Should I Buy the Family Business?
Introduction:
This week, we bring you another Entrepreneurial Fish Bowl with Chris Hutchinson of Trebuchet Group. As you may remember, this is a virtual exercise where we offer a business owner—or in this case a potential business owner—the opportunity to pose a challenge he or she is facing to a group of owners and entrepreneurs from the 21 Hats community as part of a brainstorming session. In this case, it was BaLeigh Waldrop who explained why she has mixed feelings about taking over the Miller Waldrop furniture business that her parents own. As you’ll hear, BaLeigh has some real concerns: the business has been down of late, it’s predominantly brick-and-mortar, and she would have to work out an ownership structure with a younger brother. The 21 Hats brainstormers some good questions, including whether the business is profitable, whether it’s been paying family members a market wage, and whether it owns the real estate. They also offer a lot of smart suggestions. Plus: it all ends with a very surprising offer from Jay Goltz.
— Loren Feldman
Guests:
Chris Hutchinson of Trebuchet Group, along with his co-founder and wife, Diana Hutchinson, plus Maartje Bakker of Space to Think; David Barnett of Business Buyer Advantage; Michael Bice of Vortex Engineering; David Billstrom of Flashing Red Light; Chris Campbell of Ritzr; Paul Downs of Paul Downs Cabinetmakers; Kim Geiger of Edoc Service; Jay Goltz of The Goltz Group; Ty Hagler of Trig; Erik Messner of Messner Bee Farm; Josh Patrick of The Sustainable Business; Megan Perona of A.R.E. Manufacturing; and Leisa Peterson of WealthClinic.
Producer:
Jess Thoubboron is founder of Blank Word.
Full Episode Transcript:
Loren Feldman:
All right, let’s do this. Are you ready for some Fish Bowl? Let’s go! Welcome to Fish Bowl III, led by our terrific facilitator, Chris Hutchinson. As most of you know, our goal here is to have some fun, maybe learn some things, and most of all, to try to help a business owner—or would-be business owner—with an interesting challenge.
Our guest of honor today is BaLeigh Waldrop. She’s considering, as most of you know, whether she should buy the family furniture business from her folks. More about that in a minute. But first, Chris, do you want to give us a quick reminder how this works and what you’re going to lead us through?
Chris Hutchinson:
Happy to do that. What we’re going to do is Loren’s going to be working with BaLeigh at the beginning to sort of frame out what’s happening. And then once we get to a certain point, we’re going to enlist you as members of this community in small groups. Diana’s helping facilitate here, and she’ll break you out into groups for about 12 minutes. You’re actually going to be thinking about what questions you want to ask to understand things better. I’ll prime you on that as we get there.
And then once we get that back, BaLeigh will pick something that she really wants advice on, and then we’ll send you back out to go thinking about what sort of advice: a next step, a cautionary note, or a success tip. And those will come back to BaLeigh and be upvoted by you so that BaLeigh has the best of the best of our thoughts and information to support her in that decision.
Loren Feldman:
One really important reminder, which is, we are recording this for a podcast. So the first time you speak, please tell us your full name and your business, what you do. So, let’s get started. BaLeigh, can you help us by setting the scene here a little bit? Tell us about the business. Who started it and when?
BaLeigh Waldrop:
Yeah, thanks, Loren. And before I start, I just want to say thank you to everyone for being here and lending your expertise. I’m excited. So, the name of the business is Miller Waldrop furniture. It was started by my great grandpa in 1952, and so my parents are the current owners. They’re third-generation. It’s a retail furniture store in southeastern New Mexico and West Texas. We’ve got three locations of retail furniture and then a freestanding mattress store.
When you talk about the business right now, it’s a hard time to talk about retail furniture. We’re economically just seeing a hard time in lots of different ways. We do well when the housing market does well. And then, of course, everything is so expensive right now, so people don’t have a lot of discretionary income. And then we’re also seeing kind of like a post-pandemic bust, because we did so well in the pandemic, and we ate a lot of our demand. So right now is a hard time in the furniture business, but historically, we’ve done very well, and when we’re doing our best, we’re usually around 15 million in sales, and we have anywhere from 50 to 60 employees.
