MERGER SHE WROTE
Merger She Wrote is a podcast for business owners looking to scale, sell, or transition their companies. Each episode unpacks the strategies behind successful exits, the pitfalls to avoid, and the steps to maximize value. Featuring expert insights and real-world case studies, this podcast helps you navigate the complexities of M&A with confidence. Whether you're planning your next move or just starting to think about the future, Merger She Wrote gives you the knowledge you need to make informed decisions and build a business buyers want.
MERGER SHE WROTE
EP 3 | Death, Taxes, and Your Business: A Love Triangle
Every business owner eventually faces the pivotal question: What’s next?
Whether you plan to sell, pass the company to family, or explore another path, the outcome depends on how and when you prepare.
In this episode, wealth strategist Suzie Eyrich shares why the most successful transitions begin three to five years before an exit. This timeframe allows key strategies to take root, from tax-efficient planning to family succession structures that preserve both equity and harmony.
We’ll explore how the right planning can turn a tax burden into an opportunity, how charitable giving can shape your legacy, and why building personal wealth outside your business gives you freedom at the negotiation table. Susie also explains how even the most technically sound plans can unravel without clear communication around expectations and roles.
If you're thinking about the future of your business, this conversation is your starting point. The first step? Call your trusted advisor and begin building your exit team.
In the world of business. Not all deals are what they seem. Fortunes rise, empires crumble, all with the stroke of a pen Mergers, acquisitions, hostile takeovers. Welcome to Mergers, she Wrote, where we examine strategies and stories behind the biggest deals in business, because in M&A, the real risks are the ones you don't take. Welcome to episode three of Merger, she Wrote.
Speaker 1:I'm here today with my guest and close friend, susie Erick. She is a senior relationship strategist at PNC Private Bank, specializing in working with business owners to help them understand and manage the complexities of wealth and tax finances. She also holds a master's of taxation and is a certified financial planner and certified exit planning advisor. Today, we're going to be talking about why it's critical for business owners to create a plan well in advance of exiting or passing on their business to the next generation. We are also going to be talking about charitable giving in your business and in your personal life, and why it can be important for tax advantage purposes. And, finally, we are going to emphasize the importance of a clean and orderly balance sheet.
Speaker 1:Thank you so much for being on today. Yeah, thank you, I'm really excited to be here. Likewise, so you know, you and I both work a lot with clients that have. You know their family owned and operated businesses they're looking to start. You know the succession planning or the exit planning phase of their business. You know from just at the stop. You know at the start when should a business owner start thinking about an exit strategy and what are the key first steps.
Speaker 2:It's a really good question and everyone asks and you can probably Google this as well and you will get a myriad of different results. But there's two answers. I have to that the first. And when you think about exit planning to just backing up a lot of, a lot of folks will think about, oh, that's retirement planning, and a lot of business owners don't think about retirement but exit planning in general.
Speaker 2:For for us as practitioners, we're always thinking about any type of exit is that can be retirement, that can be somebody passing away, it could be a disability, it could be just pulling back for a period of time. So just putting some context around that. But as an owner, we say two things. Either one start with the exit in mind. So when an owner is starting a business, they should be considering what happens if I can't run this business anymore. Ideally, what would I do with this business?
Speaker 2:Now, many of the business owners listening to this might already be well into the business, so we can't go back. So ideally, three to five years prior to an exit. The reason that we say three to five years and you'll see this in many places there's kind of three key themes why and you'll hear me use three a lot, kind of three key themes, why and you'll hear me use three a lot um, so the first is one timeline. So we all have an ideal timeline for what we want to accomplish, but a lot of times there's a lot of things out of our control. So if we can plan three to five years ahead of when, ultimately we might want to exit, that timeline might change, but at least we're already thinking about what we're trying to do. Are we going to sell to a third party? Do we want to bring the family in and start transitioning them in? Are there some planning? Is there some planning that we want to do?
Speaker 2:So I say three to five years. So some of that's the timeline, the why. The other piece is planning. So if we have enough time before we want to exit, then we can do a lot of different things. And so what I mean by that is practitioners we have. We have a big toolbox of things that we like to play with to help owners plan for their exit. And in order to use those tools in the toolbox, we need time, and we'll talk about some of those tools a little bit later. But we need. We need time and we'll talk about some of those tools a little bit later, but we need some leg room there.
