Successfully Exiting with Jeff Cullen | E092
How to plan to effectively sell your business.
On today's episode Jason Pereira is going to talk to Jeff Cullen, owner and lead consultant at Basecamp4. It is a company that specializes in exit planning. He will be talking about the exit life cycle and what it looks from an exit planner's perspective and a client perspective to go through certain milestones and the journey of exiting.
Episode Highlights:
1.05: Exit planning is an emergent specialization in management consulting. It is particularly being driven by the saying that time is running short for a lot of business owners.
1.54: The whole idea behind exit planning is to maximize value and basically get the most successful exit plan or exit from your business as possible, says Jeff.
2.57: Jeff shares when does business owners typically need his service. He talks about the life cycle and how the entire process works.
3.42: Exit planning institutes have done tons of research on the numbers of companies that don't successfully exit, and it's a pretty shockingly high number.
6.11: You can't manage a 25-to-35-person company the same way that you can manage an 8-person company, and that is one of the first steps where owners may run into problems, says Jeff.
6.57: Jeff shares how he starts assessing business to understand where the holes are. What does his process look like to understand what's going on with that business?
7.11: The business assessment method that Jeff uses is a lot more holistic. They have three-legged tools which are basically the business, the financial plan for the individual and their family and then there is also the personal side.
10.04: The assessment is done in a way that everything is kind of transparent and there is a logical progression where most owners know how they are performing, says Jeff.
12.33: When you do exit, it's not a disaster. If any exit happens unexpectedly, the company can survive, says Jeff.
13.42: Jeff shares in terms of fixing gaps, how much resistance does he sees on an average to acceptance by business owners?
15.29: As the biggest business starts to run better, become more systematized and the owner moves into a more of a strategic leadership position frustration gets reduced, says Jeff.
19.32: If an owner doesn't have a financial planner or if the financial planner, they have is someone they have been using from their 20s and not working as desired Jeff would probably raise the idea of, we want to connect you with somebody who is a bit more sophisticated.
20.50: Jeff is making sure that he is helping business owner set up themselves for successful exit when the windfall comes and it makes perfect sense, says Jason.
26.06: Jason advises everyone that do not deal with generous lawyers. Deal with specialist lawyers who do or handle the expert cases all the time.
28.52: Jeff loves finance and previously he was an engineer. He is a quant guy, but he also likes the rough edges of determining what's motivating people and how can we get them to move forward, let go and move to the future.
3 Key Points:
Jeff explains how exit planning is for the most cases is no different than business planning.
Jeff talks about the gap analysis that he conducts and how he explains to business owners what it takes to go from the two to the 4X multiple and how they assess those gaps.
Jeff answers how many people in Canada take well to the fact they are telling their baby is not pretty if baby is business?
Tweetable Quotes:
"Everybody exits at some point. You can either do it vertically or horizontally, it's your call." – Jason
"Being in control, getting the outcome you want and not having to compromise significantly can be defined as a success." – Jeff
"We look at the business and do strategic valuation based on how the business is operating and we would look at a whole bunch of factors to questionnaire-based thing." - Jeff
"If you tell me you want to achieve X, then we will create a road map and will hold countable for that and support. But at the end of the day, if you decide that the road maps not where you want to go, that's also fine." – Jeff
"There are any number of times where professionals will outgrow the advisors that they are dealing with, whether it be financial advisor or account boy." – Jason
"If my clients get what they want, if they maximize the value and their position in terms of their financial and their personal and all of their affairs to get the best outcome, that to me is a successful exit." - Jeff
Resources Mentioned:
Full Transcript;
Producer: Welcome to The Financial Planning for Canadian Business Owners Podcast. You will hear about industry insights with award-winning financial planner and entrepreneur Jason Pereira. Through the interviews with different experts with their stories and advice, you will learn how you can navigate the challenges of being an entrepreneur, plan for success and make the most of your business and life. And now your host, Jason Pereira.
Jason Pereira: Hello and welcome. Today on the podcast I have Jeff Cullen, owner and lead consultant of Basecamp4. Basecamp4 is a company that specializes in exit planning. I brought him on the show to talk about the exit life cycle and what it looks like from an exit planner's perspective and a client perspective to go through certain milestones and the journey of exiting. And with that, here's my interview with Jeff.
