Speaker (00:00)
All right. Hello, everyone. Thank you all for joining us today. I’m Gershwin Margolis. I am the founder of Imperial Advisory. I want to start by thanking Christine for joining us today. We’re very excited. Thank you, Brittany, for all of your effort and for playing this together. And thank you to all of our guests and our team members.

I only see two faces, so I will thank you both. Thank you, Dean. Dean is one of our CFOs. He has experience in multiple industries and technology, law firms, hearing aids. ⁓ Welcome Stephanie. Stephanie is one of our newer teammates. She has experience in a lot of really good experience in food manufacturing and working with a whole bunch of our clients now. And thank you, Tom. Welcome as well.

Tom has experience in lots of fun stuff, ⁓ especially technology and technology manufacturing. And he’s a military vet, so that’s cool too. ⁓ Okay, so ⁓ welcome everyone. Like I said, I’m the founder of Imperial Advisory. Imperial Advisory is a fractional CFO firm. We go into businesses and…

You know, in a large business, the CFO is one of the most trusted advisors of the CEO. And then a smaller business that perhaps doesn’t have the need for a full-time CFO, bringing on a fractional CFO gives them the same kind of benefit for, you know, a part-time price. And some people would say, you know, it’s a full-time commitment at a part-time price, but you really get a partner to help you grow. You just don’t necessarily need that on a full-time basis.

⁓ we get involved with our clients in many different ways. So we act as a trusted advisor. We do things for them, whether it’s, ⁓ helping them hire the right people on their finance and accounting team. We’re not recruiters, but we get involved in that in scoping out roles. We help with mergers and acquisitions. We help with obviously lots of advisory, but we help our clients run and grow their businesses. ⁓

And then there’s this whole world of things that our clients need, which we don’t necessarily do, but we like to, to be aware of, ⁓ things that we may get involved in, but may not do directly. So, like I mentioned, mergers and acquisitions, when we work on that, we’re probably going to be working more on the financial side. But when the client’s looking to grow, one of the ways that they can grow is mergers and acquisitions. And when you buy a business quite often, part of what you’re buying, and sometimes all of what you’re buying is the people.

And so I was speaking with Christine recently and she was telling me about some of the work that they’ve done recently, helping business owners who are going through transactions and some of the interesting things that come up on the HR side. Imagine if you bought a business and you couldn’t use any of the people in the business for some reason. ⁓ That would probably not be very good. So anyway, Christine runs an HR company. I think it’s

I mean, she lives here on Long Island. believe the company is based on Long Island. I know we, she actually brought us into one of her clients based in Brooklyn. so we got to work together there for a while. That was, that was very nice. and we appreciate that. and she’s a real expert in ⁓ all things HR and we’re very excited to have her here. And without further ado, Christine, take it away.

Thank you so much, Gershon. It’s a pleasure to be here. I’m excited to kind of go through this topic. And I think it’s relevant ⁓ to every business owner and their finance team to really understand what are some of the key areas in HR due diligence that you should be prepared for when you’re starting to even think about ⁓

selling your business or even acquiring another business as a way to grow. I’m just going to share a little bit about myself so people can kind of get to know me on the human side. So I am the founder and principal of Compass Workforce Solutions. I have a lot of HR credentials and my background actually comes out of the Fortune 250.

So I’ve spent a lot of time in venture capital-backed businesses, private equity-owned businesses, a Fortune 250, and education before starting my own firm back in 2009. And now we have a team of 13 people. That little handsome guy in the upper corner, that is my rescue Chihuahua, little pea. So I’m a huge animal lover, and I give him a lot of credit.

for helping me to understand how to interact with people that are in high stress or traumatized by prior experiences because that’s what him and I end up doing at home. Also, my natural behavioral profile is I am a strategist. So a strategist is someone who’s very disciplined, a highly motivated self-starter.

I have a high sense of urgency to get things done and to cross that finish line with my client, but that’s also balanced with a need to understand the details and the facts of the circumstances. I’m naturally curious and analytical and extremely thoughtful. So I tend to ask a lot of questions and I’m fascinated by understanding why people got into the business that they got into. And that’s part of what

makes my work so interesting. A moment on compass. So we are a certified woman owned business. We’ve won awards several times for our expertise and our contributions to the Long Island and the New York community. And our work is focused on key areas where HR actually makes a difference in business profitability, business scalability, and business valuation.

