Transcript: 

Voiceover: [00:00:00] Welcome to Retirement Unlocked with Larry Heller, your life Your Way, unlimited possibilities. Join us as we explore how tailored financial planning and investments can help you navigate life transitions with confidence. Let’s dive into this week’s episode. 

Matt Halloran: Hello and welcome to the Retirement Unlocked podcast with your host, Larry Heller.

Today we’re gonna discuss retirement planning for business owners, and our guest today is Paul Cronin, a seasoned entrepreneur and m and a advisor with over 30 years experience in sales management and consulting. He’s owned three businesses and worked in exit planning and business sales since 2009.

Paul is now part of the m and a team at. Touchstone advisors. He’s also a sought after speaker who’s presented at institutions like the Harvard Business School, Babson, and Northeastern. All right, Larry, take it away. 

Larry Heller: Thanks, Matt. Thank you, Paul, for joining us today. Uh, we’ve got a great topic to talk about, so why don’t we [00:01:00] jump into it?

Paul, welcome and, um. Why don’t we kind of just start, go right through it and, and talk about how retirement plays into a business owner’s decision or a desire to sell their business. 

Paul Cronin: Sure. Um, well, what I tell all, uh, business owners, and first of all thanks for having me, is every business owner is gonna leave their business someday and really only, only have two choices they can plan forward on their terms.

Or let others plan it for them. So it’s kind of, which sounds better to you and all of us, uh, because of that in our society, the norm should get to a certain stage of life. Like me, a guy in his sixties. Uh, and when you meet people for lunches I did today, they said, so are you retired yet? And, and, and if you own a business, it doesn’t really matter for a lot of business owners.

The second part, a following question is, so what are you gonna do with the business if you wanna [00:02:00] retire? And that’s how we end up on shows, talking about business selling and retirement. 

Larry Heller: Okay, so when should, when should someone start thinking about this? I mean, we, you mentioned this, the, the sixties, but probably people come to you and they’re, you know, okay, I wanna sell, and I think tomorrow this is gonna turn on a switch and, and, and be, and be good.

But, so one, one day they wake up, I don’t wanna, I wanna retire. So should they kind of start thinking about it then 

Paul Cronin: that’s too late, is you’re trying to retire soon. As I like to say, most business owners today realize that it takes a while, um, to sell a business. Uh, some don’t. Some are delusional. They think, you know, it’s like selling a house.

You call a realtor and you know. Do what you have to do. Um, but it takes two to three years typically to really get completely ready. Most business owners spend most of their career as I have focus on how do you bring some [00:03:00] revenue in? How do you make money? How do you pay the bills and put kids through school and everything else that you need to do?

And then, oh, I’ll figure out what to do with the business someday. But what always happens. Inevitably is, is some combination of the four Ds occurs to every business owner, and that’s death, disability, divorce, or disagreement disagreed being with partners, for example. Um, and all partnerships end. They are organic beings.

They have a birth to life under death. 

Larry Heller: Mm-hmm. 

Paul Cronin: And any of those other Ds could happen to the owner, but just as likely it happens to people they care about. Friends, family, et cetera. And that just gets, you know, the ex the, uh, the ultimate existential question is, what am I gonna do with this business? 

Larry Heller: So, yeah, I like the 3D ena scenario now.

So, uh, so, you know, what do, what do many people face when they think about leaving or selling the, selling the business? Uh, what, what should they be thinking about? [00:04:00] 

Paul Cronin: Well, the first thing is, is you know, who would buy my business? And a way to invert that question is, would I buy my business? Um, which is really a hard.

Thing to answer for a lot of business owners. Um, you know, sadly, you, you’ll, I occasionally will get calls. Most of my clients, really, all my clients come from referral, but occasionally I’ll get calls from business owners and I have to sell my business. And I said, gee, why is that? Well, you know, I’m losing money.

