SUMMARY KEYWORDS

seller, business, industrial, companies, trade association, troy, talk, succession planning, working, personal guarantees, industry, years, conversation, sell, employees, family, injection molded, sales, option, strategic buyer

00:03

Welcome to the Industrial Talk Podcast with Scott MacKenzie. Scott is a passionate industry professional dedicated to transferring cutting edge industry focused innovations and trends while highlighting the men and women who keep the world moving. So put on your hard hat, grab your work boots, and let's get oh,

00:21

05:39

I'm doing great. I'm sitting here in Colorado Springs, sunny day with five inches of new snow on the ground. Really? Yeah.

05:47

I'm sitting here right outside of New Orleans, and it's just been soggy and wet. Thick weather. Some lucky? Yeah. Three days now.

05:59

Oh, that's why I live here.

06:01

Yeah, but this No, that's, that's exciting stuff. All right. For the listeners out there, we're going to be talking a little bit about succession planning. What do we do, specifically in the world of manufacturing industry in general. And if you want to create that legacy, there's got to be a process behind that. The do's and don'ts. That's what we're going to be chatting with Troy on in this. But before we get going, give us a little background Troy on who you are.

06:26

Yeah. You know, I'm the CEO of a company Beanstalk Collaborative Community Wealth, I have a couple of partners. And we're really reaching out to smaller business owners and discussing succession planning. And sometimes we buy their companies who are part of that succession plan. But what's really important, what our mission is, is we want to see manufacturing continue in the United States, and be strong and small business, you know, accounts for a huge amount of, you know, job growth in the United States, you know, companies that was less than 25 employees. But unfortunately, that's the group that probably spends the least amount of time on things like succession planning. And yeah, we I've been involved with, you know, a lot of trade associations, precision metal forming Association, American mold Builders Association. And when we we serve a members, and I've been on the boards, and I've chaired the PMA. And all the years I've been involved in succession planning is always in the top three issues that members bring to the trade association asking for help. But it's also the one that never they, you know, business owners never find time to really work on the business versus working in the business. Oh, yeah. To deal with this. And I think it's because they don't really know what to do.

07:57

Without a doubt, they know how to manufacture, they know how to do their thing, that they're what they're passionate about. And they probably recognize the necessity to be able to hand it to, or sell it or do whatever is necessary. But they'd rather have a root canal, then try to figure out how to structure that business to be able to do that. But, but that's why you and your organization's are around. I mean, that's, I mean, you need these trusted Sherpas. So with that said, give us some analogies or examples of succession planning. I know that that could be within family, it could be sold, packaged up sold, there's just so many different types. Can you sort of take us through that?

08:43

Yeah, you really, you know, it's very specific to the business and what they've done to prepare themselves to know what options they really have in succession. And, you know, it could range from, you know, they have children or partners involved in the business that they can succeed the business too. So family, it could be, you know, people that they've developed in the organization that they can succeed it to, you know, that have worked with them and help them grow the business. That could be another option. If it's, if it's done well. It could be, you know, or it could be sold off to a strategic buyer. That's within their industry, be it, you know, someone that's in their industry or a customer or a supplier that wants to wants to be in the space that they're operating in. What we don't want to see happen is the the business owner gets to the point where he wants to leave he or she wants to retire and they find the only option they have or their business value. The only option they have is liquidation. They've done that, that, that they're getting the least amount of value out of their business. In addition, all those employees there, and the community that businesses in that's generating a big multiplier effect of economic activity that comes along with manufacturing is lost. And that's really what we don't want to see happen. That is the worst outcome for everybody involved. So So I think, you know, step one is really trying to, you know, understand that, and what you have to do to position yourself and your business so that, that liquidation options, not the only option on the table for you. Yeah,

10:44

but there's an education that maybe it's the only thing that I'm aware of is like, Okay, I've got all of these CNC machines, they're all here, I have I have a, I don't have a family to take it or whatever it might be. And it just, you're in a position, I would imagine a lot of people fall into that category. But again, it how do you? How do you gain that awareness that there are other options? Because that's really what it is?