So compliance and operational controls as it relates to people, dealing with workplace conflicts and supporting our clients in developing high performance teams. So we’re headquartered in Long Island. We have quite a few clients in New York, New Jersey, Pennsylvania and Connecticut, but we also have touch points across the United States where our clients do business or have offices.

So we have employees that we service in about 30 states and that rapidly expanded ⁓ during COVID when it just became so glaringly apparent that people could really be productive remotely. So as we launch into this topic of mergers and acquisition and really how to enhance your multiple, I wanted to focus us on this quote by Stephen Covey.

always begin with the end in mind. So a lot of entrepreneurs or business owners start a business or inherit a business from out of a passion or from their family. It’s something that they love to do. And we don’t always think about what that exit is, but that exit is part of your personal net worth.

part of your legacy, it’s part of what you’ve invested years and hours of time that this is your opportunity to really get paid, right? So if you own a business, you know there’s a lot of things you do that you’re not gonna see that money for right now today. But if you do things properly, you do have that opportunity to really enhance that multiple.

And so the M &A environment’s really interesting. I get emails weekly and almost daily from people that want to acquire my business. And also we do a lot of work with clients. So our clients are typically 20 employees to about 250. They’re privately held, they’re family-owned businesses, and they’re also, we do work in the not-for-profit space.

So that is the space where we’re in and there’s a lot of activity in that space right now.

So I’m going to launch into kind of what I’ve labeled the four P’s of acquisition, right? Why do people buy businesses? Well, the first one is relatively straightforward. They’re looking to enhance their profit. The second one is they’re looking to gain a product or proficiency or a service, which they don’t have access to right now, that can enhance rapid expansion.

The third reason is they like the market position of the other company. So oftentimes that email list, that customer list, the positioning in the marketplace, the brand, the name recognition is compelling and enticing. And then last of all, it’s the people, right? If you’re buying a business, people are a prime asset that come along with it.

And so to really be truly prepared to demonstrate the value of your business, you have to be prepared to demonstrate the value of your people, which directly ties to your product, right? Your ability to produce what you produce, that internal knowledge, your proficiency, your ability to deliver an additional skill or service that people don’t have access to right now.

your market position, right? The brand, the messaging, the conversation, all of those things are really centered around your people. And how do you demonstrate the highest value of your people and position it? And sometimes getting this ready takes three to five years in advance of when you’re planning to begin that due diligence process.

to go into a sale. So we’re going to dive into that and I’m just going to focus on key areas that we see a lot of challenges when businesses are looking at going through that transaction. And we’ve done work on the seller side. We recently completed a one-year project with a privately held business that was located in New York, New York City, and California.

and doing all the due diligence to prepare them for a transaction in the next three to five years. But we’ve also been on the buy side of it where we’re coming in when something is an asset acquisition and we’ve prepared to onboard all of the existing employees into the new organization. So these are some of the things that we see. The ability of the workforce to continue to be employed.

So one of the oldest regulations that we deal with is Immigration Reform and Control Act. This goes back to 1986, was signed into law by Ronald Reagan. And this is your I-9 form. This is the form that certifies that an employee is eligible to work in the United States. So if you’re not

If you don’t have good records of this, right, or oftentimes in the due diligence process, when I’m talking to a COO or the office manager or whoever is in charge of employee records, when I say, where are you record keeping your I-9s? The look I get is the I what? What form is that? So,

Understanding this form and understanding the significance of the form and the ability to demonstrate on paper in advance of a transaction that all of your employees are eligible to work now and can be hired into the future is significant. In the current business environment, the current administration is heavily enforcing this regulation using the power of Homeland Security. So these are people that are armed.