Speaker 1:I like the idea that you shared about starting with exit in mind, because it is so unfathomable to so many young or small businesses that at some point they're going to be big enough or successful enough to exit and by the time you've come to that realization, like you said, they're well into the life cycle of their business and they haven't done any of the pre-planning. And so that's often a conversation I even have with my clients where I'm like you're a startup now, but you know what does happen if you suddenly become incapacitated and you can't do anything to get your business to continue to run. I actually had a really sad story a year and a half ago come to me where the person didn't have an operating agreement, had a heart attack and there was nothing written down to allow the daughter to step in and wind up the business, which I think highlights what you just said. Right, I mean, it's so difficult to have this mindset of. It's almost like estate planning for your business.
Speaker 2:Yes, that's exactly what it is, and we say that all the time too. I'm glad you use it too.
Speaker 1:So three to five years. I totally agree with you there. You know we were talking about how we're going to say more about the toolboxes. I think this is a great segue. Why don't we just start talking about the toolbox?
Speaker 2:Absolutely so. When we're thinking about exit planning in general, a lot of folks will come to us and say, well, how do I save taxes? Or how do I do this transition in a way that's effective, efficient, where it's not going to change my business and what we're doing? So the toolbox for us there's a few pieces. Um one, I'll go to the tax planning when I think that's my area of expertise. But also, every business owner always loves to talk about taxes and how not to pay them.
Speaker 2:Um, but so for tax planning purposes, if an owner wants to minimize some of the income taxes maybe, or estate taxes, because they've built a really successful business and the value of that business is something that, from an estate tax perspective, if they passed away the IRS is going to be a somewhat beneficiary of that estate before their kids are.
Speaker 2:So some of the planning that we can do one is gifting over time. So if this is from an estate tax perspective, this is a family legacy business. If we want to start shifting that to family members, it's very efficient to start doing that well in advance of any type of potentially sale liquidity event. Doing that year over year has incredible benefit where we're using trust structures and things like that to do that. The other piece of that is giving us time to let some of those transactions we call season so just like when we're seasoning recipes, the IRS does not love it and, you'd be surprised, does not love it. If we do something, if we maybe transition to kids right before the sale of the business or we do some other tax planning right before we have a liquidity event, the IRS is going to say you did that for tax planning purposes, didn't you? And we try to say no, no, this was purely because we wanted to transition to the family.
Speaker 2:So we need time between doing estate planning and tax planning and before a transaction of a business. So those are some of the tools in the toolbox, which is why again kind of going back to the timeline is we want some time to do those.
Speaker 1:That makes sense. So, going back to what you were saying, where you're doing sort of gifting, but gifting at, you know, incremental doses. Yes, just for clarity for the listeners, you're talking about gifting of the equity in the business, right? Yes, for clarity for the listeners, you're talking about gifting of the equity in the business, right. And so, for those people who maybe aren't quite super savvy with how the equity would change hands, maybe you could describe to us a little bit like for just give a good example of like, how does that look? You know, does the ownership change? You know, how does the operation of the business change? Just kind of give a broad bird's eye overview of what that looks like in reality?
Speaker 2:That's a really good question and thanks for leading me down that path to clarify. So I'll give you an example. There's a family that we're working with very successful business it's. They're still in growth mode, so there's still a lot of runway to grow. Owners are early fifties, so they have kids that are in their twenties. Ultimately they want this business to be a family legacy business. The value of it is is pretty substantial. So the value right now is we'll just put a round number around around 50 million.
Speaker 2:So what they're doing with that business is, over time they're they're they've been gifting one percent of the business into a trust where the kids are a beneficiary of that trust. Practically what that means is they're going to their attorney, they're drafting up they drafted up the trust document and they're changing in the operating agreement. They're making some changes there In terms of operation of the business. Nothing changes. So the kids aren't coming in and all of a sudden they're sitting at the boardroom table saying I don't approve, so nothing is changing there. But the benefit is that now we've slowly started to move some of the interest into trust for these kids, that over time that value is going to grow in those trusts versus value growing in the owner's hands where that could potentially be in a state tax situation. So that's practically how that looks.
