Can’t listen to the podcast? Read it instead! Below is a transcript of our discussion with Matt DiFrancesco, principal and financial technician for automotive repair professionals at High Lift Financial, who discusses succession planning for automotive repair shops.
Note: This transcript has been auto-generated and has not been edited for clarity or grammar. Words and phrases may not match what was said by podcast participants.
Welcome to another episode of Auto Service World Conversation. Today, I’m joined by Matt DiFrancesco, who hosts some podcasts of his own, Your Business, Your Life. Matt, thanks so much for coming on today.
Hey, great to be on, Peter, I’m really excited about it.
You and me know what we’re gonna be talking about today, succession planning. Now, I want you to give the audience just a quick introduction to yourself, and how you’re uniquely qualified to speak about my core
business is actually financial services, financial advisory, and I got into it about 18 years ago, starting out, I didn’t, I didn’t have access to any money, which is pretty much suicide in this business. So I learned new municipal bonds, and I learned 401 k’s and that’s so I spent that’s how I really built my business was cold calling family businesses. Do you have a retirement plan? Do you know the tax benefits of it? Oh, you do? When’s the last time you had it reviewed. And so I was selling these plans to people became clients of mine. Then I started getting deeper in the weeds on doing consulting and more consulting work with these family businesses. One of the things that I recognize was that most of these family businesses, the owners are somewhere between 55 and 65. And they were all looking at ways to how do I What is the next phase of my life look like? And how am I going to accomplish it. So I started diving deeper, my niche is really with collision shops. But I’ve worked with a number of different other businesses, too, because I’ve developed these over the years. And that’s really what I found was that again, but 60% of businesses are owned by business by baby boomers. And they’re now getting at that point where they’re looking at transitions, and they have no idea how to navigate this. So again, with working with these businesses, I learned some of the nuances. And then I found an organization called bi Business Enterprise Institute, who offer some very in depth planning on Exit Planning, or in depth courses on that, that came with a certification called the certified exit planner. So I’ve done that. And the certified exit planner is the Cadillac of all the Exit Planning designations. It’s four months of intensive study. And then the actual exam is doing two case studies, one a third party sale and one an insider sale. And there’s only about 130 of us in the country. I’m the only one that focuses specifically on the collision industry. But again, like I said, business is business. So really an exit plan, whether you’re an automotive repair shop, a collision shop, or you’re a you’re a CPA firm, they’re all going to look pretty much the same. There’s little nuances in there, again, just with the nature of the businesses, but for the most part, an exit plan is an exit plan. And most of the challenges that these business owners face are going to be about the same.
Yeah, and there are some nuances and industry specific things like you were mentioning. So what would you say is something unique when you’re dealing with a shop owner, whether it’s collision or repair, compared to other industries,
probably the most unique thing is that most of these guys, they grew up working on cars, okay. They either the families were in that business, or they had this passion for cars started working, got a job in a shop, maybe it was just even sweeping floors, and they work their way up to a point where they either bought the business or they started their own, or they bought another another owners business. And they typically are really great technicians. But from a business standpoint, they’re sometimes they’re successful in spite of themselves. I remember one of my one of my clients, we were talking about this, and he said, he goes in my early years, it was all about just how many cars can I move through the shop. And that’s how they increased revenue. And I find a lot of times as I’m doing a deeper dive into the their financial analysis, that a lot of these lot of these owners have good revenue, but their free cash flow is not so good. And so we spend a lot of time trying to build value in the business, because the shop is typically their their biggest asset that they have. Again, they’re when they have money, they’re investing in new equipment, or you’re seeing in all of Automotive Repair. Technology is increasing at a tremendous level, we’re now driving computers on wheels. And so they have to invest a lot into their businesses. And so again, it’s really to get them to that final destination where they want to go through we have to learn how to teach them how to raise value, and sometimes it’s even teaching them how do we get control of just the business aspects? How do we control costs? How do we increase free cash flow, those type of sets probably the biggest thing is again, just helping them to maybe become better business.
