Balancing Personal Liquidity with Business Liquidity as You Build Your Business with Cannon Carr, Partner at EP Wealth Advisors
In this episode of Exploring Growth, host Lee Murray sits down with Cannon Carr, Partner at EP Wealth Advisors. They explore the intricacies of wealth management for business owners and the critical balance between personal and business finances. The episode provides practical insights on dynamic financial planning and preparing for business exits.
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Cannon Carr
00:00:00
And what so many entrepreneurs do is, is reinvest and they often reinvest and they keep reinvesting, pursuing growth. and that's fine. but you do ultimately, that's the dynamic plan starts to say, okay, let's let's look at you independently from your business as well, because one day when you exit, you will become independent. And and independence requires financial freedom. It requires no more financial draw from the company. So you you want to know what that target is. And that's kind of the Northstar. How much is enough for you? and then create enough liquid wealth to be able to give you that cushion.
Lee Murray
00:00:42
All right. Welcome back. Today we are exploring a topic that I think is sort of buried in the life of a founder. Doesn't really get that much attention. as you are building a company, there's years of abundance and there's years of scarcity when it comes to liquidity and understanding how to manage that cash from both the personal side and the business side is critical when hitting both your personal sort of family goals and your business goals at the same time, whether that be focused on an exit or sustained growth under your management.
Lee Murray
00:01:14
So today, I have the opportunity to pick the brain of someone who not only works with business owners to to find this balance so that they can create wealth, but just went through this whole journey himself with his company. So today I'm talking with Ken and Carr, partner and Regional director at EP wealth. Welcome, cannon.
Cannon Carr
00:01:32
Well, pleasure to be here. You know, your intro is perfect and spot on. And just key issues that we kind of focus on and help business owners think through. So excited.
Lee Murray
00:01:41
That's awesome. Well, let's start out like I normally do with my guests. Just kind of tell us about yourself and your your your background. I know, you know, I want to get to the acquisition pretty soon because, you know, that's going to be a lot of what we hinge this conversation on is you just went through this whole journey of balancing, you know, cash through building a company and getting acquired. So tell us about that.
Cannon Carr
00:02:02
Yeah. Well, my own journey to, you know, I was a former Wall Street analyst, you know, took apart balance sheets, cash flow statements for large public companies.
Cannon Carr
00:02:10
but as I was looking, you know, to just my own interest and own career, I thought, you know, do I like being a commentator in the booth, which is what an analyst is or what I'd rather be playing on the field. more as a business owner. And at some point in the program, we can talk about what's different, an entrepreneur and a business owner, because there are a lot of similarities, but a lot of differences, too. and, you know, I never thought of myself as an entrepreneur, but definitely a business owner and, and was able to, become a partner and one of the primary owners of a firm called Corner Cap. and, you know, we started working with private clients. We had our own, institutional research process, but it was taking me more and more to that journey of helping business owners. And and it just so happened, you know, that's just a quick background for me. And, you know, you've kind of alluded to the fact that, yeah, I just went through a sale process on on our own.
Cannon Carr
00:02:59
Yeah. I'm happy to jump in that if you're ready for it. Yeah.
Lee Murray
00:03:02
So you started corner captain, is that you founded that company or how did that work?
Cannon Carr
00:03:07
No. So I knew the founders. There were two founders, and I knew them. And they were looking to have the next generation come in. And, my own family's, private money was managed at corner cap. So, as I knew the founders and as I went on that journey from saying, don't want to be an analyst commentator in the booth or actually want to be owning a business and making decisions for clients using investment tools. naturally, you know, the conversations flowed toward them and becoming one of the next generation owners. So I would call me a second generation owner, of the firm.
Lee Murray
00:03:37
Okay, cool. And, Corner cap is a wealth management firm. what what did they do specifically, or was it, like, family oriented or.
Cannon Carr
00:03:45
we, we did ran some institutional money, but more and more over time, you know, growth was coming from, private families.
Cannon Carr
00:03:53
and, what I'll say is first generation business, first generation wealth builders and then growing with them. And now into the second generation. But a good segment of that was just business owners, you know, on their own journey there and watching them kind of build their wealth and going alongside them, building their wealth and looking in hindsight, you know, watching how they made decisions and things they learned really over the last four years. I started really putting a formal process around that.