They can go anywhere they want to go. They may need a warrant to request these documents, but the current administration is taking this very seriously. And if you don’t have this in place, there’s also significant fines and penalties that businesses can suffer. So anywhere from $2,700 a person all the way up to $27,000.

if they believe that you’re knowingly employing undocumented workers. So oftentimes different industries have different challenges. When it comes to continued employment eligibility, I was on the buy side, right? The sellers acquiring new employees, they had acquired a large private gym kind of in the Long Beach area. This was years before COVID. They were very excited. ⁓ They had

come into a large sum of money, a father and a son, and they were investing this money by buying a business and really creating an ability to continue to earn and grow a business. So we went into this environment and in the process of onboarding employees, out of the 70 something people that work there, 10 % of that population was not able

to continue on and this included people that were doing facilities work. This included people that were manning the front desk. So the buyer was not allowed to bring these people forward and immediately was in a position where seven new employees had to be located that were instrumental to running this particular operation. In the work that we just recently completed,

over the last year, so 2024 until recently, we were working with a distributor, again, located in New York City with a warehouse in upstate New York and warehouses in California, right? So warehouses on both coasts. The warehouse locations had been relocated over the last several years. And when we went to look at the I-9 documentation,

there were no records to be found. So in the process of relocating those warehouses, those paper records and most of the employee files were not able to be located. So we were basically starting from scratch with two warehouses in remote locations, teaching and training frontline supervisors how to complete and verify I-9 documents.

So the fine and penalty in that instance, ⁓ if either one of those companies would have been asked to produce ⁓ I-9 documentation, it would have been in excess of $50,000 just because documents were missing and not able to be produced in the relative timeline. So in industries like construction, warehouse, distribution, gyms, food service,

Generally what we find is these records are missing or incomplete. And then in other types of industries, you have different challenges. So in your STEM industries, right, technology. So tech is very hot right now as far as acquisition. And so what you see there is people that are on a work authorization, they might be on an F1, they might be on an H1B. Are those visas being tracked?

for their expiration date and the next critical event date in order to ensure that those employees are able to be moved forward into the new organization. So again, continued employment eligibility is a key area where time and attention needs to be given and it’s often overlooked. The next area that I’m gonna get into is employment classification. ⁓

So when we’re talking about employee classification, we’re referring to is someone a 1099 or independent contractor? Is someone exempt from overtime? Are they a salaried employee exempt from overtime? Or are they an hourly non-exempt worker? So why does this matter so much? Well, the reason it matters so much is when the

when the buyer is looking at the business, what they really want to understand is the total cost of payroll and benefits. And in a lot of business, this is the number one expense that the business has is payroll and benefits. If people are not properly classified, this number is not accurate. And I’ll give you some examples as to why it’s not accurate.

So for example of 1099s and independent contractors, independent contractors, the business is not paying for any benefits or taxes. There can be a 30 to 50 % increase per 1099 if that person was to be on payroll. And the types of things that we see that bring this into confusion is people are getting a W-2 and a 1099 in the same year.

because maybe they’re in sales and both parties, the employer and the employee say, well, if I get my commissions on a 1099, I don’t have the same tax obligation. Okay, that is a huge no-no. That is a huge red flag to have an individual that is getting a W-2 and a 1099 in the same tax year. And that person is also an employee.

Yes, Gershon, you have a question. Yeah, quick question on that last point. Is it that it’s sometimes legal, but rarely and it’s a red flag, or is that automatically? Is it inherently impossible or are there cases where it’s OK, just you’re asking for trouble when you go down the If someone is an employee, they’re always an employee. So that is the rule of thumb. OK. ⁓

you can’t give compensation on a 1099 and it also gets into certain benefit violations. So for example, if you have a retirement plan and total compensation is eligible for a match or a safe harbor, right? You’re not recognizing that comp and now you have an ERISA violation. So one of the things that you need to think about is

when you sell a business, right? The goal is to take that money and to go home and enjoy and to sleep peacefully at night. But just because you’ve sold the business doesn’t mean that your liability is over. So when we’re talking about look back periods on things like wage and hour, they can be significant. for New York state, for example,

is six years, okay? Connecticut is two, New Jersey is two, and Pennsylvania is three. So every state is different, federal is three. So you really want to understand just because you sold it and closed it, the officers or owners of that business have continued liability. And where this oftentimes comes into play is if an employee

does not survive that transaction, meaning there’s not a job for them. They don’t perform well in the new company. They’re not a cultural fit. They’re not going to move forward. Their recourse, oftentimes under financial duress, is to figure out a way to get money from the former employer. So these are important and significant things. So who can be a 1099?

