Ethan Hutcheson: [00:00:00] As someone who, who like is wanting to sell a business, when would you recommend having that conversation? Who do you loop in? How do you even start that, that process? Because from my understanding, it can, it can be, you know, six months process or a six year process [00:00:15] depending on complexity. So when is a good time to start and think about that conversation?

Jeff Coppaken: What a terrible answer I'm about to give you. It's always the right time to start that process and so if, if you plan on exiting in six months and you haven't started it, you gotta [00:00:30] start the process right now. If you plan on exiting in six years, you should have a strategic plan in place, and in my opinion, that involves your tax advisor, your wealth manager, and your business attorney.[00:00:45]

Voiceover: Welcome to Metcalf Money Moment. The podcast unlock financial clarity and confidence with expert insights to achieve your goals. Hosted by Jeb Graham, Ethan Hutchinson and Eric Wymore. Each episode [00:01:00] offers decades of combined expertise in wealth management. Retirement planning and more. Join us for practical strategies to inspire your financial journey.

Now your hosts[00:01:15]

Jeb Graham: welcome to Metcalf Money Moments podcast. My name is Jeb Graham here with. Eric Wymore and Ethan Husson. How you guys doing? Doing good.

Eric Wymore: Doing well? Yep.

Jeb Graham: Good. And then we've got a special guest today. Uh, Jeff [00:01:30] Cop, pagan with Cop, pagan law firm. Uh, Jeff, nice to have you here. How you doing?

Jeff Coppaken: I'm doing great.

Thanks for having me this morning.

Jeb Graham: Good. Yeah. Well, I tell you what, it's like one of those, it's, it's the week before Thanksgiving when we're recording it. A little bit gloomy out there, and it's a good day [00:01:45] to be on inside on a podcast. I think so. Um, but see, yeah. So Jeff, uh, specializes in m and a or mergers and acquisitions in law, and I think maybe we can just start Jeff, talking a little bit about just the current state of m and A market and [00:02:00] what, what all is going on out there.

Jeff Coppaken: Yeah, absolutely. It's a, a really interesting time, uh, in the m and a market. It's, uh, you know, we're coming off of a, uh, month plus government shutdown, and so a lot of transactions [00:02:15] that were relying on SPA loans have been really hit on pause. Whether that was the process of even, you know, potential, uh, buyers talking to sellers, you know, drafting Lois this time of year for small business is a [00:02:30] really busy time for, uh, m and a work.

People love to get it done before the end of the year. And I think with the SBA shutdown, we're gonna see deals trickling into to next year quite a bit. And there's also this kind of catch up [00:02:45] going on right now with the smaller deals. And then the market as a whole is, you know, still a, um. I'd say a hot market.

And, and a lot of that on the small business side has to do with succession planning. And we have [00:03:00] a generation of, um, boomers who are kind of coming to that time where, you know, it's, they've been putting off retirement or the offer, um, you know, they're waiting for the right offer to come through. And there's not a lot of businesses for sale.

[00:03:15] And so when someone decides, Hey, now is my time, they have generally a plethora of buyers to choose from. Which gives a seller the ability to really look for what's right for them, you know? And not every seller is gonna match up [00:03:30] with every buyer. And so it's an interesting process and, uh, because I focus, I would say my transactions are anywhere on the low end, you know, sub $1 million transaction price, up to about $30 million in transaction price.

And [00:03:45] so in that range, we see individuals, you know, they're, they're. Business owners who want to connect with the business buyer. And it is just an interesting process of making sure there's a personality fit as well,

Ethan Hutcheson: speaking. [00:04:00] So to dovetail off of that m and a as a seller in, in today's market with interest rates, where they're at, uh, coming off the government shutdown and all that, how.