Lee Murray
00:04:20
Okay. That's so interesting. I mean, that's such an interesting perspective that you had because you are helping them sort of safeguard and manage and build wealth. while you are doing that inside your company at the same time. That's why I think that's such an interesting, interesting perspective for this topic.
Cannon Carr
00:04:38
It is because often in this industry, you know, if financial advisors don't go on the journey that an entrepreneur or a business owner or founder goes on. So being in those shoes, just gives you just an added advantage.
Lee Murray
00:04:50
Yeah.
Lee Murray
00:04:50
That's amazing. So, okay, so you are business owner at Corner Cap and you are both helping build wealth and you are building your, your firm as well. when did you start that process? And then what did that, exit look like?
Cannon Carr
00:05:06
Yeah. So, you know, we kept paying periodically, you know, to be a potential acquisition target. And usually we're not that interested. It's, you know, it's, you know, fit values are so important. Research is so important to what we do. but it just so happened that about a year ago, I was approached by a company. Actually, we had two, that, just as we we spent time getting to know each other. You know, it wasn't just a transaction. It was something that was going to be additive to the acquiring firm and additive to us. Okay. It's going to accelerate. a lot of the services that our team was looking to build out anyway, many of which benefit business owners, you know, a lot of tax planning, tax prep, executive comp, I mean, these are things that we, had knowledge of, but to have deep subject matter experts readily available on the team was something we were looking to add.
Cannon Carr
00:05:55
And, you know, this, partnership allowed us to accelerate that. So, so on paper I was like, all right, that's interesting. And our research process was additive to what they were doing. So, you know, the investment research that we've done through the years, it's just so important to what we do. So having that participate and be important to the acquiring firm was important. and we're kind of jumping ahead here. But, you know, the thing that, really took off for us on a potential partnership was just the shared values that I was seeing from the from the management team at EP wealth. And so now, you know, I'm a regional director and partner at EP wealth. and, you know, but but, it was more than a transaction for both sides. And that was what made it so important. And there's some lessons there. And, you know, I can go ahead and riff on that, or we can talk a little bit more just about my own experience selling.
Cannon Carr
00:06:43
yeah.
Lee Murray
00:06:43
Before we jump into that, I wanted to just, stick on that for a minute. When you did, they reach out to you or how did that those relationships, those buying, you know, talks start? Was it that you decided, okay, yeah, we're in the market. We want to sell for various reasons Or, you know, someone came to you and decided to start those conversations.
Cannon Carr
00:07:02
Well, so here we know I did not go out to the market and ask. We weren't looking to sell. Yeah, often that's the best position to be in. Yeah, for sure, because it lets you negotiate from strength. we do have business owners, and I know business owners who do go into the market to sell and sometimes for legitimate reasons. And there, you know, you have a, you know, more of a sell process with an investment banker in an auction that you can work through. and, you know, there's, but it's just so interesting what all the trade offs are.
Cannon Carr
00:07:29
And so, you know, when I good point when I, you know, some sometimes people think I just want to get the maximum money we can get in a transaction. Right. And if you're an owner who's looking to exit for good, and that's the most important dimension, then okay, let's go for it. And let's try to get the maximum value. But at the same time, there's so many other things that are important to exiting. And by the way, exit means so many different things to to different. Right. does it mean you're permanently gone. I use the word transitions, with our our clients, too, because, you know, you think about, exiting, you know, that's it's more like it's often transitions, right? How are you going to create a succession management team? Do you still stay involved? you know, there's a management succession. There's the financial succession. Do you retain ownership in the new firm. So this can be a liquidity event. So, you know, is this a one time transaction or is it the first step in several steps that are ultimately an exit.
Cannon Carr
00:08:27
So you know you want to think through all of that. Right. And for me, I had an opportunity to put all that in practice. And first and foremost, you know, value of the deal is very important. But secondly was, shared values between, you know, the acquiring firm and us, so that we're making the same decisions for clients and the same decisions for employees. so those shared values, you know, and when you're negotiating, you know, you'll you'll butt heads, right? And at the end of the day, does that create enemies or does that actually bring you together. Right. And it's so important to find those shared values and know what the end goal is so that you mutually keep working in that direction. And if you see either side, not on that page, you know, you probably want to slow down the deal or walk away from the deal unless you have to sell. Right. Which is always that painful point, which is we'll get to. But that's the nutshell.
