Today’s guest is Chris Mercer, the Founder of Mercer Capital.  Mercer Capital is one of the premier valuation firms in the country.  Chris is going to provide us with some great tips on how to unlock the wealth in your company.  Through his 40 plus years as a business valuation expert he’s seen businesses that are doing unbelievable things and ones that need to have some work.

Here’s going to help us learn about:

  • Tools you can use to unlock your company wealth.
  • Why you need to think about spending 1% of your business value on people to help you enhance that value.
  • Why you need to hire a team of professional advisors to help you take advantage of opportunities your company has.
  • How working on your business is very similar to compound interest for your investments.


Narrator:         Welcome to the Sustainable Business Radio Show on podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. The Sustainable Business is all about creating great outcomes.

Here’s your host, certified financial planner, student, entrepreneur and private business expert, Josh Patrick.

Josh:                Today’s podcast features Chris Mercer. Chris is the founder and CEO of Mercer Capital, a firm that specializes in valuations for privately held businesses. For years, I’ve been skeptical of whether it makes sense for private businesses to get a formal valuation done. I’ve now come to believe that if you have business partners or a tax need for business valuation, getting your business valued by a professional valuation firm is an important step. Let’s spend a few minutes with Chris and learn from the expert why valuations are important for you and your company.

Hey Chris, how are you today?

Chris:               I’m doing great.

Josh:                Chris, you’ve published several books and you write more than almost anybody I know. You just wrote a new book or publishing a book called Unlocking Private Company Wealth. Why this book and why that title?

Chris:               Josh, I wrote a little booklet a number of years ago called The 1% Solution that dealt with or addressed the topic of managing wealth for private companies. I began to write a second edition of that book to expand it a little bit and I realized that, if I really wanted to get the message across, I not only had to talk about managing private company wealth but I needed to expand the discussion of the tools that are available for business owners to manage their private company wealth. And then, to provide some additional perspectives that would, I hope, convince advisors and business owners of the importance of this very topic that I’m talking about – managing private company wealth.

The title – actually, I had a different title and I went to a group. The gentleman agreed to review my book and he came back with this title, Unlocking Private Company Wealth. He thought it was really neat. Well, frankly, I did too. It seems to catch people’s attention, so that’s why the title.

Josh:                Oh, cool. So what is a 1% solution?

Chris:               I speak of the 1% solution for managing illiquid private company wealth because it’s very typical in the management of public wealth or liquid wealth that asset managers are paid. A typical equity asset manager used to be paid a point, 1%. Maybe now, it’s more like 80% – 80-basis points, but 1%. And so, I thought that it had a nice ring to it.

But the idea behind the 1% solution is this, a business owner should think of the value of his business. The value of the entire business. Say, it’s $10 million, and then create a budget – 1.5%, something – $100,000 a year to be spent to manage the wealth in that business. Business owners will say, “Well, we’re running the business every day.” That’s not what I’m talking about. I’m talking about managing the wealth and doing the things between now and some ultimate disposition that will position the business and the owners for an optimal end game. So, the 1% solution creates the budget to do those kinds of things.

Josh:                What might that $100,000 be spent on in a year? Who will they spend it with and what will these people do for them?

Chris:               Well, the best way to think about this is that every one with a $10‑million value business needs to engage in some form of estate planning. Your estate planning lawyer is someone that you’ll need to be dealing with. I talk about the need for annual appraisals to monitor performance, to update valuations for buy-sell agreements. An appraisal might be part of that budget. Companies with more than one owner often have buy-sell agreements that are funded at least partially by life insurance. If there is an annual appraisal, then there’s an objective way to determined how much life insurance is needed. So the life insurance expenditure might be part of that budget. The budget might include someone, an exit planner for example, who will work with and coordinate the work of several other people while this business owner is doing those things that are necessary to manage the private company wealth. Those are the kinds of things that I’m talking about and they’re the kinds of things that owners sometimes begrudge writing checks for. If you create a budget, it’s a little easier.

Josh:                I would see where that would be true. At the same time, a lot of private business owners have dealt with various professionals in this area and been sorely disappointed because what they received was far less than what they expected. How will the business owner know that person is competent?

Chris:               I think that one of the best ways to gauge the competence a professional is to engage in a series of conversations where hard questions are asked. What-if kinds of questions are asked so that an owner can determine, is this some guy that thinks he or she knows it all? Or is this a thoughtful person who can work with me over a period of time while we begin to try to manage the wealth in this private company?

I think part of the problem is not so much that someone was incompetent but part of the problem is sometimes if the owner has an unrealistic expectation of what some one person might do because no one person will typically be able to do all of the things – the estate planning, the life insurance planning, the personal planning that’s necessary to work towards a successful exit. I talk about a team concept and I think if an owner can find someone that he or she trusts and that person can be the team leader for the kinds of things that need to be done. If that kind of approach is taken, I think that trust is developed over time and results can be much better.

Josh:                So, what I’m hearing you say is that if an advisor isn’t telling a business owner that they need more than them to get a good outcome, the business owner might want to be thinking about finding someone else to talk to?

Chris:               Right, because for example, I would not engage in life insurance planning with anyone. I don’t know enough about life insurance. I know something about buy‑sell agreements and how they work from a business point of view. And I know a good bit about valuation, so the areas in which I would work are fairly limited, okay? I won’t try to do estate planning. I won’t try to do those kinds of things but I will work with the estate planner to accomplish what’s necessary. That’s the kind of working relationship that I think needs to develop on a business owner’s team.

Josh:                Yes, and at the same time, I would see you as a really good journalist because you would know which questions to ask even though if you don’t know what the answer might be.