Loren Feldman:
And you know that in part because you’ve been playing a role in the business. Tell us about that, BaLeigh.
BaLeigh Waldrop:
Yeah, so I’ll give you a little bit of my background, just because I think it helps frame the decision a little bit for me. So I went to school for accounting and got my CPA license, and went and did CPA things for a while, and decided pretty fast that that wasn’t what I wanted to do. And so I decided that I was going to go try out the family business.
And at that time, it was to rule it out. I needed to just decide that I was done with it, so that I could decide what the rest of my career was going to be. But I got into it, and I ended up really enjoying it. So, I’ve been doing it since 2018, and I’ve worn a lot of different hats, as a family member goes in a family business. But right now I’m the CFO of the company, and so I lead everything financially, and I lead a team of about five people directly. But then, of course, as a family member, I wear a lot of hats for guiding the business, and where it’s going to go, and a lot of long-term vision, and making sure that we’re headed in a good direction.
Loren Feldman:
And who owns the business now?
BaLeigh Waldrop:
My parents own the business.
Loren Feldman:
One hundred percent? They own the whole thing?
BaLeigh Waldrop:
Yep, they own it all.
Loren Feldman:
And how old are they?
BaLeigh Waldrop:
They are in their mid-60s, and they’re getting ready to be done. Or, well, it depends who you talk to, but my dad’s getting ready to be done. And they’re looking forward to handing over the reins just as quickly as possible. I told them two years ago that I would let them know by the end of next year whether or not I was all in. So, I still have about a year to make this decision.
Loren Feldman:
Do you have siblings?
BaLeigh Waldrop:
Yes, I have a brother. He’s involved in the business. He’s been involved for the last couple of years. He’s younger than me. So, I’m young. I’m 31. My brother is 25. We’re kind of in an interesting space, because this is the first time in the family business where a sibling pair has both been working in the business and both has interest in ownership. So the blueprint for ownership transfer for our family has always been that there is one sibling interested, one child interested, in the business.
So, we’re feeling a little lost as a family, just what could that look like for leadership and ownership if we both decide that we want to have some piece of the business going forward? And so that’s definitely a big part of the decision as well, is deciding what that could look like. And does that set up me and my brother’s relationship for success?
I’ve said many times that what’s most important to me is me and my brother’s personal relationship. So, I’ll walk away if it feels like that’s going to be in compromise, based on how everything is going. That’s been an interesting dynamic as well. Also very interesting that, you know, we have all four of us working in the business every day, so it’s a lot of fun, but a lot of chaos, too.
Loren Feldman:
Tell us about the chaos.
BaLeigh Waldrop:
Well, you know, I think anyone that’s involved in a family business knows that family businesses are just hard. You have your family dynamics, and you have your business dynamics. And so, you have your family things that get to you, and then they get to you in the business. And so there’s definitely the chaos there of figuring out how family dynamics play in the business and how all that works as well.
Loren Feldman:
Got it. Let’s open this up for questions. Chris, you want to lead this?
Chris Hutchinson:
If you have questions, please put them in the chat, and we’ll see how many of those we can get from BaLeigh. The best questions, by the way, are ones with, “How much?” Or, “How?” Or start with, “What?” rather than yes-no questions: “Are you going to do this?” “Wouldn’t you like to include this process?” What we’re trying to do is jointly learn. It’s not anything you have an answer for. It’s: We’re going to learn what BaLeigh’s perspective is, and that’s going to help inform us, so that when we go give tips, they’re really helpful. So the first couple of questions we have—Michael?
Michael Bice:
My name is Michael Bice. I run Vortex Engineering, which supports the modernization of ships and submarines for the Navy in San Diego. My question was, when you say they own it 100 percent, do they also own as an asset all the real estate and all the property along with that?
BaLeigh Waldrop:
Yes, my parents own all of the real estate, everything in the business. There still is a little bit of debt that they’re paying off in relation to some of the assets, but they own it all. And so that’s definitely a question, too, in transfer of ownership. There’s so many different ways that could look, right? Like, they keep the real estate, and we pay them rent. We buy the real estate from them. I think the possibilities are endless on how it could be structured.