Speaker 1:I love that answer. You knocked it out of the park because I was hoping you went down that road. One of the misconceptions that I come across in my practice is that when we start implementing right, the business law and estate planning law are sometimes on two tracks that are parallel, but they don't seem to communicate well together. Just not all the time, but sometimes. And so I had recently, you know, had this conversation with, similar to what you're talking about, business owners. You know husband and wife crushing it.
Speaker 1:You know super successful business and their estate planning attorney had created a trust and the intention was to move all the ownership into those trusts. But there was a disconnect on the back end, which you referenced, about changing the operating agreement. You know, for us in business law, you'd want to also change the Arizona Corporation Commission or your Secretary of State, depending on where your entity is filed, but to essentially change ownership so that the equity, the baseline equity, is held by the trust. And this panic button was hit in this conversation that I recently had, where they said well, Paloma, we don't want the trust to be making all these decisions. And I told them no, reassured them. That's not how this works, right, the trust is ultimately the quote unquote owner at the backend, but the managers, the officers, the people who are in charge of day-to-day operations remain. You as individuals.
Speaker 2:That's right and that and that's really the goal Now, ultimately over time, when we're thinking about family transition, which I know we'll probably get to at some point if that's ultimately what they want for their family. So, going back to the example I was telling you, where the owners are still early 50s, they're still in the middle of the grind and they want to be. This is what they love doing. Fast forward 10 years from now, if they're now approaching the time where they want to exit, now maybe they start gifting more, or now maybe that percentage of interest has now shifted more to maybe 51% to the kids and now parents are 49% and that balance of power maybe does shift. But when you're talking about family, you want to potentially do that over time to give also the kids just a little bit more understanding of the business, helping them understand and grow with the business. So ultimately that power can shift. But the owners of that business have full control over when they want to do that.
Speaker 1:They can pull that trigger. Excellent point about the transfer of equity over time, also giving that buffer of allowing the kids especially if the kids are on the younger side to transition into the business from a, you know, officer or director position in a way that they're not just thrown into the deep end and asked to tread water. That's right. So I like that idea of also you're becoming sort of ingrained in the business little by little, year over year. Have you ever seen instances where the family is doing it all right on paper but then the actual transition in real life isn't happening in the same cadence as the transition of ownership is happening on paper?
Speaker 2:Yes, that's a really good question. I vividly remember a family. So we did a family meeting, which I highly recommend for any family businesses and I promise to the viewers this won't be all about family business, but we'll stay. Recommend for any family businesses and I promise to the viewers this won't be all about family business, but we'll stay here for just a moment. Having a family meeting where you have the owners and their kids in one place outside of the boardroom and with a state planning attorney, a financial planner, cpa, either all three or one of those folks kind of leading the discussion, I think is is should happen all the time. So this brings me to the point.
Speaker 2:We had a family meeting. We sat on paper, everything was being done right, but they had not had conversations, and I think that's where the the most challenging pieces is. They had not had family conversations about what ultimately the goal of this business is. And the kids? There were three kids and there was mom and dad, who were owners of the business, completely different ideas on where they wanted the business to go.
Speaker 2:There was no employment agreements with the kids that was the one thing that was missing and no direct path for the kids to start taking over management, which is a key point. That, to the earlier comment you made can't just hand over the keys and expect that just because even they've been working in the business that they're fully ready to be an owner. For any owner listening they know that is a completely different beast, and that was one of the most interesting and eye-opening conversations for me, sitting there watching two sides of the family argue because they did not see where this was going, and so it was clearly a missed opportunity for communication and I don't know where that ended up landing, but it was.
Speaker 1:They needed to just have more of those conversations, so I think I think it's important to highlight too, that family meeting, as much as we're talking about family owned and operated businesses, can be just as applicable in businesses where individuals are longtime friends or longtime business partners, have known each other for so many years that they might as well be quote unquote family, where this idea of sitting down and talking about what the future will look like from an ownership standpoint is not solely something that is exclusive to family owned and operated businesses. You should consider having a family meeting with your people who you're really close with, and especially if you're in the middle of your business's life cycle where you're starting to look ahead and maybe you haven't had those tough conversations. And and I think one of the other challenges is, how do you start having those conversations without freaking everybody out and causing panic? And I like that you had highlighted about this family meeting that you participated in was that the kids didn't have employment agreements, and it's so funny because in a lot of instances with my clients I try and emphasize that I don't care if you're going into business with your sister. I know you love your sister and she's family, she's blood, but you and your sister could have a massive falling out and so the operating agreement needs to be put in place, even though it's a financial undertaking.
