SPEAKER_01 0:01

Welcome to the Ask for a Skinny Podcast with a guest. I'm proud to present Curtis Hearn. Curtis, welcome to the show. Please tell us more about yourself. What is your story?

SPEAKER_00 0:13

Yeah, thank you so much for having me. So just to give you a quick background on myself, I am a uh certified financial planner. Uh, I work in Atlanta, uh, Georgia, and the United States. And um, I've been doing this for over two decades. And I started in the industry in sort of a non-traditional route in the financial services industry, in that um I didn't enter as a sales uh type personality. Um I just knew that my personality was more on the reserve side and um I would do better uh if I was behind the scenes um doing analytical work. Um and so that's how I started into the business. Um, I got a job with a uh very small firm here in Atlanta and um uh just learned all the technical aspects for for a number of years. And then slowly over time, I got to know the clients and and really got to um work little by little with them and uh and really enjoyed the teaching aspect of helping clients you know reach their goals. But then as anyone knows who's worked in the small business before, you wear a lot of hats. And uh over time, you know, I became, you know, doing everything from a little bit of HR to the trading to the um, you know, the investment strategy and and and even um you know doing payroll for a while. And uh after a while, you know, I was sort of burning the candle at both ends and and um you know a lot of stress. Um I had become a partner by that point. Um, and so it was me and the founder who were the partners, and we were managing, you know, the entire firm, trying to grow, hire people, and working a ton of hours. So uh around 2017, I went to the founder who was my partner at that point and said, listen, uh, you know, I love what we're doing. Uh I'm just you know, every day I I love going to work, but I'm finding myself, you know, really in the in the throes of burnout at that point in time. And um he he was very you know understanding and patient and and um you know he he could understand because I think he felt very similar in in in many ways. And so he said, you know, why don't you take a few, you know, some time off, um, sort of recharge your batteries. So I did. I took a sabbatical that summer and I, you know, it was amazing. I went, you know, sort of backpacked through Europe. I um went to Asia and and just had some some fun adventures. Um, it was about 10 weeks long, and I recharged my batteries, came back, and um I'll never forget he sat me down and he said, Um, so while you were out, I was doing some thinking, and actually I've decided to sell the firm. And that just hit me like a ton of bricks. I was just not expecting that. I mean, my batteries were recharged, I was ready to go. Um, I was ready to build the firm up. And, you know, we had uh, I guess, almost quadrupled the firm size from the time I started um up until then. And then I was, you know, looking to do that again, double again over the next five, 10 years or whatever. And um and so I just was not expecting him to say that. Um, so he had been, while I was out, he had been talking to some potential buyers, and he eventually, you know, let me know that he had a sort of a short list at that point. Um, so we did go on to sell the firm. I went through the entire process of you know, the due diligence period, um and then the integration. We lost half of our staff in the transition, and then we had a very onerous earnout that um we had to negotiate very hard to try to get that, you know, some more favorable terms. And um finally, uh, you know, we we had to complete a you know a certain amount of time and hit some milestones. Um we financially we were able to hit the milestones and everything worked out okay. But um, you know, I went from being burnout to being you know somewhat recharged to being completely burnt out all over again through that process. And so um, yeah, so I learned a lot. And then um at the end of that, uh I I you know decided after spending five years at the at the new new firm that uh I was gonna start my own firm and I was gonna try to help uh business owners like myself who had you know were facing that this potential major life event where, you know, and if you look at statistics, it's it's really uh fascinating and and almost scary how much of the financial independence or or or retirement prospects of the average business owner are tied to their exit because they have, you know, on average 70 to 80 percent of their net worth tied up in that business, that small business. Um and so if they can't sell it, then you know retirement looks very, very differently. Very, very different from that perspective. So I dedicated my my career essentially to helping um uh these business owners um with their exit process. And of course, we work with uh other retirees as well, but um, but that's our main focus at this point in time.

SPEAKER_01 5:09

Amazing. I have so many questions. Uh you mentioned teaching and that you you like uh even when you started uh in a small forum that you liked uh what you could teach the clients. Uh and I know that you wrote uh a book recently, um, and I would like to talk a bit about um the content of your uh book um and uh after that I would like uh to go from teaching the book to mentorship, how how you see uh all this uh fit in.

