Business Exit Planning: Essential Steps for a Successful Transition

In today’s episode of Retire in Texas, Darryl Lyons, CEO and Co-Founder of PAX Financial Group, shares a compelling discussion centered around the unique challenges faced by business owners when it comes to exit planning. Darryl and guest Jon FitzSimon, the 401(k) Coordinator at PAX, delve into the intricacies of retirement planning for business owners and the critical role of 401(k) plans in diversifying assets beyond the business.

Listeners will gain valuable insights into PAX’s Business Pivot Planning service—a five-step process designed to assist business owners in preparing for successful business exits or transitions. The episode explores strategic planning, readiness assessment, business valuation, contingency planning, and life-after-business considerations.

Today’s show highlights include:

*Understanding the significance of 401(k) plans for both employees and business owners.

*Insights into the challenges and rewards of entrepreneurship shared by Jon FitzSimon, drawing from personal experiences.

*Detailed explanation of PAX’s Business Pivot Planning service and its role in facilitating smooth business transitions.

*Anecdotes and stories that underscore the importance of holistic retirement planning beyond financial aspects.

If you enjoyed today’s episode, be sure to comment and share it with a friend!


Darryl: Hey, this is Darryl Lyons, CEO and Co-Founder of PAX Financial Group. Thanks for tuning in to Retire in Texas. And remember, this information is general in-nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information. 

And also when you go to PAX Financial Group, go in the upper right hand corner, click “Contact Us” and we’ll have an advisor connect with you, with the heart of a teacher. It’s 15 minutes. Doesn’t cost you anything just to see if it’s a good fit. And there’s also, last thing I’ll mention and then we’ll get started, but there’s also some pretty cool content. We put out ebooks that are free, so you can grab those on our website. I was kind of going through and looking at the latest ebooks, and there’s some good ones up there. Some ones for business owners, and that’s what we’re going to talk about today. So today I have a guest, John FitzSimon. 

Jon: Yeah. Hello. Thank you. 

Darryl: Jon’s a shareholder at PAX. He’s been here a long time. He really plays a key role with helping business owners. And we’re going to talk about that today. And, I consider Jon a friend, man. He’s been working here a while, and we had some great conversations. We actually grew up in the same town. 

J: Yeah. Appreciate that. Castroville. 

D: Castroville, Texas. 

J: Love it. 

D: So, yeah. I’m a little older. 

J: Yes. 

D: Yeah. but, you know, when you get older, like, in your 40s, like, everyone’s kind of the same. 

J: You know? You know, and the older I get, the more I appreciate the small town feel. I kind of miss it a little bit. 

D: Oh, man. I don’t even know if Castroville is the same.

J: Well, I guess part of me wants to think it is. I go back to Saint Louis day, you know, try to try to get that feel. My parents still live there, so the nostalgia is still there. But no, I love it.

D: Okay, well, I would love to just, you know, kind of take an exit ramp. Talk Castroville all day. But, we’re going to get into business owners. So if you’re if you’re not a business owner, I would actually I think you’d enjoy listening to this conversation because we, I think there’s some good stuff that you can extrapolate that may be specific for business owners, but it will apply to you as well.

We at PAX are very passionate about business owners. Why? And this is maybe something to consider, whenever you work with an investment advisor, the irony of it all is they have a hard time serving business owners because most of them work for, like Merrill Lynch or Edward Jones, they’re not they’re kind of these quasi business owners are really not business owners.

We are at PAX, a small business, and we’re employee-owned and we think critically about business decisions, cash flow and all that stuff. So when it comes down to business, business owners, we’re the real deal in my opinion. We’ve lobbied for small businesses through NFIB. We’ve done a lot of work with business owners in the community, so we are 100% invested in the business community. And that’s what we’re going to talk about today. 

Jon, I’d like to know why you personally, I told everyone why PAX loves businesses, but why do you like businesses and business owners? 

J: Small business, they’re the ones getting things done, you know what I mean? And business is hard. So when I’m driving down to 81 or stuck in traffic, of course, on 1604 and I see a work truck or a company vehicle next to me, kind of, you know, I admire it.

