Small Business Owner Secrets Revealed

**SPEAKER_1** (0:01)
Welcome to the Money Tree Investing Podcast. Stock market, wealth, personal finance, value stocks. Invest in your life.

**Kirk Chisholm** (0:10)
Hello, Smart Money Tree Podcast listeners. Welcome to this week's show. My name is Kirk Chisholm, and I'll be your host. So today, I'm joined with Gregory Kovsky. How are you doing, Gregory?

**Gregory Kovsky** (0:18)
We're doing great. Good to be here, Kirk.

**Kirk Chisholm** (0:21)
Well, glad to have you on the show. So for those of you who don't know, Gregory, maybe you could tell us a little bit about your background.

**Gregory Kovsky** (0:26)
Certainly. I am the president and CEO of IBA.
We are the oldest and largest business brokerage firm in the Pacific Northwest, primarily serving Oregon, Washington, Alaska, and Idaho, though we have represented businesses all over the United States, including out in New England. I've been with the company 32 years. I found it because they sold my father's veterinary hospital, and he was impressed with them. And when I returned to the Pacific Northwest from pursuing my first career, one thing led to the other, and I joined the firm in 94

**Kirk Chisholm** (1:09)
There have been a lot of trends recently in the private business space. From your perspective, what are the most interesting trends that you're seeing in the last 10 years or so?

**Gregory Kovsky** (1:19)
Let's talk about the current and maybe we can go backwards. I would say there's three dominant trends presently impacting the industry.
On the seller side, you have the silver tsunami, which is the baby boomer population that is aging and frequently has kids who have gone different directions professionally and do not want to assume a position in the family company.
So they need to sell the company because father time doesn't stop for anyone. And these are people born between 45 and 65 So approximately 60 to 80 years of age presently is that band. And so they need to make plans for their retirement with comfort and dignity. They need to plan for their legacy and charity. So I would say that's the first element. And it's probably something you're pretty familiar with, Kirk, in your role as an investment advisor.

**Kirk Chisholm** (2:29)
Let's talk about the Silver Tsunami a little bit. When I think about clients selling their business or potentially giving to their kids or what have you, what are you seeing as an outcome? Is there a new generation that's interested in buying businesses? Or what are you seeing as the trend kind of in the next generation?

**Gregory Kovsky** (2:47)
Great question. Well, it depends what the business is.
Many kids have seen how hard their parents worked and how many hours, and they either don't have an inclination to go in that industry, or they don't have the aptitude to executive lead.
Or a common element is the parents need the money for retirement, and they can't gift it. Even if one child has been in the business, let's say you had three children. One became a teacher, one became a lawyer, and one worked in the family business. Well, you could create chaos at Thanksgiving dinner if you handed a multi-million dollar asset to Johnny or Jane, who just stayed at home and worked in the family company, when the others have kids going to college and other issues in their own life, and everyone recognizes the family business is a substantial asset. So you've got to navigate the politics of Thanksgiving dinner and make sure that is done correctly from a social standpoint and then there's a money element. Many times, founders have a lot of their dollars tied up in the business and associated real estate, and they don't have the ability to retire comfortably if they don't turn that into a passive asset. I mean, you work in that world. Let's say a business is worth $3 million after taxes. If you can put that in someone's estate, you should pretty conservatively get them a quarter of a million a year without touching the capital to live another 20 years with that asset, which it may be a new slash, but the cost of living is increasing regularly, and what we used to be able to buy for $50 going out to dinner is now $100.

**Kirk Chisholm** (5:08)
The younger generation doesn't have enough money to buy a house. How are they going to go buy a business in these cases?

**Gregory Kovsky** (5:14)
Well, we are blessed in this country that we have the SBA.
So Small Business Administration-backed loans allow people to buy businesses that are even all goodwill for 10% down, and then they get 10-year amortization at a market rate of 2% to 3% above prime.