Cannon Carr
00:09:15
Or really kind of the nugget here is you never, as an owner, want to be in a point where you have to sell, and liquidity is such a key option there. But that's that's the biggest picture of all. Yeah sure. Anyway. But shared values so important, you know, knowing that you're there's a career path for your employees is very important that it's enriching for them. So there's so much more to the deal than, than just the, you know, the value of the transaction.
Lee Murray
00:09:39
Right? Yeah. And it seems like, it seems like you abided by a lot of those principles as you went through your deal, and now you've transitioned into their, their ecosystem. And, you know, what does that transition been like for you?
Cannon Carr
00:09:51
Yeah. Well, we're we're just new into it. so, you know, there's always bumps along the road and, and, you just navigate through it. But for the most part, you know, you hope you do enough due diligence to where there are no surprises.
Cannon Carr
00:10:03
Once the deal closes and you move into it. And again, you know, you get a sense of negotiation in the negotiation if if you have shared values that for the most part, you should avoid a lot of at least the big surprises that can often happen. and, you know, and I think we avoided those. That's amazing. But no, you know, as we'll talk about it in the three hours process and the North Star and knowing where you're headed and knowing the value you need from the deal and getting liquidity from the event, you know, all those things I was able to put in place for us and, you know, it certainly helped. And, you know, in my own journey, you know, I've got equity now in the new firm. That's great. That's because I am a business owner. It's the way I want it. But at the same time, you know, this did provide some liquidity for me and and our founder and several other of the key employee shareholders, you know, which is important along the way to, to be able to create that liquidity, you know, to have what I call diversified wealth away from just your business interests, right? and, but we'll cover more territory there.
Lee Murray
00:11:02
Yeah, well, this is that's been a great way to set this whole conversation up. I appreciate that it gives such validity to what we're going to talk about. now, and, you know, this topic of, kind of managing or balancing liquidity is is very important. And I think, as I said from the intro, kind of buried and doesn't, you know, we don't really talk about it a lot or it doesn't get talked about a lot. You know, for me personally, I think about it a lot because you have to invest in your company for it to grow. But there's a lot of things along the way. You know, I've got three kids and, you know, they're we're coming up on college and we have lots of other, you know, responsibilities that are pulling at you, not just the fun things that you want to do, but all the actual responsibilities to to kind of grow your family and, and live a, you know, a decent life along the way.
Lee Murray
00:11:47
So, you know, if something happens, God forbid, right before you exit, you know, you haven't just squandered that time. So, you know, it's a very personal Thing. So I think this conversation is going to be really good. And I think what we should do is start with a plan, right. how the question is, how can founder owners plan more effectively?
Cannon Carr
00:12:08
Well, so it's interesting. So if you go get a financial plan in our industry, I mean, it's almost a commodity, right? not necessarily. For the average person, it can be extremely helpful. And it is extremely helpful for sure. But for a business owner, a financial plan will get stale in about six months for all the reasons you described. Right. Because a plan is often built just for the personal, financial, view of what somebody is. But if it's not sensitive to not only to the illiquid wealth that you have, but also how how your cash flow changes as you make decisions about, like you said, you know, every owner wants to reinvest in the business for growth for the most part, right? I mean, some some harvested and whatnot.
Cannon Carr
00:12:48
But let's assume you're that owner who wants to grow their business for the next ten years, and you're making that decision to reinvest in there. there. If you don't have a balance and, you know, and like you said, life starts to intervene. You can really get off track. And if something happens in the business or do you personally, you can find yourself in a really tough spot often and they'll liquid spot and it changes the beneficial exit. You can have the lifestyle that you want to lead, the harmony and your family. I mean, so, so many examples can happen to that. So how do you avoid that? Right? So if you're a business owner and want to engage in planning, you know, how do you avoid, those kind of outcomes or at least minimize, you know, potential outcome?
Lee Murray
00:13:30
Yeah. And I think when we talked originally, you had you expressed this idea of having a dynamic plan versus a static plan. Tell me more about that.