is sometimes a bit of a moving target, right? The Department of Labor and the IRS agree to disagree. So we typically recommend that all businesses really look at what the Department of Labor is doing. And in May of this year, the DOL, the federal DOL clarified their enforcement guidelines and they are using something called the Economic Realities Test. So,

At the bottom line, what the economic realities test means is if that 1099’s revenue, their majority of their revenue is coming from that business, the economic reality is they are not an independent business. They are not an independent contractor. They are not generating enough revenue outside that they would survive.

without that business. So there was some real interesting case law several years ago around strip clubs, right? And if you’re ever wondering what your business has in common with a strip club, I’m going to share it with you. If the facilities and the location and the equipment and the machinery that 1099 is dependent on that, right? So think about strippers. They’re reporting to a specific location, even if they don’t have

a strict reporting time, but they’re reliant on the marketing efforts. They’re reliant on the facility. They’re reliant on the different licenses that that business has, and they’re using that location to generate revenue. So if your 1099s are primary, if they don’t have an opportunity to make a profit or a loss, if they’re not investing,

in their own team or their own equipment and they’re relying on your facility, they’re not a 1099. So I’m going to move on to classification, right? Exempt versus non-exempt, because this is another big area where we see a lot of misunderstanding. So we recently took on a distribution company that’s on a PEO on one of the big ones.

They have 34 employees and everyone is paid on a salary, including the warehouse and the mailroom employees. Okay, this is not possible. They’re not using any type of time tracking or tracking of hours and record keeping. And these people are also not passing the salary basis test. So to be exempt from overtime, it’s a two part test. My baseline salary,

that doesn’t fluctuate, I’m guaranteed this amount every week, regardless of how many hours I work, and then my job duties test, both have to pass. So each state has the ability to set a higher salary threshold than federal law. So we’ve recently seen movement on the federal salary basis test, right? It was supposed to go up January of 2025.

then a Texas court threw it out, now we’re back down to the $6.84 a week is the salary basis test. But if you’re in New York, that salary basis test increased in January to $12.3750. That means in order to be exempt from overtime, you have to pass the job duties test and be making no less than $64,350 a year.

in base compensation and salary. So there’s a lot of companies where we go in and this is not the case. People are on salary for $500 a week, 650 a week, 900 a week. They’re not passing that salary basis test. So it’s really important to understand what is that salary basis test in the city and state that that employee is working.

So some states follow federal law, quite a few states do not, California does not, and different states have different requirements around who can be a salaried professional or a salaried person. So that’s significant. Again, why does this matter so much? Because if I’m buying your organization and I’ve got someone who’s coming over that was making $500 a week,

I don’t know what that employee is going to cost me in my new environment. You’re not tracking hours and you’re not passing the salary basis test. Also, you’ve got that look back period where if that employee doesn’t survive the transaction, you’ve got to wage an hour claim. And that can be significant because it has the backwards look.

back to two years, three years, or six years, right? Federal is three, New York is six, California is six, ⁓ with interest and penalties. So you’ve sold the business, but if you know anything, you’re not sleeping well at night. So this is a big area where there’s a lot of missteps and a lot of cleanup. And we spent a significant amount of time in the last distribution company. They

We started out with 119 employees at inception. We actually ended up with 98 employees. And in order to defend your classification, you also need to have a job description, right? So where’s that documentation? And my final point that I want to drive home is, what is the value of your workforce?

So can you demonstrate the value of your workforce, meaning your key employees, your leadership team? What’s their background? What’s their education? How long have they been with you? So for a lot of the clients that we work with, the record keeping system is not thorough. You don’t easily have access to create or to demonstrate these bios. What about the rest of your employee population?