Jason Pereira: Jeff, thanks for taking the time.
Jeff Cullen: Thanks Jason. I appreciate it. Great to be on the show.
Jason Pereira: My pleasure to have you. So tell us a little bit about what it is you guys do.
Jeff Cullen: Exit planning is, I guess, an emergent specialization in management consulting. And it is particularly being driven by rising... Or I guess you could say that the time is running short for a lot of business owners. So I first got involved with exit planning about 8 to 10 years ago. And at the time everybody was already talking about this sort of tsunami of baby boomers, we were going to have this wall of exits and somehow that did not happen. It got delayed about 10, 12 years. But now with the coming out of the pandemic and just the fact that people are getting older, there's a huge number of business owners in Canada and the United States who are going to be needing, or in some cases being forced to exit their businesses.
Jeff Cullen: And the whole idea behind exit planning is to maximize the value and basically get the most successful exit plan or exit from your business as possible. It's not something that just happens by chance. It's a fairly complex process that owners have to start to undertake a reasonable amount of time before they can expect to just be outside of their business.
Jason Pereira: Absolutely. So I'm not surprised it's taken longer than it should have, for various reasons. A, I think a lot of those assumptions assumed a lot of people were going to retire either at 65 or earlier. And for those who know, most business owners don't retire early. They tend to work a long time. And part of that is simply because for a lot of entrepreneurs, there's an unhealthy balance. They don't necessarily have the thing to do or what I refer to as the retirement plan that's not about money. So what are they going to do with their time? Which we'll come back to later. So I'm not surprised it'll took longer. And as for eventually forced to exit, it's funny, I always tongue in cheeks say, well, look, everybody exits at some point. You can either do it vertically or horizontally, it's your call. And I know which one I want to pick.
Jason Pereira: So basically you're there to help and guide this. So let's talk about the life cycle of this and how this works. So when do business owners typically go looking for your services?
Jeff Cullen: Well that's part of the challenge is, I think typically as you were just saying, a lot of them don't until they are in a situation where something has happened. What we would call them adverse event. And when I was working with the Business Development Bank of Canada years ago, that's mostly what we were doing. People would have a six month to maybe a year window. Either they're burned out, they've had enough or there's been some life event outside of the business that's forcing them now into a position where they have to exit. And that's not ideal.
Jeff Cullen: So really what we're trying to do as an industry is raise awareness with owners that if you wait to that time, it's not that you won't be able to exit. Although we know and the Exit Planning Institute's done tons of research on the numbers of companies that don't successfully exit and it's a pretty shockingly high number. It's something like 8 in 10 are not going to have a successful exit. Now how you define success... I define it in that term as being in control, getting the outcome you want and not having to compromise significantly. Some will be somewhere between, they'll have to liquidate their business because it's just not sellable and then a lot of them will have some kind of exit that may or may not be ideal.
Jeff Cullen: So when should they enter? Really we're trying to raise awareness that the sooner you start thinking about an exit... And the reality is exit planning is for the most case, it's no different than just business planning. A lot of the things that are going to make an exit successful are going to make the business successful in the 5, 10, or 15 years before exit. Adding capacity to the management team, making the business less dependent on the owner for every decision, every relationship, every connection.
Jeff Cullen: So sometimes we use the term maturing the business. I like capacity building because the businesses that are most successful at exit are the ones that it's almost like the owner can just step out, have whoever is going to be stepping in, whether that be a buyer or a successor internally or a family member and hand them the keys and walk away. But most owners don't do that. They-
Jason Pereira: ... Hold on for dear life until the bitter end.
Jeff Cullen: Yes, they hold on till dear life. And I think a part of that is just the reality that a lot of business owners started a business when they were young. They might have had a lot of expertise in... Well let's take a plumber or an HVAC technician as an example. Somebody comes out to trade school, maybe they do an apprenticeship, they work for a company. And I think a lot of entrepreneurs, what happens is, they're cut from a certain cloth and they may look around and go, I'm not too happy with how people are running things around here. I think I could do better. And a certain degree of confidence. And a lot of them then start a business and they are successful. They're driven by that sort of street smart. They know what they're doing and because they've come from maybe an environment where they had a boss that they didn't think was doing it the way they would, they maintain a lot of that control.