I appreciate it because business is hard. And someone took the leap and they weren’t scared to go on and do it. And so, I’m just humbled and grateful to see that because taking the leap is something really hard to do. And also, personally, I grew up in Castroville, my dad had a landscaping business.

And so there was a direct correlation with how many people he served and how much money we made, but said a different way, how many people he served and how well we ate that week. 

D: How many, how many lawns he mowed. 

J: Yeah, exactly. And hey, sometimes we got to go out to eat and that was a real treat. So that was a big deal. 

D: But where would you go out to eat at? 

J: Well, of course, you know, Sammys is there. Yeah. You know, that’s that’s the Castroville staple. And a McDonald’s came in in the late 90s. That was a big deal. There’s a Whataburger there now. A couple of our taco shops are gone. Margie’s isn’t there anymore, and Monas isn’t there.

D: But it’s a grind doing landscaping work.

J: Oh, it is. 

D: So he did that growing up? 

J: Yeah. Definitely did that for a couple of decades, honestly. And it was still great to see, minus the whole helping him mow yards in the 100 degree Texas heat part. 

D: Yeah, that’s good though. It’s good for you. 

J: I think they call it character building. 

D: Yeah. Right. Yeah, exactly.

J: Looking back, you know, not so much fun when you’re 12, 14 years old. So, but no, definitely enjoyed seeing that, you know, firsthand. 

D: And so as a result of just seeing that firsthand growing up, that impacted you and your – cause I see your passion working with business owners. It’s less about like, okay, I’m gonna get a new client. It’s more about, okay I really, you sincerely want to solve problems for them. 

J: For sure. Profits are great, business is great. But at the end of the day, a lot of business owners love to serve their customers, their employees. And it’s just fantastic to see. 

D: And it’s funny because a lot of business owners, me being one as well. And coming from a family – this financial stuff, it’s like we got stuff to do. I don’t want to, really want to mess with this. 

J: Oh, you’re not joking. Yeah. They have problems to solve. This sometimes gets in the way. So you do need trusted advisors that you can bounce ideas off of and talk to. 

D: Now, your niche within PAX is really focusing on 401(k)s. Do people still use401(k)s? Like, what’s the like? What’s the appetite out there for 401(k) plans?

J: 401(k)s are probably more important now than they’ve ever been. Over the last ten years, maybe even the last five years. Really. Company benefits have become more employee focused. Meaning 20 years ago, any benefit a company might have been able to give you is just a nice to have. A perk.

Yeah, but now employees are expecting benefits and a 401(k) retirement plan is one of those. But I want to encourage you business owners out there, employees like it. They appreciate it. You know, an employee who uses benefits is more grateful. They stick around longer. Employee retention is there. And so try not to count the costs, which I know, easy for me to say, right?

But it’s an investment in the long term, you know, nature for the employee. And, it’s important because they get access to a financial advisor. They have the ability to save for retirement right out of their paycheck. So it’s really, really important. 

D: Now this is off the cuff. We didn’t talk about this. And so I hope I didn’t throw you off. But there was recent legislation that required for one case to have auto-enrollment. 

J: That’s right. Starting January 1st of this year. So if a new plan is established, auto-enrollment is something where instead of opting into the plan, you have to go out of your way to opt out of the plan. And so that is specifically designed to help more people save for retirement.

D: So it’s kind of interesting because it’s actually, I don’t have the numbers in front of me. It’s actually made a significant impact on people’s savings. Just by auto-enrollment. 

J: Definitely. And what’s funny though, they don’t really feel the pain of the auto-enrollment and auto-escalation until that number hits about 10% of their income. So really, I’m not saying it’s a bad thing, but it’s definitely helping a lot of people.

D: Well, I mean, there is absolutely a social security crisis. And so this is important for us to get in front of that. So obviously as a business owner, one of the things I think about is like just the hassle of administering it and then the cost of setting it up. I’m just going to say this in general, we try to remove that friction as much as possible, make it easy on people, and we’ve had a lot of success helping business owners set them up and get it going.

