Advice From an Owner in an Active Business Transition

Episode Description:

In this episode, Elizabeth is joined by Lance Barrett, who founded Barrett and Company CPAs back in 1986. After almost 40 years of growing his successful CPA firm, he is now transitioning on to his next life adventure. As a business advisor himself, Lance has a unique perspective on the interworkings of a business transition as well as personal experience with his current journey. Tap or click the play button below to listen to: Advice From an Owner in an Active Business Transition

You’ll get Lance’s advice on transitioning out of a company you founded, hear stories of the clients he advised and the business lessons he learned from them, and understand what differentiates a thoughtful, successful transition from a failed one. 

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This episode was produced by Story On Media & Marketing:

Advice From an Owner in an Active Business Transition Transcript

[00:00:00] Elizabeth Ledoux: Hi, and welcome back to the Business Transition Roadmap Podcast. Um, I am really excited today because we have Lance Barrett, who is the founder of Barrett and Company CPAs, which is a wonderful cpa, a firm that’s located in the state of Washington. Um, Lance and I actually. Many years ago, we were both working with a company that was located out of Australia and our firms were both members of that company.

[00:00:32] Elizabeth Ledoux: We were working with our clients to help them to develop, um, the business and to grow the business so that people could do better in their worlds. So Lance, um, our story goes way back, um, many, many years, and I just am very grateful that you’re here today with us. So thank you. Well, thank

[00:00:52] Lance Barrett: you for having me.

[00:00:54] Elizabeth Ledoux: Thanks. So, um, Lance, we’ll start out by, can you tell us a little bit about you and the firm and kind of how you got started?

[00:01:04] Lance Barrett: Yes. I started the firm in 1986 and I was 30 years old, kind of, uh, didn’t really know what I was doing and, and I had a specialty in construction and I ended up growing the business.

[00:01:20] Lance Barrett: Um, made a good living, but was always stressed out and anxious and, and was, you know, in that case, that part of my, my, uh, uh, work life was, was a struggle. Um, that’s when I joined the Results Accountant System, which you were a member of also. And their goal was to make, um, our clients’ businesses better.

[00:01:46] Lance Barrett: And I thought, well, I. , I can do that and make my business better at the same time. And actually hired you, Elizabeth, I think in around 2005 to put together this business transition roadmap. Yeah. For, uh, the company At that time, I think my wife was just coming into the business and my, my, I have two sons that.

[00:02:15] Lance Barrett: One’s in high school and I think one was in college or right in that area at that time. So, um, what was your question? I can’t

[00:02:23] Elizabeth Ledoux: remember. . Oh. I wanted you to tell us a little bit about you and the journey with the business because Yeah. You, you’ve been, so, you’re

[00:02:30] Lance Barrett: running journey up to 2005. Um, we’ve been able to grow the business now, um, to where we have 15 people.

[00:02:39] Lance Barrett: Uh, we own our own building. . Um, I have two sons that work for us and my wife is also in charge of administration, and so we’re at the point now where my wife and I are transitioning out of the business. So we hired you again just a year ago to help us with this transition. .

[00:03:02] Elizabeth Ledoux: Yeah. With actually the active transition.

[00:03:04] Elizabeth Ledoux: One of the neat things I think, um, you know, I, you were really, I think, kind of a pioneer and a little bit of a visionary putting together a transition plan so many years ago, cuz you and I were talking earlier. Yeah. In 2005 was when we finished that together and, um, To be able to do that and then execute on it, and now be in the midst of the actual people transition and the, um, turnover of, gosh, all different kinds of things.

[00:03:38] Elizabeth Ledoux: You know, the managing partner role, um, for you and also the turnover of some of the equity in your beginning, that, that part of it. But there’s a lot of work that you did in preparing to get to today.

[00:03:54] Lance Barrett: Yeah, and you know, in, in addition, I’ve helped, I’ve had some clients now for, you know, almost over 30 years now, and so I’ve helped transition a lot of those clients.