SPEAKER_00 5:47

Yeah, sure, sounds great. So uh let's start with your book then. Okay, sure. Um so the book uh basically outlines, you know, uh what I just mentioned. Um it outlines that entire process of going from, well, first of all, it diagnoses the problem, which uh is you know where the title came from. With the title of the book is The Entrepreneurship Trap. And it's a little bit of a you know in your face type title. Um, but I wanted it to be that way intentionally because I do see that as a, you know, and according to statistics that I ran um that are researched for the book, you know, something like nine out of 10 business owners will not be able to sell their business and and harvest the value that they've worked uh so many years to build. Um and so I see that as a big, big problem, obviously, for a lot of people. Um, so the book uh first outlines the problem and goes through some of the statistics um and how retirement planning is different for a business owner. And then it talks about actually selling your business. And it's kind of a mindset shift for a lot of owners because they've been so focused on the business itself doing the work that they do on a day-to-day basis, that oftentimes it takes stepping out of their own shoes and stepping into the shoes of a potential buyer who'd be looking in from the outside and what that buyer might be looking for. And it's typically very, very different than what they are thinking about on a day-to-day basis. So the book talks about that, and then it goes through the potential types of buyers that are out there, um, and then some strategies for how to position your business um for an exit. Um, and then there's a little bit of other um financial planning um details in there, such as you know, uh reducing taxes when you go to go to sell, which is only applicable uh obviously to um folks in the United States, um, because it's based on US tax law. But there's um there's a little bit of information about that. Um and then one of the one of the key uh chapters is actually the last chapter in the book, which is how to assemble that team, which I think is crucially important because no, no owner should go through this process by themselves. And the reason I say that is when you look at the um private equity landscape, um, which are you know the ones that are buying up a lot of these small businesses um across the US and really across the globe, um, even they they almost always have a team when they go to sell a business. So um they're the professionals, they're the ones that do this all day long, and um, and they they don't do it by themselves either. So I think that's a you know a you know a sign that um a business owner should have um people on their side to help them. And that's a I I mention a team because it's a variety of people. It's you know, your CPA, your accountant, your attorney, you definitely need those two people. I would argue you need a financial planner like myself, but but one that is specializes in exit planning for um business owners. And then you should also have an MA specialist, like uh an investment banker and that sort of thing. So um, and then there's other people as well that you might want to bring onto the team, some specialized roles, but those are the key roles that every owner should have. So that's kind of the outline of the book. Um, it's just meant to be a field guide for business owners looking uh at the next chapter.

SPEAKER_01 9:18

I would like your opinion on a topic that is dear to me. Uh, and that is uh what what what when should we sell? What is the best age to look at the retirement? Because um in in Europe we retire earlier, in US, you retire about 10 years uh later. Um, should we build a business with the goal in mind that we're gonna sell it when we retire? Should we just start thinking about uh selling about 10 years before or five years before? What would you say is the right time to prepare the the exit? Uh and uh should that be a split-second decision and then just go work from there as your partner did when you were making your sabbaticals? Uh he decided to sell and then he just started working on that. Um, what what's your take? What is the least stressful thing, and how important is for person to be prepared uh to sell?

SPEAKER_00 10:27

These are great questions. These are great questions, and I have very strong opinions on some of these questions, having lived uh through the process that was not really planned out well. Um and I I do think my former uh partner, um, who's you know still a good friend of mine, um I think he was thinking in the back of his mind about these things, as most owners are. They're thinking about you know uh the future in in in vague terms, but he didn't have a clear plan in place. And um, and I think that's the key is having that clear plan. And that starts with you know a famous phrase from uh Stephen Covey, I believe it was, that said, um, begin with the end in mind. Um, and so I I'm not here to tell anybody how to live their life or what their goals should be. But the point of planning is you come to the planner, like such as myself, and you give me your goals, your ideal future, um, what it is you want to do, whether you be in Europe and you want to retire earlier or maybe in the US and you want to keep working until you're 80. You know, it's a very personal decision. And then there's some people who are serial entrepreneurs who have who have ideas that are constantly coming up and they want to go and pursue another idea later on. Um, all of those answers are fine. Um, from my perspective, there is no wrong answer to that. But the wrong part is not having a plan in place. And so um, what I would say is, you know, think about what your ideal future looks like and then work backwards from there. And then someone like myself, we can help you put together a plan that attaches the numbers to that ideal vision and gets you to where you want to go. The beautiful thing about the world we live in today is um there are more buyers out there. There are more ways to exit your business than ever before. You know, in the United States, we have something called eSOPs, which are um employee uh stock ownership plans, um, which allow you to exit and you can get very tax uh favorable um benefits to doing it that way. And basically you're selling your business to your employees. That's one way to sell. And basically you avoid taxes by doing that, or you or you cut your tax bill way, way down, depending on the details. Um there are, I know there are some similar structures around the world. There's there's um selling to your management team, there's selling to um your, you know, keeping in the family and gifting or selling it to your you know uh a child, um, or there's you know, selling to uh an outside third party, such as private equity, or a strategic uh buyer. Um, and so there's so many different options, but um, you have to start with that ideal future and then work back from there, and um, and then you can you can put together a plan to get to where you want to get to.