J: We have. And don’t forget the other side of the coin. Even though the company offers a 401(k), the business owner, him or herself is an employee as well. So what does that mean? They get to appreciate some tax deferred growth in their accounts. The business gets to have those tax deductions along the way. So I work with several business owners who max it out every year because honestly, it makes good sense. They have a chunk of money that’s set aside away from the business that continues to grow. And when you max out a 401(k), that grows pretty quickly. 

D: Yeah. So a business owner might say, yeah, I don’t want to put it in these. Because a 401(k) is kind of, you know, it’s a section in the tax code that allows you to invest in, in, you know, in our case securities, you know, securities defined, you know, mutual funds, ETF stocks, whatever.

Usually they’re mutual funds or ETFs. But you know, case I’ve heard from not a lot of business owners but some is like, “Well why would I invest there when I get better returns on my business?” And I, I actually, I get that and I wouldn’t argue that. So, but how would you know? 

J: You’re exactly right. Business owners love to reinvest in their business. And honestly, it makes sense. They have control over it. They’ve had success doing it. They know what to expect. But if you have money not tied to the business that’s carved out and growing over time, it makes life a little bit easier. Matter of fact, I’m working with a client right now. It’s a business owner. He’s in the retail space. He has never had a 401(k) plan, and he doesn’t have any outside investments at all. So guess what that means? His entire nest egg is in the value of his business. And that just makes me nervous because if you ever wanted to retire or to pivot, guess what? He has to sell the business. He has no other option.

And whenever you’re, in that scenario, typically you don’t have the upper hand. So it makes me a little nervous to have all your eggs in one basket, especially if it’s the value of your business. 

D: Yeah. So you mentioned a word that I love to talk about, and a lot of people listening, used themselves as pivoting. We don’t like people to retire, which would be, by definition, the disposal of an asset over its useful life, but rather pivot into the next chapter with purpose.

The challenge with a business owner is a lot of us have our identity wrapped up in the business, so transitioning into this next chapter, pivoting into this next chapter, is challenging. We look at, we look at life as, both quantitatively and qualitatively. And quantitative is we have to crunch the numbers to see if there’s enough money. But quality means like, how do we properly pivot to kind of unwind this identity we’ve had into the next chapter. And so we created a process to be able to help people. Can you speak to that, our service that we’re offering now to business owners?

J: We did. And this is probably the most fun I’ve had working at PAX in a long time, which is really cool because business owners are people who need the service and they’re busy, like we talked about earlier.

And so we call it business pivot planning. And just like a normal employee, you can’t just retire today. You need to put a process in place. Well, you imagine a business owner definitely needs to have a process in place. And so the business pivot planning engagement that we offer our business owners is a five meaning process that helps them get their ducks in a row ahead of the, the exit planning part.

So it’s a fun engagement to walk through with them. It’s the preparation side of the exit planning. It’s high level, but it also goes deep. At the same time, we’ve seen that there’s five things that they must do to give themselves the best. That’s the best success when it comes to exiting. And we touch on all those. 

D: I want to talk about all of those. Before we get into those, so what I want to tell the audience what you’re hearing is that Jon has helped business owners accumulate wealth in a 401(k), kind of diversify some of net worth. So business owner who’s, you know, young or even even those that are, you know, more seasoned. 401(k) can actually have some really unique tax benefits. We actually can over fund some stuff, but, so Jon’s been helping a lot in the 401(k) space.

But then working with all these business owners, we recognize that the problem exists.Tell the audience that statistic that we discovered about, you know?

J: 75% of business owners. So 75% of business owners are disappointed with the exit of their business only one year later. One year. 75%. To me, that’s a lot. 

D: Yeah. So that’s the problem we found in, there was no real solution in the marketplace to be able to serve these business owners. And so that’s when we worked with some key strategic partners. And you actually, you actually dug into a little bit more education in this space to really get the academic insurance side of it, because we had the practical understanding and we’ve helped business owners sell. But we needed a little bit more nuance. And you went through this course. What was that call? 

J: Yeah. I have a CEPA designation. CEPA, that stands for Certified Exit Planning Advisor, and it’s a deep dive into exit planning. So definitely comfortable and competent and confident to talk with business owners about not only helping them grow their business today, but the preparation side of exit planning. Really provide some great advice and tactical tools to make sure they’re ready to go and set them up for success.

