Succession Planning | Cameron Carlson

Episode Transcript of: Succession Planning | Cameron Carlson

Alan
Welcome back. We have with us today, Cam Carlson. He is the president of Carlson Hammann, a consulting firm specializing in succession planning and exit strategies. Ken, welcome to today’s show.

Cameron
Thank you, Alan. It’s good to be here.

Alan
So give me some background camp. How did you get to where you are today?

Cameron
I started out immediately after the coming out of the service and in the early 70s, in the financial service business. And I ran into a very interesting gentleman who I think has actually been on your radio program before. And I spent the better part of the decade of the 80s running around the country doing employee stock ownership plans, putting them in taking them out, fixing them, whatever the case may be. common thread in all of those situations is that owners of businesses, were trying to develop an exit strategy or a succession plan. In about 1990, I kind of looked at what we had done for almost a decade and realized that many times we were trying to put a square peg into a round hole. And Aesop’s didn’t work for everybody. But nevertheless, all of these folks had the same concern. How do we make a transition out of my business? How do I perpetuate my business? How do I preserve the value that I’ve created over a lifetime? And that’s what I’ve been doing ever since that time.

Alan
So now you’re an attorney.

Cameron
I am, I am an attorney. I’m a member of the bar in California, I don’t hold myself out as practicing law. I use this background really as, as a tool, I think to to help clients.

Alan
So Kent, what exactly is a succession plan?

Cameron
probably best described, Allen, from the standpoint that it’s a path or or, or a plan to set a course, like most of us going through life. life’s journey, it’s best to have a Course laid out. We don’t have in business, the value of modern electrical GPS planning yet. So it’s hard to get on a course it’s hard to stay on a course. And a succession plan or an exit plan is really the development of that written plan that lays out that course.

Alan
You know, it’s interesting, I think most of us we get involved in businesses, and we’re focused on growing the business. But we never think about how to get out of the business. And eventually everything comes to an end. Correct. So Ken, why do you feel it’s important to have a good succession plan?

Cameron
I think there’s a couple reasons, Alan, first of all, kind of repeating myself here to certain extent, a good succession plan is going to help people preserve the value and the lifestyle. They’ve spent a lifetime creating in their business or through their business. I think having a good succession plan in place also changes the tone in the business as well. employ good key management people and employees. Understand when there’s a succession plan in place, when the owners have gone through the thought process of developing exit strategy, and I think it makes all the employees and executives in the company feel far more comfortable and confident. They have a sense of being able to plan their own lives. And I think that, at the end of the day, adds a tremendous amount of value to a business.

Alan
You know, I think it is important we talk about lifestyle. And nobody, nobody wishes that they spent more time at the office on their deathbed. We’ve heard that time and time again. And I think when when we think about life, we think about you know, how do we utilize our time? Have we put things together and I like the the point there with the succession plan and really, it’s not about stopping. It’s about transitioning into something else. I like the way that you put that your path, what goals do you have? How do you set it up? And so you help people basically set a pathway for their life and help them transition from one phase to another. Very good. Well, Ken, we’re coming up against the break. I’d like to have you on for the next segment talk more about succession planning and how you can add value to your life and the things that you do. We’ll be right back after these messages.

Alan
Welcome back I’m visiting here today with Cameron Carlson is a principal with Carlson Hammon, a consulting and financial service practice specializing in the development of business succession, and exit strategies for owners of private businesses camp before the break, we’re outlining what exactly a succession plan is. And I like the way you lay this out, that it’s helping business owners understand where their path is. And sometimes people will say, I’m gonna go start a business, and I’m gonna make lots of money, and nothing grows to the sky. And so people will start in this process, and they’re growing, and they’re spending all sorts of time only to find out that, you know, they may not be happy, because, you know, as they’re setting out on this pathway, it’s not really what they expected. So as, as you go through the process of access to play, what, typically, when does a person come to you to say cam, I need a succession plan? How does this? How does this come about?