How many of them are from Harvard or from Wharton or from West Point? Who has a master’s degree? Who’s project management certified? Who’s got their HR credential? Who doesn’t? ⁓ And in certain sectors, right, technology, medicine, accounting firms, or CPAs, this record-keeping requirement, if you can’t produce it, you’re not able to demonstrate

the value of your workforce, or you’re gonna struggle to put it together. So you’ve invested a significant amount of time and training and developing people, you’ve got to capture that information so that you can share the full value of what they’re worth. So what am I really talking about? At the end of the day, it all comes down to record keeping. And to be brutally honest,

If this is what your records look like, you’re doing better than 70 % of the clients that come to us looking for help and guidance. We see records of employee files in garbage bags because they’ve recently moved, especially from COVID where, you know, people went remote. What happened to all those pieces of paper?

So were they uploaded into the HRIS? Are they floating around in somebody’s email inbox and never to be saved or organized? We talked about companies moving and relocating and not really paying attention to where are the employee files? Where are the I-9s? Where are all these records? So a lot of times what we hear is, well,

we can’t find it. I guess those got lost in the transition or we relocated offices or like I shared with you, we moved the warehouses and I guess those files just didn’t make it in the transition. And then you also have people that have gone through some type of natural disaster, right? So we just had ⁓ Milton and Helene in Florida, right? We’ve had September 11th in New York. We’ve had Sandy where

Hundreds of thousands of employee files and all types of business records were destroyed if they were on paper if they were in boxes if they were in file cabinets When you’re moving to an online system, you’ve got to have a strategy for migrating the old files So we just took on a client in New York City ⁓ They have 58 employees they’ve been around since 2004

They moved from one HRIS to another, also in the middle that everybody went remote during COVID. And the last five years of employee records are sort of MIA. And we’re going through the former HR person’s email inbox for onboarding documents, for offer letters, for all different types of credentials.

that can’t be located. So these are the common things that people do, right? So just a little reminder, now is the time to invest and organize, right? We’re talking about employment eligibility is critical, often overlooked by the company that is thinking about selling. Employee classification, 1099 versus exempt or non-exempt, again.

payroll and benefits is often the number one cost of operating a business. And then the value of your workforce, the credentials, the degrees, the certifications, the investment that you’ve made in training and development, are you able to demonstrate this ⁓ about your company? So I did leave. think I’ve left ⁓ time for questions.

If you have a very specific fact, specific question, or you want ⁓ an online ⁓ Zoom or Teams consultation with me at no charge, you can scan the QR code and spend 15 minutes with me picking my brain or asking your specific question. Otherwise, there, Gershon, are there questions in the chat that are coming in that people have? ⁓

I have one comment in the chat, but it wasn’t really a question. So far, no. But we can turn that over to the people here and see. See who’s got a question. I know that I learned a lot. I found this very interesting. I asked my questions as we went along. But.

Well, let’s go around who anyone have any

anything that they.

that they want to know? Well, I have a general question. I have a client that hired someone to be the president of the company as a 1099. And I was reviewing the 1099 agreement. I practice a little law my my majority of time and Christine, we spoke years ago about ripple and, and talent engagement and all that kind of stuff. But my question about

the client’s president is the president signed, she signed a 1099. And there was a provision within the agreement that said that she couldn’t bind the company because she was a 1099. So the attorney for the company was trying to be, I think, kind of cute because how can a president, how can you have a president who’s an officer of the company not be able to bind the company? But I know why the agreement stated that.

even and I guess my question is, even if you have a provision that says the president can’t bind the company, practically speaking, you know, she signed she signs small contracts all the time without talking to the the chairperson and the CEO. Is that a red? that be a red flag? Or, you know, you can call yourself a 1099 if you want. But in in actuality from from a from a function perspective, you’re you’re not

Well, mean, and it also, if you think about it from an acquisition standpoint, does that mean that all of those contracts under non-binding are going to be null and void? And if the customer wants to get out of it, they can get out of it. It’s not binding. So it usually is a best practice not to allow a 1099 to bind an organization without.

a second signature like general counsel or finance. But if you think about the definition of a 1099, it doesn’t really seem to fit a president’s role because their ability to use judgment and discretion and drive the organization. I mean, are they doing this on a fractional basis? No, full time.