Cannon Carr
00:13:39
Right. Well, so and by way of backdrop and, you know, we all know that Hollywood entrepreneur who can hole up in their, you know, either their parents basement or, you know, is somewhere where, you know, they're single and they've got no obligations.
Lee Murray
00:13:52
No, there's no responsibilities, no.
Cannon Carr
00:13:54
Responsibility. They work 24 over seven on the business and just, you know, have a celebrity IPO and they've created wealth and you know they're there and it's liquid and they don't have anything to worry about right. Most owners and founders don't go on that journey at all. Right? It's a very different journey, very different. And what happens is and we even have a client or two or this has happened where they started a business as a single entrepreneur, but before they know it, you know, they're married, they have kids, and they're starting to put them in schools, often a private school. and, and yet they're still heavily investing in the business. And there is risk there. Right. And and I'm not saying don't invest in the business, but be aware we've got to create a balance. So and that's why, you know, we talk about a static plan. They get stale and six months for business owner. You want a dynamic plan.
Cannon Carr
00:14:37
And the way we've approached that is to say a very simple concept. We call it the three R's. For every dollar that your business generates, you have three choices. You can either reinvest in the business, you can reward yourself with a salary of some kind or a distribution or you you can repurpose it, into a diversified place for wealth. so those are the three R's you can reinvest, reward or repurpose. And what so many entrepreneurs do is, is reinvest and they often reinvest and they keep reinvesting, pursuing growth. and that's fine. but you do ultimately, that's the dynamic plan starts to say, okay, let's let's look at you independently from your business as well, because one day when you exit, you will become independent. And and independence requires financial freedom. It requires no more financial draw from the company. So you you want to know what that target is. And that's kind of the Northstar. How much is enough for you? and then create enough liquid wealth to be able to give you that cushion, along the way so that you're, you're not all in on the company and hoping that it all works because, you know, if it doesn't work or your your exit value looks to be half of what you were hoping.
Cannon Carr
00:15:55
That can be dramatically different. You know, if you're looking at a, you know, a 15 or $20 million business, that's not ended up being that.
Lee Murray
00:16:02
Yeah. I mean, from just thinking about my situation, what I'd like to try to do is be as lean as possible personally. just to just so that I don't have that responsibility, creeping in on my business and allows me to then not necessarily over leverage, but but but, you know, kind of tipped the scales in the favor of the business, because I've not required so much. But, you know, along the way, as you said, I think to the favor of the dynamic plan that, you know, my kids are only a certain age for so long, you know, and there are certain milestones that you kind of want to hit and be a part of and do things, and sometimes it costs money to do those things. Yeah. and so it changes things, you know, so that, that, you know, being lean, running a family is, is very challenging.
Lee Murray
00:16:50
So, you know, so there's an imbalance that's pulled on both sides.
Cannon Carr
00:16:54
Now there always is and it's and it's. And unless you've just got unlimited resources you have to manage that imbalance. Right. You're dealing with two imbalances and you want each one kind of optimized. And you know, what we have found is, you know, because a lot of entrepreneurs are like, you know, I'll worry about my liquidity later with a successful exit. yeah. Or even, or I'll just start doing distributions later. but you know, but but that is an imbalance. And, and, you know, I like to say actually even liquidity now will give you a premium or a chance of a premium on exit because you don't have to sell at any particular time. The worst situation is you find yourself having to sell to create liquidity or find a buyer who who's going to become a majority owner because you don't have any other options. You got to create liquidity.
Lee Murray
00:17:41
Yeah, sort of creating demand by not having to sell because you're you have liquidity.
Lee Murray
00:17:46
Yeah I like that. Yeah.
Cannon Carr
00:17:47
So and in my own journey too, I mean you know there disruptions on the business along the way. Fortunately you know we never had to sell, even though there were times because, you know, like maybe in a lean year or whatever, we cut our distributions. You know, I've got liquid wealth that I could pull and tap if I needed.
Lee Murray
00:18:03
To, if you needed to.
Cannon Carr
00:18:04
Go and then replace it later with a distribution later. Yeah. But that's why it's there. Right? Because otherwise, you know, just tough things happen. So, yeah, it gives you options. And that's sometimes not only reassuring for sleeping at night, but financially rewarding.