Jeff Cullen: And that's really effective for a period of time in a business. And for some people maintaining at a certain size that they can control it is great. Some owners want to grow and that's the first place where they'll start to run into some of these issues around capacity. You cannot manage a 25, 35 person company the same way that you can manage an eight person company. And so that's one of the first steps where they might run into problems.
Jason Pereira: Let's not give away all the answers just yet. Got to stop for a second. So basically, as I said before, you alluded to the adverse events. I guess there's a third way you exit, which is diagonally. So you're not quite... You ain't dead, but you ain't in your full capacity, is the issue. So unfortunately, this type of planning just doesn't happen enough. So whether it be an adverse event or not, you get involved. Let's talk about how you start assessing the business to understand where the holes are. You just said where a lot of the holes are, but what does your process look like to really understand what's going on with that business?
Jeff Cullen: Well everything starts with a conversation first of all. And whereas a lot of, I guess traditional exit planning... Because there's a lot of professionals that do it right? There's accountants and lawyers. The method we use is a lot more holistic. So there's talk of the three-legged stool. Which is basically the business, the financial plan for the individual and their family and then there's the personal side. The, what are you going to do the day that you're no longer the boss? And so the assessment that we would do starts to touch on all three of those elements. And a lot of it's just asking questions, raising some awareness. We might connect if they have a financial planner. Where's that at? Do they have a number in mind? What's their timeline like? So we get some of that initial discovery.
Jeff Cullen: And one of the really powerful tools to try to stimulate people is, we call it the three gap analysis, where you would look at what kind of number do you think you need? And again, if they have a financial planner, they can get an actual number. If they haven't really thought about it, we might just do a back of the envelope, what's your income divided by 3% or 4%? And let's say we come up with a $10 million number given their lifestyle. So that gives them a starting point. What are their assets worth at that time? Let's say they have $3 million in assets, property, whatnot. So we would quickly be able to identify a $7 million gap. To maintain the lifestyle you want, you need to get $7 million from somewhere. Likely the sale of your business.
Jeff Cullen: Once we establish a number like that, and again it's high level and strategic, we can then look at the business and do, again, a strategic valuation based on how the business is operating. So we'd go in and we'd look at a whole bunch of factors. It's a questionnaire based thing. We get their financials, run some ratios.
Jeff Cullen: And what we're trying to position is two things. Where are they at with respect to their industry in terms of profitability? Are they top of class? Are they near the bottom? Are they somewhere in the middle? And given what industry multiples are for their industry, the way that let's say an M&A advisor would look at it, again, where do they score? If the best businesses are, let's say a three times earnings, sorry... The worst businesses are, let's say a two, the best in class is at eight. Where do they fit in that spectrum? So that then gives them kind of a valuation for today. Let's say they're making a million dollars to the bottom line with a five times multiple. Okay, well that would give them $5 million. In our little scenario we've identified that really they need to sell the business for seven to meet their financial needs.
Jason Pereira: Well let's talk for a second, quick second here. Quick point. Because we've encountered the first point of conflict. Well, how many people take well to the fact you're telling them their baby's not pretty?
Jeff Cullen: Well it's funny you mentioned that. So one of the leaders in our industry has written a book called Your Baby is Ugly. And that's where I think coming in and establishing a relationship, having a bit of a dialogue at first. And at the end of the day, the process is quite objective. And with working with an owner, there's nothing worse than a consultant comes in, takes a bunch of information, goes off, and then comes back and presents a report and it's a surprise. That's not how I like to work. The assessment is done in a way that everything is kind of transparent and there's a logical progression where most owners know how they're performing. And if they don't, you can give them a bit of a benchmark that they can evaluate.
Jeff Cullen: So I'm not doing my job if at the end of the process it's a total surprise. I mean, they may start thinking that their business is worth $10 million, but as we start going through the assessment, it becomes apparent pretty quickly that they're not going to score where they need to be. Having said that, yeah, it's still a sobering reality. I mean a lot of people, I think it's human nature, and I love the way that you talked about it, their baby, because for a lot of particularly older owners, it is their child. They birthed it, they raised it, they loved it, they've supported it, and now somebody's coming in and giving them a bit of a dose of reality. It's not easy to do, but it's pretty important, I think, in the context of will you succeed at achieving what you want in the long run?