Right. And she reports to the board. Right. And then you also have the question of ERISA violations, right? So what benefits is she not getting that she should be entitled to, and also the potential litigation in a transaction if she doesn’t continue on? And there’s certainly someone who acquires that business is not going to maintain her as a 1099.

I find that, you know, there’s this thought that people have, especially people that practice contract law and not employment law, that if both parties agree, anything can be solidified in writing. And that is not the case with employment law. There are very specific rights that the employee cannot waive. Workers comp, statutory benefits like tax contributions.

⁓ your social security, your Medicare, overtime, unemployment. So it gets really ⁓ sticky. So that sounds like a little bit of a nightmare, quite honestly.

Yeah, I agree. Christine, I have a question and also on the 1099 topic. You mentioned before that the part of the test of a 1099 is for them to be able to, I think you mentioned to make or lose money. Yes. So how does that roll through to a service business where someone is providing a service? What’s called losing money in a service business where

Right like my attorney Let’s say he’s a solo attorney Um, I think he is well, whatever. Um, he used to be a solo attorney. So he’s So how does he lose money? What does that even mean? Is he my employee? So, I mean Everybody has some level of overhead, right? And so however He is setting his rate because the definition of a 1099 means the 1099 is setting the rate

So let’s just say he’s an attorney, he’s charging you $400 an hour. But for whatever reason, that doesn’t cover the cost of his overhead, his technology, his security, his admin support, his data storage, right? That’s the ability to lose money or to bid on a project, right? To give you a fixed scope of work at a flat rate and lose money.

So there has to be where a 1099 is making some type of an investment in facilities, equipment, support, technology, helpers to do the work. And also a 1099 would not, an attorney might not be integral to a fractional CFO firm, meaning you use him

to support you, but he’s not delivering the day-to-day services. He’s not directly delivering fractional CFO services to clients. That would be integral to a business. So common examples are 1099s brought into construction sites that are doing primary functions like hanging drywall, putting up foundations. 1099s that are

outside salespeople that are selling that business’s goods and services as a primary function with little or no other revenue sources, right? Or, you know, like the example that Noah gave, 1099 in a president capacity. So,

It’s really the economic realities test, which does synchronize up with what New York State says. So if you don’t have other sources of revenue, you’re not available for business with the general public. There’s some type of ⁓ restriction about who that 1099 can work with, right? Is there any type of non-compete?

They’re having to report to work at certain hours. There’s direction or control or training given and then the permanency of that relationship. So is this person working there for a year or for five years? Right? So there’s really six main factors that go into the economic realities test when you’re looking at 1099 classification.

Thank you.

It’s a common problem. Yeah. I know for a lot of the fractional firms, not just CFOs, that 1099 is a frequent route. And the employment attorneys sometimes go for it. But everyone hems and haws about.

I mean, you’re not having a time, but other people. Well, and it depends, right? What is the structure of the business? So like, for example, if the fractional CFO service is a referral service, right? So you provide a business development and there’s some type of ⁓ structure in place, right?

for providing that, then you might have it, then that fractional CFO has to be free to do work for whatever clients they want to, and also open to do business with the general public, right? So, you know, having a presence on LinkedIn, having a website, having some type of, you know, it’s kind of a…

A lot of people don’t do it in professional services, but like a Facebook page or a TikTok that says, this is who I am. You can contact me directly. know, so, and then having that investment in their own equipment, security, technology.

So if you look at different structures like Angie’s List, you’ve got a platform that really is an aggregator of referral services to facilitate the consumer finding someone faster and being able to reference data. But the people on Angie’s List,

are free to get business by putting ads in Clipper or going onto Facebook or walking down the street and getting their own customer. So that’s kind of where that nuance might come into play. Did I answer the question? Yeah. Very helpful. Yeah. mean, a lot of times the things that we deal with in HR, it’s not always black or white. It’s super, super fact specific.

Yeah, I think that’s that’s kind of the key point is really understanding the company that you have the dynamic, the operating costs and having all those records to substantiate why you’re operating the way you’re operating and how much it truly costs you to operate.