[00:04:07] Lance Barrett: Um, some of ’em through private equity buyouts, some through management buyouts, some through gifting to their kids. So we’ve experienced. , many, many on the financial side of it. Many, many, um, transitions with our clients. Most of them have been very successful. Most of ’em have been, the business came outta transition, actually better off and, and more profitable.

[00:04:37] Lance Barrett: So I, you know, that, that end of it. I forgot what your question was again. I’m starting to . ?

[00:04:44] Elizabeth Ledoux: Well, yeah, just the, i, the idea of. The work that you did over the years to get to today? You know, because I think of transition as a journey, not an event. And I think that many people think of it as an event that you kind of just work up until the day that you’re ready to go, or maybe a year before sometime in that timeframe, and then all, and then all of a sudden it’s like, oh, well, you know, I’m ready to go.

[00:05:11] Elizabeth Ledoux: And so it becomes an event either in that way or something happens. , right? Something happens to the owner. There’s a shift in life, um, or health or something like that. But um, yeah, so the idea of you definitely made it a journey. You had a lot of work coming up to this point and, um, now are in that phase where hopefully you’ll be able to finish up your transition in the next.

[00:05:36] Elizabeth Ledoux: Couple of years or less, right? The

[00:05:39] Lance Barrett: original plan was in 2020 to transition. My oldest son is a managing partner and my um, middle son is as an owner, and then Covid hit and we pretty much put everything on hold for two years, 2020 2021, except we did make my oldest son managing partner. . Um, but I continued to work

[00:06:11] Lance Barrett: pretty much full-time through that covid time just because our, our clients needed us. Mm-hmm. , um, very bad really. 2022 is when we started the transition and I knew I couldn’t do it myself. I was too close to it. Uh, that’s when we called you and my wife has known you for years too, so she trusted you. and you know, we really needed that help on someone looking in that’s not emotional about the situations and, and really was level-headed and, and could handle all the crazy things that happened within families.

[00:06:53] Lance Barrett: Right,

[00:06:54] Elizabeth Ledoux: right. Because it is families actually add that extra dynamic and. , you, you of all people. I mean, you have had so much experience as an advisor helping other families to transition so you know how to do it. Um, and in this case it was just that you were so close to it that it was, um, , the emotions do get in the way, and it’s, it’s always hard as I think a parent, I mean, your kids just don’t listen to you

[00:07:26] Elizabeth Ledoux: They’ll listen to somebody else, but they don’t normally listen to you. So, yeah. So that was helpful. So in what way was it, was it helpful? Like what are some of the experiences that you’ve had going through that that uh, you’ve been able to get through a little bit easier?

[00:07:45] Lance Barrett: Well, there was constant contact.

[00:07:48] Lance Barrett: Um, so it always kept moving, probably a lot slower than you wanted it to, to move, but it had to go through the process, and that’s what I kept telling everyone when they get frustrated. Um, like I said, it’s, it’s a process. It’s not just a thing. and I think they understand it now. Um, my two sons, it’s gonna be invaluable for, for them in the future in dealing with our clients and their transitions.

[00:08:17] Lance Barrett: Um, so that part of it, you know, and, and I’ve been through many transition with, with our, my clients and some of them are ready to transition. Some of them are struggle with. With their ego and how it’s attached to the business. And, you know, some of ’em struggle with the relationships with whoever’s taking over the business.

[00:08:46] Lance Barrett: So, I mean, it runs the gamut from, I had one client that the day he was supposed to retire or the papers, he came in and, and cleaned out his desk. His son was just like, what are you doing ? And I’ve had other clients that it took over 20 years of gifting, uh, with the mother, you know, sitting at the table, signing the documents, crying and, you know, it was, it was joy, but it was, it was a struggle.

[00:09:18] Lance Barrett: And in fact, those clients actually still have, um, offices in. In their company’s office, just so they have somewhere to go on Tuesday afternoons. So

[00:09:30] Elizabeth Ledoux: That’s so funny. Yeah. And so everybody, everybody’s different. And there is that attachment always. I think especially if you’re the founder, um, to. , yeah. You know, to making sure that it goes well forward.