Speaker 1:There's a lot of really deep dive discussions about, you know, the things that nobody wants to talk about, like divorce, death or disability and people will shy away from it. Because, like divorce, death or disability, and people will shy away from it because they're like, ah, it's my sister. Or, fill in the blank with whatever that person's title is, it's my husband, it's my brother, it's my cousin, it's my best friend from high school. I've heard that one a million times over and I always say like the operating agreement is like your prenup for your business, right, and without it you don't have the formalities, because what happens if you are in a disagreement? So to your point lack of employment agreements, a point of contention, potentially because there's nothing to govern the relationship that those kids have with the business on a formal basis.
Speaker 2:Right, and if mom and dad passed away, if they were in a car accident and couldn't make decisions for six months? Now all three kids are in the business. One is the marketing. I clearly remember this. One was marketing, one was in charge of sales and then another, um, was involved more on kind of the day-to-day. Which one is going to start making ownership decisions, um, without without something in writing and also without having clarity just in conversation alone, what mom and dad wanted? So to that point, just having everything in writing. I mean we do that before we get into a marriage we have these conversations. But a business is just as much of a marriage as it is in relationships. So I think there's a lot to be missed there, but a lot of conversations that should be had.
Speaker 1:Agreed, agreed. Well, I know we've been talking a lot about family owned and operated businesses, so let's let's switch gears here a little I want to talk to you about. You know tax is your specialty. You know how can someone maximize their tax position from either before, during or after. Pick, pick and choose or cover all three, I don't care. But I'd like to know your thoughts on optimization for any business owner who's thinking, planning or currently exiting their business.
Speaker 2:Yeah, so I'll put all of these together because a lot of the planning can be done before, during and after an exit. There's a few things to consider kind of leading up to an exit, and that certainly is when we're thinking about if we're going to the three to five years. Having a conversation, first of all, with a CPA and financial planner together is critical. So I would say anyone listening to this is have that conversation and bring those two parties together. So we're thinking about strategically how is the business set up? One is it set up the right way? So my first tip is is it the right structure? Or, if it's a C corporation or an S corporation or any type of partnership, whatever that case may be, is that the right structure ultimately for the business?
Speaker 2:And if we're thinking about, let's say, this is a third party sale of the business that ultimately we want to have, is this the right structure? Because it ultimately affects the income taxes and income taxes along the way prior to sale. So that is number one. I would say have that conversation. Two, kind of thinking about the sale. So, as we're leading up to and this is your world, so I'm not going to take your, I'm not going to steal your- thunder, but I'm going to maybe throw you the ball a little bit.
Speaker 2:Contract negotiations in an asset sale in particular, that number one I would say in a transaction is probably the most impactful way to is probably the most impactful way to the most impact on income taxes on the sale. Because, ultimately, if somebody is offering a price and that price is allocated to items that are capital gains and if we all remember capital gains are taxed at 15% or 20% or if some of that price and that check that you get in your hand was actually allocated to ordinary income, which is 37% income tax, there's a huge difference between 37% and 20% and the way that that's allocated in your world contract negotiations. So there's some magic and you could probably talk a lot about that and how that's done. But there that's a critical point in income tax planning that I think a lot of owners don't realize. Um, and should be leading on, should be leading on you there.
Speaker 1:Excellent points. For anyone listening who doesn't fully understand capital gains, could you just give us the lay person's really simplified what is capital?
Speaker 2:gains? Yes, so there are. In the income tax world there are kind of two types of income taxes. One is ordinary income tax, which is it's a any of your income, so think your W-2, salary, interest and dividends. If they're not qualified, those items, they're all taxed at ordinary income rates which range from zero up to 37%, and that top range is north of 600,000 of income. So usually it takes the highest level of income to get there. All other sources of income, so anything that's capital gains, so qualified dividends If you're selling property, so selling a business, generally speaking, that's usually capital gains.
Speaker 2:I talked about dividends as well, so those are preferential tax rates and that ranges from zero to 20%.