I can’t afford to lose any more money. And like, well, why would, would you buy your business? Of course not. Why would you expect anyone else to buy your business? Um, so that’s a good question to ask. Mm-hmm. But, you know, the before all that, the preparation piece is to speak to, in some form, you know, I call the Holy Trinity of business owners.

And if you’re Catholic, you know what that means, but it’s the father, son and the, and the Holy Spirit. Right? Well, there’s an accountant, a lawyer. And a financial advisor [00:05:00] tend to be the three most trusted advisors for most business owners throughout most of their career. And those are the conversations you typically are gonna have with those people in some form.

Right. The financial advisors are gonna ask you, what’s the company worth, because that’s part of their job, right? Mm-hmm. Accountants are going to be presenting you with some sort of financials, which give you a sense of, if you look at the balance statement, you can go, gee, is my equity increasing or decreasing?

Um, and depending on kind of relationship you have with your lawyer, um, they could be asking you questions about, you know, contracts, um, buy, sell agreements, all sorts of things that relate to how, what is going to happen to the business. Um, so if you are having those conversations with some regularities business owner, you’re sort of bumping up against this existential question anyway.

Larry Heller: So Paul, what do you think of a business, kind of an exercise that a business owner can follow when they’re trying to get started in selling their [00:06:00] practice or their business? 

Paul Cronin: Yeah, so the exercise I recommend is called what goals can I accomplish by selling my business? And there’s personal goals, business goals, and financial goals.

They’re not always equal to one another. I sometimes can be in conflict. But if you take that question at the top of a sheet and have three columns, you know, list your business goals, list your, uh, personal goals, and list your financial goals, often perhaps talking through these goals with someone you trust, you’re more likely to come up with the kind of goals.

That can be accomplished if you sell your business. And if you don’t spend time thinking through those goals, if perhaps it’s like, you know, I’ve just gotta sell my business for whatever the reason, all the other goals that you haven’t fully explored will emerge and you’ll suddenly come in conflict with, you know, what the deal looks like at the end.

Hmm. 

Larry Heller: So I, when I talk to [00:07:00] some business owners, I tell ’em, put down your must-haves, like what are your must-haves when you’re going to try to sell the business? Uh, and if they can put down a couple of those, a lot of the other issues that some kind of come up, kind of go into the, the background. So, uh, it’s one of the things that I, that I do if I have a business owner that’s is, is talking or thinking about starting to, starting to sell.

So, you know, one of the things. I guess you can relate to this is when someone goes to sell, they, they have this business, but is the business in the right place in order for them to, to sell? What I mean by by that is are there financials in the proper place? How much. Expenses that they may be running through the business, that they shouldn’t be running through the business.

So, so what do you think of a business valuation as it relates to an owner’s decision to sell and some of the things that that business owner can be doing? 

Paul Cronin: Yeah, I, I think a valuation can have a, a lot [00:08:00] of, um, can be very meaningful to a lot of business owners. And it depends what your, you, every, every valuation has a purpose, right?

So if it’s just a, you know, I’m trying to get a sense of what this business is worth to do, estate planning, well then that’s what that’s for. If you have a third party, whether it’s myself or others, you’re, you’re, you’re getting a real sense of what this business might be worth to, uh, an outside buyer, for example.

It’s not an inside sale, so that, that can be helpful. But the, you know, the blocking tackling before you get to me is really again, talking to those trusted advisors to make sure, you know, do in fact, you know, do my books actually make sense? You alluded to, you know, the personal expenses, which are often quite legal to run through the business.

Mm-hmm. But they, they end up sometime becoming, uh, a hindrance when you’re trying to figure out what the real value of the business [00:09:00] and buyers sometimes, you know, get concerned with. 

Larry Heller: Yeah, you mentioned, you know, valuation. I, I, I think that’s so important ’cause a lot of people kind of, a lot of times overvalue what they think the business is is worth.