D: Yeah, super excited because this is not being offered in the marketplace as far as we know. And so we, I mentioned qualitative and quantitative. I’m going to revisit that because the quantitative side is like, yeah, we crunched the numbers and we have a valuation piece in that. And we’re going to talk about that in a second. But also the qualitative side like, okay remember your identities in this business with you believe it or not. And you know, my conviction in my faith is that our identity should be in Christ. And as much as we say it is, we just still have to kind of tease that out and see what life looks like, like the practical side. So let’s go through the five steps of this business pivot planning process.

J: Yeah. Easy to say, right? Step one again, it’s a five meeting engagement. And it is kind of intense, but business owners are busy, so we hit the ground running. The first step is talking about their plan. Good news. There’s no wrong answers. If you want to sell your business for top dollar in the open market third party sale, that’s fantastic.

Or if you want to, you know, transition the business to a generation two or to a team member who’s been around for a while, that’s fine as well. But those are different paths when it comes to planning. So the first step is we got to talk about the plan. 

D: Yeah. And just having somebody to kind of think through and talk to because like your business owner, you don’t have a lot of people to talk through this stuff.

J: And there’s more options than you think. And so we talk through all those in the planning part. 

D: Yep. Yep. So yeah, pick a plan okay. And the next next step?

J: Next step is really a, is an exit readiness assessment, okay. How ready are you today? Mr. and Mrs. Business owner to exit your business. Some business owners who work with they’re 2- 5 years out. And we can really start dialing some things in to help them maximize the business value and make the transition process easier. But others come to us and they’re ready to go today. So depending on their plan, we need to see where they’re at today. And the assessment gives us some actual advice to make them more statistically successful, of course. 

D: Yeah. Yeah. Maybe maximizing the value, like taking out the dry cleaning from the PNL. Right? 

J: There you go. 

D: Those kind of things like, hey, let’s just let’s just make – like, it’s kind of interesting because when you sell your home, you think deeply about, like, all the curb appeal and cleaning up the landscaping and all that stuff, you think deeply.

Well, now you’ve got this business that you want to sell, which is, x number of times the value of a home typically. And it’s, we’ve seen it on multiple occasions. You just like, wake up one morning like, “I’m gonna sell it.” So what we’re trying to do in this readiness is just try to do the curb appeal. Get it, get it looking nice for somebody to come along and say, “Well, I’ll pay a premium for that.” 

J: Yeah, exactly. And honestly good, good exit planning strategy is really just good business strategy to that point. Making sure it’s always looking nice. 

D: Yeah. And so what’s the next step? 

J: Yeah. Step three is a business valuation. What is your business worth? And if you’re this close to the end, you’re getting ready to prepare to exit your business. It can’t be a guesstimate. We really need to know what it’s what the company’s valued at. And we use software and technology to do that, which is really nice. Plugs in a lot of data. A lot of research goes into it because on the personal finance side, if you’re so close to pivoting, you need to know what that number is. How much money you’re going to make? Is that before taxes and after tax? A lot of things go into that number. And so we need to know what that is. And most businesses haven’t had one done in the last two years. 

D: Yeah. Now this is not a qualified appraisal. So it doesn’t, it’s not one that can be used for buy-sell agreements necessarily. 

J: Yeah. It’s not a certified valuation.

D: But we do know through the, through the experience of working with these valuation resources that it’s pretty darn accurate.

J: It sure is, within 5% or so. And with what we’re working with and where we’re working towards, it really gets the job done. 

D: Some people engage us for this service just for that piece. But the thing about it, is it’s never the values, never more than, it’s always less than what you think.

J: Honestly, most of the times we reset expectations we’ll say…

D: Oh yeah it’s just hard. You just think it’s worth more. “Hey I saw my buddy, he sold it for this.” And the thing about it is, even if your buddy sold it for a higher price, we don’t know the terms. Some of those terms could be conditional that are aspirational in nature. So I mean we’re just looking at the facts and the data and, it’s really just a wake up call and then, you know, okay, what is it after tax? Now, the other thing that we have to consider in this environment is that it’s very likely these tax rates are going to go up. So, you know I think we’ve got to consider over the next 12 months the expiration of some of the tax laws, in the end of 2025, could kind of push business owners to advance the sell of the business sooner.