Speaker 2:So all of our income. I always like to think about it this way and I'm going to get a little bit nerdy here for a second. But any income that you get, it's put into a big bucket and sorry I'm using my hands on this podcast, but it's put into a big bucket and we pour all of our ordinary income in that bucket. First, we pour all of our salary in there, we pour all other sources of ordinary income, all that interest you're getting on your cash in the bank, things like that we pour that all in and then we pour in capital gains on top of that. So if we can try to have most of that bucket filled with capital gains, it's going to be much less income tax burden than if more of that bucket was filled with things that are ordinary income and in a business sale ordinary income looks like inventory or accounts receivable or some other things that get a little bit in the nitty gritty, which probably for another podcast, but it really it can have a big impact.
Speaker 1:Okay, I love the analogy. I'm huge on analogies. I think they're great for helping people, especially spatially brain people, conceptualize complex topics. Two, I love that, just to highlight that Susie just knows what she's talking about. I did not prep her for the capital gains question, so I appreciate you doing that on the fly. I think that's an excellent way to put it and I think it will help anyone who's listening to better understand kind of the difference between the two.
Speaker 1:On a general basis, I want to rewind just a second to talk about. You had mentioned in passing people having, you know, deciding what the right tax status is for the company, and I, over and over again, I get questions about, or people who just have a misconception about, what a tax status for their company means, and so I wanted to clarify that when you have an LLC and you do an S-corp election, the S-corp election is only at the state, or sorry, at the tax level, and at the state level you remain an LLC. And so a lot of times I you know we'll start working with someone and I'll say, oh, what form of entity do you have? And they're like an S? Corp, and I'm like, is that a, a corporation with an S corp or an LLC with an S corp, and they're like it's just an S corp and I'm like no, no, no no, I just had this conversation this weekend with uh.
Speaker 2:They were a new business that were getting started and they were trying to get their tax ID number and the question was what are we? And they said they were an LLC. And then we move forward. And then I said, well, wait a minute, are we a partnership? Are we an S corporation? And it was just very confusing. And it's literally what you tell the IRS you are is, I'm an S corporation. The LLC does not compute with the IRS, or I should rewind the IRS does not recognize LLCs. They recognize S corporation, they recognize partnership, they recognize corporation. They have no idea what an LLC is, to put it in that way, the state, on the other hand, and from a legal perspective, that's where the LLC or a true S corporation comes in.
Speaker 1:I am so glad you mentioned that because it's important to also note, related to that topic, that when you are an LLC and you do an S-corp election, it does change what you can and cannot do in your operating agreement. So that's something to consider. If you are an LLC and you have, since formation, done an S-Corp election, it's time to revisit the operating agreement, and if you don't have one, it's really time to revisit the operating agreement.
Speaker 1:Yesterday. Yes, so okay, this is great. What are you know kind of moving down this list of questions I have for you and I'm sorry we have so much to talk about. I'm just enjoying this so much. So what are the best ways for business owners to transition from income-driven mindset to managing personal wealth? And I think you and I have had this conversation separately, but it's so easy for someone to you know they're operating this successful business, they're really entrenched in this mindset of growth. You know, driving revenue, building the business bigger which unfortunately, I feel like is a resounding theme nowadays is just to build bigger without necessarily first building better. But that plays really into your world as well, because a lot of people think, okay, wealth strategies and tax planning are this bubble over here, and my business and the growth of it and everything else is over here, and there might be some weird interplay in the middle, but they don't think of them as being interrelated. So talk more about that.
Speaker 2:Yes, this is probably the biggest piece where I see the biggest missing piece in a business owner's plan in general is not having a personal financial plan and kind of going to that point of not really thinking about the personal financial side, because everything is wrapped up in the business and my husband's a business owner for the last 20 years and I fully recognize that a lot of expenses are run through the business and you know you're using your card a lot for legitimate reasons, don't get me wrong. So this isn't recorded with the IRS, right. But you know, like everything is run through the business, the cash many times stays in the business because it's being used for working capital or you know they just want to keep it in the business for the growth mindset. So everything is all of the wealth and everything is tied into this business. That is a piece of them.
Speaker 2:Where I think there's a missing piece is looking at the personal financial side. Considering that, just like your business, you have a balance sheet for your personal side, you have a P&L. Considering that, just like your business, you have a balance sheet for your personal side, you have a P&L and that should be operated the same way that you do in your business. You should be reviewing your P&L. You should be reviewing your assets. Are you generating income off of your assets the way that you should be? Are you diversified on your personal side just like you think about your business? Are you diversifying your activity in on the business side? Should be doing that on the personal side too.