11:16

Well, I think, you know, we, I'm a big, I'm a big trade association person, big believer and trade association, I've been involved with them. I think, you know, step one is we encourage, you know, everyone that we speak with, if we're looking at a business, or just everyone we know, get involved in the trade association that that your your industry is affiliated with, because they, that is a really good start to get information. And the other thing is, you don't want to wait to start this process, and you're ready to retire. You know, you've really got to be looking years ahead of time, if you want to, they have multiple options available to you in succession. But

12:06

what's a good rule of thumb, if I'm strategically looking ahead isn't five? Well, 10 Right now,

12:13

I would say I would say, and this is, you know, regardless if it's family, or some, an employee that you'd want to transfer it to, you have to ask yourself a couple of questions. First, how do I want to exit? So if it's if it's the family? Excuse me, turn that off? If it's

12:39

so good, all right. If that's

12:41

the family, or someone within the organization, the first thing that we tell people is, are huge. Are you succeeding this to someone that's this capable to take this business? You know, because a lot of times when it's, this has to be seller financed, especially if you're talking about smaller companies, you know, five to 10 million in sales a year. And if they're trying to transfer it to their kids, or to an employee, they may have to take what we call seller, paper or seller note. And the worst thing that you can do is transition that business to someone that's not capable to lead that business going forward. And we've seen this happen where this Sollers of businesses had to take their business back. And a much worse situation than when they

13:38

that's got to be a really interesting conversation that you have with the owner, where you're saying, Hey, your son or daughter not really capable. And I think that that's a risk. I understand your love. But I think it's a risk.

13:54

Yeah. So So that takes honesty there. And so that's, that's from the seller side, then whoever thinks they really want to take this business on or that we have to make sure that they have the appropriate risk profile that they want to take it on. Not everybody wants to sign personal guarantees with a bank or, you know, have have the risks associated with running a business, you know, they don't have that entrepreneurial spirit, let's say, so, so one is are they capable to do they have the risk appetite? And if both of those things are there, and you really want to keep it within the family, let's so to speak, then you really, you know, we tell them, if you're going to you have to figure out how much risk you want to take as the seller, how much sell or paper so let's say it's a, you know, $5 million business that's that's generating a million dollars of EBIT da and it's, instead of five times multiple and it's worth 5 million Yeah, and you want to sell it? Well, you know, the seller, he's wanting to retire and you need some cash. So it's how much seller paper would you carry? And then where are they going to get that other financing some financing from? So is it going to be an SBA loan, or whatever, and you need it. So you sort of need to start structuring this thing early on. And I would be talking to the local bankers and stuff like that and saying, you know, how much what is our situation have to look like where you're not going to require personal guarantees from everyone? Because this is the real sticky point, you know, where the risk profile goes up? So how does that business need to be performing, to reduce the that that risk profile and the requirement of personal guarantees? Because SBA loans require that and banks is going to require that the question is, is how much? So you want everybody to go into this with their eyes open? Because if you don't discover these things to Okay, we're ready to transition and one of the parties say, I don't want to take that amount of risk, then you're sort of stuck. You know, where do you take where do you go from? Yeah,

16:15

yeah.

16:16

So those are the challenges with with that kind of internal succession,

16:23

I think right off the bat. As soon as like, right now, there's nothing holding you back. I like your approach on trade associations and getting connected there. And being able to have that at your fingertips, you can do that. Now. There's nothing holding you back. Yeah, that makes complete and then get started today. Yeah, to buy, you know, whatever, wherever you're at. If you're saying yourself, I'd like to get you know, something's, I'd like to, you know, separate or get out of it in a year? Well, okay, that's where you're at, get started. So it's a no brainer, wherever you're at get started. Right.

17:02

You're exactly right. Yeah. So, so that that's sort of that's one option. But you know, there's a lot of people that are not in that situation, you know, their kids, they they took a different path. They're not interested in the family business. Yeah. And, and you may have the seller that, you know, though, they really appreciate their employees, they just really want to retire, get the most value they can out of their business, and move on. Now, they care about their business, they care about the community. But you know, they've worked hard and they wanted, they're ready to retire. So and this is where we're very interested in companies like that, for acquiring them. Yeah. But to allow companies like us to be able to participate in that it's really important that the seller develops their employees there where their employees can run that business. So, you know, why

18:00

don't we clear that, you know, liability, where, like, it just falls apart right off the bat, because nobody examines what to do.