Chris Hutchinson:
That’s great. Well, let’s keep asking questions.
Paul Downs:
Paul Downs, Paul Downs Cabinetmakers. My question was: Is there any debt? And that was, I guess, answered. But I always prefer to hear answers that actually have numbers in them, rather than there’s some or there’s a little. Second thing would be: What were your revenues in the last two years? Because you mentioned what your peak years were: $15 million. But what’s it looking like now? And then, the last one was: Have your parents set an asking price for this?
BaLeigh Waldrop:
Yeah, okay, lots of questions. So, since it’s not my business, I won’t share exact numbers about the debt. But definitely, the goal is, my family has a five-year plan for the debt to be completely paid off so that when the ownership is transferred, it’s completely debt-free. That’s the goal, and we’re on track to do that right now.
As far as sales, 15-16 million was where we were during the peak of our Covid boom. Then we went down to 12, and now we’re more like 10. So we’ve definitely seen a decline, as everyone has in the furniture industry. But I feel really hopeful that we’re going to be able to pick it back up. And then, you had another question.
Paul Downs:
Yeah, have your parents set a price?
BaLeigh Waldrop:
Oh, no, we haven’t set a price yet. The goal is to find a payment, I think, that would be doable for the business, but also be fair to them and set them up for their retirement well.
Josh Patrick:
I’m Josh Patrick, the Sustainable Business. Do you want to buy the business? And does your brother want to buy the business?
BaLeigh Waldrop:
Yeah, that’s a great question. I mean, I think part of the reason I’m here is, I’m unsure if I want to buy the business. Right now, my brother definitely does. He’s all in.
Josh Patrick:
Well, if you were sure, what would be happening?
BaLeigh Waldrop:
What do you mean by that?
Josh Patrick:
Well, if you were sure you wanted to either buy the business or not buy the business, what would be your decision points for that? I mean, what’s preventing you from answering that question yes or no?
BaLeigh Waldrop:
I think it’s threefold. I think I need some clarity around a good path forward for me and my brother to be partners in the business and what that would look like. I think that’s the first thing. I think the second thing is, I just need to ease some of my thoughts about my anxieties of the future of brick-and-mortar retail and where the business is going in that direction. And then I think, third—and I don’t know if this is a question anyone on this podcast can answer for me, but just a little bit of an existential question of—this has been in my family since 1952. It’s all my family has done. It’s what I grew up in. Do I want to go and pave a new path for myself?
David Barnett:
My name is David Barnett. I run a consulting business where I help people buy and sell businesses. And so the first question I have is: Are the family members being paid a fair market wage for the work that they do? So are you getting paid the amount that strangers would be paid if they were filling the roles?
BaLeigh Waldrop:
Yes, that’s a good question. For the most part, yes.
David Barnett:
Okay, and are there positive earnings in the business right now? Is it making money?
BaLeigh Waldrop:
Right now, we’re at break even, and this is the first time in company history that we haven’t been profitable. So, this is also a hard time to think about taking it over.
David Barnett:
But now, you said you own the buildings. So is the company paying rent to anyone?
BaLeigh Waldrop:
We’re set up in different LLCs, so the company’s business is paying rent to the LLCs that own the real estate, but it’s all under the umbrella of my parents.
David Barnett:
Okay, and is the rent being charged a fair market rent? Or is it just the amount you need to cover the mortgage payments?
BaLeigh Waldrop:
A little bit of both. I would say two of our buildings are probably not at market, and then I would say one of them is.
David Barnett:
So if you didn’t own any of the real estate, if you had independent third-party landlords, this company would probably be losing money right now?
BaLeigh Waldrop:
Yeah, for sure.
David Barnett:
Okay, and my last question was, can you give us any idea about how much money is tied up in inventory?
BaLeigh Waldrop:
Our goal is to be at about 20 percent of our sales in inventory. Right now, we’re a little high at 30 percent. So that puts us at like, 2.5-3 million in inventory right now.
David Barnett:
Perfect. Thank you.