And when you’re looking to you because you’re always kind of business consulting in the sense before you’re even prepping for the exit. So what are some challenges that you found a shop owner have when they’re starting to think about exiting their business? Is it that they started doing this too late that they don’t have a succession plan in place? What were some of the big hurdles that you might run into?
Yeah, that’s actually and Peter, I think you hit the nail on the head, the biggest one is that they, they’re starting too late to really effectively create a an exit plan, you need at least five years to start that and the earlier you can start the better because, like I said earlier, one of the key things that we need to do a lot of times is build value in that business. So that, first off, if they’re looking at a third party sale, they can maximize the value that they’re going to get out of it. And second, if they’re going to look at an inside or transfer, whether it’s to a family member, or to a key employee, that they have enough free cash flow to be able to fund that sale. So because most of the time a child or key employee isn’t going to have the money to build the business. So how do you do that, and there’s ways you can structure it to utilize increased free cash flow to do that. So that’s probably the first thing is just they don’t give themselves enough time to do it. And I spend a lot of time trying to set that expectation with them and say, Look, yeah, I know, you’re looking at it next year to you’re burned out. But if we can give ourselves five years and slowly start to transition, you would that be something that’s appealing to you. And when I think when they see the reality of it, they’re okay with that. The second thing that’s really huge is they don’t have any type of contingency plan, all of us seem to think we’re never going to die. And that’s when you know that death and taxes are the two things that are inevitable in life. So really having a plan in place in case they become either incapacitated, or that they die, that the business can either continue and that their family’s income can continue until a point where either a key employee or insider can be transitioned to them, or that they can most effectively sell the business. So those are probably the two biggest things not enough time and not having a contingency,
yeah. Now, when a troubled, we’re starting to think about this, we’ll say five years out, he’s got the proper expectation of the timeline managed, what’s the kind of checklist without giving away obviously, the trade secrets here for you. But what was the sort of checklist he should be going down, he or she should be going down to start thinking about this, because to consider things that might not pop into your head immediately. The
actually, the biggest one, Peter, I would say, is really developing a vision for what they want their life to look like after the business, I do one of the things as a as my process works, usually I have somebody that comes to me says I’m looking to exit my business, I don’t know where it go, what I’ll typically do is do an assessment. And what we do is we look at it on four different levels we look at from a financial finance standpoint, we look at it from a planning standpoint, from a taxation standpoint, and then also from a operation standpoint. And really, what happens is nine times out of 10, that they score, the lowest in that planning, and they just don’t think about what they want their life to look like, once they exit the bus. And that’s what hangs up a lot of these business owners because I have a pair of my cheeses. She’s actually one of my m&a people that I work with. And she gets a lot of these, these shop owners that come hey, I want out and she’s helping to pair pair of them up and they do a sale. And about a year later, all of a sudden they have remorse. Because First off, this was something they built, spent their whole life building, and it’s almost like they gave away, they get homeless gave away their child, okay. And yes, they’ve got a significant amount of money out of it. But they don’t know what the rest of their life goes back. And a lot of times, they end up starting another shop, or getting involved in another business because they’ve never really clearly defined what they want their life to look like. So that’s probably the first area to really look at is what do you want your life to look like? And then determining what kind of income do you need to have that kind of lifestyle. And then the second thing is looking at a valuation of the business and saying, Okay, if we sold the business, here’s what we can expect. And then we got to identify what that gap is that they have. And that’s where again, building value in the business is how typically, we will end up closing that gap.
Yeah, this is going to actually track me a little forward. This is what I wanted to end on. But since you brought it up, obviously, being a small business owner of any kind it like you said, it’s like your child. Yeah. What part of your sort of strategy or advice would you give people who might have trouble letting go of the business? Once they’re kind of started this exit process?