Yeah If you ever really want to be you know sold and you want to go through a transaction Right, yeah I know someone who sold a fractional CFO firm and he told me that they the way that they did it I don’t know if this was because of issues like this he sold to an Accounting firm. He told me he shut down

Basically, he shut down his business and everyone left and moved to the new business.

So he left, the clients left, the CFOs left, and they all moved over to the new business. Right. But did he get anything out of it or he just really got himself a more secure job? I think he got, he probably got some kind of partnership at the accounting firm. Yeah. Which, I mean, quite honestly, you probably could have gotten that anyway if you were good. Right. So again, it depends. Like if your intention is

I mean, some people run a business with just the intention to create kind of what’s called a lifestyle business, right? I enjoy this lifestyle. I enjoy the freedom and flexibility. I enjoy the income it brings me, but I’m not really intending to go through a transaction where the business means something without me.

Right. there’s, there’s, I mean, there’s nothing wrong with that.

So that’s why I brought up early on, you’ve got to begin with the end in mind and structure your company in a way that’s going to get you where you want to go, right? And increase that multiple or that investment in what you’re creating.

Right. Yeah. I guess that’s true in many disciplines. It is. that to our clients for our things also. way you’re looking to run a lifestyle business, right? You’re going to invest in marketing differently. You’re going to look to maybe pull more money out in the near term. If you’re looking to build something much bigger that’s sellable, you’re going to invest in things that aren’t necessarily going to make money right away. ⁓

but we’ll build the infrastructure you need so you can sell later.

Right. Or some companies might actually be doing more of an employee stock purchase, right? They’re building up the company to then be managed at some point by the existing employees, which could look a little differently as well. So it’s, it’s important to, mean, you’re raising the issue that you’ve, you’ve got to start planning kind of a minimum of five years out. Right. Right. So that.

that’s sort of the minimum to say, where’s my runway? And where do I wanna be in the next 10 years? So that, right, I’m methodically going through this process.

Because you can accelerate it, but anytime you want to accelerate something, that requires a lot of money behind it. You want to get something done faster, it’s possible. But then you’ve got to put quite a bit of investment into making that happen. And some of the due diligence that we end up doing, usually in my initial conversation with leadership, I can ascertain

what level of risk are we exposing and do we need to bring in a law firm to do this underprivilege? Because anything that I do, my team does is discoverable, right? So when we go through like our initial question set and if people are saying, like I said before, the I what’s, then I start to know that one, you don’t want this to be discoverable

in a due diligence scenario. And two, we don’t want this to be discoverable if an employee brings a lawsuit or any type of allegation within the next statutory limit. So we do it under privilege, which then you’re kind of adding another layer of investment onto that. So. Right. Yeah.

Interesting. Yeah, it is. It’s very interesting. I mean, it’s interesting to me. Let me ask you one more question. was something that unless we’ll let’s see that anyone else have any questions they want to ask Christine.

I have a small question. Go ahead. I’ll ask another time.

So one question I have, Christine ⁓ is if all of the, what is the, in how many cases have you seen the current or the new owner of a business go after the old business owners for like, you said like employee related relations and all that. just, worked for like a small PE backed company, Food and Beverage on Long Island. ⁓

And we had lot of the same issues, the I-9 issues and all that. And we had a lot of problems with employees and I don’t recall that ever happening to us, but just curious, like in your experience, how frequently that happens within like the small business world. Right, so it’s usually the employee. So sometimes I would say maybe like 20%. So I mean,

We’ve had situations in an asset transaction where we’re onboarding new hires and we’re going through a handbook and we’re talking about key policies like sexual harassment. And the employee sitting in front of us said, oh, really? My manager isn’t allowed to do X, Y, And it was the manager at a prior organization. So you have this complexity of, well, that manager’s

coming into the new organization as well. Now immediately as an HR person, I’ve got to do something about it, but the liability sits with the prior owner. So if you follow New York, we now have a three year statute of limitations on sex-based harassment from the last incident. So if the last incident was two weeks before, you’ve got three years of issues and challenges. ⁓

It’s more what generally happens is

You have historical employees that maybe prior ownership has a kinship with, or kind of this connection because they were with the business for a long time, but their skills and abilities maybe haven’t kept pace. And now as the new acquiring business is kind of doing their own due diligence and requiring people to leverage more technology or other types of tools, this employee begins to struggle and may not make it.