Jason Pereira: Excellent. So you come in, you, and I think rightly so, I mean once you get a sense for the business benchmarking data. That's what you're doing, you're providing them with benchmarking data. So you're doing that. So talk to me about what sort of gap analysis you're running on basically, you explain to them what it takes to go from the two to the four X multiple and how you're assessing those gaps?
Jeff Cullen: So we would take a look at a lot of different aspects of the business. So again, a lot of it's operational, but the first steps are usually around risk mitigation. So for instance, if an owner was operating with, let's say 80% of their revenue is with one client, that would be a red flag. Particularly to a purchaser down the road. So we might identify a strategic need to diversify their market. We've got to find some better buyers. And then associated with that would be what is the nature of the relationship? Even if that one client becomes, let's say 40%, can we do things to lock them in so that they're not somebody that could easily depart if the owner steps out and then this client goes, "Well the relationship is gone." So how can you solidify that?
Jeff Cullen: To the management team. Again, what's the gap between the owner or owners and senior managers? I've seen so many companies where when I draw the actual org chart, it's owner, operator at the very top, this massive gap and then everybody's down at the bottom. So filling in that pyramid and saying what we really need to do is get to a point where you've got a team that at least collectively know 80% or more of what, so that when you do exit, it's not a disaster.
Jeff Cullen: And particularly like we said, and if an exit should happen unexpectedly, the company can survive. I mean the worst thing is something bad happens and now suddenly the family inherits a business that nobody knows where any of the documents are and all of that was in the owner's head. So by removing some of that risk, that creates value.
Jason Pereira: Yep. I mean frankly, it's just professional. [inaudible 00:13:01] systemizing, I mean professionalizing and operationalizing the business. At the end of the day, a business has to make sure, to the point, as you said, where the head of the snake can be cut off without it dying to some degree. And if anyone who's taken strategic coach as a business consulting or business coaching framework, Dan Sullivan refers to this as a self-managing business. At the end of the day, if you really want to be of high value to your business, you should be doing nothing but putting out the upper echelon, biggest fires and strategic thinking. Not being the person collecting cash at the till. That is not the highest best use of an entrepreneur's time.
Jason Pereira: Okay. So you identify those gaps. In terms of fixing this, how much resistance do you see on average to acceptance of this? Let's just say successfully, how many people actually take those leaps or how many just bury their head in the sand and go back to what they were doing before?
Jeff Cullen: I couldn't give you a percentage, I'll be honest, out of the clients that I've worked with. And let's talk a little bit about the delivery model, first of all. So this doesn't happen overnight, it's typically a fairly long process and typically we do it 90 days at a time. Because if you lay out a plan that is this sort of long plan with way too many factors, it does become overwhelming. And there's the reality that they still have to run the business. And particularly in the early stages, if it's not being run that well. They're still putting out fires. So it's kind of a baby step thing.
Jeff Cullen: So a model that takes it 90 days at a time, we identify the most critical value added things, work on those. It sort of builds its own momentum. And the nice thing too is because we're tying it to evaluation, you can do six or nine months of work and then reevaluate and see if the needle's moved. And generally it has. And so now it's giving them something to, again, tie back to and say, "Okay, some of it was hard, some of it was maybe not so hard, but I can see a tangible outcome, a tangible benefit, and I'm willing to do more." And that's the other thing, every 90 days it's a sit-down and then it's a decision point. Do we continue building value? Here's the next things on the list. Or are you ready to trigger an exit?
Jeff Cullen: And at some point maybe they've elevated the value by several million dollars and they've reevaluated their life path and they go, maybe I don't need the seven. Maybe some of our ambitions have changed a bit and if we can sell it for five, we're good. So that may shorten our timeline. Also, sometimes what happens is as the business starts to run better, become more systematized, and the owner moves into more of a strategic leadership position, a lot of cases, some of the burnout and frustration gets reduced. Because I've worked with a lot of owners, again, these late stage folks who one of the big impetus is something that happened and they're just, they're frustrated, they've had enough, they're burned out, they're tired. But once it starts running better and they can actually see the potential to achieve some of the things they wanted to do, sometimes they get really reinvigorated and re-excited.