Megan Perona:
I’m Megan Perona. I do the books at another family business, A.R.E. Manufacturing. We’re a CNC contract machine shop in Oregon. And I do have a similar situation, because my parents are in their mid-60s, and both my brother and I work at the business. And so we’re in a similar succession plan, but I have no interest in owning it. But I was going to ask you, you spoke a lot about your own feelings about owning the business and your brother’s feelings about owning the business, but are there other spouses, partners, people involved in those decisions? And how do they feel about it?
BaLeigh Waldrop:
Yeah, for sure. I mean, yes, my brother’s wife and my husband definitely have a lot of thoughts about it, and I think both of us are viewing it as a decision, as like a family unit, not just like my decision, but my whole family’s. Because it’s a family business, so it would end up being impacted. I think my husband is where I’m at with it: We see a lot of pros. We also see some tricky things that we’re trying to navigate. And so we’re definitely seeing it as a group decision, for sure.
Chris Hutchinson:
Okay, great. Let’s see. I’m looking at the questions, and I’m wondering how much more we need to know before BaLeigh gets to pick the thing that she really wants the advice around. Let’s see. David Billstrom, you have a question about BaLeigh’s motivations here, and so could you share that briefly?
David Billstrom:
Yeah, this is David Billstrom, and Flashing Red Light is my consultancy that covers a broad range of advisory, including businesses. So, BaLeigh, this may seem a little odd, but what do you do when you go on vacation? Where do you go? And if that’s too specific, then maybe a different way of asking it would be: If you weren’t doing this, like in the next month or two from now, what would you be doing?
BaLeigh Waldrop:
Yeah, so that’s a great question. I’m trying really hard right now to come up with a plan B for if I don’t take over the business. That way, I’m actually deciding between things. I don’t just end up in a place by default. And the day-to-day of what the business is, I really love it. Like, if I don’t take over the furniture store, I’ll just go start my own thing from scratch. And so I really enjoy the elements of having employees that I can make a difference in their day-to-day. I enjoy retail. I enjoy owning a business in the community and being involved in the communities that way. And I get the most energy out of that experience of owning a business. So there’s a lot of things that I really love about it. So your question about, if this were to all fall off the table, I would probably just go try to recreate it, but it would be my own thing. It would be not something that is part of the family business.
David Billstrom:
Thank you. Thanks for being vulnerable.
Loren Feldman:
Chris, I think Jay Goltz has a question or two.
Chris Hutchinson:
Jay, help us use your experience to understand what the situation might be.
Jay Goltz:
Well, I can give you some comparing notes. I’ve been in the furniture business for 35 years. My sales are similar. And I can tell you, the entire industry—it’s not the pandemic. Interest rates are high. People aren’t moving. People buy furniture when they move. Moving is probably 50-percent off. Everybody I talk to, including me, is down 20 percent. That’s pretty much what you’re down. So, that is normal.
Two, I could have guessed your inventory level, because, again, I’m at the same place you are, and that’s exactly what I would have guessed. Your employee count, exactly the same as mine per revenue dollar. And so I think the business is okay. I do think it’ll rebound, because as soon as people start moving again, they’ll start buying furniture again. This went completely different than I thought, because all I heard is, “Oh, she’s a CPA.” And I was going to give you a whole lecture about how being a CPA is—
Chris Hutchinson:
Jay, there’s a question in there someplace. [Laughter]
Jay Goltz:
Okay, I’m gonna just cut to the chase then, the fact that you said you didn’t like being a CPA. You love employees. You love retail. I’m not here to ask a question. I’m here to give you a reflection of: I’m also in the business, and I’m a family business owner. I’m here to tell you, it sounds to me like you should try to buy the business. And the key part to this is, if anything goes wrong, you can always change direction and sell it later. This isn’t a lifetime commitment.
Chris Hutchinson:
So, Jay is previewing our next step that we’re going to go to—
Jay Goltz:
Well, I’m also filling in the blanks for people who didn’t know if the numbers—I’m trying to validate her numbers are all normal and that the business shouldn’t be in trouble, that everybody I know in the industry—I talk to reps—everybody I’ve ever heard is off about 20 percent. So I’m just validating: The business isn’t sick. It’s an extremely high interest rate environment coming off a low interest—
Chris Hutchinson:
So, Jay, if you were BaLeigh, what question would you ask yourself to better understand what you need to do next?