So having every, everyone, 

Paul Cronin: I, I haven’t had a business owner yet in all the years have been doing it under that undervalued their business. That will be a first Larry. Yeah. 

Larry Heller: So getting a third, getting a. A third party in it, professional that can, um, be a middleman or kind of abstract for it is a great, is a, is a great idea.

So, uh, so those are some of the, the, the things that a business owner should try to do. What are, what are kind of like the three biggest mistakes that someone to try trying to sell a business makes? 

Paul Cronin: Well, the first is, you know, thinking you can just sell your business when you are ready. A business only sells when the business is ready.

That’s it. I mean, other than liquidation value, virtually anything can be liquidated. So, you know, you could say, well, I’ve [00:10:00] saved enough for retirement. I guess it’s time to sell my company. Doesn’t really matter. Um, if your business isn’t transferable, like if, if it’s really me incorporated, as I say, is, you know, what’s your first line level of management?

The guy in the mirror. That’s a more difficult business to sell again, and it, it can’t have a value, but it might not be worth the fees that you pay lawyers and accountants to help you sell the company. Um, another could be, um, you get a call and an unsolicited offer. And then you decide that, oh, that’s fine.

You know, I, I’ve got a team, we’ll work, we’ll work this on our own. We’ve got a lawyer, we’ve got an accountant. We’re just fine. The difficulty with that is you’ve just taken on the job of an m and a advisor while you’re running a company, and it’s not an easy thing to sell a company. You also are telling the buyer that they have no competition.

Which means that they will take as [00:11:00] much time as they need to. Uh, particularly if you’re working, you’re talking to a professional buyer, like a private equity fund. Um, you know, a private equity firm may look at a thousand companies a year. The fact that they’re pursuing you just means there’s nine, you know, there’s 999 others that they’re also looking at.

And so it’s really wise when someone does call on you unsolicited to talk to your trusted advisors and say, is there somebody I should be talking to to learn about the process? ’cause sometimes. You know, an m and I advisor would say, you know that PE you were one of the 50 calls they had to make today.

Mm-hmm. You’re not ready to go to market right now. 

Larry Heller: So let’s see if we can get some, some examples. I’ll put you a little bit on the spot, so without obviously naming names, but, um, can you give an example of a business owner that came to you with thinking they were, they were, when you said they were gonna, looks like they were gonna make some mistakes and what you were able [00:12:00] to do to kind of help them avoid, avoid that.

Um, a lot of people don’t realize what an MA. Um, advisor does. So if you can give us a specific, I think the, the audience would, would kind of, um, love to hear that. 

Paul Cronin: Yeah. I mean, I was talking to a gentleman who, you know, had been thinking seriously about selling. He got an unsolicited offer and at the same time he was seriously considering add, adding a whole new product line was gonna be a seven figure investment.

The, the question that comes back to that, you know, what are you really trying to accomplish, right? If you’re gonna make this big investment, it could take years before you could get a return on that. Is the buyer gonna pay you for that or should you wait? Right. Um, other examples, you know, where I’ve seen is, you know, the, if you will, sort of the, the sad example, you know, I’ve gotta sell my business.

No, you, you can’t sell your business right now. You’ve got to step back. You, you’ve got to think through this. Uh, another one [00:13:00] can be, I’d really like to sell it to, you know, my manager, you know, he’s been very loyal. I wanna, I wanna work things out with him. And I said, well, that’s great, but unless they’ve got great credit, it’s gonna be a kind of a challenge.

And if you, unless you’ve got great profits, you know, that can be provable to the, to the bank. Uh, how is that person going to, uh, borrow the money? To pay you back. Uh, unless of course you wanna be the bank, right? You’re gonna offer them a 10 year loan at X percent and wait for them to pay you back out of the profits of your business.

Larry Heller: How long typically is the process? So when someone comes to you and says, I’m ready to sell my, my business, what, when you can, you kind of go through the steps that you take, um, when you’re meeting with a prospective client and. Each step until they eventually have a successful sale. 