Chris:               Yes, and questions are very important in this – I call it ownership and management transitioning process. The last chapter in my book, lists 25 questions for business owners. Those 25 questions are good questions for advisors to ask business owners or for business owners to read and think through. What are the implications of these questions? What is my business worth? What portion of my net worth does it represent? Because typically, a business owner’s wealth will be 80% tied up in the private company and maybe 20% in anything else. Sometimes, a much higher percentage than that in the private company. So, the kind of private wealth management that I talk about advocates working on dividends and other things to diversify wealth outside of the business while you still own it. Therefore, beginning to create wealth outside the business so that you become less dependent on the business financially so that one day, when you sell the business, you can indeed be independent.

Josh:                Or you may just find out that your business will never get you to independence and you better be doing something else as well.

Chris:               That’s a possibility as well.

Josh:                Unfortunately, for most businesses in our country it’s a probability but that’s a different conversation because you specialize in the folks who likely will be able to ride off into the sunset. Just out of curiosity, if you’re a business owner and read your book, what are the two or three most important takeaways we’ll get from your book?

Chris:               I think the first takeaway, Josh, would be that ownership and management transitioning is too important to leave to chance so you’ve got to decide to act. That would be the first takeaway.

The second would be this, the time between now and whenever you ultimately transition, because we will all ultimately transition. I call that the interim time, between now and then, you’ll accomplish all of the good things that are necessary for a successful end game. So, use the time. Make time work for you. We talk about compound interest and the magic of compound interest. People believe that when they invest in securities. But what I suggest is that we can use compound interest by working on the business, by working to diversify from the business by keeping the business ready for sale so that all options are open for a business owner but use the time between now and then. It’s too important to leave that final exit to chance. So, business owners need to plan for it and advisors need to help them plan for it.

I guess, the third takeaway would be that most successful transitions involve the work, as we’ve already mentioned, of a team of professionals working with owners. So, get your team together and get to work. Not too complicated.

Josh:                So, if I’m a business advisor and I’ve read your book, what are the two or three most important things I’m going to take away from this?

Chris:               The first thing you’ll learn from reading my book is that business owner-clients need your help even if they don’t know it. It’s important for business advisors to understand that because it sometimes takes time to get through to business owners.

Secondly, use tools like the book, Unlocking Private Company Wealth. I had another book on buy-sell agreements. But use tools like those and other tools that you may find out there, if you’re looking for them, to engage in different conversations with business owners about managing illiquid wealth. Advisors will find that if they talk in terms of managing wealth as opposed to transactionally‑oriented stuff like “Let’s do this little estate plan. Let’s do this little buy-sell agreement. Let’s do this little whatever it is.” If you take an integrated approach, the business owners are more likely to pay attention.

The third thing is use questions. Here’s a good one to write down. “Mr. Business owner, where do you want ownership of your business to be in three years, or five years, or ten years?” Your selection of a choice there would depend upon the age of the owner and that sort of thing. I found recently, in talking with the business owner, putting together a plan to transition some stock to insiders, I asked him, “Where do you want the ownership of this company to be three years from now?” His response was – silence, for just about a minute, and he said, “That’s the best question I’ve been asked in a long time and I’m going to think about it before I answer you.” He has thought about it some and he is doing some things to move in the right direction. But just that one question would be a key question and the 25 questions at the end of the book.

Josh:                Well, here’s a question I’m going to ask you. I’m a business owner and I just walked into our office, Chris. Here’s my goal, I want to have a Sustainable Business which means that the business will exist in some form or another 100 years from now. What would be the number one thing you would recommend that I’d be doing if that’s my goal?

Chris:               Josh, there’s very seldom one thing that one can do but if you’re focused on the critical ownership and management transitions that have to occur for a business to be sustainable. If you focus on diversifying personal wealth outside of the business, then you create the possibility of keeping the business intact and owning it, is one possibility. Or selling the business, all of it or part of it, where the business can continue. But the key to sustainable business is really #1 is having a good business. It’s having good management. And the management in place is having the necessary successions in place so that people know what’s going to happen if something happens to Joe or to Sally. But having said that, I think that the best way to maintain a sustainable business, Josh, is to keep your business ready for sale all the time because if it’s ready for sale, it’s more fun to work in, it’s more profitable and it’s a whole lot easier to think about the future if you have it ready for sale.

Josh:                You’re certainly speaking to the choir with that. Chris, we have a little bit more than a minute left so I want to make sure that people know how to find you and how to find your book, and where to call if they want some more information.

Chris:               Sure. The book is available at, that’s my blog. Go look there, sign up and take a look at the book. Quantity discounts are available there. I’m available by phone at (901) 685-2120, that’s my office. If I’m not there, my assistant will get someone in touch with me. Or by e-mail Those are the best ways to get in touch with me, Josh. Thank you.

Josh:                Okay, Chris. I really appreciate that. I’d love to have you come back some time because there is something else which is just fascinating that our listeners should know is that you have done one of the most extraordinary jobs of getting your business ready for transition. I know our listeners would love to hear about that. I’m hoping you’ll come back some time and talk about it.

Chris:               Well, I’ll be glad to. Let’s find a time that works. Thanks for having me today.

Josh:                It was my pleasure. And as always, I really enjoy speaking with you. Thanks so much, Chris.

You’ve been listening to the Sustainable Business Podcast where we talk about what you need to do with your business if it was to be here 100 years from now. If you like what you heard and want more information, please contact me at 802‑846‑1264 ext 2, or visit us on our website at, or you can send me an e-mail at

This is Josh Patrick and thanks for listening. I hope to see you soon for another edition of The Sustainable Business.

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