SPEAKER_01 13:19

Amazing. Thank you for this insight. Uh and um there there is a distinction, or I imagine that there is a distinction between uh the idea and the plan. And uh we probably or someone that decides that wants to exit that way needs to involve experts is uh in an ear is as early phase as possible. Uh and that brings me to the next uh question. Um when we're thinking about this uh plan, how to exit, uh you wrote a book about it, and there are workshops about it, and you also do consulting. So what place or what stage does uh each of these tools uh come in handy? For example, when should we read the book, when should we visit the workshop, and when is the time or the last time to get uh experts involved, uh mentorship or consulting like uh yourself?

SPEAKER_00 14:22

Sure, that's great. Um, so you know, I would encourage a business owner to have a plan as early as possible, you know. Um, the best day to plant a tree, you know, what's the old the old saying, the best day to plant a tree was um was 20 years ago, the next best day is today, you know? So um, you know, go ahead and have a, you know, you should have a plan as soon as possible. But to answer your specific question, um the a buyer, a tip typically a buyer, you know, such as a private equity firm, uh, would would want to see three years of financials. Um, and so I'd like to say five three to five years before you actually want to exit, you should, you know, be getting very serious about this. There's a lot of planning and prep that needs to go into uh to a firm um before, you know, to get it ready to sell. And there's um, you know, there's some very practical things, just simple things like getting your um legal documents up to date, you know, your your um articles of incorporation and your your operating agreements and all of these legal documents that you need to have uh you know up to date and you know, making sure that all your shareholder agreements are are are are up to date. Um and then just you know, just some basic financial controls that maybe you know you know you don't have in in place. All of these things need to be in place three years before you actually go to market. Um so uh so I would I would argue that you know you want to start the process fairly early. Um on a personal level, though, you you just want to have a plan. Um so many business owners overestimate the value of their businesses. I think that's getting better because more information is getting out there. Like you mentioned workshops and that sort of thing. There are a lot more workshops out there than there used to be. But um but but still I come across a lot of business owners that just sort of you know um assume that their business is worth, you know, X multiple because you know they happen to know somebody who exited a certain multiple. Um and so it's just uh it's just important to start the process as early as possible, I would argue. But that but certainly uh before you get too close to an exit. And then there's something that we call we talk about in the exit planning community, which are which are the the the big D's, um, things like divorce, disability, disagreement between partners. You know, there's a there's a bunch of of these things that all happen to all these these words that start with D, and um, they can just come out of nowhere, and then all of a sudden you have to um you have to you have to exit your business, um, or you have to do something major, like in a divorce, you know, you have to come up with the cash that represents potentially half of the value of the business. Um, and so you want to be planning well ahead of these things, um, so that you know you don't get you know disrupted by something like that.

SPEAKER_01 17:23

Okay, and I will ask you a bit more personal question. Uh a lot of a lot of business owners uh build their identity upon or upon uh being a business owner. Absolutely. And I saw a lot of guys when they were exiting, they had huge let's call them uh uh psychological problems because they they did not know what to relate to and they they did not understand their value in terms outside their business. So what what's your take on that? Is there is that uh is there uh a way to go to the let's say psychotherapist or coach that will help you handle the change in the identity when you sell? I'm not talking serial entrepreneurs because they don't care about their business, they're just in for the money. But um, most of small business owners and mid-sized business owners, they they're not in for the money, they they it's it's let's call it an integral part of their psyche and of their being. So uh what's your uh point of view on that?