[00:09:47] Elizabeth Ledoux: And also the attachment of, you know, what’s next for you. So how’s that, how’s that going for you right now?

[00:09:57] Lance Barrett: You know, I, I’m, after doing this for so long, for, you know, 40 years, , you wake up in the morning and, and you go to take your shower and get your work clothes on and it’s, you still wanna do that. You still think you’d have to do that.

[00:10:16] Lance Barrett: And really, I found that, and it’s helped because of the covid, it’s detached me from physically being in the office. Um, you know, for me it’s been. That part of it’s been easier because of that. Um, I do have a lot of hobbies and, and so my, I haven’t totally transitioned out. Of course, they still, I go to the office and I get a line of accountants outside my door waiting to ask me questions still, but, um, you know, it’s not as much as it used to be, and they’ve learned that they need to find the answer themselves.

[00:11:00] Lance Barrett: In my mind, since my wife and I are now at that point where we’re, we can travel again, um, we just got back from two weeks in Hawaii. Um, we’re planning a trip to Italy this fall. We’re going to Mexico in in May or in April. So, you know, part of it is just leaving and I we’re ma we’re making that move. . Well, we’re looking forward to spending more time with our grandkids.

[00:11:35] Lance Barrett: Uh, took my granddaughter four when she’s four years old to, um, golf lessons last summer, which was really fun. So I’m looking forward to doing that again this summer. So that part of the transition, you know, it also, there’s so much learning that goes on in a, an accounting office, especially these last three.

[00:11:57] Lance Barrett: with all of, you know, the tax changes and the, um, reporting requirements are changing constantly. And so I used to have to dig in and stay up on all that, which required a lot of time, and now I’m, I’m just touching on it and I’m not spending all the time and worrying whether I I’m gonna get it right because I, I’m counting on the others to, to do that.

[00:12:25] Elizabeth Ledoux: That’s great. That’s great. And one of the things I heard you say is you’ve, well, one, you have other things you love to do, which helps, and two, that you’re, you’re really engaging in the next adventure because it does help you to be able to emotionally leave you. You’re in that place.

[00:12:46] Lance Barrett: No, absolutely. Well, I, in fact, yesterday we just played 18 holes and it’s 45 degrees out.

[00:12:55] Lance Barrett: So we, we love to golf. I grew up golfing. Um, I love the outdoors. I like to hunt and fish. Um, and now we’re going to learn how to travel again. So those are my, my big things that I’m looking forward to, to really.

[00:13:14] Elizabeth Ledoux: Right. And then inside the business, what role? I know that you’re, you’re able to do what you really enjoy the most and that you’ve given up some of the things that, um, you know, that you’re.

[00:13:29] Elizabeth Ledoux: Your two new owners are starting to take over. So the two, your two sons, um, what are some of the things you’re, and you’re looking forward to doing and what are some of the things that you’ve given up that you’re happy about?

[00:13:46] Lance Barrett: I’ve given up to having to deal with employees very happy about that. Um, in fact, almost all of my clients, when.

[00:13:56] Lance Barrett: When they retire, that’s their number one thing is I don’t have to deal with people anymore. Um, I don’t have to, to, uh, deal with day-to-day and worries and being anxious. I, what I do spend my time with is with my old time clients who really still just want to talk to me about, you know, either working on their business or.

[00:14:26] Lance Barrett: their next best thing or you know, they really don’t call, call me very often on about how do I save taxes? They call me more about, um,

[00:14:44] Lance Barrett: where the best fishing spot is .

[00:14:47] Elizabeth Ledoux: So you still have all those relationships intact, and you’re not doing as much of the functional work. You’re still doing some strategy work though. Absolutely. Yes. Yeah. Which is a lot of fun for you. Yep, yep.

[00:15:03] Lance Barrett: Yeah. We have clients that have grown. from a mom and pop on a backhoe to a 250 million company.

[00:15:12] Lance Barrett: I mean, we, it’s incredible how some of these businesses have grown and, and what they’ve done for their communities. It’s, it’s just amazing. And you know, tho those best run companies are the ones that have started from the very beginning. in the transition, it’s, that was part of their plan. And what I found is as soon as it does get transitioned, those owners need to start working on their transition.