Speaker 2:Are you leaving too much on the table in the business Meaning? Do you have too much cash over there? Are you leaving so much in that business that we have? Maybe there's some risk involved there. Should we start pulling some of that out and putting it on the personal balance sheet? Some risk involved there. Should we start pulling some of that out and putting it on the personal balance sheet? So what I see, the best case scenario is when a business owner ultimately wants to exit and they do it on their own time. They've already built this war chest somewhat or a, you know, a retirement on the personal side, because they've taken so much time to really create a plan on on the personal side of the balance sheet, which I know I said balance sheet a few times, but it's, you know, business owners recognize that. So that's what I would say is really taking the time to operate both in the same way though, if you didn't get that, the balance sheet is exceptionally important.
Speaker 2:Throw the income statement in one more time and the income statement.
Speaker 1:No, I love that. So I really I appreciate this idea that you know they're not solo aspects of your life, they're not silos, I should say they're things that you should be planning. That sort of feed into each other in a lot of instances, and the tax implications certainly feed into one another as well. I think there's a huge misconception about charitable giving, and my understanding is that there's ways to charitably give during the lifetime of your business and at the sale, where, ironically, you come out ahead from a tax perspective. And so I would love to know, you know from your experience, what does that look like? I guess, first tell me, as a business owner, like, when should I be considering charitable giving? Like, at what revenue level does it actually make sense? Because I know it's not perfect for every business.
Speaker 2:Yeah, I'm really glad you asked that. I was hoping that you would get to charity, because charity is one of the looking at the tax code. It's one of the looking at the tax code. It's one of the biggest levers that we can pull if we're trying to save income taxes. But at the same time, it's not just saving income taxes. It really is driving impact in your community, supporting things that you're really involved in. So there's that beautiful combination that we get there.
Speaker 2:So when should we be giving charitably? I think I honestly I think that's more driven by by personal values and thinking about whatever net net income that you have. At the end of the day, how much of that do you want to put towards, towards things that are really important to you? So for some people so let's just say you made a hundred thousand a year I'm just making a very round number For someone that might not be enough to give anything other than just supporting their expenses. For someone else that might be, I want to give 10% to charity, to church, to whatever that might look like. So it really I think should be defined by values From a numbers perspective.
Speaker 2:There's some strategy that's involved with charitable giving and what I would say is if anyone is charitably inclined, that's involved with charitable giving. And what I would say is, if anyone is charitably inclined, you should be working with your CPA to think about the timing of when you're giving those gifts. So just for everyone listening, if as an individual, we have a $15,000 standard deduction, for a married couple, it's $30,000. If you're not giving more than, let's just say, married couple, if you're not giving more than $30,000 per year along with a few other deductions, then we're not actually getting a deduction for that charitable gift. In this year, if I gave $10,000, I'm still getting my $30,000 standard deduction. So I'm not really getting the benefit of that. What you can do strategically is say you know, when I give $10000 a year, maybe one year, I'm going to give maybe 30 or 40,000. That's now four years of giving, but now I actually get the benefit of that deduction. So it's a timing. It's a timing and it's very strategic and it's incredibly powerful. So anyone listening that does charitable giving, timing of that is important.
Speaker 2:And the second piece is when we're talking about bigger numbers. So now we're talking about because we're talking about exit planning. Exit planning sometimes can be big numbers on an exit. There's some timing involved there too. Owners can think about potentially gifting shares of their company to trust and when that sale happens, if they've gifted, let's just say, even 1% into a trust, that's a charitable trust, that money is designed for charity, but there's no income tax on that sale because that charitable trust is a tax exempt vehicle. So we've given some of this interest away strategically again, knowing that we have enough. Still. We've done the work to know that anything left over is enough for us, but we've also given to charity too and we've saved some income tax dollars because we got a deduction for that. So there's some interesting tools in the toolbox, going back to the beginning, that you can use when someone is charitably inclined.
Speaker 1:And so just to kind of hit this point home, in instances where you're exiting your business and you're going to have this windfall of cash for someone to consider, you know what they're going to do with that windfall. Mostly we're saying that charitable giving can be part of the plan in a way. That's not. I just want to hit home the idea that it's not potentially detrimental, because I think a lot of people, when you talk about charitable giving, the assumption is that charitable giving is really just a gift and you're just you're losing. You know, depending on how you're looking at it, you're losing some of that, that windfall, right in the process. But on the back end there's all these tax advantages that help to offset capital gains. Yeah Right, am I saying that?