J: It’s tough to time anything, as you know. And so, being prepared is always smart. 

D: Okay. What’s the next step? 

J: The fourth one is a contingency plan. Just like a will or an estate plan for a person. A business needs to have a contingency plan. And that is, everybody knows it’s important, but not a lot of businesses do it. And while you are of good, sound mind and body today, what are your goals? What are your dreams, your wishes for your business? God forbid something happens like an illness, disability or death. And business owners work so hard for so long to get this close to the end and have something unwind or unravel because they didn’t have this plan in place. So it’s very important. 

D: Yeah. I mean, like, so not all these business owners, but many of them are 55, 60. And so we may just have this Pollyannaish strategy. Okay, you’re going to sell your business. And after taxes you’re going to live off of it. And we’ll create an investment strategy for that. But I mean, a stroke could ruin this whole thing.

J: And it happens all the time. 

D: I know. And so like, what’s the plan? 

J: Yeah. Car accident. Yeah. Anything. 

D: Yeah. And so that’s important. It’s not the fun thing that we do, but we have to put it in there. It’s kind of part of our fiduciary responsibility. 

J: Yeah. It’s de-risking also you know and even and here’s the deal a contingency plan might not make your business more valuable, but it might make the transition from buyer to seller easier because they know you have your ducks in a row and you’ve thought about this. Because it has to close at the end of the day. The business, if you sell it or transition it, it needs to, you know, follow through. 

D: Yeah. Okay. Last one is what’s that? 

J: Life after business. And this is where that statistic comes in play. 75% of business owners are disappointed with the exit of their business only one year later. And it’s not because of the dollar amount that they received. It’s because they weren’t ready for that identity shift. Yeah, maybe even that ego hit. One year later, you know, Mr. or Mrs. Business Owner, they’re taking care of business people come to them, answer questions. They’re they’re, they’re just in the arena taking care of everything. And if and when that goes away, it’s a big shift. And so we do a lot of goal planning, a lot of dreaming, a lot of preparation for life after business, because we don’t want you to be another statistic. 75%. That’s three out of four people, are disappointed only one year later. Yeah. So it’s a big deal. 

D: Yeah. And then, you know, the spouse can get frustrated. It’s just. And, you know what I’ve also seen, believe it or not, is, you don’t know how to deal with it. So you set up coping mechanisms. I’ve seen a lot of people turn to alcohol after they – I mean, it’s just all kinds of destructive things. If we don’t get this right and think through it deeply.

J: It’s tough. And this is the number one thing that people don’t do. Which makes sense because 75% of people are unhappy. And the reason why, is business owners are a rare breed in a fantastic way. But whenever they are planning for this, they said, “No, I’m just ready to relax. Are you kidding me? I ran my business for 25 years. I’m just ready to slow down.” But they really aren’t. Their energy levels, their motor is still running. They need to put that towards something else. And we do a big part of that during this business pivot planning, is life after business because it’s so important. 

D: Yeah. Well, this has been great Jon. You know we covered a lot of ground in a short amount of time. Taking our listeners through the journey of the 401(k) space, the value there. And then of course, exiting. And so, if you are a business owner or, you know, business owner that needs to just have a conversation, they can go to our website, PAX Financial Group, and find Jon. That’d probably be a good idea just to see your pretty head.

J: Goodness. Yeah. Send me an email directly. Jon. There’s no H in my name. Jon@paxfg.com

D: Yeah. And then Jon’s really good about just kind of saying, “Let’s see if it’s a good fit.” 

J: Yeah no problem. 

D: So thanks again for being here. 

J: Yeah I loved it, I appreciate it. 

D: Yeah. And thanks for sticking with us to the end. Want to encourage you to connect with Jon if you are a business owner and you want to wrestle with some of these things and see if we can help you. Please connect with Jon at Jon@paxfg.com. And I want to remind everyone, as usual, you think different when you think long term. Have a great day.

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