As someone who, who like is wanting to sell a business, when would you recommend having that [00:04:15] conversation? Who do you loop in? How do you even start that, that process? Because I, from my understanding, it can, it can be, you know, a six months process or a six year process, depending on complexity. So when is a good time to start and think about that conversation?`

Jeff Coppaken: What a terrible [00:04:30] answer I'm about to give you. It's always the right time to start that process. I like it. And so if you plan on exiting in six months and you haven't started it, you gotta start the process right now. If you plan on exiting in six years, you should have a [00:04:45] strategic plan in place, and in my opinion, that involves your tax advisor, your wealth manager.

And your business attorney. And I think having that team in place helps you to set your goal and helps you to understand, you know, what [00:05:00] am I potentially gonna sell my business for? How do I avoid, um, pitfalls? What can I do from a tax strategy to make sure that I'm maximizing, um, the sale and paying only the amount of [00:05:15] taxes that I have to, and do I.

Push it out over a couple years. Am I gonna have to do something internal to get my business ready to sell? And so it's a a, a really great question, and the answer is, the time is always right. If you [00:05:30] think that in the future you're gonna sell your business, you should always be prepping to get it ready to go, because when the buyer comes in, if your books are messy, if there are too many owner benefits on the books, those are difficult.[00:05:45]

To take off and you know, there's. You want to sell your business for as much money as possible, but if you're not showing a lot of profit, the buyer comes in, they're gonna multiply the ebitda, or they're gonna use a very similar type of [00:06:00] equation. And if you don't have the numbers that support a high purchase price, it's difficult to sell it.

I always tell people it's really easy for. For everyone to understand how you sell a house. Mm-hmm. Most business owners have bought or sold a house at some point, [00:06:15] and I tell people it's great if you have a great location, but if you have to redo the entire house, don't pull up comps of the house that just did an entire renovation, that has a brand new kitchen and has a pool outback.

You have [00:06:30] to pull comps of the house that is as close to yours. People, as soon as I say that, they seem to get it. But with businesses, they talk about potential and they talk about, you know, well I did all these things over the years and they made it a better lifestyle for me. [00:06:45] But unfortunately, lifestyle doesn't translate to purchase price.

Jeb Graham: Well said. I like that. So, so to so piggyback on that, so I've got a, I can think of two clients right now that are in their seventies that our business owners have profitable [00:07:00] businesses. Have tried over the years to have an internal successor, right? They have hired people and none of 'em have worked out, and they, I know at some point they're gonna get to the point where they're like, okay, it's, it's time to retire.

We've gotta figure this out. And obviously, are you able [00:07:15] to talk a little bit about the process of somebody that does not have an internal succession plan? You know, whether that's, you know, going to market through a business broker or, or that sort of thing. Have you handled some transactions like that and can you talk about, speak to that at all?

Jeff Coppaken: [00:07:30] Yeah, absolutely. So I, I generally have anywhere from five to 10 active transactions at any given time, and I've been doing this now for, oh. 13 years. And so because of that I've really seen all [00:07:45] types of transactions and they all are different. That's the one thing I always tell people. No two are exactly the same.

And so I've seen clients have great relationships with the brokers, have really great experiences with the brokers. [00:08:00] And I've seen unfortunately, you know, buyers and sellers who've had bad experience with brokers. And as far as internal succession, what. I think is most important. If the fit isn't right, it's okay to say no.

It's [00:08:15] okay to pivot and change your plans. There's a lot of different reasons to sell a business and there's a lot of different motivations. For some clients. They wanna sell the business for absolutely as much money as possible, and they are or are not concerned about their employees long [00:08:30] term, and that's okay.

And then there are other sellers who are like, I need the right buyer. I need to know that my employees and my customers are gonna be handled as close to the way as I've handled them in the past. And when that's the process, it's kind of like dating. [00:08:45] You gotta find the right buyer. You gotta take the time to get to know them and need to make sure that there is a culture fit.

And everyone loves to talk about culture. It's, you know, the buzzword that people like to throw around. But it really can't be made, in my [00:09:00] opinion. It's either there or it isn't. And if you have a certain set of culture and you want that to continue, you need to find a buyer who's similar to you. And so if you're using a broker, tell 'em what's important.