Jeff Cullen: So they may have thinking they wanted to exit and now they're thinking, well maybe I don't leave. Maybe we can grow this thing for another three years and get into acquisition mode. So it kind of opens up a lot of potential. Obviously if an owner is just totally resistant to changing and it's just a constant slog, I generally will pull the plug. We might do a three or six month and then we'll have a sit-down and they've got to be committed. But you cannot change and create the value if the people at the top aren't willing to do it.
Jeff Cullen: And I've had a lot of clients that, for whatever personal reason, you can sit and strategize and everybody around the table agrees on something and then Monday morning comes and they've decided over the weekend that nope, we're not going to stop doing that. I had one client, we had totally convinced them to get out of the contracting business. They were manufacturer, which they were profitable at. They'd gotten into contracting, which they were not profitable at. It was just clear, we ran the numbers, everybody was in agreement. Came in on a Monday morning and you said, Oh I took three contracts over the weekend because I wanted to. And at that point, you realize there's just so much you can do. Until they're willing to...
Jason Pereira: Yeah, you can't get blood from a stone at the end of the day.
Jeff Cullen: Well, that's right. Yeah, exactly. And I mean it is their business. I mean, I'm not there to tell them what's right. I'm there to, if you tell me you want to achieve X, then we'll create a roadmap and we'll hold you accountable and support. But at the end of the day, if you decide that the roadmap is not where you want to go, that's fine. It's not my business. It's theirs.
Jason Pereira: Yeah, well I mean in some ways you've already told them the outcome. If they want X, they have to do Y. If they don't want to listen to what Y is, that's on them. So it's a delicate sensitive thing. But unfortunately sooner or later you need a cold, like I said, your baby's not pretty and you got to get fess up to that sometimes.
Jason Pereira: Okay, so forget the failures because I'm sure failure can happen very easily. Let's talk about the successes. So clearly the successes are the ones who take the time to listen to what it is you're saying, continuing on. Let's just say that the things are progressing and they're getting closer to it. Besides the business aspect of this, what else are you coaching them around on what they should be doing to prepare for that exit?
Jeff Cullen: Well, because it's a holistic model, one of the things that we would do earlier on is connect in to, depending on the size of the business, if it's smaller, the world of brokerage, if it's a bigger business, we would start getting some M&A or investment banking people that are part of our network. And again, it's just a question of, there's a lot of options on how you can exit this, what's the right fit? Do you want to sell it to your employees? There's mechanisms for that. Is it a transfer internally? Do you want to sell it to a third party buyer? And then again, what kind of buyer? Is it a strategic buyer? Is it an investment thing? Do they want actually take full ownership out or do they want to stay involved?
Jeff Cullen: So again, by raising some of these questions and identifying options and then being able to connect them to the experts. Because I know enough to be dangerous in a lot of these areas, but I'm not an M&A guy, I'm not an investment banker. I've worked with a bunch, but if I can connect them to the right player, again, with some runway, well, then we can orient even what we're doing on the strategic side to be aligned with the exit they want. Because they're all different.
Jeff Cullen: And again, I think part of it is that a lot of owners look, they're like everybody else, they spend 99% of their time thinking about their industry, not about the one time event of selling their business. So if we can bring in the right experts. And that's part of it too, it's bringing in experts at every stage. So what you do, there's some real connections early in the process. If an owner doesn't have a financial planner or if the financial planner they have is someone they've been using since they were unmarried in their twenties and it's just kind of a retail by rote, I would probably raise the idea of maybe we want to connect you with somebody who's a bit more sophisticated now that you either are a high net worth or likely going to become one. Maybe we need a more broader and a little bit more specialized approach.
Jeff Cullen: So again, that's an opportunity to bring value to an owner, just in raising their awareness. Because nobody sits around their office thinking, "I wonder if my investment planning guy is the right fit." They have to kind of be brought to that.
Jason Pereira: Well they usually suspect it in advance.
Jeff Cullen: Okay.
Jason Pereira: Yeah, they typically suspect, I mean I've seen it too there, there's any number of times where professionals will outgrow the advisors that they're dealing with, whether it be a financial advisor, accountant, lawyer, whatever it is. And I find there's three types, those who know and just pull the trigger themselves, those who suspect it and look for outside validation and those who just bury their head in the sand about it. Unfortunately, the last one is very costly as many people I know have found out.
