Intentional Growth

Ep.#9 [THEME FIVE]

 

Today we’re kicking off a new four-part miniseries on ESOPs to support Employee Ownership Month.

 

Why are we spending four episodes diving into ESOPs? 

 

After over 400 Intentional Growth™ training sessions with entrepreneurs, ESOPs have repeatedly been a hot topic people are hungry for more in-depth details about. We end up answering the same questions over and over (which we love!), so we wanted to capture the answers to the most frequently asked questions around ESOPs–with the right experts–in a fun miniseries that can act as an ESOP 101 and 201 for all the people who want to know more.

 

In this ESOP miniseries, Ryan has a co-host, Steve Storkan, the executive director of The Employee Ownership Exchange Network (EOX). EOX is a national organization that works to expand employee ownership across the U.S. by creating and supporting a network of non-profit state centers for employee ownership.

 

Today Ryan and Steve interview Dave Diehl, the CEO of Prairie Capital Advisors, about the ins and outs of the transaction and what it takes to turn into an ESOP.  

 

This episode lays the groundwork for the next three episodes. Dave covers how ESOPs are valued, the process of selling to an ESOP, the unique tax breaks and how they work, the deal structure, when and how the seller (owner) gets their money, the role of the trustee, and how employees can begin to earn equity in the company they work for.

 

Our goal in this episode is to give you the foundation–and context–you need to level up your understanding on how ESOPs work, what it’s like to run a company once it is an ESOP, and introduce the different topics we’ll be diving into in the next few weeks. 

 

Enjoy!

 

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What You Will Learn

The typical criteria needed to make sense for a business to become an ESOP.

What the process looks like–and which advisors are needed–to sell your company to an ESOP.

Why the seller gives the first offer in the negotiation process (usually this is the opposite when selling to a third party).

Typical ways an ESOP sale is structured (cash up front, seller’s note, warrants, etc.)

Why the crown jewel to an ESOP is to also be an S-Corp.

Why the company doesn’t pay federal or state income taxes when it turns into an ESOP.

The similarities of an ESOP to a 401(k).

The role of a trustee in the transaction and how to spot a good or bad one.

Why you get to interview and pick the trustee.

The characteristics and attributes of a strong ESOP.

How a business owner should start with an ESOP.

The business owners get to interview their buyer (the trustee).

Ep.#8 [THEME FIVE]

You may have heard the phrase “shirtsleeves to shirtsleeves in three generations” when talking about family business and succession planning. The statistics generally back this up, given only one-third of family businesses make it through the second generation, and only 13 percent make it through the third generation (2021 HBR study). But what if that doesn’t have to be the case?

 

This episode is a real-life story on how Rachel Wallis Andreasson’s family business has successfully passed on their company(s) to the second–and now the third–generation.

 

Rachel shares how her father started the business with one gas station and what her role was in doubling the company to over 1,000 employees and multiple companies. It was not all rainbows and unicorns. There have been plenty of challenges along the way (setting up family governance, separating leadership roles from ownership roles, deciding how to handle the future direction of the company, who should be CEO, how to handle leaders who are not part of the family, how to handle leaders that ARE part of the family, what role outside advisors play, and how the equity and distributions should be handled).

This episode is a shining example for owners of family businesses (as well as non-family businesses) on how to set up your company to last generations. 

 

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What You Will Learn

What led Rachel to rejoin the family business after working in corporate America for a while.

How Rachel’s family defined leadership and shareholder roles.

Why no family member got an elevated salary for being a “shareholder.”

The three benefits of being a shareholder in a family business.

How the family transition was handled from the first generation to the second.

The various advisors that Rachel and her family used, the roles they played, and whether she thought they were worth it or not.

Why the shift from a family business to a family run company was difficult.

Why getting an outside consultant when needed was so beneficial to growing the family business.

How Rachel and the board decided on how to reinvest and take distributions.

Why Rachel left the family business–and how they handled it–after doubling the size of the company.

 

// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment

 

Bio:

Rachel Wallis Andreasson joined Wallis Companies in 1993 and first served on the acquisition team that doubled the size of the company. Following the acquisition, she spent a year as a territory manager and then moved into the corporate headquarters to create a training department. From there, she added human resources, information technology, recognition, and retail operations. Prior to joining Wallis, she worked at South Seas Plantation in Florida as the training coordinator. Prior to South Seas Plantation, she worked for Pepsico managing Taco Bell quick-serve restaurants in Miami.