18:07

Exactly. So we tell the sellers, if you think that's the way to go, then you know, develop a really good management team. Tell them what your intentions are from the very beginning. And, and reward them for helping you get value out of the business, you know, for increasing the value of the business. So, you know, Scott in our model, and I'll I'll use tolerance tool. It's our, it's our, we bought a company in St. Paul, Minnesota, it was $4 million in sales, when we bought it, it's about 5 million in sales now. And the sellers of that business, they were they're very smart, you know, two guys that started in their garage, built a really quality business, they make injection molded tooling. And their customer bases, primarily the big med device companies. And, you know, 10 years ago, you know, and they rent, they grew that business for 30 years, but 10 years ago, they made the decision to go ahead and put, you know, promote one of the employees to General Manager and other one to engineering manager. And they really turned the the operation of that business over to these two gentlemen, younger younger guys. And now they were still there, and they were still part of it, they were not leading it. And so, you know, for us, because we want to buy really good companies, but it has to have a management team there that we can come around and help them do things and we have helped them do things but with respect to the business itself and operating a business and dealing with the customers. I don't know squat about injection, how to build an injection molded tool I came from a stamping environment, right so so but it made it where we could buy this company and get Have them full value and not miss a beat with servicing customers. And we didn't lose any of the employees, and it's just worked beautifully. So but it really takes that seller to, to realize that and start investing in his people years ahead to make sure that when he goes out to sell the company says, We've got very good people here that can continue to run this business. So now, that takes you from being able to find a buyer, that's just not, you know, because you got to kind of buyer this, Hey, I like Scott's business and I just want to take his customers, I don't care about the people, I don't care about what he has, I just want his business and then I'm gonna close it down. Well, you know, the, the sellers legacy is totally lost, that community suffers and that kind of thing. So, but that's what can happen with a strategic type buyer, you know, with a, with an investor, like we were, you know, we wanted to see this business continuing, we had to have that so, so the sellers have tolerance, they really set themselves up, they could they could sell to a strategic buyer, or they could sell to someone like us. So they had the full complement of, of who they could sell to, but you're gonna make

21:21

the assessment that that there's, there's room for expansion growth, there's, it's not just, Hey, we buy it, and you just keep it at the same year, you see value in, in growth opportunities. Yes. Because it's an investment, why wouldn't you? Right?

21:39

Yes, that's true. And, and, and the sellers, were very good about working with us and allowing us access to do these to the management team. And we worked a plan together. And, you know, we're getting growth in sales and, and profitability. You know, it's easy to grow top line sales for a while. The trick is, can you grow sales profitably? Yeah. And we're doing that. And that's, that's the part where me and my partners were very helpful for the business. Yeah,

22:12

that makes sense. So what we have is we have in the family and then sell it outright. But then to sell it outright, we need the right, right people in place. And then of course, there's a couple of sell it outright ones that want to cannibalize, versus one that wants to continue on with a legacy of some sort. And then take that, at that point in time. The owner, the old, the past owner, is pretty much removed from do you do sometimes keep them on as? Yes? Yeah, consultants or whatever. We want advisors?

22:51

24:53

you how do you get the inside? Scoop on it through trade shows of companies that are just like, hey, we're at a point where we're, we're 55, or whatever the age and we we've got this business, and we've been a part of this association for X amount of years. That's sort of, that's a prime target, right?

25:13

26:42

You know, see, it just makes sense. And I'm always about, you know, there's a lot of companies out there, there's a lot of people and it's impacts, many facets of industry that just hang a shingle out, and there's like, we do this now, and we do that. But it's, it's it's incumbent upon the individual to find that trusted individual, it gets down to people, it really does finding the right person, to be able to help them along in this journey. And, and that's, that's what I see what you and your organization provide is that ability, and I can probably have a conversation with you with no problem. Like, no strings attached, like, Hi, I'm a CNC shop. And I've been doing this for X amount of years. And, and now I'm thinking about this, I'm getting tired, whatever, whatever the reason is, and be able to have that conversation. And what's the biggest roadblock? I mean, what, like, with all that said, like, there's really no friction of me being able to talk to you, and then be able to get information. I just see positives, what's, what's sort of the the biggest roadblock that you come across it say, No, I'm not ready. No, I'm the whatever, whatever it might be.

