Recently, Jason Early, President of Business Operations at BizEquity, sat down with LPL advisor and Co-Founder of Jacobi Wealth Advisors, Bill Medico, to learn more about his practice and discuss some of his strategies for working with business owners.
During the conversation, Jason and Bill explored:
- The many complexities facing small business owners, and how they translate into opportunities for advisors (2:08)
- The reasons many business owners don’t value their businesses (5:25)
- The power of leveraging centers of influence to drive referrals and improve client service (10:36)
- The impact of guessing about business valuation on family businesses (17:22)
Read on to learn more, or listen to the full conversation above!
Jason Early: Tell me a little bit about the client. So, you know, when you look at your client base or your ideal client profile, what's the makeup of business owners? How much of your practice is focused on businesses?
Bill Medico: Across 20 advisors, it’s a good mix. We're probably 60% business owners, 40% individual professionals, be it doctors, attorneys, lawyers. But I would say about 60% is business owners.
Jason: What attracts you to business owners?
Bill: First and foremost, the business owner marketplace, if you get into that private sector, family run businesses, it’s in that area that we see the most complexity. Complexity meaning multiple business partners and a lot of the time, multiple families. So for us it's the ability to get into that marketplace and the amount of benefit that we're able to provide in that marketplace is quite frankly, why we love working with businesses.
Jason: I know you've come from a long line of business owners. But when you think about what you provide for business owners, you talk about the complexity. With complexity comes a lot of opportunity and a lot of ways that you can provide advice.
What kind of advice and planning are you providing to business owners?
Bill: I think number one is finding out, if it's a family run business, what's the succession plan? Are there generations that the business is going to be passed down to? If that's the plan, is there an exit strategy?
Believe it or not, a lot of the time, you walk in and people just don't know the answer to that. They think that they have an idea, but have they really planned for it? Most of the time, no.
So it's the succession planning, it's the exit planning. It's determining the value of the business. We see so many times that business owners either believe that their business is worth a lot more or sometimes a lot less than what it actually is worth.
So it's helping them determine the value of the business and what the plan is moving forward. Is there an exit strategy? Is there a succession plan?
We get into executive compensation strategies for highly compensated employees inside of the business. We deal with tax mitigation strategies and then, you know, after dealing with determining the value of the business, if there's multiple business owners, is the proper buy/sell planning done based on death, disability, or all those, if one of those life events happens, is everything taken care of?
And again, you know, in our experience—and I've been in the business 23 years—it's amazing to me that such successful businesses that have gone maybe two, three generations, they just don't have a lot of this stuff done, or they think that they do, and they've worked with their attorney, their accountant, but when you really get in there and you look at are all the i's dotted and t's crossed, a lot of times you find out that there's some significant things that we could provide to help them to help them, like you said, either continue or exit their business.
Jason: So you're dealing in kind of wide-ranging topics and advice. We're together today because you're a partner of BizEquity, and we are laser-focused on valuation, right? So our software enables advisors to be able to value the business and then provide advice around it.
But to your point, we're amazed every single day by the fact that 98% of privately held companies haven't valued themselves. So, when you think about it from an advice standpoint, how could you possibly provide advice to a business owner if you don't know the value of their largest asset? And when I say advice, I mean, whether it's risk management, personal financial planning, succession planning, retirement planning, capital structure, you name it, it begins and ends with the value of the business.
And so how do you guys think about value? We think about valuation as an ongoing thing rather than a one-time event. I mean, how relevant is the valuation you had done two years ago, right, prior to COVID or before you lost your largest customer customer, God forbid, or better yet gained your largest customer?
Your valuation changes with your business. So how do you guys think about valuation from an advice standpoint?
Bill: I think the biggest misconception on valuation is that so many businesses today put values on their business, call it 7, 10 years ago. And it's a static valuation and they don't believe that they need to do it.
And our advice is maybe you don't have to value your business every year. But at a minimum, we're telling our clients and prospective clients that it's gotta be a two to three-year process because depending on what we just dealt with in an unprecedented time with COVID, that affected business owners and their businesses and their markets.