 

Interview Quotes:

10:12  - “It was part of our identity. We talked about it at the dinner table. We all rolled quarters. We were all a part of the business at some point.” - Rachel Wallis Andreasson

16:03  - “I think for your own personal confidence, knowing you can go out and work for a another company–knowing how those com

Ep.#7 [THEME FIVE]

 

If someone were to ask you to create a short list of companies who should buy your company, it probably wouldn’t take you long. The list is most likely based on logical reasons these buyers would want to acquire your company, because by owning your company, it would help the buyer grow their business and take more market share.

 

The goal of today’s episode is to better understand the mindset of strategic buyers, why they are buying companies, and what they plan on doing with the company after the purchase. Instead of just assuming why buyers would want to purchase a company, in this episode we get to understand the mindset of someone who has scaled a company and become a strategic buyer of dozens of companies in the home services space. 

 

On today’s show, Ryan talks to Tommy Mello, the owner of A1 Garage, author of the book Home Service Millionaire, and the host of the Home Service Podcast. Tommy shares how he went from two trucks in 2007 to over $150 million in revenue and over 500 employees through a combination of organic growth as well as strategic acquisitions. 

 

Tommy unpacks how he built A1 Garage into a machine and the various components and KPIs that run the machine. Tommy explains how they predictably scale organically as well as how they apply their internal playbook to companies they acquire within their space, both of which have fueled their exponential growth. 

 

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What You Will Learn

What data and activities Tommy and his team work on every day and how that is tied to a future EBITDA and equity valuation. 

How Tommy built a team of rock stars that he delegated to without micromanaging them, even though he had problems in the past with trust.

Why it is possible for Tommy to buy a company with $1 million in EBITDA and turn it into $4 million EBITDA within 18 months.

How Tommy intentionally keeps himself in his “zone of genius” and how that keeps his energy and motivation levels high.

How collaborating with the top industry software helped propel A1 into exponential growth. 

The role the industry software plays in acquisitions.

How Tommy thinks about systems and processes and why that was so crucial to him hitting $100 million.

The simple equation Tommy uses to decide what he needs to do every day to hit a certain revenue goal.

What traits Tommy looks for in people that will help him scale.

What a dream manager is and why it can be so crucial for the company culture.

Ep.#6 [THEME FIVE]

 

What is an acquisition entrepreneur and search fund, what are the different types, and where do they get their money?

 

In this episode, Walker Deibel is back on the show. Walker is a serial acquisition entrepreneur and author of Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game. He is here to share what an acquisition entrepreneur is, why the market is growing, where they get their money, how they structure their deals, and why they are on the hunt to buy companies.

 

Today we are going to talk about the rise of the acquisition entrepreneur and how this particular exit option impacts your role as a leader, the valuations, and the variety of different deal structures. You will learn that acquisition entrepreneurs typically consist of a blend of MBA students backed by investors or corporate refugees who are looking to own a business but don’t want to go through the start-up phase. You will also learn that since they are typically solo-preneurs, they tend to stay in the market with companies below five million dollars in EBITDA.

 

But what if your business is over five million dollars in EBITDA?

 

That’s where we talk about search funds. Search funds are typically “scout teams” for investors or a group of acquisition entrepreneurs that hire students or “rookies” in the M&A space to find, negotiate, and land deals. 

 

The summary? The rise of the acquisition entrepreneur and search funds is playing a unique role in the market by matching up capital with talent in order to help facilitate the transition of millions of baby boomer businesses to the next generation.

 

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What You Will Learn

What an acquisition entrepreneur is and what their motives are.

How acquisition entrepreneurs fund the purchase of a business and the role of an SBA loan.

What a search fund is and the different flavors that are out there.

The mindset of an acquisition entrepreneur and search fund.

Why buying a business is much more logical than starting a business from scratch.

How selling to an acquisition entrepreneur could impact your culture and legacy.

The types and sizes of businesses that acquisition entrepreneurs typically target and why.

How search funds started, how they work, and how they are different from an acquisition entrepreneur.

Why a search fund is a “scout team” for investors.

Ep.#5 [THEME FIVE]

 

What is a fair price to pay if you want to hire an investment banker/broker to sell your company? What value and services should you expect in return for the price you pay?