Jason Pereira: So basically, again, so you're making sure you're helping them set up themselves for success for when this windfall comes in. Makes perfect sense. At the end of the day, again, they might be dealing with someone, for all we know they got a $250,000 RSP because all the money went in the business and now $7 million is going to land on there and the same person they spoke to once a year and knew nothing about them stands to get that windfall without necessarily having the skill set to actually do the right job. So very valuable.
Jeff Cullen: Exactly. Yeah. Well, and we'd also bring in, if they don't have the right tax and the estate planners. Because that all factors into it as well. So somebody could get a windfall, but if they haven't positioned themselves in terms of their personal finances, there's nothing worse than getting hit then with the big tax bill and then saying, well, shit, I wish I'd known three months ago, six months ago, or whatever.
Jeff Cullen: So again, that's part of what I do is just raise those issues, those questions, and if the answer is, I have no idea, then we can bring in people from our network that can help with them with that. Maybe you need to have an estate plan done. Or you say you want to build a foundation or you've got a family situation where you've got kids that are in the business and then you've got kids that are not, Again, there's all sorts of mechanisms that I know are out there. Let's find the right advisor, work with them, coordination with what we're doing so that at the end everything has now been coordinately planned and it kind of comes together. That to me is a successful exit. They get what they want, they maximize the value and their positioned in terms of their financial and their personal and all of their affairs to again, get the best outcome. That to me is a successful exit.
Jeff Cullen: But they don't happen that often because a lot of owners are unaware and think for whatever reason that their baby is beautiful. And that sure, when they put it up for sale, there'll be a long line of suitors at the door, falling over themselves to pay them eight times earnings or whatever and it's just not reality.
Jason Pereira: Yeah, I've seen that. Evaluators come in and tell them the range is going to be between four to five. They're like, "Well, I think it's worth this much." And it's like, that's interesting that you think it's worth this much. This is a wonderful example of the endowment effect and behavioral finance. But at the end of the day... And so I've actually turned it around on people before and said, "Okay, your biggest competitor has got the same amount of size as you, comes to you and says they want the same amount of money for that. Are you going to pay that?" And what's funny is more often not the question is, no. No, because a problem X, Y, Z, whatever. And it's just like, well, what do you think's going to happen when you start marketing your business.
Jason Pereira: Some of them listen, some of them. But it's oftentimes, I think it's just partially it's a defense that some of it's ego, some of it is not being ready and creating obstacles.
Jeff Cullen: Absolutely. And I think that that is the challenge that our industry's facing. I think you and I talked about it when we met originally, the industry, people who write articles, this huge pile of gold that everybody thinks is out there. But the reality is a lot of the older owners, they're going to go down with the ship. Or I guess they'll stay wedded to the idea that someone will come in and write them a big check until they don't.
Jason Pereira: Yep. Until they kick the bucket and no one's around to actually run the place. That's not even addressing the fact that many of them will look to pass it on to their kids who may not be actually able to run the business or run it to the ground. That's happened on countless occasions.
Jeff Cullen: Absolutely.
Jason Pereira: Yeah. And the thing, unfortunately in those cases, it's never them that pays the price, it's typically the spouses. Unfortunately seen that on more than one occasion. And leaving a spouse in a situation where they have to basically sell a business that they have no experience with, and maybe that spouse, that's going to have no experience in business necessarily as well. And leaving completely lost at a time of grief. There's a reason the fire sale price is used as a terminology like that. You're basically, you're at a fire sale now. And every day that passes is the one day that business slowly starts to fall apart even more and more without the person there running it. So it's a challenge. It's a real challenge.
Jason Pereira: And again, it's one of these things. I go back to my coy comment about the vertical, horizontal, or in some forms diagonal. You're dead, you pass on that problem. The vertical problem's a very real one too, because I'm sure you've seen it. How many cases was there an adverse event where they could no longer work or could no longer work to the same extent? Which brought down the value of the firm because no one could basically operate it.
Jeff Cullen: Yep, absolutely. Absolutely. Well, and then we haven't even really scratched on businesses that are owned by several partners.
Jason Pereira: Oh boy.
Jeff Cullen: And you go in and then you say... One of the first questions in those situations, I always ask this, do you have a unanimous shareholder's agreement?