Speaker 2:right, you're right. Any of the income. This is a great. I'm glad that we're knocking this home, because I didn't speak to that point too.
Speaker 2:So there's a lot of things that we can do before a sale. We can gift some to sale. We can gift some. We can gift some to charity. We can do a lot of fun things, but the end of the day, the two biggest, the two biggest drivers of this is one, the impact that the owner wants to make. But then two, do they have enough on the backend? You don't have to give. You don't have to give anything. You don't have to do it before a sale. An owner can do it after sale.
Speaker 2:They can decide all right, I now have $10 million of cash. What do I want to do with that? Do I feel comfortable giving that to charity? Great, let's do it in the tax year that you just sold that business so we can offset. Let's just say you have a million dollars of capital gains. If we can get a deduction to offset some of that, we would love to do that in that tax year, but you don't have to. You don't have. There's no dollar amount that you have to give. But it should really be driven by what is the impact that you want to have. Where are you really trying to accomplish with those dollars? And did you do a financial plan before you even started considering charitable giving that showed you that, yes, I have enough to still pay my expenses after I have enough, because now this business isn't making income. I have enough for the long term for me. I'm okay carving off a little bit for charity.
Speaker 1:And I love that. The idea that values are a driving force, because, inherently, someone choosing to make a charitable donation, you know it might be tax advantaged, but it's also tied very much to how you'd like to leave a legacy. That's right. And what does? What does the legacy that you built as a business allow you to invest in from a charitable perspective that allows your legacy to live on even further? And, you know, for people who are selling really successful businesses, the key is is that you get to do a little bit of both Right, you get to to be charitable, you get to support the things that you value and make a difference in organizations and their you know bottom line. And you also get these you know really great tax deductions or tax write-offs that help offset the burden that you're taking on, which I think is just a win-win.
Speaker 2:It is, and I just to give an example very quickly on this, just to give some thought around that we're working with business owners right now, just had our meeting last week and we have spent the last month with the three owners of this very successful business just talking about charitable goals, and it's been a beautiful conversation with the entire family where they the owners and their spouses have come together and they've decided I what they want to do.
Speaker 2:There's they want to support local communities, they want to have impact in certain ways, and we've defined the impact and now we know what they want to do, and then we just told them what tools they have to do it. So we took our toolbox and we applied it to what they were trying to ultimately do. They want to do scholarships for kids, they want to support their alma mater. There's some other, there's some other cancer research that they want to support too. So a lot of very specific goals, but we force them to think about that and by doing that now, we have a plan for when they sell sometime later this year, maybe next year too, and they know exactly what they're going to do with those dollars and they feel good. It's not driven by tax. This is purely driven by what their legacy is that they want, which is it's been fun to go through that exercise.
Speaker 1:Yeah, that's awesome. So I want to take a step back while we still have some time, and describe to me you know I'm a business owner. I haven't thought much about my tax planning, my estate planning. Maybe there's a lot of things that I need to work on because I've just been head down working on my business. When I come to work with you, what does that look like? Just give me a description of you know, do I reach out and then we have a meeting Like give me, give me, like the bird's eye overview of what it's like to work with with you.
Speaker 2:Okay, well, I'm glad that you're coming to talk to me first, because every I I don't know if there's a business owner that I've worked with that has not come at some point come up for air. A lot of times it's because something has happened either in the business, or they maybe lost a family member and realized that their estate plan wasn't done, or they're thinking about exiting their business next year and I haven't done anything yet. So I hope this conversation maybe pushes folks to go talk to their advisors. So what does that look like? The first is who they should talk to. Any business owner who's thinking about just the broad strokes of what am I trying to accomplish? What are my financial goals? I need to talk about exit planning. They should talk to a wealth planner or a CPA or an attorney whatever practitioner or professional they're working with now that they feel most comfortable with. They should go there first, most likely they feel most comfortable with. They should go there first. Most likely eventually they'll work with a maybe a CFP or someone who has kind of that broad-based understanding of a lot of different areas of financial planning. So that kind of talks about the who to talk to.