 

In the middle and lower private markets, these questions have traditionally been very opaque. Typically, entrepreneurs have to find answers to these questions by meeting with multiple advisors, talking to their network, and discussing the topic in their peer groups.

 

Today on the show, Peter Lehrman, the Founder of Axial, the M&A and capital raising platform for the middle market, is back on to help us shine light into this cloudy area of the M&A market by reviewing the results of the Axial’s 2021/22 M&A Fee Guide.

 

Axial and Firmex just released the results of an online survey that was completed by 269 middle market professionals from July through September 2021. Three-quarters of them work as investment bankers or merger advisors, and another ten percent call themselves business brokers. Many of them are leaders at their firms.

 

You might be asking, why is this important?

 

If you are like many business owners, when you think of hiring a banker/broker, you think of the direct cost that will be taken out of the transaction. However, this hire is almost essential. Doing all the paperwork and organization while selling a company is not just a night and weekend job. If done correctly, an intermediary can provide invaluable advice, experience, and resources to the sale process of a company. They should pay for their fees and more. On today’s show, Ryan and Peter Lehrman not only review the survey’s results, they talk about how to find, negotiate, and engage with an investment banker or broker.

 

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What You Will Learn

Key insights on M&A advisory fees in the middle market.

The different types of M&A advisors and how to understand the differences.

The variety of ways M&A advisors structure their fees and engagements.

Why it’s important to understand the number of companies a firm typically sells a year.

What a firm’s deal flow, the number of active engagements, and the size of the firm mean to you.

The different ways upfront fees work and what you should expect from the engagement.

How the transaction fee is determined, the range of percentages advisors charge, and what may or may not be negotiable.

Why extremely high upfront fees can be a huge red flag and what to do about it.

What the negotiables are when looking to hire an M&A advisor.

Ep.#4 [THEME FIVE]

 

Many entrepreneurs want to diversify their wealth out of their largest asset–their business. But what if you had so much wealth that you needed to diversify out of the public markets into privately held companies? 

 

Today on the podcast, we get a special look into what it’s like to view–and invest in–privately held companies from the perspective of a family office. 

 

A family office is a privately held company that handles investment management and wealth management for a wealthy family, generally one with over $100 million in investable assets, with the goal being to effectively grow and transfer wealth across generations. The company's financial capital is the family's own wealth. (Wikipedia)

 

In this episode, Paul Moffatt is on the show and shares with us how the family office he works for, Encore One, is structured, why they buy privately held companies, their approach, and what they do with them over time.

 

Encore One is over twenty years old and focuses on preserving the long-term legacy of their portfolio companies versus buying, gutting, and selling. In this episode, you will learn how Encore One reinvests the cash from their portfolio companies, how they make money, and why they have found their success in long-term holds (ten years and older). One thing Paul really leans into is how important it is to be aligned with their seller and management team on the future direction of the business.

 

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What You Will Learn

The structure of Encore One and how they run independently under the same trust.

Why Paul and his company don’t take out dividends from their portfolio companies.

Encore One’s mindset with their portfolio company and why it’s very long-term hold based.

Why Paul just focuses on acquiring one or two companies a year versus aggressive growth.

What happens when a private equity firm holds on to a company long-term versus buying and selling.

Paul’s deal structure and who it best suits.

How Encore One manages engagement with their portfolio companies so people are validated that they are professionally growing.

How Encore One makes money from all of its entities underneath one big trust.

 

// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment

 

Bio:

Paul has spent his entire career serving the middle market. Prior to joining Encore One in 2017, Paul enjoyed a successful 16-year career in commercial banking, most recently as a vice president in the Twin Cities Commercial Banking Group at U.S. Bank. Prior to joining U.S. Bank in the Twin Cities, Paul held similar roles at LaSalle Bank, Cole Taylor Bank, and MB Financial in Chicago.

Paul has helped advise and fund over one hundred companies in various stages of development with a wide range of transactions and special situations. Paul graduated from Marquette University with a BS in Finance and minor in Political Science. He received his MBA from the Kellstadt School of Business at DePaul University. Paul lives with his wife and two children in Saint Paul, Minnesota.

Ep.#3 [THEME FIVE]

 

Brent Beshore and his firm Permanent Equity are a perfect example that not all private equity firms are the same. Brent is the CEO and founder, and in today’s interview he talks about the unique approach his firm has in a “messy marketplace” to help business owners monetize their largest asset and step back from their day-to-day work in the company, all while maintaining their legacy.

