In this week's episode, Josh Patrick takes us through his new book, The Sale Ready Company. You'll learn why he wrote the book and what you can expect to learn and enjoy as you read it.
Join us and learn why a Sale Ready Company is something you want, even if you have no intention of ever selling your business.
Narrator: Welcome to Cracking the Cash Flow Code where you'll learn what it takes to create enough cash to fill the four buckets of profit. You'll learn what it takes to have enough cash for a great lifestyle, have enough cash for when emergency strikes, fully fund a growth program, and fund your retirement program. When you do this, you will have a sale‑ready company that will allow you to keep or sell your business. This allows you to do what you want with your business, when you want, in the way you want.
In Cracking the Cash Flow Code, we focus on the four areas of business that let you take your successful business and make it economically and personally sustainable. Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he's learned through his 40 years of owning, running, planning, and thinking about what it takes to make a successful business sustainable and allow you to be free of cash flow worries.
Josh Patrick: Hey, how are you today? This is Josh Patrick. And you're at Cracking the Cash Flow Code.
And today my guest is me. I'm doing a solo podcast and I'm going to talk with you about my new book, The Sale Ready Company: What It Takes to Create a Business that Someone Else Would Want to Own Even if You Have no Intention of Selling. And the no intention of selling is where we're really going to put the focus on today.
So, let's jump right in. And we'll get started. And we're going to go for, hopefully, about 20 minutes. And then, as usual, you get to go and go to work. So, here we are.
Why another book?
So, the first thing you might want to be interested in. Okay. Josh wrote a book a couple years ago. Most people write one book and say, “That's enough.” Why did you write a second book? Well, you know, if you read the first book, you would know that there's probably more story to be told because, in the first book, we take a successful small manufacturing company. It becomes a personally and economically sustainable manufacturing company.
Now, a lot of people might want to stop there. But the truth is, at some point, everybody who owns a business is going to have to transition out of the business to what comes next in life. Now, sometimes, what comes next in life is you die. But, more often than not, it's something you may have a different interest in or it's just time for you to leave and transfer the business to your managers, your kids, or even sell it to a third party.
You know, the truth is, transitions for a business owner happen a lot. Now, I'm a certified financial transitionist and one of those things where you learn is that there's four major transitions that happen in your life or could happen that which we work around - one is divorce, loss of a spouse, retirement, or sale of a business. But the truth is the sale of a business is just one of the transitions that business owners go through. They have to get ready to transition their business. They have to get ready to have a sustainable company. They have to get ready to become a great delegator. Those are all things that are part of creating a great business. And they're all transitions. So, every three, four, or five years, you, as the business owner, are going to go through a major transition, maybe you should learn to what they are and what the stages are and how to go through them.
And the truth is, I really enjoy telling the story about the Aardvark family. Now, I've been writing about the Aardvark’s for 25 to 30 years as case studies just because they amuse me, to start off with. But this particular family, I've been having a lot of fun playing with and I've been finding them really interesting. My bet is you will also.
Why a parable and not a how-to book?
So, the second thing is I wrote a parable. And people always ask me, you know-- people around business parables have really strong feelings. If you're a publisher, you're not going to publish a parable because nobody buys ‘em. It’s what publishers think. And there are some people who only want how‑to books. But the truth is, the business owners I know like to read stories. They like to be told stories. Stories stick with them better than a how‑to book. So, a parable, essentially, is a fictional work with a lesson in it or lessons. And we have many lessons that we go through the book that you're going to learn while you're doing that. And my guess is you're going to really enjoy reading about the lessons.
You know, the truth is, it's more fun for you to read a story. And it's more fun for me to write the story. So, you're going to like the parable format. It's a story. You're going to be able to read it in a couple of hours and you'll walk away with some great take home value. And that's what my purpose was. And that's my goal was when writing the book.