Yeah. And if they were improperly classified or, you know, anyone in financial duress, and we see this all the time, owners will say, well, that person’s worked for me for 20 years, they’re never going to do it. And sure enough, if there’s enough financial duress or the brother-in-law moves into their home because that person lost their job or somebody’s diagnosed with

cancer or a child becomes addicted to heroin or opioids and they need money to fix that problem, they don’t, the employee no longer cares about that longevity. They look at you as someone who just went through a transaction, who just got a nice chunk of money and they would like their piece of it. So I would say about 20 % of the time. Interesting. Yeah. Thank you.

Did I Mike? I’m not sure if I answered your question or. This is all very helpful. Thank you. I’m I had some interesting conversations last couple weeks. I’m coming in from like a there’s a patent. There’s a licensing agreement kind of situation and I’m learning now that. You know me guy sitting in my basement. Playing with some kind of system or some patent and then you have these like huge manufacturers.

And, um, in your perspective, do you think it’s smarter to just be an independent contractor as opposed to a, you know, as opposed to a business owner who has to partner or negotiate with other people I’m learning? Uh, yeah, a big, I don’t know, broad question to throw out there. You mean.

So are you asking if you should ever hire employees or not? Yes, sorry. That’s the best way to say it is, I, is it good to be planning in the future thinking about let’s hire, like I need to be planning to train, hire, people, or is it better just to be a solo individual who, who licenses stuff, gets a 5 % royalty kind of thing.

Well, I guess it depends on if you really want to scale. are you like when we talked about lifestyle businesses and creating an income and a life where you enjoy the working hours and the work and the flexibility. ⁓ Is that the intention or do you want to create something that has a value to it that

you know, and I’m not sure what your line of work is, but it’s really, that’s the question that you have to ask yourself. And what is your time horizon? So, you know, a lot of the stuff that you see on social media about people starting businesses to be sold, and that’s the end game to grow it and sell it as fast as they can. There’s a lot of myth to that.

Most of the businesses that are sold for day-to-day kind of businesses, you’re talking 15, 20, 20 years of slow, consistent growth and investment. So I would also think about your time horizon. Some people want to create something they can pass off to their children. Other people have children that have zero interest in their business whatsoever.

Like in the instance of the distribution company that we just did the project on for a year, the children wanted nothing to do with continuing the business that their grandfathers had started. So it really depends what you’re, like we said, you begin with the end in mind of what is your business goal.

Yeah, correct. Yeah, for me, I just want like a lifestyle business. It’s sort of like my own job and I don’t scale it grow it and sell it. So you might want to get like a virtual assistant that does some admin work. Who’s the employee of someone else and all of their? Taxes and benefits are being paid, you know, just to help you and. Yeah. OK, thank you and I booked an appointment to.

Dive deeper for 15 minutes. you for all the philosophy here and long-term thinking is good as opposed to. This is what Gershon I think had as a job title a while back, a business philosopher. So yeah, yeah, I did. All right. Thank you. Thank you all for anyone listening to this now or in the future. You can reach out to Christine. You know how to reach us.

If have any issues getting in touch with Christine, we can help with that. We can help with that too. We have a quick poll here. If you’d take a second to answer, that would be helpful. For anyone listening on LinkedIn, thank you for joining. I didn’t check LinkedIn for questions, but we’re just about out of time. So thank you all, and thank you, Christine.

Absolutely. And Gershon, they’re going to get a five page HR due diligence checklist that takes a deeper dive ⁓ into all of the things that they kind of need to be prepared for. Perfect. Yes. Thank you for reminding me. And anyone listening to this who’s not listening right now, you may be seeing this on YouTube or somewhere else, but reach out to us and we’d be happy or to Christine, and we’ll be happy to get you that HR diligence checklist.

Absolutely. And again, thank you all for coming and thank you especially to Christine for everything. Thank you, Gershon. It’s been wonderful. This is great. Thank you so much, Christine. Really insightful. Thanks, Christine.