You know, it's easy to say, I want [00:09:15] the highest purchase price, but if that's not actually the most important thing to you, then be honest, open lines of communication are the best way to avoid those pitfalls in the future.

Eric Wymore: So, so you've mentioned pitfalls a [00:09:30] couple of times. Um, you know, what are some of the pitfalls that, that you see most often?

You know, what is the process to kind of clean up those pitfalls? Maybe even on a timeline, you know, timeline process. Um, what are things that people can just avoid, [00:09:45] uh, or makes it easier to avoid? Um, so they don't have to spend the extra, extra time cleaning them up.

Jeff Coppaken: Yeah, absolutely. Uh, great question. I think that, you know, it's what I see the most as far as [00:10:00] obstacles or friction points is what I'm gonna call a, you know, when there's a difference of sophistication and, you know, I tell people all the time, you've been running your business and sometimes clients will be like, oh, I'm sorry, I don't understand this.

And I say, [00:10:15] you know, you've been making widgets for 50 years. I couldn't make a widget if you, you know, gave me a year to figure it out. Don't apologize that due diligence is something that you're not familiar with. But what happens is, is a lot of [00:10:30] times you maybe have a, a buyer who's bought and sold multiple businesses.

And because of that, they have an experience that they're trying to, uh, avoid, right? So something happened in the past, and so they may have more [00:10:45] questions in the due diligence process where they want to get down to minutiae, and the seller is starting to get a little bit irritated by it. And they're gonna say, why are they doing this?

And, and you know, I should even rewind, sometimes it [00:11:00] happens with a, a lender. You know, when you're using an institutional lender and the buyer is answering to a bank and the seller says, well, why do they need this? Why do they need that? I try to tell 'em, think of it as there's a list and there's a bunch of boxes that need [00:11:15] to get checked.

We can try to figure out why. Why do they need this? It seems like it's extra. And you know, I'm a single owner, LLC, um, I don't have, let's say. Corporate minutes and, and that's something [00:11:30] that I see quite a bit. If you're a single owner, maybe you haven't had an annual meeting for the last 15 years, but if the lender says, Hey, we need it and you've been the owner for the last 15 years, let's make sure that we give them the paperwork that they need to check that box.

[00:11:45] And so I think it's just having, you know, really good advisors in place so that way your attorney can tell you, Hey, this isn't. This isn't because they need to get into your business, you know, more than is necessary. And so they need to get into your business as much [00:12:00] as they would for any transaction because that person has a job and their job is to check those boxes.

So don't take it personally. You know, they ask for, you know, something and hey, we need to see receipts or proof of funds. [00:12:15] And sometimes like, oh, well why? And I, I try to just make sure that, you know, the why is because we're trying to get to the finish line here and you know, the obstacles, you know, if they're small hurdles or large hurdles, really [00:12:30] when we're, you know, to, I guess stick with that analogy.

If we're running a race and we're running hurdles, you gotta jump over 'em, right.

Eric Wymore: Yeah, a lot of sellers fatigue, I'm guessing that you deal with on a, on a regular basis when you're dealing with the five to 10 [00:12:45] 15 or five to 10 transactions.

Jeff Coppaken: Absolutely. Yeah. And, and the, a lot of sellers fatigue and sometimes even buyer fatigue, you know, if they're working with a lender, um, you know, institutional lenders, sometimes the, the buyer says.

Hey, I don't care [00:13:00] about those things and I have to have the same conversation if I'm representing the buyer. 'cause I do about 50 50 buyer, seller side. And I'll say once again, you know, they need that thing, those things because they're about to lend you $12 million. [00:13:15] Right, right. So they need to see, and they need to do a title search on the property that your family owns in, you know, Puerto Rico that you're using as collateral.

Jeb Graham: Nice. So, so Jeff. To this. I, I think we just kind of went [00:13:30] through a few different deal structures to a degree, but can you talk a little bit about the most, like when you're talking about an internal succession, what is the most common deal structure that you're seeing? Do you see, you know, people usually go get a loan and paid upfront, or are you seeing, uh, [00:13:45] multiple year earnouts?