Paul Cronin: Yeah. So what I and I, the process we use in my company is we always [00:14:00] like to start with what we call an estimate of value, which is slightly different than a formal business valuation that you might get from appraisal firm.

Um, it’s a whole show about the different kind of valuations, but the estimated value is essentially what would this business sell as it exists today to a third party. We like to start there because it allows us to get into the financials, it gets to see how things are organized, and quite frankly. Do we like these people?

Right. I’m, I have no interest in working with people who are no fun. Okay. It’s just not worth the aggravation. Uh, my nickname for m and a, by the way, it should be migraines and aggravation. ’cause you need a high tolerance. Mm-hmm. Um, but assuming you can go through the valuation, which can take. You know, let’s face it, it take a month or it could take four months.

It depends on, you know, what happens. Um, but a more typical engagement from when both parties about, you know, myself and the. Business owner agree. It makes [00:15:00] sense to sell the company. I always tell ’em, plan on 12 months, if you can get it done in nine months, great. 

Larry Heller: Mm-hmm. It rarely 

Paul Cronin: happens in six months, and I’m sure some people will say they can do so, but in my experience, plan on a year, and that’s from the engagement, that’s after you’ve already done valuation, after you’ve done everything else.

So it can take a while. 

Larry Heller: So now they’ve come to you and you’ve done these value valuations in your pre-evaluation that’s taken, you know, maybe a month, maybe four months. What’s the, what’s the, what’s the next step that you do? 

Paul Cronin: We, well, we actually go back to the financials and we dig deeper into them and we start trying to understand.

What are the, what, what are the, what are the core issues that buyers would raise their eyes over? Right? And I, I call it a Fran a a, uh, financial Proctology exam, and it’s just as much fun. Um, you know, we, you know, like, what is this $20,000 expense over there? And then you say, well, oh, well, um, that was a lawsuit I settled with who?

My [00:16:00] brother, I had to get him out of the business, right? Mm-hmm. Okay. We gotta know about that stuff. Um, theoretically that could come up in the evaluation too, but it’s. You know, it’s more important and then you’re actually getting to the business strategy. Like, you know, what kind of buyers would want this?

What are the growth opportunities? What are the strengths, weaknesses, opportunities and threats? Um, then you’re building things like. What, what does the confidential information memorandum look like? The sim, which can be 10 pages, it can be 50 pages. It depends on the, the sophistication of the business. So there’s all of the core elements that require to prepare all the marketing materials.

You’re also at the same time preparing, um, a broad list. In our case, we usually come up with a universes as many as five or 600 potential acquirers, you know, strategic acquirers, uh, or private equity firms. And then we winnow that down. So once you’ve got the marketing piece together and you’ve got your target list, target acquirer list, then [00:17:00] you’re, now you’re ready to go to market That.

That period alone can take three months. I just finished, we just got one ready to go to market and only took eight months to go to market. Right. Um, it happens, right? Businesses have issues. 

Larry Heller: So just to clarify, so one of the, one of the reasons why to use an m and a is really putting that sim together in the proper way that when you send that sim out to the target.

Potential buyers, they’re attracted, so they want to come back and, and get some more information. Correct? 

Paul Cronin: Uh, yeah. So slightly different. So we, we typically, uh, you are gonna start very high level. You might have a, a a five bullet email, X, Y, Z. Here are the things, are you interested? Click here, sign the non-disclosure, here’s the blind profile.

It’s kind of a one page, you know, uh, anonymized summary of the business. And then the, that particular target, the acquirer can then. After they assign the NDA, [00:18:00] then they get access to the sim and what’s called the data room, which has all the financials and everything else about the business. So that buyer, uh, potential acquirer can start digging into the business and they come up with their list of questions to try to understand 

Larry Heller: and then I guess then it, then you kind of go back and forth until you have somebody a little bit more, one or two firms that are interested.