SPEAKER_00 18:40

Yeah, I wrote a whole chapter on this um in the book, and it's a big topic. Um, there's a huge there there are some statistics that look at um business owners that do sell and what their um, you know, how they feel about it later on. Uh the Exit Planning Institute puts, you know, I think they did a survey, they they they came up with something like 70%. Uh or maybe the number may be higher than that. Um I'm I don't have it off the top of my head, but um it's it's a big number where where business owners do exit and then they feel regret, um, even if they had a good you know financial outcome. Um, and so, you know, I'm a numbers guy, I'm a financial planner, I focus on the you know, the numbers side. Um, but I very much recommend that um you bring in someone to help you work through the emotional side because uh our identities are wrapped up in our businesses. Um, I think that's just, I mean, you'd just be, you know, um denying reality if you if you didn't admit that as a business owner. Um, as you said, there are some exceptions to that, the serial entrepreneur types, the the folks that, you know, um, I call them empire builders, you know, they um or them or mountain climbers to use a term from um John Warlow's book. John John Warlow's a famous author in this space. Um they they they look at things, you know, more mechanically, I think. Um, but in in terms of the average uh small business owner, um, you know, they are really more a technician. I call them accidental entrepreneurs. You know, they they didn't become an entrepreneur because they wanted to build a big empire. They they became an entrepreneur because it was the best way to do their particular craft. You know, um in my case, I'm an entrepreneur primarily because I think it's the best way that I can serve my clients um as a financial planner. And I think a lot of um, so I see myself as a financial planner first, not an entrepreneur. Um and and so I think and and and you know, I don't think there's good statistics on this, but um I was trying to piece together some of this for my book, and I have um um some information in there on that, and I think it's probably 90 plus percent of small business owners are that way. Um, so I say all that to say that your identity is almost certainly tied up in your business to some degree. And so um, as you are thinking about an exit, you know, there's a ton of things to do as you get ready for that exit while you're also running your business, right? So that this is why it's even more important to bring on experts that can help you through this process. But um, in addition to that, some sometimes should be uh, you know, focused on um thinking about what your life is, just just your practical everyday life is going to be like after you exit. You now have this big pot of money. And um, and by the way, if I write my, if I write another book, which I'm I'm thinking about doing, as if I have you know time for that. Uh, but if I do write another book, it's gonna it's gonna be called um Founder Wealth. And it's gonna be all about the transition and what to do with your, not just what to do with your money, but also with your time and your identity and all those things. Um, because it is a topic that I'm very interested in. I want to do a bunch more research. But um leaving that aside, uh I I do think that owners um need to spend some time just thinking about, you know, what's their relationship to their spouse or or partner going to be, you know, on a day-to-day basis when they're not going to the office anymore? Um, what are their hobbies going to be? You know, what are they gonna spend their time doing? What's gonna get them out of bed in the morning? You know, what you know, we are very goal-oriented people. I went, I'll I'll mention one interesting fact from the book, which I got from another book called The Paradox of Choice. Um, Paradox of Choice is written by a psychologist, and it's all about how we as humans um struggle when with uh sensory overload when we're given too many choices. We we do better when we're given you know just a few choices. Anyway, um the book's a great book, and I highly recommend it. But um there's one uh interesting um data point, I think it's from the book, now that I'm thinking about it, actually it might have been from somewhere else, but it's in the same chapter of my book. Um and it it's it's looking at uh Olympic athletes. And when you're when you're an Olympic athlete and you go to um the Olympics and everything, you're obviously training extremely hard uh for the goal of uh you know of getting to the Olympics and then obviously of getting a medal, ideally a gold medal and and and and all that. And so, you know, all of your effort is put 110% into that process. And um, when you finally get there, um there's something called, and I don't remember the name of it, but it's like, you know, there's a psychological condition that hits um so many Olympic athletes after they, you know, medal or whatever, or win the gold or whatever. And um many, many of them enter into a depression. And so they've uh psychologists have studied this, and there's a dopamine spike that hits um not uh not just when you win, but all along the way as you're training towards that goal. The little wins that you get, you get a little bit of a dopamine hit, and you and you get almost addicted to that over time because you know, as you're improving and getting better and better and better and getting closer and closer and closer to that big, big goal that you have. And then you hit the goal, and guess what? Your dopamine levels actually crash because you know you're no longer, you know, um, you're no longer achieving. And so um it's very interesting psychological effect. And I think it's very, very similar for business owners. You're building this thing, and every little win, when you get that new client, when you um, you know, hit a new milestone in your revenue goals, and then ultimately when you sell for that big, you know, hopefully, you know, eight or nine figure payday, you know, that's you're on the mountaintop. And then um all of that goal-oriented, you know, dopamine hits that were coming in, um, they go, they go, you know, they crash down. Um, and so a lot of owners enter into some sort of depression, like you you mentioned. It it happens quite a bit. Um, and so having a plan, I think the the antidote to that is having a plan that is something that's pulling you forward, not that you're just um, you know, just exiting and then you know you don't have a plan for what happens like. So there needs to be some replacement for that dopamine cycle. Um, you know, and it's probably not gonna be your golf game because you know, most people get tired of playing golf every day after, you know, a few months.

SPEAKER_01 25:30

So okay, Curtis, thank you for all these insights. Before I let you go, uh please tell us uh where uh our listeners can get in touch with you and where can we buy your book?

SPEAKER_00 25:44

Yeah, uh so the book is available on Amazon. Just search for entrepreneurship trap Curtis Hearn and it'll come right up. Um, you can also go to my website, which is deepriverwealth.com, and you can see the book there. We also have a podcast called the Founder Money Podcast, which um takes a lot of the themes from the book and and turns them into nice um bite size uh content from that perspective.

SPEAKER_01 26:09

Uh Curtis, thank you very much. Thank you for all the insights and thank you for being my guest tonight.

SPEAKER_00 26:14

Thank you so much, Peter. It's been great.