Jay Goltz:
You know what, she just answered my question right before. She said, “I love retail. I love the customers. I love my employees.” You know what, that’s what I wanted to hear. And I think that she’s got to figure out—and I would get some outside consulting on this, not me—how to deal with your brother and the relationship and stuff. But I think that there’s a nice opportunity here for you and your brother.
Chris Hutchinson:
Perfect, Jay. You know, it’s one thing that happens when we feel a resonance and a connection between people’s experience and our own. We want to help them out. And Jay, you are no exception. You are trying to figure out: How can you help BaLeigh as much as possible? Because I sort of can tell you can feel her pain and the challenge and the possibilities since you’ve lived it.
What we’re going to do here, I think, is we’re going to change gears. We don’t have a perfect situation. We don’t have perfect information. And we haven’t answered every question. However, we have a pretty good list that if you have the group map pulled up, you’ll see there’s seven or eight items on there.
And what we’ll be doing is looking at all these questions and answers that you provided. Where do you want advice? So it might be one or two of these. Like, “This is the thing I want advice on,” so we don’t provide you unasked-for advice. Unasked-for help often isn’t helpful. And what we’re trying to do is figure out what you want to know about. And then we’re going to—as you’re looking at this; I’m vamping slightly—the group’s going to get into smaller groups of probably three to four people and have a conversation around that particular thing: What’s a next step? What’s a caution? Or, what’s something that will help make sure it’s successful? And I don’t know if there is a question. Okay, Erik, please state your question.
Erik Messner:
I’m sorry, I know we’re short on time. My name is Erik Messner. I am the accounting department and co-owner of Messner Bee Farm, a much smaller business than yours. But I just want to understand: It seems like your brother has a stake in this question, and so I’m curious if you could provide a little bit of detail on what his competencies are, what role he plays in the business now. Do you feel like he’d be interested in silent partnership or some type of co-ownership that he doesn’t maybe have as much decision-making power as you? Can you just fill in some of the details there?
BaLeigh Waldrop:
Yeah, so my brother is extremely eager. He would run the business tomorrow, if someone would let him. He’s very hard working, and he’s actually in the day-to-day. I work very high-level on the business as a CFO. I’m working more on the business. He’s in the business. He’s also worked retail on the sales floor before for a competitor, and I haven’t done that. So he has a lot more on-the-ground experience. I think that, right now on paper, with our different levels of experience and, frankly, our age—I know I’m young at 31, but he’s also even younger at 25, and hasn’t gotten a lot of experience in the business yet, or outside of the business. And so, just on paper right now, organizationally, I guess I’m ahead of him in the org chart. He’s our advertising manager, and I’m the CFO.
So if we had to make a decision tomorrow about the business—like, worst-case scenario, if something were to happen to my parents—I would definitely be runner-up for being the one who’s in charge. I think what’s hard about all of this is that because he is so young, we don’t know where he’s going to be in 10 years. And so we’re making all those decisions now about our current competency levels and experience, but in 10 years, when he’s got a lot more experience and maturity under his belt, he could be a totally different person. And so, to answer your question, I think he’s very open. His goal is, he just wants to run this business, and he wants to do it with me. And so I think that he is very open to different levels of what that relationship could look like. At least, right now, that’s how he feels.
Chris Hutchinson:
Okay, thank you, BaLeigh. Let’s look at the questions and answers—basically, the things that came from you. I think Diana’s probably putting the last one in. And I’d love for you to pick: Which one of these would you like this assembled group of experts, who passionately want to support you, to really help you with?
BaLeigh Waldrop:
Yes. I’m looking at this yellow board here?
Chris Hutchinson:
Yes, there’s some 10 items on there. We just have time for one. So, just pick which one would be powerful.
BaLeigh Waldrop:
Yeah, I think that if anyone has ideas about structuring of leadership and ownership with my brother, I would be very interested to hear about that.
Chris Hutchinson:
Okay, which particular one is that?
Diana Hutchinson:
I think there’s the one getting near the bottom that says “younger brother, 25, is also working in the business.”
