personal add backs. So you're basically looking at how much cash that business spins out with the owner absentee, right? So we're going to buy this company, the owner's going to go away. So we're going to add back his salary, his car payment, his car insurance payment, his key man life insurance, all those things, cell phones for the whole family. You know, the daughter who lives on the East Coast that gets paid and never showed up.

• 36:57Speaker 03

  Yeah.

• 36:59Speaker 05

  Those could be add backs, but we need, I try to tell people, "Let's minimize those," right? Because even if you're, worst case scenario, and you're paying a 40% tax bracket, pay the taxes and show it on your financial statements, knowing that we're going to get a three to four to five times cash flow multiple.

• 37:19Speaker 03

  Right.

• 37:20Speaker 05

  So let's do the simple math. If you're a 40% tax bracket and you pay the taxes on your money, if you're getting a three times multiple, if you do...

• 37:32Speaker 05

  I think that turns out to like a 7.5X return. So pay the taxes on it, show it on your financial statement, and let's get a, you know, an extra turn and a bigger number at the exit. So it makes sense to have, to pay the tax man, although we don't like to.

• 37:49Speaker 03

  Yeah, no, I mean, you gotta try to.

• 37:53Speaker 05

  Typically, they're looking at three years' worth of financials, right?

• 37:55Speaker 03

  Yep. Yeah. So have the plan in place. Perfect. Hey, we're going to take a quick break, and when we come back, we're going to talk a little bit more about business exit planning with Scott Garrison. We'll be right back.

• 38:05Speaker 00

  Are you nearing retirement and currently working with a financial advisor? Are you not sure if you're invested appropriately? Call our offices at 661-847-1000 to sit down with a Money Wise financial advisor for a no obligation assessment.

• 38:30Speaker 03

  Welcome back. This is the Money Wise Show. I'm your host today, Chris Pelster, joined by Mr. Dustin Weaver, and we have a wonderful guest today, a guy who hasn't been on in too long because it was California Avenue and probably some different technology. As a matter of fact, I remember, I think they used the headphones with the little Britney Spears microphone that came around and we all, yeah, we all sat around the table, and I wasn't even part of the team then. That was actually when I met the Money Wise crew and was lucky enough to pick their brain about financial planning and thinking about maybe that was what I wanted to do. And they took a chance on me. So that was one of the first days. I started a nonprofit corporation, actually was how I met him, and I wrangled Brian Wiley

• 39:15Speaker 03

  into being on the board. He introduced me to Garo at that point. Little did I know he was going to become one of my closest and dearest friends. And here we are now, sitting in the Garo Ellis padded radio room off Stockton Highway. It's just crazy to think about. But Scott, thanks for joining us. Thanks for sharing the good, bad, and the ugly of the experiences that pushed you into starting Planned Exits, where you're joining with business professionals and starting that conversation. And getting their their plan together for their exit. And I mean, I've heard it said, and it makes so much sense to me. And I know that it probably sounds like, well, yeah, why wouldn't you? But like, you're supposed to start a business with the exit in mind. Like, right? Like, as you're designing your business. But so many times, it's just

• 40:00Speaker 03

  survival. And it's all out war. And you're trying to, you know, life is changing quickly. And you're maybe worrying about diapers, or this or that. And at the same time, you're trying to run a business. And, and it's, it is definitely all out war. And all too often, though, I do see people riding that horse way too long, without taking the time to step back and to really start to think about what an exit can be. And not that that means you're giving up. Not that it means that you're, you know, like, you're no longer relevant, or whatever. But you need to have a planned exit, you know, some sort of strategy in place. Because you never know if it's going to be forced on you or not. I mean, lo and behold, we're sitting here talking about Gero Ellis. I know he had plans on

• 40:43Speaker 03

  being in the industry and working for another five to 10 years with his great clients. And lo and behold, disability, right? We just talked about the D's that that sometimes force changes on us.

• 40:53Speaker 04

  That brings up a good point. We've talked a little bit about succession and these planned exits. But what about for the folks that the sale or the exit is years in advance? What is something they should do? Is it continuity planning? What do you call it?

• 41:06Speaker 05

  Yeah, Dustin, good question. In fact, I've only, I'll be celebrating my one year in business next week. I actually launched planned exits on my father's birthday on February 2. Because my dad, that's where I feel like I got the entrepreneurial DNA from my dad. And he's been gone since 2011. But just a way to honor him.

• 41:29Speaker 03

  Yeah, very cool.

• 41:29Speaker 05

  Because he taught me a lot of what I know about just going for it, and being brave, being a warrior, and being courageous, and never giving up. So, yeah, but I launched the business in, as planned exits, thinking that I was gonna find these people that are two to three years away from, from selling their company. And I actually have a little bit of a reputation for being the VP of Sales and Marketing for a couple of Inc. 5000 companies here in town, Lightspeed Systems and Stria, combined, made that list 10 years.

• 42:03Speaker 05

  So people knew that reputation and they're like, look, first guy to hire me was Michael Hanson, runs Hanson's Moving Storage, you know, second, third, third generation business. And he's, you know, 12, 14 years my junior and he's like, look, I just need to have you, you know, bring in some enthusiasm and get me over the hump. We're kind of stuck at the certain size. And so I'm just doing strategic growth planning for, for them. And then he was kind enough to bring me over to the other company he, he owns ADS. And we were actually able to do a little M and A, right? So we, we had a division that wasn't very profitable and we sold that off. And we used those proceeds and that bandwidth of time and, and human

• 42:46Speaker 05

  capital to acquire a different shredding company, Metro here, here in town.