You know, in the book, we're going to learn that, gee, the first book, John did a financial plan, and we figured out what he needed and what he had to do to get there. And then, we get to the second book, five years later, and something has happened. We have to redo the financial plan. You see a financial plan is not something that needs to be all by itself. It’s the planning process that's really important. And the planning process goes on, and on, and on. It's not something we do once and we're done with. It’s something that we do over and over again.
So, the truth is, here's what happened, John's company started making a lot more money. Now, what happens when people make a lot more money? They tend to often spend more money along with it. And that's exactly what John did. John spent some more money and he needed to learn, “Gee, do we have to change our lifestyle?” which is not something I would recommend people do. “Or, do I need to find a way to have more money that's available for me in retirement?” Well, we chose door number two in the book. And you'll find out why we chose door number two and what door number two can do for you.
So, you know, the thing here that’s really important I want you to understand is that even though we're talking about a financial plan, we're really talking about financial planning. And planning is around the direction not a destination. We want to make sure that John is moving in the right direction. And, yes, he is moving in the right direction as we go through the book and as we go through his story. And we find out that John doesn't want to leave the business tomorrow. He actually wants to leave the business in four and a half years.
Now, the reason we use four and a half years is five years is sort of will never happen. Seven years is too long to think about and we're not going to be ready in three years. So, four and a half years just felt like the right amount of time John need to get ready and do the things that Aaron, his consultant and coach, mentor, thinking partner, helps him understand.
There's even some new characters
Now, in this book, we have a new character. His name is George. George becomes a plant manager. And we have major conflict between George and John’s son, Adam. Now, why did George appear in the first place? I mean, this is a nice company. Do we need more people? Well, as a business grows, you need to bring in more talent. And that talent often comes from the outside. And sometimes that talent has big company experience which George does. And he doesn't really understand that small companies don't run with the bureaucracy or the rules that big companies do. They kind of feel like they're a little bit dysfunctional and George is having a hard time getting his arms around this.
Now, the plant manager, Janice, and he the chief operating officer, Janice and George, are working really well together but they're having a major problem. Especially George, with John’s son, Adam. And we have to work it out through the book. And we find out, during the book, that there are things that happen that allow George to continue with the company and Adam, hopefully, will end up prospering. But we'll find out.
And, you know, the truth is Adam, who is John’s son, is a brilliant jerk. He's great at doing what he does, technically, but he drives everybody around him absolutely 100% crazy. So, when that happens, we need to have a way with dealing this. Now, if it's just an employee, it's pretty easy. You just say, “Look, you can't be here anymore,” and you move on. But if it's a family member, that's a whole different kettle of fish. We have mom to consider. We have lifestyle concerns. He is actually, you know, John’s son and John doesn't want him to go off and be, you know, terrible, but he just needs to solve what we call the Adam problem.
The spouse outside the business is a key to success
Now, the fifth thing that I want to talk about today is Anne. Anne is a mother. She has a major role in the book. In the first book, Anne was there. We have some conflict with Anne. The second book, we have major conflict with Anne that needs to be worked out before we're going to work forward. Here's the issue. Your spouse is a very, very important part of whatever it is your business creates and John learns this.
And Anne has two issues. She actually has more than two issues but there's two big issues. One is, how is her son, Adam, going to be treated fairly? Now, we know that Adam, in her opinion, has never been treated fairly. Her husband has always been too hard on him. He's never accepted Adam for what he's done. And, frankly, Adam was kind of a screw up. He never did go to college. He barely graduated from high school. He's incredibly good with his hands, but he doesn't like studying. He never liked studying. And that caused a major conflict in the family with John and Adam growing up. And that conflict continues to grow today and becomes bigger and bigger. We finally come up with a way of solving the Adam problem which makes Anne happy and that's a really important thing. If we don't pay attention to what mom’s want or dad’s want, the spouses outside the business, we're going to have some major problems along the way. And that's something that we just don't want to happen.