BaLeigh Waldrop:
That’s the one, thank you.
Chris Hutchinson:
So what you’re asking for help with is a structure of leadership with your brother in the business. That’s, I think, what we’re going to be providing you for?
BaLeigh Waldrop:
Yeah, I think so.
Chris Hutchinson:
Okay, wonderful. So what we’re going to do is, we’re going to break you out. You’re going to go away for 12 minutes. It’ll be about 10 minutes. Actually, we need to make it 10 minutes, Diana, so it’ll be eight minutes. And then you’ll get a warning. Loren’s looking like he wants to interject. So, I will definitely let him interject here.
Loren Feldman:
Boy, you are a good facilitator. Here’s my question: Could you be more specific about what you’re hoping the suggestions will say about your relationship with your brother running the business? You know, from a distance, it’s easy to talk about various ownership structures or management structures, but you have, it sounds like, particular concerns about your relationship. Is there anything else we should know about your relationship with your brother in order to best offer suggestions about how to manage that situation?
BaLeigh Waldrop:
I don’t think so. I think just in general, me and my family have all kind of come to this consensus. It’s really hard whenever you have a business partnership and there’s no one to have the final say. And so I think we’re curious about how things can still be fair, as us both being siblings and children of my parents, to both of us, but set up the business for success so that decisions can be made and that the employees have a clear structure of who they go to and what that looks like.
I am less worried about money. Like, I am fine at the end of the day if it’s a 50/50 split, as far as how money goes. I’m more worried about, how does leadership look and how do we set up authority so it’s set up for success?
Loren Feldman:
So if I can interject, the question is, it’s not so much about running the business specifically with your brother. It’s more a question about partnership: how two people owning a business can make decisions and effectively manage the operation. Is that right?
BaLeigh Waldrop:
Yeah, I think so.
Chris Hutchinson:
Great. Thank you, Loren, for that clarification. So that should be on the top of everybody’s mind as we send you away for 10 minutes. We’re going to put you in random groups, and the idea is to have a conversation. What we hope to do is populate this with the great ideas, cautions, and success tips, and then we’ll come back and see which ones get the most votes, let you share those, and BaLeigh will hopefully walk away with some great ideas. It’ll be eight minutes, and then there’ll be a two-minute countdown warning. Let us know if you have any problems. We’ll see you in 10 minutes.
Loren Feldman Voiceover:
Okay, so at this point, Chris splits everyone up into virtual breakout groups of three and four, and he gives them about 10 minutes to brainstorm ideas, which they can then enter on a virtual white board. Then, all of the participants “like” the ideas they find most promising. Once that’s done, we go through the ideas that have been liked the most with Chris asking the person who articulated the idea to explain it. David Billstrom goes first, followed by David Barnett.
Chris Hutchinson:
Welcome back. Please add in your thoughts if they’re not already here, and then go ahead and upvote the ones that you think would be most helpful, based on what you heard from BaLeigh and your own experience. Just go ahead and upvote those, and in a moment, what we’ll do is move to sorting them by likes. So the ones that have the most likes are going to be the ones that people get to share.
Loren Feldman:
Let me just say, we’re getting close to our time deadline. It’s possible we will run a little bit over. If you have to go, you have to go. You can just wave and say goodbye, but we wouldn’t go more than five or six minutes over, if we do go over.
Chris Hutchinson:
Two new ideas popped in. People are liking those or letting them sit. That’s okay, too. I think we’ll take about 30 more seconds, and then we’ll move to the answers sorted by like. So this order will shift, and we’ll see which ones are sort of on top.
So the idea here is not to solve the whole problem, just convey your suggestion. So this first one is equity ownership structure. So, David, go ahead and share that.
David Billstrom:
It was actually a group effort between Maartje and Megan and I, but I’ve personally experienced this, and I’ve had clients and dear friends go through this, where they get into business together, and then, due to a sudden change outside of their control, they now have a new business partner that they never would have chosen. And so the customary solution to that is to have an airtight buy/sell agreement that anticipates changes. And since you both are so young, I think most of us here over 50 would say you’re absolutely going to have changes. It’s just the way life unfolds. So, that’s where that comes from. It’s a cautionary.