Cameron
Well, it’s interesting. Now, I don’t want to sound self serving, but most of them come too late. Which is good to know, the in, perhaps later on, we’ll get into some of the reasons why particularly now at this juncture in our society, but people come to us when I say there’s kind of a convergence of thought, they wake up one morning and say, I’d rather be doing something else. And perhaps I have enough money so that he can afford to do something else. So all of a sudden, they start thinking about redeploying what I call their time, talent, treasure. And moving on to the next phase in their life, whatever that may be, it may be fulfilling a charitable desire with a church or a university, mentoring kids, fly fishing, anything that may strike their fancy, but up until that point in time, they’ve kind of been chained to the oars of the business.

Alan
You know, it’s interesting. I think for every one of us, we think to ourselves, do I really want to be doing what I’m doing today? And if the answer is no, then it changed, right? Did just stop what you’re doing and go do what you want to do. There’s nothing to say, you can’t go fishing today. Now there’s consequences. But there’s nothing stopping you from your decision there. So add process of putting a plan together? How long does this take?

Cameron
In the perfect world, probably four to six months. Okay. In reality, probably a little bit longer than that. Mainly, because there’s a lot of thinking, as you can imagine that, that that goes on with the owner or owners of the business, in terms of this next step and the transition.

Alan
Now, let me let me take you through its steps. Okay. So can you walk me through a process of what it takes to create a succession plan?

Cameron
Sure. We have I break it down into six, six steps, fundamentally, the first two are really focused on on what I would call goal setting, reaffirmation of goals and objectives, a financial gap analysis. What do I have? What do I want? And what’s the gap? Ultimately, just from a pure financial standpoint, coming to the realization or asking the question, can I afford to sell my business? Part and parcel of that is to get a realistic idea of what your business is worth. Now, that doesn’t necessarily mean that you need to go out and get an expensive formal valuation. But you need to have a little bit of a heart to heart with your

Alan
eye people realistic, what they think it’s worth versus the true value.

Cameron
In large measure, no.

Alan
Oh, I didn’t get that. How do you get that reconciled?

Cameron
I think what they need to do is spend some time with your with their accounting professional, who has a good idea of of the financial history of the company. Most of whom who have have got some good background in in the fundamentals of establishing business value, and just discuss it and get realistic.

Alan
Okay, so camera coming up on the break, I gotta hold you over and gotta get more information about this process of succession planning. We’re busy with Cam Carlson today, on the process of succession planning, we’ll be right back after these messages.

Alan
Welcome back. We’re visiting here today with camp Carlson. And the topic is succession planning. And before the break, we were on the topic cam of reconciling differences between what a person feels their businesses were actually versus actually the true value and where it’s at. And I think for me, as a CPA, I see a lot of people come in, and they’re like, Okay, I want to sell my business. But it’s hard to move it forward because of the fact that they can never admit the reality, their business is not worth what they think it is. Now this is where you come in.

Cameron
I think we can help you help people with that. Well, first of all, working with you CPA, for example. I think we need to generally have a serious discussion about how businesses are valued, almost from a technical standpoint, from a mathematical standpoint, and then what the perceptions are in the marketplace. So if one of your clients L and S your says to you, gee, I’d like to sell my business. Well, you can enter into the discussion, To whom do you think we could sell it? Or, or what are the differences in buyers, and there’s going to be a difference between a financial buyer who’s very analytical and and financially oriented in terms of their view of the business, and perhaps a strategic buyer that looks at this business and says, gosh, you have a product or a service that fills a niche, that we’re that’s a gap in our product or service offering, and therefore you’re very valuable to us. So there’s an enhancement of value, perhaps in that situation. But I don’t think most business owners have really kind of gone through that analysis in their head. Many times they’re playing golf with a friend, his friend just sold a business for $20 million. And they think, Well, gosh, my business is just like his or hers. So my business must be worth $20 million, only to find out through some pretty rudimentary financial analysis that the business is only worth 10 million. So as you said, it becomes somewhat psychologically demotivating. At that point in time, you know, instead of moving on,

Alan
we always hear these stories about, you know, people selling for astronomical numbers, I got put the a friend who sold his business for 1.8 billion. And I’m like, you know that that’s pretty cool. Yeah. But the reality is, that’s far a few between the people that ever get there, that the reality is, I think, when people sell their businesses, isn’t it mostly that they they strike a deal that new people come in with their systems and processes? And the old owner? Is, is stuck with learning? You know, this new culture? I mean, it typically, what do you advise these guys, you advise them to get out as quick as they can? Or when we’re talking about succession? What is the the typical?