 

In this episode, Brent and Ryan talk about why Permanent Equity has a 30-year time horizon (typically it’s ten years or less), how he landed on this model, and why he has been able to raise over $300 million based on their philosophy. From there, Brent explains his approach to acquiring companies–both financially and philosophically–and why he focuses so much on alignment with the business owner and management team of the seller. Brent has a very unique approach to private equity, and today you will learn one of the fundamental principles his entire business is built on: transparency–and why it has yielded so much success.

 

// WATCH THE INTERVIEW ON YOUTUBE: Intentional Growth™ Podcast 

 

What You Will Learn

How Permanent Equity returns the capital to their investors with the desired rate of return even though there is a 30-year hold period.

How Brent and Permanent Equity are able to raise hundreds of millions of dollars from investors on inbound requests only.

How Permanent Equity makes money without charging management fees.

Why Brent’s firm has a 30-year time horizon and what doors that has opened up for his firm and portfolio companies.

How Brent and Permanent Equity view deal structures and debt in his acquisitions.

Why Brent believes compounding (money and relationships) over long periods of time will get the maximum year ROI for all the stakeholders.

Why the biggest check written to a business owner could mean they don’t have any say in what happens next with their company. 

Why Brent wants to partner with the existing owners of the companies. 

Why transparency is Brent’s main philosophy when it comes to working with stakeholders and how it has avoided bad deals.

 

// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment

 

Bio:

Brent Beshore is the CEO and founder of Permanent Equity. Brent leads the firm and, more specifically, the acquisition and diligence teams while supporting portfolio company operators.  Brent also serves on the board of Love Columbia, a mid-Misso

Ep.#2 [THEME FIVE]

 

If you’ve seen one private equity firm, you’ve seen one private equity firm. There are about 8,000 PE firms in the United States, and they are all structured differently and have different types of people running them.

In this episode, Ryan and his guest Sunny Vanderbeck shine a light on the black box of private equity so you can better understand how it works and how to ask the right questions so you can determine whether the PE firm you are talking to is something you should consider or not.

Our guest, Sunny Vanderbeck, is an investor, entrepreneur, best-selling author, and former military leader. Sunny is the perfect guest to dissect private equity because he is the co-founder of Satori Capital, a multi-strategy investment firm founded on the principles of conscious capitalism. This is very unique because Sunny’s firm is an “indefinite hold period” firm rather than a normal private equity firm that buys and sells a business within five to seven years.

Sunny and Ryan explain where the money in private equity comes from (limited partners), why they buy companies (investment thesis), the different ways they structure the deals, what it can be like working under the management of a private equity owned company, and how private equity delivers the capital to their limited partners.

 

This is a great episode to tune into if you want to better understand the world of private equity and how it works.

 

// WATCH THE INTERVIEW ON YOUTUBE: Intentional Growth™ Podcast 

 

What You Will Learn

Where the money in private equity comes from (limited partners) and what their expectations are.

How the ownership structure of a private equity firm works and the different roles within a firm.

How private equity firms get paid and what the 2 and 20 rule is.

What carried interest is and why it’s one of the major opportunities for private equity.

How private equity funds are structured and how the capital is deployed.

How the typical private equity timeline works and how they impact the fund and each company they buy.

What investment periods are and why they matter to the sellers.

The difference between bolt-on versus platform companies and how they impact the valuation.

When and why a private equity uses debt versus equity, how it impacts the purchase price, and what that can mean after the sale. 

Why some private equity firms buy to own and why some buy to sell.

What the second bite at the apple means.

Why most private equity firms want you to roll a percentage of your proceeds back into the deal (rolled equity).

Things to think about–and what it could be like–when working as an employee of a private equity owned company. 

Questions a business owner–and seller–should ask a private equity firm when negotiating a sale.

 

// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment

 

Bio:

Sunny Vanderbeck is an investor, entrepreneur, best-selling author, and former military leader focused on accelerating the growth of mid-market companies and creating best-in-class, built-to-last businesses.

Sunny is co-founder of Satori Capital, a multi-strategy investment firm founded on the principles of conscious capitalism. By providing real-world insights from its experienced team and long-term funding with no fix

Ep. #1 [THEME FIVE]

 

Today we’re kicking off our next mini-series theme: Through the Eyes of the Buyer: Understanding Your Exit Options. 