Chris Hutchinson:
Great advice, David. Thank you for that. How about our next one? “Parents likely have a simplified idea of what they’re selling.” Who is that? And could you share it?
David Barnett:
One of the impressions that we got is that, you know, BaLeigh’s talking about buying the business, her and her brother, and then all of a sudden, one day they will be the owners. And all of a sudden, everything’s changed. We’re wondering if the parents don’t have kind of a simplified idea of what it’s going to be like to sell this business, because the current state of the business is one where, if they had outside landlords, this business would be losing money. The only reason it’s breaking even today is because of past investments in real estate. And so, BaLeigh and her brother are not going to be able to go borrow millions of dollars and go write a check to their parents and become the new owners of this business. The business wouldn’t be able to make the payments on that.
You know, I help people buy and sell businesses, but a lot of what I do as well is I help people with partnership dissolutions. And so one of the issues is that you need to have an org chart in a business, even a family business, and know when you’re wearing the hat of a position at the company—for example, president or vice president of sales or head of marketing or whatnot—and that’s a different hat from your ownership hat.
Owners meet at the boardroom table. They talk about the long-term direction of the business. They give instructions or express what kind of strategy they want the president to undertake. The president’s in charge every day at the business. And so BaLeigh and her brother are going to end up in an org chart in one or more roles each, and one of them is going to be above the other. One of them is going to be the president. And when they’re at work every day, they need to operate within that org chart, and every decision that is made can’t be resolved through an instant boardroom meeting. The whole organization grinds to a halt. It becomes management by committee all the time.
And I’m not sure how your parents run it, BaLeigh, but you need to structure, and your brother has to be on board with the structure and understand what his jobs are all the time. And because I would imagine the way that you’re going to be able to get this done, if you choose to move forward, is you’re probably going to end up buying this over a period of time from your parents, slowly, bit by bit, which means that there’s going to be a number of years where all four of you are going to be the owners. And that could be great, because it means that your parents are still going to have a vested interest and be there to give you guidance and advice and may be able to help some of that interaction between you and your brother when you guys have your regular board meetings.
Chris Hutchinson:
Thank you, David, great. We have a good one here. It’s got quite a few votes: the “recommending around partners counseling.” Who made that suggestion?
Josh Patrick:
That was me.
Chris Hutchinson:
Go ahead, Josh.
Josh Patrick:
From what I heard, before you start making financial decisions and legal decisions and accounting decisions, it’s important to know what the rules of the game will be and how you’re going to interact with your sibling when you have partners, whether it’s a sibling partner or a partner partner. And there are some really good therapists out there who don’t do couples counseling. They do partners counseling.
And my recommendation, before we even started thinking about any of the technical stuff—which is all relatively simple and straightforward, believe it or not—it’s the soft side of the business where people really, really get into trouble, in my experience. And I highly recommend partners counseling. Get everything straightened out there. Then if you decide to move forward, you move forward.
Chris Hutchinson:
Thanks, Josh. I’ll pick this last one out. It’s the 51/49 percent. Who’s got that cautionary tale or success tip?
Michael Bice:
Yeah, that was me. Michael Bice, Vortex. It kind of goes along with the ownership to be able to make decisions so you’re not blocked on veto. I’ve found that if one person doesn’t have a veto over the other one, you may be blocked with no decision. So one person has to make the final decision. So, having that defined.
The other part of that was because there are benefits to women-owned businesses enshrined in law, having you, BaLeigh, as the owner—or predominant owner, if you buy the business—then you would have that ability to access that preferential capital, or ability to get access to those benefits that the federal government provides.
Chris Hutchinson:
That’s perfect. Okay, great. Okay, Loren, I think we’re almost at wrap-up time, and I just wonder if you want to ask BaLeigh what she wants to do next, based on this advice.
Loren Feldman:
Actually, I’m a journalist, so I always want to know more. I can’t resist.
Chris Hutchinson:
See, this is why I asked him, because I know this is going to happen. What’s the thing you want to know more of, Loren, to help BaLeigh?