Part of what we run into is when you have multiple business owners and they haven't gone through this valuation process, a lot of the times there's friction among the partners, because one will think it's worth X and the other one thinks it's worth Y, and we can never get to do the proper planning because we don't have a true value on the business.
Before we had BizEquity software and we were able to offer valuation, you know, we would go to a business owner and say, “What's the value of your business?”
And you get their feedback. And then the second question is, “Well, did you ever go through a formal valuation of your company?”
Nine out of 10 times you get the response that, “We don't want to do that because it's too expensive. You know, it's too costly to go out and hire a firm and to rip apart our books. And, we're not interested in doing that. We know what our revenue is. We know what our EBITDA is, and this is the value.”
And it's just been very beneficial to us to be able to provide valuation as part of our value proposition. To be able to say, “We have software that can give you a very, very concise valuation based on your industry, the market dynamics, your location, what other businesses are valued at in your industry,” and give them a good idea.
So you asked the original question, how valuable is it to us? It's invaluable because without that, a lot of the times the planning doesn't get done, because we can't get to an agreement on what the actual value of that business is.
Jason: I love that. And I think about a lot of the advisors on our platform and it's not about the valuation itself, it's about the engagement and the dialogue the valuation creates. And then ultimately the outcomes as a result, whether it's planning or a proper exit or a succession plan or whatever the case might be. A lot of people in the advice business are also looking to find and engage more business owners.
Knowing your business a little bit, you guys attack the market with a lot of intentionality. How do you think about your client base and what your ideal client profile is? I mean, are you particularly concentrated in any one industry? Do you go deep into a niche or do you serve business owners broadly? How do you think about that?
Bill: If I look at our top clients between me and my business partner, they cover multiple industries. I mean, we've got clients that are in manufacturing, construction. When we look at the business owner marketplace, it covers a wide range.
So I wouldn't necessarily say that we have a niche, more that we aggressively target the privately held business owner because we know that the issues that they're facing are only going to continue to get more complex. And I love the business that we're in, but the one thing that we've recognized over the years is there's a lot of advisors that are one dimensional.
What I mean by that is they're either just managing money, or they're doing insurance planning or what have you, and that’s not a bad thing. When you really break it down and you look at all of the different areas that we can attack with a business owner I, I just think it's invaluable.
So to answer your question, we work across multiple industries.
Jason: And from a marketing or new client acquisition standpoint, do you have centers of influence that you leverage and rely on? I think one of the attractive aspects of our software is the ability to delegate.
So if you’re an advisor and you're working with a business owner that may or may not know the answers to some of the questions or financial inputs, they can delegate it to a CPA or an accountant. We see a lot of the best advisors really leaning into those centers of influence relationships and talking about, you know, how important valuation is and their ability to deliver on that.
Do you guys have a strategy around centers of influence at all?
Bill: We do. And that's a great question because we're always looking at our marketing plan year in and year out and just like any other financial practice, we do a lot of marketing through social media and things like that.
But what we find is we have built a multitude of relationships in the, as you said, CPAs, attorneys, you know, when we're working with other business owners, they know that we have to become part of the team as far as getting involved with their attorney and their accountant. So our best efforts of building new clients are from centers of influence like that.
And with the clients that we brought BizEquity, we're able to delegate, a lot of the time it's to the accountant where we'll help them go through this process and delegate the software to them where they're filling in a lot of the information.
And that alone has become a huge win for us, in getting referred to other clients of that accounting firm, because they're now looking at it saying, “Obviously these guys come in, they have the ability to to come in and value the business at a very reasonable price, give it a very fair value and then take the planning from there.”
Because what we're finding is accountants are running into roadblocks, as we are, when they're trying to do the valuations or they're trying to outsource it, because people don't want to pay the price for it. It becomes a costly event for the client. So we see a lot of success in working with the software with centers of influence, accountants, attorneys.
Jason: And what gets us out of bed every morning is democratizing valuation knowledge for the business owner. I think I said it before. I'll say it again. We believe that the owners of privately held companies deserve to know their value. And so we go to market by licensing our technology to those that serve the business owner.