• 42:52Speaker 04

  Oh, wow.

• 42:52Speaker 05

  Um, so yeah, we're, we're, you don't have to be selling the, the whole thing or, you know, we could do growth by acquisition and buy strategics and competitors and roll some things up and get it to a different level. So when it does come time for Michael to sell that company, probably long after I'm gone, yeah, he could do it at maximum value. And the things that we're showing, or I'm having a chance to show him and Anthony Tobin at Advanced Network Solutions, another younger entrepreneurial guy that hired me just to, to help them grow strategically. It's just that. It's like, let's do this intelligently. So if that opportunity comes along for a strategic to come give you an offer, we're,

• 43:34Speaker 05

  we're ready. And, and honestly, you know, since everything's built off of cash flow, if I'm showing you how to grow and generate more cash at the bottom line, you could take full advantage of that when you're in the prime of your earning potential and, and draw a larger salary and bigger bonuses and pay your people more and, you know, grow and...

• 43:54Speaker 04

  Wow. Yeah. It sounds like businesses of all types and sizes and phase and stage can benefit from, from chatting with you. So, um, it sounds like you're doing some good work out there.

• 44:04Speaker 05

  It, it's fun and I'm passionate about it, as you can tell. I don't get too hyped up when I start talking about it. But that's something I want to bring up too, is the, the passion cycle. I was just at a conference for business buyers this last weekend in, in Las Vegas.

• 44:22Speaker 05

  Interesting side note, I'm doing the dry January thing.

• 44:24Speaker 03

  Yeah.

• 44:25Speaker 05

  Not that I had an extreme problem with alcohol.

• 44:27Speaker 03

  Right.

• 44:28Speaker 05

  Vegas is a whole different experience.

• 44:30Speaker 03

  Yeah.

• 44:30Speaker 05

  Dry January. It's a lot more affordable. Anyway, I was at a conference this past weekend and I forgot where I was going with that. Oh, the gentleman Chad Peterson was talking about the passion cycle. Right. And part of the problem is like entrepreneurs, when they first start off their, their business, I mean, they are fired up.

• 44:52Speaker 03

  Oh, yeah.

• 44:53Speaker 05

  There's an obsession, right? They were just listening to everything, learning, working their tail off. And then it becomes, you know, a pretty steady passion. Like this is what I was called to do and born to do and hard driving. But then somewhere along the line, the boredom sets in. It's like, okay, been there, done that. This is just, you know, I'm getting up every day and it's kind of the same old, same old. And then, you know, that can turn into burnout. Right. After you have too much stress and you've just been doing the same grind for 20, 25, 30 years.

• 45:27Speaker 05

  And that's sadly, when, when the profits start to decline and the cash flow starts to decline. So again, the projections of cash flow are now showing a downward path. So the forecasts are not in your favor. So.

• 45:42Speaker 03

  You're going to catch things before that stage.

• 45:44Speaker 05

  Yeah. Try to get somewhere between passion and boredom or definitely, you know, don't get from boredom to burnt out. Because by the time you're burnt out, your customers have seen that, your employees have seen that. You probably lost some key accounts, you probably lost some key players. And you're trying to salvage something that doesn't have much value. And in a lot of times you can bring in somebody that starts at the top with that obsession. So you can sell your company and they can give it that new shot in the arm that it needs. And some fresh ideas and some modernization and some technology to take it to a whole different level.

• 46:19Speaker 03

  Now, you mentioned, you know, working with a team of professionals, a lot of times for these folks, you know, you have their CPAs, maybe business attorneys. And, and maybe even their financial advisor or planner, if, if, if they're all coordinated. What are some tax liabilities for business owners that they have to think about? Or I know that you're not a tax professional yourself, but what are some of the thought process there? Or maybe some of the gotchas that sometimes people cannot, not realize are there when they do sell their business?

• 46:44Speaker 05

  Yeah. I mean, if you're selling for a big number, you obviously need to deal with cap gains, right? So. One, not to make this a political show, or get too deep in the weeds on politics, but I would suggest with the recent election that there's a four-year window that will be more favorable for people to sell their companies as it pertains to cap gains taxes.

• 47:09Speaker 03

  Gotcha.

• 47:10Speaker 05

  And we have a particular president who might say enough

• 47:14Speaker 03

  Yeah.

• 47:15Speaker 05

  to turn off enough people to where the next election may not be quite as favorable to those who are high income.

• 47:22Speaker 03

  Yeah, there's gonna be a lot of, a lot of changes and I've been telling people, man, it's, it's, it's a lot. It's, it's a lot of changes getting kind of pushed through right now. And sometimes there's unintended, unintended consequences and it's going to be a lot for us to all digest as we see how kind of all this starts to impact our, our, you know, everything. The one question that did come in is whatever happened to the Bakersfield Blitz team?

• 47:44Speaker 05

  Oh, that's hilarious.

• 47:45Speaker 03

  Those were some good times. Went to a handful of those games. They're gone and the thing's gone. Real quick.

• 47:50Speaker 05

  Yeah, no, I was, I was an owner slash donor of the Bakersfield Blitz and it was not a very good model. It's one of those investments I made with the heart.