Loren Feldman:
BaLeigh, one thing we haven’t really addressed here before the group is how important in this decision your tolerance for risk is, especially given the fact that, by training, you’re a CPA. That’s your background, even if it’s not your passion. To what extent is that financial, entrepreneurial potential for risk a factor in you deciding whether you’re going to proceed with this or not?
BaLeigh Waldrop:
Yeah, that is a good question. Even though I don’t enjoy being the CPA in the day-to-day work, my temperament is probably more that of a CPA, as far as my risk tolerance goes. So this is definitely a question that I’m asking myself right now. I think part of what I’m considering and kind of hedging my risk is that my husband has a pretty stable job. And I think that if we were to go down this direction, he would continue to stay in that role and not be involved in running the business so that we could kind of hedge our risk a little bit until we get more comfortable.
And I think also, the way that we structure how ownership is transferred, whether that be paying my parents a consultancy fee or maybe doing an owner-finance type transaction, there’s ways that we can go around it that will feel more comfortable to my risk tolerance. But on the other side of that, I think, I don’t want to just slide into doing this because my risk tolerance is low, because this is also like an easy way to go about owning my own business and getting to be an entrepreneur as well. So, I think it’s a multifaceted question.
Chris Hutchinson:
Do you have any questions, at this point, before you sort of share with us what your next steps are going to be?
BaLeigh Waldrop:
I think this is super helpful. Thank you everyone for your thoughts. I think if anyone just has any burning thoughts that they want to get out, I would be interested to hear them.
Loren Feldman:
Looks like Jay has a burning thought.
Jay Goltz:
Have your parents—I don’t know which one of them, or both—are you sure they wouldn’t be relieved if you said, “Mom, Dad, just sell it and take the cash and move to Florida”? I don’t know if they’d tell you the truth. I mean, there are parents out there who I know that don’t want their kids to be involved like they had to, and they’re happy to dump it, but they might not want to say it out loud. Do you have an idea where their head’s at?
BaLeigh Waldrop:
I honestly think my parents want both me and my brother to make the best decision for us. And they know that they’ll figure it out no matter what direction they go down. We don’t have a blueprint for selling it to a third party. So I think that they don’t really know what that would look like. And so I think that there’s some hesitancy there, just because that’s an unknown. But I think everyone here just wants to do what’s best for the business and for everyone’s well-being.
Jay Goltz:
But those are two—you see, that’s my point. Those two things are contradictory, maybe. What may be best for the business is not best for you, and vice versa. So that’s where it gets complicated. I mean, I’m living it. You know, my kid is no longer involved. He’s not going to be taking over the business. I know lots of people in that situation. So, it sounds like you have a good shot—this could be a good thing for you and your brother.
Loren Feldman:
Anybody else with a burning thought?
Jay Goltz:
Just so you know, your EBITDA—assuming when you’re making money again—the multiple on that’s probably three and a half times or something. It is probably likely that liquidating the business would raise just as much cash as selling it. Just saying.
I’m in that situation myself. It is a reality. So, keep that in mind going forward, because trying to find a buyer and dealing with that whole thing, who knows? My point is, it’s not going away tomorrow. There’s always assets there. Your parents will always be able to get their money out of it, one way or the other.
Loren Feldman:
Chris, where do we go from here?
Chris Hutchinson:
Well, BaLeigh, is there any specific choice based on the information you heard about your next steps?
BaLeigh Waldrop:
I really like what you all had to say about the leadership and the boardroom and not leading by committee in every decision that is made. I think there’s a lot of threads to be pulled on there, and so I’m excited to explore what that could look like for now in our business and going forward. So, I think there’s a lot of really good thoughts there.
Loren Feldman:
Will you come back in six months or a year or whenever is appropriate and tell us what happens?
BaLeigh Waldrop:
Sure, yeah. Hopefully I don’t disappoint you guys.
Jay Goltz:
Would you consider me adopting you and taking over my business? Just keep that as an option. [Laughter]
BaLeigh Waldrop:
I’ll have to talk to my parents about that one, Jay.
Jay Goltz:
Just keep your options open. That’s all I’m saying.
Chris Hutchinson:
That’s so good. Thank you all.