I think the biggest thing and it’s actually funny because I had a shop owner I’m working with right now that this was a case, he wanted to look at a transition plan. But you could never really we couldn’t clearly define what he wanted his life to look like. And as I’ve worked with them and help them to develop this, what he realized was that he didn’t necessarily want to exit the business, but he wanted to take a deeper role. He wanted to build culture and his business and he wanted to build his employees up. So how that plan has changed now is that he’s based simply staying on, he’s taking more of a CEO role in the shop. He’s got his son and a key guy who were basically handling a lot of the day to day operations. And then, again, they have their key employees who run different departments so that we’ve created kind of a funnel there. And what he’s doing is really just working on a very high level, how can we build a culture that people are utilizing their talents and interest the best way, and as a result, we’re watching his revenue skyrocket as part of this process. That’s interesting,
because that’s something that probably wouldn’t have come about, until he wanted to get out. Right, right. So it’s funny how just rearranged in the business sometimes with the intention of leaving is actually benefiting it.
Yeah. When I think when you get into that mindset, I don’t want to do this all my life, I don’t want to do that whatever these day to day operations are. And we start to get them to really dive into what’s really important to them, that can help them to redefine how they change their goals and their strategy. So again, like I have another guy had a shop in Detroit, Michigan, transition to the sun, but he stayed on as the Chairman of the Board of Directors. Now he lives in Cocoa Beach, Florida. But he’s still involved in some some of the aspects of the business when the son needs help with like census information for group benefits, he does that sort of things, he takes on some of these little jobs, that so that the son can basically run the production area. So he’s still involved, but not in a direct way. And he’s getting to go do the things that he wants to do, like he’s golfing, and he’s sailing and all these interests that he has, but he still has his hands in the business. And I always say that I tell these shop owners, they said that you can take the boy out of the shop, but sometimes it’s really hard to take the shop out of the boy. And I think by finding a way that they can take on a new role and still live the lifestyle they want but still have their fingers in it can be something it’s very appealing to a shop.
Yeah. 100%. So it’s you’re almost doing like a half x. So you still have that sense of purpose. And you still have your you’re still connected to your child in a sense. But you’re still like, like you said on the golf course.
Exactly, exactly. But I think it’s always key to have that contingency plan in place in case something happens to you that how do they fulfill the role that you’re fulfilling in that. So for example, like my one shop owner, I was talking about who’s really big on developing culture, it’s as he’s doing this, he’s training his son and his key employee to do this. So if at some point when he exits completely exit the picture, alright, that they now know how to build culture,
I should have a nice segue into somebody I wanted to ask you about to when, and at what point in who do you talk to when you’re starting to think about accident? Because obviously, communication within the shop is important, but at the same time, you don’t want to create a panic among your employees prematurely. Right. So what kind of communication level? And what kind of timeframe are you looking at,
there’s really no set timeframe, because everybody’s going to be there a ton of different points in the process. So for example, a guy I’m working with right now, he has a very large shop, he’s doesn’t have any kids is initial plan where he wants to transition to the key employee, but he doesn’t know if the key employee first off has an interest. Or if he’s capable, right? It’s which then leaves our backup plan as a third party sale. So what they’re basically to start out, I told him, I said, look, let’s do an evaluation of where you are first, and where the businesses before we even have a conversation with this key employee. And I think really, sometimes we want to put the cart before the horse and we didn’t want to have all these conversations. And what can that can do is just create a lot of confusion. I think if you take it by a step by step process, so first analyzing, where are you now? Okay, how prepared are you now? And what areas do we need to work on? And then usually what happens is one of those areas, as I put together an implementation plan is we need to have a conversation with those key players. Okay. But allowing a third party to come in and help to mediate that really is beneficial is what I found. I have one guy I work with, and his plan was to transition to his son. And I remember it was down at the shops in Sarasota, Florida. I saw that I was actually at the shop. And we were having this conversation. I’m sitting in the lunch room with the dad and the Son and they are screaming at each other. Just yeah, you’re a drunk. Oh, yeah, you wouldn’t have got involved with drugs. And this is it was crazy. And I’m like, I’ll just sit there smiling with my arms crossed. And finally a dad looks at me. He goes, you’re gonna mediate this stuff, right? And I said, that 90% of my job, man. It’s like, the psychology but putting the plan together is really like a puzzle. It’s again, just taking the pieces of the puzzle and putting them together. But have you ever tried to to put together a puzzle without looking at the picture on the box cover?