So when we think about it from an outcome standpoint, we love creating great outcomes for our clients, which is the financial advisor, the bank, or the accountant, but moreover, the outcomes for the business owner. So business owners are getting these tremendous outcomes because they're understanding the value of their business.
They're able to implement financial plans around it and hopefully exit the business on their terms, because as you know, everyone's going to exit their business someday some, some way. And so to do it on their terms is what's important.
Are there any particular outcomes that you're excited about or that you've created on behalf of a business owner client that you want to talk about?
Bill: Yeah. One in particular that stands out to me was a family run HVAC company up in Northeastern, Pennsylvania, a client for a long time. You know, we did some succession planning for them.
So we’d been working with him for probably 10, 12 years, and this client had a pretty good idea what he thought the value of his business was. And he calls me one day and says to me, “Can we get together, because I met with my local banker.” And the banker had told him that he had another client that was looking to get in the HVAC business.
The banker told him he thought he could help him go out and sell his business for over $10 million. And my first question back to the client was, “Did you find out how this banker came up with that?” And of course my client didn't have an answer for that.
So after I had explained to him about the software and BizEquity, I said , “Why don't we take you through this process?”
So to make a long story short, he went from potentially trying to sell his business for a number that was so inflated that after we went through the process we sat with him, and keep in mind that this business owner had a son in the business.
So he was about to try to sell this on the market, and I don't think he would have gotten anywhere near what he thought he was going to get.
So we took them through the entire process, and the great part of the story is he ends up not trying to sell the business. Fast forward, four or five years later, he brought his son in as a partner, and they have now grown their sales almost by triple.
I look at that and say, if we didn't have the ability to really give him a business valuation, he might've engaged this banker, went out and sold the company for a lot less than what this guy was telling him.
He ends up keeping the business, bringing his son in, and now they're having the best years that they've ever had. That was a great success for both us and the client.
Jason: That's awesome. And you've obviously got a unique lens into this from where you sit today from an advice standpoint and providing advice and planning to business owners.
But you've also come from a family of business owners, a family that has owned several businesses and you had a front row seat to that your whole life.
Did your family think about valuation throughout that life cycle? You know, did that help them in their planning? Obviously, at exit that came into focus, but was that part of the financial planning along the way?
Bill: Yes. Just to give a little bit of background, we have a family business. My father is involved with his four brothers and they own multiple businesses, manufacturing, construction, real estate.
With five people in a board meeting, it was a constant fight on what the value of their business was. They can't agree on a number, and the majority of the time, their businesses were valued a lot higher than they thought they were. So from an advisory standpoint, okay, I'm their advisor, but I'm also part of their family.
And God forbid something happens to my father. Well, their buy/sell planning was so undervalued because we couldn't get a true valuation on the business. That's how families break up because a partner passes away or a partner gets disabled and you don't have the proper values. And then other family members are just not getting the full value of their business. Unfortunately we see it a lot.
And I watched them go through the process. They did hire some big firms to come in and do valuations and I will tell you I saw the value of having the true valuation done.
So, you know, from my own personal experience, it’s just about getting accurate numbers so that the proper planning can be done. I saw it with my family firsthand, and luckily they were able to sell one of their businesses, but it opened their minds as we did that valuation process to value all the other businesses that they kept.
Jason: I think in your seat is an advisor, one of the greatest gifts you can give to a business owner is control over that. If you're a business owner and you wake up one day and say, “That's it, I'm going to market, I'm exiting the business and I'm selling the business.”
You've got no control over what the value of the business is at that point. The value of that is what it is. But if I know that as part of a planning process, I'm moving towards an outcome over the next 3, 5, 10 years, whatever it is, if I understand the value of the business today, and then I understand what the value drivers are, I can grab control of those value drivers,and say, “If I reduce customer concentration risk, if I add 20% of revenue, if I build up the strength of management team so the business is less dependent on me as an owner, I can increase the value over time.”
Those are things that you can do as an owner to increase the value over time. And so that's kind of grabbing control of the valuation. You can't do that unless you know the value today.