Lee Murray
00:18:18
Yeah for sure. You mentioned earlier about Northstar. is that, kind of like knowing the endgame? Is that what you're talking about or what?
Cannon Carr
00:18:27
I'm specifically by Northstar. There is you want to know what your your how much is enough, which all financial plans do. Right. How much is enough for you to retire? How much is enough for you to retire and have a legacy? And how much is enough for you to, you know, fund a second or third generation? If you want to do that, you know how much is enough, and it varies by person.
Cannon Carr
00:18:46
But once you set that now you can start making choices, because how much is enough? may Be mainly equal to the value of your business today, which is illiquid. or it may be, you know, more than that. Or maybe you find your business will be, you know, grow so big that you're well covered on how much is enough. But a lot of founders start and they're not at that point. So how much is enough gives you like a minimum hurdle if you're going to achieve what you want independently if the business doesn't exist anymore. And now that helps you start making choices in a dynamic way as the years go by. you know, how much is enough is ultimately a diversified wealth picture. So that's that. Third are, but before that, third, art is fully created to match your North Star, you got to build it and you're going to do it by your business wealth, but you're also going to, which is reinvesting, but you're also going to do it by feeding the repurposing enough so that you're you're building that cushion along the way.
Cannon Carr
00:19:37
So it's constantly balancing between these two, but you don't want to overdo it. I mean, in fairness, yeah, every entrepreneur is here to build their value. So, you know, if you're building too much of that. Third are you're probably starving your business and cutting back on what the value is. You can create. And we get that. And I'm a business owner, so I look at it the same way. So I'm not talking about like overly, doing too much on that third. but that third again is a cushion again. You want that balance. So if your Northstar is basically saying, you know, it really requires heavy investment to get there, then let's do that. But let's be mindful. Maybe by year five, year six, you know, and where you are in the stage of the company matters, right? At first, you know, the first five years, if you're just starting a company, we're not working on that third art. Yeah. but, you know, by by roughly, you know, year five or year eight, maybe we are right.
Cannon Carr
00:20:26
And certainly by 12 or 15, we we are. And that's, you know, not every business, you know, some serial entrepreneurs are moving much faster than that. I'm just kind of giving it a generic.
Lee Murray
00:20:34
Well, sure. Yeah. Because they've they've done it. They have a framework for how to get started faster and all of that. yeah. I kind of stepped in that pothole a little bit myself earlier on where I got excited about the third hour, and wanted to do it. All right. I wanted to, to to both run and grow my business, but also get involved in these other things. And, that's not the right approach, I think. you know, more slow and steady, I think is a is a good, kind of analogy there. but also what comes to mind is this idea of not locking up your liquidity in that third hour because, you know, when you get into real estate, it's hard to get your money back out. Yeah. you know, and it could be a really great wealth driver for long term for fulfilling those goals.
Lee Murray
00:21:18
But, if you happen to need that money to pour back into your business for a lean year, that's not going to be a great thing.
Cannon Carr
00:21:25
No. And so and so what does that third look like in terms of is it public funds. Is it private funds. And it's both. The key is diversified wealth away from the business. But in in many up until you've got enough cushion to give you some flexibility on Northstar and exit liquid is better than illiquid right. Why pulled from your illiquid business and continue building an illiquid something else. Yeah. you know that doesn't help you when you need the cushion, you know? Finally, you got to pay for school. So, so. But it's a balance. I mean, the beautiful thing about this, it's not prescribing the solution to you. It's it's set by your own risk profile, by your own values and what you want to achieve. but but it makes you think, deliberately, you know, how am I making choices now for every dollar it comes from the business, I've now got a framework to be deliberate.
Cannon Carr
00:22:15
And if I don't invest in the third or, I'm making that choice deliberately. And if I'm, you know, and if I am, I'm making that choice deliberately relative to the business right now. Maybe the business is I'm generating enough cash from the business, and I can reinvest from the business enough, but still pull some out in a very let's say you're in a 2 or 3 year period where everything's just humming along better than expected, and you're in a strong market cycle and it's not a downturn. Well, go ahead and fund some of that. third are now, because they'll be lean years later when you can't do it. So it's just it's, it's it's taken advantage of those situations for sure.