And then I guess you then go even deeper. Correct. 

Paul Cronin: Yeah, so it’s sort of like, you know, three months to get it ready, three months in the market, three months to sort of winnow it down, to getting to some kind of, uh, letter of intent where you sign it off and now you’re gone exclusive. And then whether it’s two months, three months, or six months of due diligence, hopefully not six months.

Matt Halloran: Mm-hmm. You 

Paul Cronin: know, that’s how you end up with that, taking 12 months to finally actually get a closed transaction. Oh, and by the way. The bonus is two to three months afterwards, there’s post-transaction issues that sort of come up and you hang around. [00:19:00] Um, so it just takes a while and then, and then you get the actual transition.

Which can take one to three years, depending on the nature of the business before you’re totally, completely out of the business. 

Larry Heller: Right. So I guess if you’re really kind of looking to retire and they’re looking for it, you want to exit and you, you just kind of put this. Timeframe together between preparing, then presenting, and then staying on in the business?

It could be what, a five year timeframe? From the timeframe? Yes. For 

Paul Cronin: a larger business. Yeah. If you’re, if you’re owning a $10 million company, the idea that you’re gonna be out in six months is pretty unusual. 

Voiceover: Mm-hmm. Um. 

Paul Cronin: Certainly a year. Um, most buzz businesses, certainly a private equity company, they’re gonna acquire, ask the seller to sign, you know, a three year, um, engagement.

Usually some form of consulting contract. Um, and usually after 12 to 18 months, both parties start to figure out [00:20:00] that they don’t need each other anymore, and then they just sort of close out the contract, you know, buy it out in some form. But that’s what you sort of buy into. Um, if you’re selling the corner store and you’re selling to an internal employee, you know, who’s been your manager for a long time, um, you know, I had a situation many years ago where that’s just what happened.

And so the, the seller said, you know, I’m available. Five days a week for a month, and then I’m available three days a week for another month, and I’m available two days a week for another month. And that particular buyer, he ended up with a quarterly lunch with that business owner for about four years.

You know? Right. And not just as the nature you can develop with that. It’s a little different when you get into a larger business and private equity. Yeah. 

Larry Heller: So if you’re a business owner and you’re really starting to think about. A retirement or an exit strategy, you really wanna start thinking about this years in advance so you can plan properly and have the necessary time, and then you’re [00:21:00] not still working when you thought you’d be sitting on a beach somewhere in, in, in retirement.

Paul Cronin: Yeah. I, it, it, it makes sense. I always tell people, it’s like people reach the age of 60 as business owners and a subconscious bell goes off in the back of their head and they’re like. I should be thinking about this diving down the road, whatever the case may be. And the difference between those who hear that bell and successfully exit between those people and the people who hear that bell and then, you know, get onto the next phone call, is really the difference between success and failure.

And unfortunately, most business owners don’t successfully lead their company. 

Larry Heller: Hmm. I mean, great point to be taken. Any final thoughts that you have today? There’s a lot of good information here for our business owners out there. 

Paul Cronin: Yeah. I, I always say is, you know, talk to your trusted advisors. Try to have some conversation with m and a advisors sooner.

The good ones [00:22:00] are not gonna sit there and try to shove a contract under your nose to like, let me sell your business now. Anyone who does walk away is not the one you wanna talk to and, and, and learn about. The, um, weaknesses in your business now so that you can start working on them and then you have a business that’s ready to sell when you are ready to sell.

Larry Heller: Great. Thanks so much, Paul for joining us today. If somebody wa wants to speak to you further, wants to reach out to you as the best way for them to get in touch with you, 

Paul Cronin: uh, just my email, Pcronin@touchstoneadvisors.com. 

Larry Heller: Great. Thanks so much for joining us today, Paul. 

Matt Halloran: Enjoyed it very much, and thanks for tuning into the Retirement Unlocked Podcast.

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