28:09

I think it's, it's awareness and life. You know, it's like, you know, how, how days turn into weeks and weeks turn into months? Yeah. And they're working in the business, you know, it's a lot of businesses or their mom and pop shops, pops in the shop, mom's the admin. Yeah, they're, they're, you know, they may be doing well, they may have very little debt, they got cash in the bank, they, they've got this thing over there hanging over them, they know that they've got to deal with at some point, but just time goes by. And, you know, they're dealing with the problems of the day, they're trying to get, you know, they're trying to get tools out there trying to get their product out. You're dealing with customers and then just time slips away from them. And because they're small, you know, a lot of them are characterized, they don't have, like a CFO or something like that. They don't have that. They'll have a general manager and engineering person, you know, people that, you know, CAD CAM programmers, stuff that relate to operational, they don't invest anything in the financial side, they'll have a local CPA, that, of course, that knows nothing about their business, frankly, they all they do is their tax returns at the end of the year, and there they just listen to them. Do we need to go spend money to try to reduce their tax liability? Because most of them are cash basis? Taxpayers? Yeah. And they don't understand. They don't really understand how their businesses are performing. Yeah, they don't know where they're making money where they're losing money. They just know overall, we're okay. We're comfortable. It's, you know, they're making a living. And I think that is the biggest obstacle, you know, to answer your question. Shin, yeah, it's an awareness. And, you know, and this is where, you know, rich white and Tom Hoffer that the previous owners of Tom's I think they were and they weren't even involved in a trade association. They were pretty smart. And they're sharp guys. And they realize they recognize this early on, that sell this business that they had to develop a management team to go with it. And, and which allowed us to buy it and everything worked out very well for everyone.

30:28

That's good. Now, that's, that's good news. How do people get a hold of you there? Troy, they're saying this is great conversation, I'm interested in extending that conversation, how do I get a hold? Well,

30:40

I, you know, I would, I would suggest they go to our website, you know, it's a www dot, Bienstock ccw.com, you know, and it's got our contact information there. And we've gotten a lot of good videos and stuff that there's one called the seller's journey. And it really that, you know, one of the big things that we see with these small businesses, Scott, and I'll just say this very quickly, the business itself is their identity. And they don't, if they lose a business, I think they feel they're gonna lose their identity. Yeah, and this is where you'll see the guys that are 70 and 80 years old, that are now saying, I want to sell my business, you know, because I have a health thing, you know, they're right. And those are, those are really hard to help. Because they will be down, we write, but if you have, if you've decided to sell your business, we've got some some good videos there talking about the sellers journey, and all the things that you need to do to prepare yourself for that, you know, the kind of advisors that you need to get and the things that you need to do. And so I think that could be helpful for your any listener. That's trying their so I would go to that website, and then they can get contact information. And we'd be glad to talk to anyone and help them out however we can. Are you out on LinkedIn? I am on LinkedIn.

32:05

Good. Good. We'll have that link to as well. Well, you were absolutely informative there. troit. That was great.

32:13

I appreciate the time.

32:15

Yeah, that was fantastic. Well, listeners, we're gonna have all the contact information for Troy and his organization out on Industrial Talk. So reach out if you're in it. No, you don't even have to be in that whatever category anymore, you just do it. Just be prepared. It's the right thing to do. Alright, Troy, thank you very much for joining.

32:36

Thank you, Scott. I appreciate it greatly.

32:38

All right. Stay tuned, listeners. We're gonna be right back.

32:41

You're listening to the Industrial Talk, Podcast Network.

32:51

Man, that's a wrap, great conversation, a lot of nuggets, a lot of opportunity for you to at least collaborate with Troy and his team at Beanstalk, collaborative community wealth to collaborate, right there, right in there, since it's a part of their name. So yes, continue to educate, continue to absorb that stuff. Because the world is changing the industrial world. Of course, the world is changing. But the industrial world is changing ever so rapidly. You got to educate, you got to keep current you got to keep and I'm telling you, Industrial Talk is the place to be you want to collaborate with individuals that are solving problems. It does real talk right there. Right, collaborate, and then innovation. You get the latest and greatest. What's happening in the innovative world, which is a lot, quite frankly. All right, go out to Industrial Talk, reach out to Troy, find out more. All the stuff that you need to do. But the reality is, is that you need to be engaged. Go out to Industrial Talk. I'm there. Easy peasy Be bold, be brave dare greatly hanging out with Troy, change the world. We're gonna have another great conversation shortly. So stay tuned.