Cameron
Well, I think the reality of the situation is that if in most transactions that you’ve probably seen this, if somebody has sold their business, and there’s a whole back of cash and an urn out, over a period of time, very few selling business owners, make it to the end of that earn out period, really,

Alan
and why is that? I shouldn’t sound surprised, listless, sound surprised? Well, they keep striking these deals that they want to be to them, but rarely do they make any. And why would you say that is?

Cameron
Well, they’ve spent a lifetime being in control. Yeah, now they’re no longer in control. They’re subject to other people’s rules. And that’s very accurate and very frustrating. They may have been in a situation where they had control over With a company checkbook, and now they’re receiving a salary and maybe some allowances, and it’s very frustrating when they can’t go in and write themselves little additional checks,

Alan
I can’t so can preemptive strike, you’re the seller, right? What do you tell the seller to do? Knowing that once is still stuck in there in there? It’s it’s going to be a different ballgame.

Cameron
Well, I think I, it’s a preemptive strike, I tried to warn them of that I tried to I try to get them to as realistically as they can. And again, I

Alan
how much cash would you have taken up front? Well, I

Cameron
tap and take all the cash they can allocate. And remember that I’m not I’m not an investment banker, or midblock, an investment banker, I’m not necessarily the one that should probably be commenting on the structure of a deal, right? What I’ve seen, but I would, I would encourage them to take all of the cash that they can, as early as they can on and plan on getting out. Because if what motivated them to sell in the first place, was to re redeploy this time, talent and treasure elsewhere, they’re going to feel very frustrated, having to commit themselves to this business, to hope they can extract some earn out, and then all this work entering to the benefit of

Alan
a new owner. And so effectively, what you’re which you’re guiding a person towards, is, is a lifestyle. Succession planning, we’re transitioning from one lifestyle into another, you know, you’re you’re you’re cashing out, but with the cash that you get, you’ll, you’ll then be able to do the other things that you want to write i Yeah, so oftentimes, we get stuck in failing to remember, we’re all on a conveyor belt, until some significant life event happens. And, and then when that event happens, we realize everything that we thought was important is no longer important. And so I really like what you’re doing with this succession plan, because you reminding people, what do you want to do with your life? So you you built a big successful business? Let’s cash in but not only cash in, in our succession plan, let’s transition to other goals. Correct.

Cameron
And I think there’s a number of things to Ellen that that, that we tend to emphasize in us about the process of this plant, and how do we maximize value there, there are a number of things that we consider to be value drivers that we want to discuss with a business owner who’s contemplating an exit strategy. And I think there are things that if if an owner is willing to give themselves a couple years, yeah, they can employ some of these value drivers and really enhance the value of their business. But it takes some time currently to sit down and have a sincere talk with yourself, if you will, about the condition of your business. And what are some of the things that drive value? One of the things that we hear most often and I have a lot of stories about frankly, are companies that private companies that have built a good management team. The owners, in our experience, who seem to get the best value for their businesses are the owners that have built a business that pretty much runs itself. They have they have a lot of bench strength. They have good people they have all the right people sitting in the right seats on the bus all going in the same direction together. And that’s critical. And they’ve taken the time to evaluate their business processes as well. They produce good financials they understand cash flow they understand gross and operating margins and how to maintain them or improve them something as simple as is having an attractive office space is very important. So when that potential buyer walks in I mean what’s the first impression yeah first impression is Gosh, this here’s a successful business and the people that own this business really care about it because it looks good

Alan
so it can we’re really running up against the break here but person wants to contact you how did they do that?

Cameron
They can contact us by phone obviously it error code 41525689602568960415 they can they can come visit our website at WWE dot Carlson hammond.net. Very good. And that’s how we hear. We can be reached

Alan
Cam Thanks for Thanks for joining today’s show.we’ll be right back after these messages

 

 

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This transcript was generated by software and may not accurately reflect exactly what was said.

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