Is it kind of all, all the above? Or what, what's the most common? Yeah,

Jeff Coppaken: I would. I would say it is all of the above, but at the same time, when you have internal succession, we see more seller notes than we [00:14:00] do in other types of transactions. And that could be, I'm working on one right now where it's 90% seller financed, and that's because money's expensive right now.

And so the buyer is, has a [00:14:15] longstanding relationship with the seller. There's a trust factor that's in place, and because of that, the seller is acting as the bank and they're able to get interest on it, but it's an interest rate that's lower than the lenders are willing to [00:14:30] offer the buyer. And so I would say that.

Not majority, but maybe, you know, a higher number are utilizing seller notes when we're talking about internal succession. Mm-hmm. But the end of the day, most sellers want cash [00:14:45] upfront. They, they want as much money as possible. Now, even when dealing with the SPA many times, they will require some. Uh, seller participation.

And so there will, even though there's a large chunk being paid up front, maybe [00:15:00] 80%, there could be a seller, you know, uh, carryback note. And it can be structured, you know, straightforward. Hey, you know, we're lending the buyer, uh, half a million dollars and we're gonna do it at, you know, six and a half percent interest payable, [00:15:15] um, subordinate to the SBA and over X amount of years.

And then I also see 'em where they're creative. And it's, you know, hey, um, seller, can you help me get to the finish line? You know, I need you to consult and offer services [00:15:30] for the next five years. You get to basically be retired, but I need, you know, support with these key clients and if we're able to grow them, great.

Instead of me giving you half a million dollars, you may earn up to [00:15:45] 750,000, a million dollars, whatever the case is. I, as an attorney, always love win-win scenarios. Mm-hmm. And so if there is a situation where the seller can assist the buyer for growth. To me. That's fantastic.

Jeb Graham: Mm-hmm. [00:16:00] Is there anything that you would recommend for a seller?

Like when you're, when you're, when they're carrying the note to do, to protect themselves, to make sure that they get paid, whether that's collateralizing the business or are there other things that they would do, um, to protect themselves in that [00:16:15] circumstance?

Jeff Coppaken: Yeah, absolutely. So when I'm working with the seller, uh, we definitely wanna make sure that they have some sort of secured interest in the business, in the person, in the assets.

And it really, you know, it's going to depend on the [00:16:30] business, the business type. If it is a inventory heavy business, it's a lot easier. They're able to, you know, put a, a, a lien or UCC filing on the inventory. Um. Some of the time, and some of the time it [00:16:45] depends on the lender, and then there's personal guarantees, there are corporate guarantees.

Um, there's, you know, other forms of collateral. I've seen a classic car used as collateral before on a business transaction, and [00:17:00] so the answer is. Yes, we want to, you know, protect the seller as much as possible. And then there's also, you know, we'll draft the documents in a way that if, you know, payments are missed, then it triggers X, Y, or Z.

[00:17:15] And you know, traditionally it'll be the acceleration of payment. But we've also done in the past where it's, you know. If you miss a payment, I have the opportunity to buy back the business. And, you know, we try to avoid that as much as possible because the seller wants to walk [00:17:30] away. But if I'm working with a younger seller, sometimes they don't have an issue with that being the collateral because they know if they can buy the business back at a discount that they've already won.

Um, but certainly we try to avoid that. That is really a last, [00:17:45] um, last scenario that we, we look at.

Ethan Hutcheson: Kinda like the Dave Portnoy buying Barstow back for a dollar type of thing.

Jeff Coppaken: Exactly, exactly. That, that was a deal that IS uh, I believe has worked out very well for him.

Ethan Hutcheson: I think so. Yeah. [00:18:00]

Jeff Coppaken: Yeah. He's still eating pizza all the time, but now he gets to, uh, travel on his, you know, second and third jet.