You know, I want to make sure in this book that Adam was dealt with in a way that mom was going to be happy. I had a choice when I was writing it. I could solve the problem by firing Adam and that would have made mom really unhappy. And she probably would have blown up everything that was going on. We found a different way. And, in the book, you're going to learn there are more options and bad child stays in the business or a bad child leaves the business. There are subsets within each of those that you can use that might make us successful. And in the book, you're going to learn what those are.
Now, you have to understand the concern of the spouse that's out of the business, when the spouse in the business starts talking about retiring. You know, the spouse in the business might be wondering what's next in their life? And that's step eight in how to leave your business, sort of the eight steps to leaving your business in style.
But truth is the spouse in the business is wondering, “What am I going to do with this person hanging around the house all the time now?” You know, for the last 30 years, or 25, or 40 years he or she has been in business since they've been there for 50, 60 hours a week. Now, they're going to hang around the house? Well, I have a life that I put together outside of that. How am I going to take and integrate that? I love my spouse, but I have my life too and I don't want my life disrupted. So, we learn about how that gets handled. And it's a big deal and needs to be handled if we're going to be successful in transitioning the business.
And yes, there's conflict between siblings
Now, the sixth thing in the book which I think is really interesting is that we have conflict between the siblings. I bet it’s a big surprise to you that you actually find that there might be conflict with the siblings. Gee, I've never heard of that happening in a business, so you might want to be thinking about that. But when siblings work in a business, family and work issues always pop up. And because the family issues are tied into the work issues, they often cause some real problems along the way. And that's true here also.
The lessons of Adam are not going to be as unusual as you think. There might be a spouse in the business that's competent. There might be a child in the business that’s not so competent. And, frankly, we need to be able to work with both, you know.
And, finally, we have Alicia who is John's daughter. And she has some issues herself. I mean, she has an MBA. She's smart. She seems to be picking up things well. She's done a really good job with marketing the company. But now we're moving her into a new role. And that new role that we're going to introduce in the book is what's called a Chief Revenue Officer. And it's a role that too many businesses don't think about.
We have people who are sales managers. We have people who are marketing managers. And we have a marketing group. We have a sales group. We have them together, but nobody talks about customer service. Isn't customer service part of that revenue process that we have? So, we come up with it. And Alicia’s going to become a chief revenue officer. And she's worried about learning the skill set that she'll be successful. After all, she's only got four and a half years to learn what it needs to take to become the next CEO of the company.
The concept of the leapfrog manager
So, that leads us to number seven that we want to talk about which is Janice, who's our Chief Operating Officer. Now, Janice has a bunch of concerns. And her concerns are really pretty good and solid concerns. I mean, first of all, Janice is what we call a leapfrog manager. One of her main jobs besides, you know, making sure the company runs smoothly, and products get taken care of, and sales are taken care of, and we have enough money to pay for everything we need which is what the Chief Operating Officer needs to be paying attention to. What we find out that she has some concerns also. And one of her big concerns is what happens to her?
You know, it's been pretty clear and it’s been said to her that her job is to be the leapfrog manager. Now what's a leapfrog manager? A leapfrog manager is the manager who first is training the sibling to take over the business. And then, eventually, that sibling becomes-- I mean, that sibling, that child, becomes the CEO. And when the CEO becomes the owner of the company. Now that person, Janice, the COO (Chief Operating Officer), had been training her for four, five, or six years to take over the role.
But what happens to Janice now that she has a new boss? She had this great relationship with John. It took her a long time to get there. Now, she's got to forge a new relationship with Janice. And, frankly, she's worried about it. What if it doesn't work out? What happens to her? After all, she left, you know, a pretty solid, good, large‑company job to come to work for the small company because she thought it would be interesting and it would help her get to her goals to becoming financially independent more easily.
So, Janice wants to retire from the company. She wants to make this be her last job. So, she needs to see a path that's put out for her of how she becomes the person and this becomes her last job and she goes to the last pass, and she can ride off into the sunset knowing that she's done a great job helping the next generation get ready to take over the business.