[00:15:45] Lance Barrett: You mean

[00:15:45] Elizabeth Ledoux: the new owners? So of the new owners, the founders come in and they transition, and then as soon as the new owners come in, right, that next I call ’em a next generation, whether they’re family or not. Um, next generation, younger group comes in, that if they start on theirs, you’re, you’re saying that that’s a big deal?

[00:16:05] Lance Barrett: Yes. And we, we get ’em started on it. And if, if they’re just thinking about it, that’s working on it. Yeah. and it, they’re, they need to prepare the next generation for, you know, get ’em on the bench, let ’em know what they need to do to, to gain the leadership of qualities and the, and the, you know, the what they need to do to really be there when it’s time.

[00:16:37] Elizabeth Ledoux: Yeah, I think, um, I think a lot of people, uh, a lot of people think about employees coming up, which could be potential owners and how much they might know, and I think at times, , the actual owners discount, the level of knowledge that they have because you have so much as an existing owner and especially as a founder and you’ve grown up with the business and so then you’ve got new people coming in the successor and um, I think the owners sometimes discount how much they actually know.

[00:17:20] Lance Barrett: Yeah. I think the owners also discount how much. successors know too because we have a tendency to look at everyone else and say they can’t do it as well as us, which many, many times holds people back from making a transition. I mean, and not everyone’s built for it. I have a, a roofing contractor who’s 84 years old, and he’s, wow.

[00:17:47] Lance Barrett: He’s not gonna let it go until he physically can’t be there anymore. . Then maybe he won’t either. , maybe he’ll just let it run. Yeah. But you know, there’s all different, everyone’s different, every project’s different. Every transition’s different. Mm-hmm. .

[00:18:05] Elizabeth Ledoux: Well, that’s what I mean, truly. I think that’s what makes it so interesting.

[00:18:10] Elizabeth Ledoux: Um, because every single one of ’em is different. And yeah, I don’t know. You’ve probably heard it before. When you get introduced to a business owner and they say, oh, my business isn’t like any other, it’s very different. , right?

[00:18:24] Lance Barrett: Yeah. They all say that. Yeah. Yeah. And they all are different because of their history, but they all run the same pretty much.

[00:18:36] Elizabeth Ledoux: Yeah. They all, I mean, they all have some foundations that, um, make them work. And, you know, and I think it, you said earlier that people, one of the key things is that owners, as they transition out, um, One of the first things they give up is managing of employees. And employees are the core to making our businesses run.

[00:18:58] Elizabeth Ledoux: They’re also, um, they’re also challenging to do that because they’re their own individuals and we’ve got a lot of moving parts there. So the bigger the company that gets, the more HR you end up with and, um, . So one of the other things that I find gets transferred usually late in the game is the financial side, right?

[00:19:19] Elizabeth Ledoux: Your tax side and the financials and the cash flow and all of that.

[00:19:26] Lance Barrett: And that’s because we want to control that to the very end. And may, that may not be the right thing to do because it’s maybe the successor needs to learn that sooner, but, also, I’ve found that the, that the successors are okay with that because they need to learn the whole rest of the, of the business before that happens.

[00:19:55] Lance Barrett: And, but they don’t realize until a transition happens how much work that is and how much responsibility that is, um, in moving the, the financial end of it and the responsibility for it. .

[00:20:10] Elizabeth Ledoux: Yeah, absolutely. So in your experience, what’s the, what’s the shortest transition you’ve seen? What’s the longest and what do you think the average would be?

[00:20:27] Elizabeth Ledoux: Uh, for a good transition. Not a bad, not a bad one, but a really thoughtful, successful, cuz we know that a lot of them don’t make it Right.

[00:20:36] Lance Barrett: Right. , um, shortest is, I’m right in the middle of it right now. I had, it was December 15th. I sat down and with a client, we had two beers and I talked him into making a transition.