 

In this episode, host Ryan Tansom is running solo and lays the foundation for the following episodes where he interviews a wide variety of business buyers. Today Ryan gives an overview of each of the 5 major exit options and how you, as a business owner, can decide which exit option is best for you. 

 

When listening to this episode, it’s important to remember the concept of “ownership vs. management roles” and how they need to be separated so you can learn how to build a path forward for each. This is extremely important because your management role and ownership role (your equity) are impacted differently with each exit option.

 

For example, you could exit your ownership role by selling the equity in your business (your financial asset) AND continue running the company as the CEO if you want, OR you could quit your W2 job while still staying an owner by keeping your equity in the business. 

 

Like many of our listeners, you may be asking questions like: “Even though I don’t want to sell, what are all my exit options and how do they work?”; “Which exit option is best for me?”; or “How do I know if I am handing the keys to my business over to the right buyer?”

 

Today’s episode is a great starting spot to help you clarify the variety of ways you can exit a company and what’s important to think about as you begin to explore the topic.

 

// WATCH THE INTERVIEW ON YOUTUBE: Intentional Growth™ Podcast 

 

What You Will Learn

Introduction to the 5 main exit options in the Intentional Growth™ Principle #3:

Why, and how, Arkona chose these 5 main exit options. 

The importance of understanding the difference between your ownership and management roles on the various exit options.

Things to consider when looking at an internal transfer/buyout.

What an acquisition entrepreneur/search fund is, how it works, and why it’s become popular.

Overview of what an ESOP is and how it works.

Why an ESOP can provide some huge tax breaks.

Overview of the private equity landscape and the different flavors that have started to become popular.

Why all private equity firms are not created equally.

Ways to figure out if a business buyer’s core values are aligned with yours.

How to

Ep.#2 [THEME FOUR]

 

Running a business is a lot like running a sports team. You need all the positions filled—ideally with the top talent—in order to even participate in the game.

 

Many middle-market private companies are going without positions that are needed in order to participate in the game. So many lack the resources to find, hire, and maintain A-player executives who can fill each function (finance, sales, marketing, IT, HR, etc.). A-players completely take the responsibility for the department, come up with a long-term plan, and execute their strategic initiatives with accuracy against that plan because they have “been there and done that” before. 

 

Without A-player executives, it’s hard to even participate in the game of business because all the responsibility for each department lands on the shoulders of the CEO/owner. This leads to burnout and ultimately a failure to reach the full potential of the company and long-term valuation target. 

 

Today, Ryan breaks down why the middle market struggles to get access to top executive talent and how the fractional executive market is helping fix this problem. He then dives into the specifics of the fractional CFO services industry and the various types of offerings out there. Finally, Ryan interviews two owners who have a fractional CFO and what that has done for them and their businesses.

 

// WATCH THE INTERVIEW ON YOUTUBE: Intentional Growth™ Podcast 

 

Fractional CFO Overview, Ryan Tansom // 01:00

Ryan goes in-depth about why the fractional CFO space exists and why it’s so crucial to the mid-market, and then he tee’s up the two 30-minute segments with Steve Schaffer and Jimmy Fritz.

Why every business–regardless of the size–needs highly skilled talent overseeing each function but typically falls short.

Why most companies can’t afford high-level executives even though they employ an outsized portion of the population.

Why the fractional executive marketplace is growing rapidly.

How a CFO helps a CEO run a company through the financial lens.

Why doing EVERYTHING yourself leads to burnout. 

How the role of a CFO can help offload many operational responsibilities from a CEO.  

What it truly means to be a fractional executive.

The different business models of fractional executive companies (and in more detail fractional CFO services).

 

Owner of Schaffer Manufacturing, Steve Schaffer // 19:30

Steve Schaffer was born into his family business. Like many second-generation family business owners, he grew up working in the company. In 2008, he bought the business from his dad and took over the long-term family company. Like many first-time business owners, he thought he knew everything he needed to know about running the business.

After some hard lessons, he realized the company was making no money and needed to make a change. After engaging with Arkona’s fractional CFO services, he has clarity on how to organize his cash so he can see where his company has been, where it’s going, and how close he is to the ultimate goal. In this episode, he talks about his 10-year process of starting confused, stressed, and unhappy, to now–when he is having fun, creating wealth, and going on 200-mi