And, you know, Alicia has concerns about her skill level, but she doesn't feel like she can talk about it because she feels like if she does talk about it, it’s going to show weakness and she can't show weakness. So, we get into the reason that it's really important for us to be vulnerable in business and let people know what we're good at, what we're not good at, and what we need help on. And Janice will learn to help Alicia. And Alicia needs to learn how to ask for help when she needs it. And we're going to work about that.
Learning to use the alignment conversation in multiple ways
You know, Number eight, you know, in the book, and I actually should have started with this is that Aaron, the consultant, makes everybody go through what's called the alignment conversation. On the first book, we did the alignment conversation with a couple of people. In the second book, we deal with a lot more people.
Now, if I'm just working with an owner of a company for the first time, that might be the only person I do an alignment conversation with. But as we move and we start working with more members of a family and more members of a business, we really need to have an alignment conversation with each of them. And the alignment conversation very simply is “Where are you now? Where do you want to be in the future? What's the gap between those two? And if you could fill the gap, what's the value for you, both on a personal and an economic basis?”
So that's where we get into the world of sustainability - business sustainability. And the world of business sustainability is two sides. And the reason that we do this, it puts all our characters into the expert chair.
Now, the truth is Aaron brings a lot of knowledge with him. He's a coach. He's a mentor. He's a thinking partner. He does all those things along the way with John and with the other members of the team. But the truth is, he needs to recognize the expertise of all the people in the company. And what are they experts about? Themselves. You're an expert about yourself. So, when we work with people--
And in in the book, we go through the alignment conversations so we know what everybody needs for success and we look to see what we can get everyone on the same team so we're all going in the same direction. That's what the goal of the alignment conversation is. And it's why it's so important. So, by doing an alignment conversation with everybody, Aaron's going to know what has to happen for the engagement to be a success.
Why is sustainable the first step to sale-ready?
So, number nine point, which I think is really an important one is “Why do we need a sustainable business before we can become sale ready?” You know, businesses go through what I call a success path. First, they start off and it’s just a startup. And you're trying to get some business through the door. And you're going to do anything to get some business through the door. And that's just a startup.
But the next stage of that is you actually go into a business. That, you know, has some sort of success. There's regular cash flow. You're taking a paycheck. You might have a reasonable standard of living. It may not be as good as you want but it's certainly something you can live with. You get to take vacations, everyone. They're not always fancy vacations but you get to.
So, now, we have something that's a little bit of a success. And now we need to make it personally and economically sustainable. And we need to do that so you don't get burned out. If you're doing the same tactical things over, and over, and over, and over again, even if you're not very good at it, you can do it for 30 years. and after 30 years, you're just going to be sick of it. So, if you don't make your business sustainable where you make yourself operationally irrelevant, you systematize your business, you've got gray values you work with, and you've got a recurring revenue stream. Well, if you don't do those things, you're just going to get burned out. But when you do those things, now you're ready to take the eight steps that will make your company sale ready, because you've probably made yourself a little bit more flexible than you were in the years before.
You want to have sale-ready, even if you have no intention of selling
So, the last step is the business is sale‑ready. Now, the subtitle of the book is What It Takes to Create a Business that Someone Who Would Want to Own Even if You Have No Intention of Selling. That's a really important point. So, the really important point is, once you make your company sale ready, here's what's likely going to happen, you will have no interest in transferring your business
Now, we haven't gotten there yet in the story. And we might find out that's what happens next time around and we have a fight about that, especially in a family business or one where your managers are being groomed to take it over. It's a really big deal. Not covered in this book, but it's going to come up at some point. So, we have to be ready for that.
Then, finally, we have the basis of the book is to create the eight steps for a sale‑ready company. And I'm betting you might be curious what they are. Well, first, we start off is “What do you need?” This is, you know, how much money do you need? This is where the financial planning piece comes in. This is where we find out that John doesn’t have enough and needs to make some more changes.