Jeb Graham: Yeah. It seems like a lot of things have worked out really good for him, doesn't it? Yeah. Yes

Jeff Coppaken: it does. But that's probably a whole different [00:18:15] podcast

Ethan Hutcheson: probably. Yeah, I, I've got one last question just outta curiosity. Uh, for, for me, Jeff, how, how long are your engagements when you're, like, how is, how long is the average sale take?

Jeff Coppaken: Yeah. So, uh, you know, [00:18:30] I feel like I'm just attorney answering all this because I keep saying it depends. Yeah, it varies from deal to deal. Um, I've been brought in and closed deals in four weeks when it's, you know, due diligence has been complete and I'm coming into [00:18:45] memorialized terms and I'm not really a part of the team.

That's okay, right? If, if you need a good business attorney and you're at that process, I rarely will tell you no. But the typical engagement is gonna be something closer to six to nine [00:19:00] months. Okay? And so my preference is that I'm brought in pre LOI, because it gives us an opportunity to discuss what's important to you.

How do we memorialize terms, how do we put everything on the table? Uh, and I've also worked on deals that, you know. [00:19:15] Went two or three years, and you know, as they've fallen off and due diligence, maybe the, the seller has a bad year. And instead of, you know, walking away completely, they go and they fix what was wrong.

They lost a key customer. They go replace that [00:19:30] key customer. Um, there were, you know, maybe bloated salaries and they figure out ways to cut or maybe they didn't have the proper. Executive team in place, and they actually have to spend more money to get the executive team in place. And so some of those, some of those [00:19:45] transactions can stem for years.

But in general, it, it tends to be the six to nine month, uh, time period. I always tell people my preference is that I'm in. Long term, did I understand the business? I've worked as general counsel. [00:20:00] Maybe I've done contracts review for the client over the years, and then I have an understanding of their personality because then I know what's important to them.

I have a, you know. I kind of feel as if I'm part of the team and they're gonna hear, alright, [00:20:15] we, and, and you know, we're gonna do this. And I always remind them, I know it's you, I know it's you. But I like to feel that as a team, that we're really looking at everything as a we, because it just gives me an ability to implement.

Um, you know, the, the [00:20:30] business terms. They're important to both sides, of course.

Jeb Graham: Well, very good. Well, Jeff, uh, I know we're coming up on a little over 20 minutes and so, uh, wanna, first of all, thank you. It's been a pleasure to have you on. I think this was super good information specifically for our [00:20:45] clients that are either young business owners or boomers that are actually getting ready to retire in the near term.

I do love what you said about, you know, the time to start thinking about succession planning, whether you're. 30 years old, or 50 years old, or 70 years old as as yesterday, right. We always, we always used to joke, uh, you [00:21:00] know, people that get into the life insurance business, they're like, when should you start thinking about life insurance?

And everyone would say Today or yesterday. You know what I mean? But I feel like that's the same thing, right? With, uh, with when you're gonna sell your business because, um, you know, starting that internal succession plan, and even if you [00:21:15] decide, and I, I think you could probably attest to this, even if you decide to sell it to private equity, right?

Or something like that. It's more valuable if you have an internal succession plan than somebody that's going to be running the business after you're gone. So, [00:21:30] um, so we're always encouraging clients to, to think about that. So, but thank you very much. Uh, we really appreciate you being on. This is great info and this is Metcalf Money Moment podcast in and off.[00:21:45]

Voiceover: Thanks for tuning in to Metcalf Money Moment, the podcast. We hope today's episode provided valuable insights to help you unlock financial clarity, confidence, and peace of mind. For more expert advice and resources, visit metcalf [00:22:00] partners.com. Until next time, make every money moment count.

Disclaimer: Jeb Graham, Ethan Hutchinson and Eric Wymore are registered representatives with and securities offered through LPL Financial Member FINRA SI [00:22:15] PC Investment advice offered through WCG Wealth Advisors, a registered investment advisor, W CG Wealth Advisors, and Metcalf Partners Wealth Management is AR separate entity entities from LPL Financial.

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