Speaker 2:And then what does it feel like the first conversations we have with clients is really going through, ultimately understanding what they have. So digging into their homework, digging into their balance sheet I'm going to use that again their income, their expenses. Tell us about your family. Show me your estate plan. If you don't have an estate plan, that's on our list now. Show me your income taxes the last few years. Really give me everything about you and it is a you know. Open the coat and show us everything, because professionals who are helping can't help if we don't know everything about the business and for you and the family, which can be uncomfortable, but ultimately, what we're trying to do is help them along the way. So that's the. That's the first part of this process. So that's the first part of this process.
Speaker 1:I don't know if that, yeah, no, I think that helps, and I'd like to also highlight that you know what Susie has talked about with talking with all of your various advisors and sitting down with someone like Susie to really get into the nitty gritty, to, you know, look into the nooks and the crannies of your business and maybe dust off some things and get things in better order.
Speaker 1:I see, just like in her world, I see a lot of businesses who have either not done this planning or have done that planning but haven't done the reciprocal on the corporate side, where they go to sale and their business is a disorganized mess, right, there's corporate records that need to be updated.
Speaker 1:There's people with equity that's not on paper anywhere, it's not even on the state's website, right, and so all these things that when you get to diligence, you know you need to have all your ducks in a row, including the wealth planning and the strategies that you need to have in place leading up to the sale so that you do get those tax advantages.
Speaker 1:So it's very holistic and I love that Susie hit on this idea that you have to include all of your advisors, and I think it's incredibly important that you have your advisors speak together, because I can't tell you how many times I get brought in and there's all these kind of disparate plans happening, and then I have to get caught up and I have to maybe suggest things to make corrections on the corporate side or vice versa, and none of that would occur if we all just got in the same room and had this all advisor meeting. And so I love this idea of you need to sit down and you need pick your first advisor that, like Susie said, that you're most comfortable with, but then have that advisor be the ringleader and bring all of your other advisors or introduce you to advisors that maybe you're missing in your Rolodex to sit down and create a holistic plan so that there's not any gaps or you know your plan doesn't. It's not like Swiss cheese, yes.
Speaker 2:I like the Swiss cheese. I've never used it before, but it is, it's true. And you know, it's as simple as picking up the phone to that person that you're probably seeing quarterly or annually and saying, hey, I've been thinking more about my business and some of the long-term plans and I realize I haven't put anything on paper. I don't actually have a strategic plan around any of my taxes, estate plan, my savings plan, any of those goals. Can you help me with that? And that's, it's as simple as that and they will take you down the path of what that looks like.
Speaker 2:It's, it's work, but it is incredibly valuable because all of us, at the end of the day, we don't know what's going to happen next year. We don't know what's going to happen in five years. Our lives change so fast and if you at least do the work now to have some sort of plan, you can adjust and shift much easier. When you already know where you're going. It's much easier to kind, of course, correct when you need to and, to your point, it's kind of like selling real estate. You don't want to sell your house when it's full of clutter and you haven't done anything, the roof is falling apart and the AC doesn't work. You want to take the time to really clean things up before you know going back to exit. You want to sell your business. Do that, do that legwork in advance.
Speaker 1:Couldn't agree more. Well, I'll ask a final question while we wrap up our episode. What is a recent either business book or podcast that you've listened to or read that you would recommend to our listeners?
Speaker 2:Well, you don't want to know that I was reading CPA books, so I won't bring that one up. Diary of a CEO is probably my favorite podcast right now One the most recent one I listened to was about communication. So well, well timed for a podcast, but it was very, very interesting. Conversation with, actually, an attorney talking about understanding what somebody is trying to get across when they're sitting across from you, what they're ultimately saying with their body language, with their facial expressions, and I've been reading you this whole time. So I'll tell you what I think later, but that that podcast is so fascinating. So, for anyone who's interested in business and growth and just listening to some very interesting interviewees, I love that one.
Speaker 1:Awesome. I feel like every time I ask this question, a new item gets added to my list, and now I've got this long list of to-do items for personal listening or reading, so I appreciate your recommendation. Thank you so much for being on today. Thank you, I really appreciate this. It was fun. In the world of business, not all deals are what they seem. Fortunes rise, empires crumble, all with the stroke of a pen mergers, acquisitions, hostile takeovers, welcome to mergers. She wrote where we examine strategies and stories behind the biggest deals in business, because in m&a, the real risks are the ones you don't take.