The second thing is, “What's the business worth?” Well, there are definitely drivers that drive the value of your business. Some drive ‘em higher. Some drive ‘em lower. It depends who the buyer is, or who you're going to transfer the business to. And we look at all these things. We say, you know, if we can't get the business in shape to help you become financially free from the business, John, you're going to probably have to sell this to a third party, so your management team and your family needs to be aware of this. And your family includes your spouse. It's not just your children.
Number three is “How do we increase the value of the business?” because, frankly, there isn't a business that we're getting sale ready that doesn't need to do some things, to look at the business, to make sure they’re sale ready. And, when they do sell, they'll make some changes along the way which will increase the value of the business if we do it successfully.
Number four, “Who's going to buy it?” Now, this is a big question. On the book, we actually go through this question and we spend a lot of time on who's going to buy it. You might think, because John wants to do a transfer to his family, that it's a done deal. It's not. There's always options and we need to look at the options. And look at both sides of the business, the personal and the economic, to make sure both are filled. Now, sometimes we can't fill the personal because we have to do something to fill the economic, that's not going to be as good for us personally. So, we need to look at what side is both. Do we want to reduce our lifestyle? That's always a possibility. We could improve our lifestyle. And then, we have to do another thing. So, we have to decide where we're going to go and we talk about that.
Number five is your key people. Now, in the book, we're going to learn that we need to hold on to Janice. She is an absolute key person. And we're going to have to make some things and some accommodations for her so her needs are met as well as John, Alicia's, and the rest of the people in our story.
And then, number six, is we want to learn how we protect the asset. Now, protecting the asset isn't just the money you get from selling the business if someone's going to sue you, although that's a piece - that's a legal piece. But there's other pieces there which is what happens if we transfer the business and the person that takes over the business doesn't do a good enough job to pay John off because, the truth is, if John sells the business to one of his children, they don't have any money. He's going to be holding the paper. He's going to have to depend on them running the business well enough to pay him and his retirement depends on it. Well, what happens if they don't? We need to learn about some of the things along the way that the asset can be protected for.
Number seven is investing the proceeds. And, again, this is about “I've gone from running a business where I have this amount of cash flow gets created every year. I don't have to really think about it. But now, I have this pot of money. I have to invest this pot of money and I have to live off it. What do I need in this pot of money besides the proceeds from the business?” Because, as we learn from John, as he goes through his four boxes of financial independence drill, that the business by itself will not provide enough assets for him.
And then, finally, we get to answer the question, “What's next in our life?” We're going to have some things that John needs to do to test leaving the business to make sure that he's emotionally ready to leave the business and go through that major, major transition of transferring out of his business.
Buy the book and leave a review please!
So, that's about the book. I think you're going to really like it. I really loved writing this book. It kind of almost wrote itself. It was so much fun. I had a great help along the way. You don't write a book by yourself. It’s something you can be really proud of. There's always help. I want to thank my editor, Ann Sheybani. She just did a great job with me as she did in the first book, I'm really thankful for that.
Well, you can buy the book. It's available July 20th on all the places you would get a book. You can also go to our website which is www.salereadycompany.com. And you go to our sales page for the book where you can buy it there and you can get it for free plus shipping which means you pay me $7.95, we ship you the book. It’s a $14.95 book. You even have a chance to upgrade to our first book for $5.95 extra and you get both books for the price of one. In addition, I've got these bonuses that we put together in a special Resource Center for you which explain in detail all the things that you need to do that we talk about in the book, The Sale Ready Company.
So, thanks a lot for stopping by today. I hope to see you back here really soon. I'm Josh Patrick. You're at Cracking the Cash Flow Code. And thanks a lot for stopping by. This was really fun. I hope you found it enjoyable also.
Narrator: You've been listening to Cracking the Cash Flow Code where we ask the question, “What would it take for your business to still be around a hundred years from now?”
If you've liked what you've heard and want more information, please contact Josh Patrick at 802-846-1264 extension 102, or visit us on our website at www.sustainablebusiness.co, or you can send Josh an email at email@example.com.
Thanks for listening and we hope to see you at Cracking the Cash Flow Code in the near future.