[00:20:50] Lance Barrett: He’s the same age as me and, uh, they’re signing papers this week and he is a two-step transaction. He’s gifting or he’s selling 10% to three. One daughter and, and two, two manager. And his, his plan is by the end of the year to have it all transitioned as far as ownership goes. Uh, he’s been working a long time on getting them prepared for it, but when I talked to him in December, he was ready to just hold onto it.

[00:21:22] Lance Barrett: So that was the shortest, the longest one was, the one I talked about earlier was we started in 1990. family of 13 and they had seven sons. Wow. And they did a one step or two step transaction actually, as it ended up being about five step transaction, where they gifted shares to their sons. And it took 20 years of, of gifting before it was a hundred percent transitioned, and two of the two of the seven decided they didn’t want to become part of the business.

[00:21:58] Lance Barrett: I mean, like you, uh, I have a ton of stories I could tell about , how all of these have turned out. Um, I’m, the most important thing when I start a transition is I tell the clients it’s not worth having bad feelings with the transition your people you’re transitioning to. I mean, if it’s family, you still gotta be able to go.

[00:22:25] Lance Barrett: Thanksgiving and Christmas together. You know, if it’s it, the most important thing is when this is all done, everyone can look at each other, you know, and and respect each other. .

[00:22:39] Elizabeth Ledoux: Yeah. Yeah. I think family is so important and, you know, just family relationships are different than the business relationships, even though the members might be the same.

[00:22:52] Elizabeth Ledoux: The, the family relationship is brothers, sisters, parents, grandparents, you know, hopefully fun at Christmas and doing interesting things together and enjoying. Holidays and vacations and um, and helping each other, uh, business transition or business relationship is different even though you still have sisters, brothers, parents, maybe grandparents involved.

[00:23:18] Elizabeth Ledoux: Um, those, the business relationship and what the culture is around the business is different typically than the family. And the rules are different on how you behave and how you act.

[00:23:31] Lance Barrett: Yeah, absolutely. , you know, I found in, in family transitions, the hardest part for the parents typically is how do you deal with the children that aren’t a part of the transition.

[00:23:48] Lance Barrett: And how do the, the, the children that are not part of the transition, um, how do you make them feel like they’re not being left out or. handed something that

[00:24:09] Lance Barrett: it’s not fair or equal in, you know, in the estate. And, you know, we usually get around that pretty easily by talking about it’s an opportunity and it’s a risk. And you know, you, you typically will offer it up and that’s the hardest part. You know, it’s not easy running a. and some people aren’t, can’t, can’t do it.

[00:24:36] Elizabeth Ledoux: That’s right. Some people can’t do it, some people don’t want to do it. Right. Um, yeah. Yeah. It’s often where we’ll get a client that’s working on transition and um, one’s coming to mind and then he came in and he was like, oh, well I’ve got four employees that I would like to offer ownership. . And so we were doing a, it was like a half day retreat, doing a half day retreat with them.

[00:25:04] Elizabeth Ledoux: And you know, throughout the question of, so what happens if one or more of them don’t want it or say no? And he goes, well, I haven’t, I haven’t ever thought about that. You know, of course they would want it. Um, but there’s a, you know, buying in, there’s the responsibility of it. Understanding all the, you know, tax and liability and everything else that goes with it.

[00:25:29] Elizabeth Ledoux: Not everybody wants it, and it’s not in everybody’s career choice to have that and be an owner,

[00:25:35] Lance Barrett: and you have to have spousal support. True. In fact, typically when we do retreats, before succession planning happens, we include the spouses because that’s real important that the spouse, spouse understand. , you know, what is, what’s in it for them also?

[00:25:58] Elizabeth Ledoux: Yes. Yeah. I don’t know if you’ve had this, but I’ve had, um, an interested employee who wanted to, to be a, an owner, um, where the spouse said, no, it doesn’t fit in in our life. I’ve had

[00:26:12] Lance Barrett: it. Yes. .

[00:26:13] Elizabeth Ledoux: Yeah, . I know, I know. So they’re, again, all these moving parts about. about how these transitions work. And I think that sometimes we walk in and think that it’s gonna be relatively straightforward and most of the time the strategy’s there.