It’s hard as hell. I can’t put a puzzle together with a picture.
That’s why you need somebody like me to help guide you through that. So
I actually thought he was just curious about what percentage for shops specifically are like an internal sale versus a third party coming in? Oh, boy. So figures or anything just anecdotally. Yeah.
It’s interesting, because I think for the most part, though, at first, the largest percentage was third parties, just because most shop owners didn’t even know how to navigate those internal. But what’s interesting is I was mentioning my my peer who handles m&a, she has actually become one of my best referral sources, because what happens is shop owner comes door says, hey, I want to sell to a consolidator. Can you help me, she starts talking to him. And as she’s getting into the conversation, she finds out, I just don’t, I think that’s my only option. I would like my kids to take it over, or I have these key employees that want to be would like to be involved. And she’s she sends them over to me. And then I can start to work with them to help them on this insider sale. Knowing that I’ve always got in the back pocket, we can go back to Laura to do the third party sale if need be. But it’s again, it’s creating awareness. And I’m finding now as I’m getting articles out in a lot of the industry publications about this idea of transition planning, as I go to shows as I speak at a lot of these different events, that now all of a sudden it’s becoming more front of mind, I was just at a show recently, where a guy came up to me, he’s got three shops in the North Carolina area. And he said to me, Look, he goes, I know I could sell it to a consolidator for top dollar. He goes, my kids aren’t interested in the business he is but I love my employees. And they’re dedicated and I want to do something for him. So we’re actually in the process of looking at creating some type of employee stock owners for him. So again, it’s about creating awareness. And I think the more shop owners are getting aware that there’s ways that you can do this very effectively. It’s gaining much more traction.
Interesting. Let’s go there, man, I don’t want to keep you here all day. Is there anything you want to touch on? Before I let you go?
I think the biggest thing is, again, it’s really about starting to think about as early as possible, what you want your life after business or the next 10 years to look like a lot of times that’s one of the first questions that I asked, I’ll ask a lot of my owners this idea, what would you like in the next 10 years do you want your life to look like? And it’s a question most people don’t think about. And the earlier we can do that the better 10 and 10 years, a lot of times can be a far, far away out. And that doesn’t mean that things aren’t going to change. But I think just getting started on that starts to get the the wheels rolling. I think the second thing is it really is of your benefit to hire somebody who can help to guide you through these processes, and have somebody who knows how to do it, whether that’s me, or whether that’s one of the other 130 or 129 certified exit planners that are in this country, having somebody who can guide the process and help to orchestrate it understand something we don’t as an exit planner, I don’t do every aspect of the exit plan, I can do the financial planning aspect, because that’s what my core businesses and that’s what I’m licensed to do doing this, you need to have a qualified business, you need to have a qualified CPA who understands cash flow analysis, and also taxing structures, how to do a deal because we want to minimize tax liability. We need m&a people. Sometimes we need life coaches, because again, in family businesses, sometimes navigating the family dynamic can be the most difficult part of it. So having this team having an exit plan, who who has a team that they can help to orchestrate this. And they are basically like the symphony conductor, I think there’s a real benefit. So those are probably the two things I would that’s great.
And how does the I don’t want any of our listeners get in touch with you.
So the best way to get in touch with me is you can go to my website, it’s high lift financial.com. On the website, you’ll see a let’s chat button. I give everybody 30 minutes of my time, no obligation, no fee, just just talk about your current situation. And here’s the one thing and this is the kind of the value added that I like to bring, even if I can’t help you or it’s just that there’s just not a connection between the two of us. I promise I will get you pointed to someone or somewhere that can help you to accomplish what you want to accomplish. But go to the website for pilot financial.com Just click on the let’s chat button. You can get on my calendar. We can chat for 30 minutes and just see where that goes there. No obligation.
Awesome. Well, hey, Matt, thanks so much for dropping in today. It was really nice chatting.
It was nice chatting with you too. Peter. Thanks for the opportunity. My pleasure.
And that’s gonna take us out for another episode of auto service road conversation. We’ll catch you next time