Jason Pereira: And 9 out of 10 times? The answer is?
Jeff Cullen: Well either no, or we have one, but somebody's wife drafted it and I never really read it. It's like, okay, well maybe we should go through it and have again, the appropriate people look into it. Because there's sometimes the old underfunded insurance policy where the company is now having to-
Jason Pereira: "We have insurance, but unfortunately that insurance is only covers half a million dollars and the business is worth four."
Jeff Cullen: Exactly.
Jason Pereira: Or I think the legendary one that floats around my industry is the case where the... The partnership agreement also can be just terrible, right? There was one famous for famous case in planning circles where the valuation given in the partnership agreement was the amount equal to the death benefit of the insurance.
Jeff Cullen: Oh wow.
Jason Pereira: So the business could be worth $5 million. You have $250,000 in insurance policy and you're contractually obligated to sell at that price. That's interesting. Having one that's actually... I will always say it every time, do not deal with generous lawyers, deal with specialist lawyers who do this all the time. Otherwise... You don't want the guy who did your [inaudible 00:26:13] with all due respect, the guy who did your house closing and also takes care of your labor situation and also drafted your wills to do your partnership agreement. In fact, odds are something broke on that journey already.
Jeff Cullen: Exactly. I remember a particular client I was talking with his wife, it was a family owned business, 100 year old business, which actually kind of fell apart because of family issues and it was pretty ugly. But early on in the process we're assessing different things, and I wanted to know about the owner's life insurance, and the wife was the CFO and she said, "Well, he doesn't have life insurance because he doesn't believe in it." And I was like-
Jason Pereira: It's not a ghost. It exists. This is my first line every time.
Jeff Cullen: Well, that was my question. Does he not believe it exists? And then she said, "Oh no, he knows it exists, but he doesn't want to bet against himself." And again, I was like, that's a sure bet, right?
Jason Pereira: Yeah. Well, I don't know about you, but if I could bet on 100% probability something of winning, I think I would take that bet. So that's awesome.
Jeff Cullen: But you know what that raises, Jason, is that again, and I remember so many of these that I would work, even though they were late stage. My expertise was around the interpersonal side. We use an interest based as just trying to knit people together. The accountants and the lawyers know the financial side of it and things look good on paper, but that was never really the problem. It was always these interpersonal, whether it be between siblings, some unaddressed grievance from 25 years before, or some tension between partners where they become... Really, they just dig in their heels and it doesn't make sense from a spreadsheet point of view. And you have to dig deeper and try to figure out what's really going on?
Jeff Cullen: I once had an owner tell me and his partners, he'd rather sell the strangers than to his partners. Which caused this deafening silence. And once we unpacked all of that, there was all of this hurt feelings and he felt he'd been exited-
Jason Pereira: There's a lot of bitterness in that room, that's for sure.
Jeff Cullen: And they felt he left them in the lurch. And we were able to navigate that. But that then starts getting into almost like a therapeutic place. But if we hadn't pushed through that, the numbers never would've worked.
Jeff Cullen: So it's a very interesting. And the reason I like it is, although I love the finance and being previously an engineer, I'm a quant guy, but I also like the rough edges. What's motivating people and how can we get them to move forward and let go and move to the future? I think that's what makes it so challenging. But when it works, it's pretty awesome. You've achieved something beyond just the regular. So it is an exciting, albeit challenging thing to do, for sure.
Jason Pereira: Excellent. Thank you for sharing that kind of journey and outline. Where can people find if they're interested in learning more?
Jeff Cullen: The website is basecamp4.ca. That's the numeral four. And if you go there, then you can actually access all of my social media, LinkedIn, Facebook. We have a YouTube channel where we do content. But yeah, the website's probably the easiest place to find me. I am in Edmonton, but we are blessed now, post Covid, with, I think, more of a normalcy of working pretty much anywhere. So by no means geographically limited. So basecamp4, the numeral four, .ca and that's where you can find me.
Jason Pereira: Excellent. Thank you so much for your time. And that was today's episode of Financial Planning for Canadian Business Owners. As always, if you enjoyed this podcast, please leave review on Apple Podcasts, SoundCloud, Stitcher, Spotify, or wherever [inaudible 00:29:49] your podcasts. Until next time, take care.
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