[00:26:31] Elizabeth Ledoux: And as long as you have the strategy and you have some clarity, it makes it so much easier to walk through it.

[00:26:37] Lance Barrett: Absolutely. And that’s, most people won’t do that on their own. They really won’t. And it needs to be written down and it needs to be revisited.

[00:26:51] Elizabeth Ledoux: Yep. On a regular basis. So, um, so I wanna ask you one last question and, um, just for our audience, what, what would be a. A really just one thing that you’d like to leave with them to keep in mind to help them to have a successful transition. One that you know they do have the relationships that stay in place, that the business does move forward, um, successfully and maybe even more successful than where you left it, and that the community continues to thrive forward.

[00:27:32] Elizabeth Ledoux: What would be one thing you’d like to leave them with? ,

[00:27:36] Lance Barrett: well, as part of their strategic plan for their business, there needs to be, transition needs to be included, and it needs to be talked about very early. In fact, as part of the strategic plan, that should be one of the, besides the, the profitability and the, you know, making the company work.

[00:28:03] Lance Barrett: Um, that needs to be part of the plan because what you’re doing is, is you’re setting yourself up for an easy year, I should say, easier time, when the time does, does come for transition. Cuz we’re gonna transition eventually whether you’re standing up or, or through sideways. So gotta, you need to plan early.

[00:28:29] Lance Barrett: and write it down. And actually you really need to have someone help you with all, with that type of work. Um, I really have not seen one situation where a client of mine, and we’ve had hundreds over the years, successfully transitioned on their. , they’ve always had help. You know, and it’s, it’s someone like you.

[00:28:58] Lance Barrett: They have to have a good accountant that can handle the deal, the details of, of the tax side of things. They need to have a good attorney that understands, um, you know, the best way to, to, to make a transition, both because, You know, we’re doing estate planning at the same time. We’re doing tax planning at the same time, and there’s a lot of different things that happen and they need to be up and and understand the rules.

[00:29:25] Lance Barrett: So start early and have people help you, I guess, is what my experience has taught me. .

[00:29:33] Elizabeth Ledoux: Great. Well that’s perfect for us to end our podcast on Lance. And um, again, gosh, thank you so much for being here. Lance has so much background and knowledge on this and, um, you know, I just appreciate you sharing that with our audience.

[00:29:50] Elizabeth Ledoux: So thank you.

[00:29:51] Lance Barrett: Well, I’m happy to, to be on here and, and share my experiences. ,

[00:30:00] Elizabeth Ledoux: I think it makes a difference. And that’s what we’re trying to do is, you know, my, my mission is to help these businesses continue to thrive forward and help the communities around them continue to be healthy. That includes the people who are taking it over, all of the employees, and, you know, and I have found, Business owners are very, very generous in their communities.

[00:30:24] Elizabeth Ledoux: They give to local kids organizations and to churches and to all kinds of things to help support those communities. So, um, they’re meaningful in our world.

[00:30:37] Lance Barrett: Absolutely. And you know, one last thing I wanted to to say was we couldn’t have made our transition without you and. Your company, and it hasn’t been easy and we’re not done yet, but it’s, I couldn’t have done it without you.

[00:30:57] Elizabeth Ledoux: Mm-hmm. . Well, thank you. Thanks Lance. Um, I love working with your family and our firm. Um, so yeah, thank you for that. I appreciate that so much. It means a lot. It’s why I do what I do. You’re welcome. Yeah. All right. Be well.

[00:31:15] Lance Barrett: Thank you.

The Business Transition Roadmap with Elizabeth Ledoux

How do communities thrive? When businesses experience healthy growth and transition. Join CEO of The Transition Strategists, Elizabeth Ledoux as she and her guests identify what makes a successful business transition roadmap. If you know you want to transition or exit your business “one day”, today is the right day to start planning. This show will give you the roadmap.

If you’ve enjoyed this podcast, you can check out other episodes here: Podcasts – The Transition Strategists
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