Lee Murray
00:22:49
For sure. okay. That's great. That's a great framework. and as far as, frequency, what's the cadence that you recommend on looking at those dollars and where they're going? Is it quarterly or some annually?
Cannon Carr
00:23:01
Well, I think, you know, I mean, I like to meet, so it's two things on the financial planning side.
Cannon Carr
00:23:06
One once a year formally is is kind of the minimum. But the reality is, you know, once you understand the framework, I mean, you know, some do it quarterly, some do it monthly, just on their own. Right. when, when, when somebody is really investing in their business and, and trying to figure out, you know, exit and those kind of things, you know, I don't try to be your business expert, but, you know, you're going to know your business better than I am. But, you know, I found that I do play a good role as accountability coach because, for example, you know, so let's say, you know, your north, your north star is set and you and you're seeing opportunity in your business. You know, you can outline, you know, I might outline or ask you to outline 2 or 3 paths your business might take. and then as you solidify and again, I'm just forcing you to articulate what you want to be.
Cannon Carr
00:23:53
But as you say. All right. So, you know, really, here's the strategy I want to pursue. You can start saying, all right, so you know, what is that reinvestment component you need? Or do you need third party capital, right? I mean, and so, you know, it doesn't have to be that third are I mean, that second are reinvesting or the first are. Yeah, it's just assuming you're funding it yourself. But there is third party capital which you can add to the mix. Right. And that's so important to so, you know, as you start to say what is your strategy and where you want to be 17 years from now? And what does exit look like for you or transition look like for you? you know, third party capital, how much you reinvest, what you're choosing to grow in, how you manage your risks. All those things become part of our conversation. And, you know, for example, we've had several clients who, when we look at their business mix, they're like, I am so leveraged to one client that if I lose that client, you know, my business is kind of in trouble, right? So, or, you know, like, many clients see this where they're getting rapid growth and, you know, and they they've outgrown their bookkeeper and they need a, you know, a chief financial officer.
Cannon Carr
00:24:55
Right. So, you know, when you realize you've outgrown your talent, even though you're loyal to it and, you know, you need to make some decisions to, to import talent or to, you know, or to, you know, just do those things, you know, improve your customer mix. I've become an accountability coach in a way, not telling you how to do it, but just say, let's meet quarterly to show me that you are on plan because every entrepreneur gets busy and they're like, yeah, I'll get to it, I'll get to it. But they never do. And this risk is mounting and getting very big.
Lee Murray
00:25:24
That's funny because that's exactly where I was headed next. I was going to ask about accountability because it seems like, you know, you can have the best intentions, but having someone to help you stay accountable, that has to be tremendous, you know, tremendously helpful.
Cannon Carr
00:25:38
Well, we're seeing a lot of value there for us. So like, you know, wealth management.
Cannon Carr
00:25:42
Now when you listen to this conversation, you realize wealth management means something very different for a business owner because it is that dynamic planning and it is that accountability coach. Again, I'm not your expert, but I am listening to you. You know, you and I are both getting advice about your business, you know, from industry experts. And now you know, you know what you need to do, but you need an accountability coach because I'm the same way you get busy, you start focusing on things and and you never do those important things that like, you know, I'll deal with that later. So if I'm annoying in your ear saying every quarter, you know, you hear the five things and you know, you haven't done this one over a year. I'm going to hold you accountable.
Lee Murray
00:26:19
Yeah, I love that. What about risk? You know, I think that some business owners, you know, entrepreneurs in general, have a sort of natural risk. You know, they're they're not averse to risk because they started a business and they put their money on the line.
Lee Murray
00:26:33
But then you have, you know, different degrees of people, you know, that want to take big risk. And some that are still want to stay sort of safe even though they have their own business. what's the how do you approach risk risk profiling for, businesses and then for your family or for your own personal wealth.
Cannon Carr
00:26:52
It's so important to be self-aware, both for the risk inherent in your business and your own personal risk. in terms of a risk appetite, but be exposure to events, too. So, because when they're in conflict between your, your business risk and your personal risk, if they're in conflict and something happens, that's, that's when imbalances happen. So you do spend time on both. And you know, on the personal side, you know, we have we have tools that will explore, you know, are you how comfortable you within that third are with market volatility. and if you have a significant other or other family members or, or even partners in your business, do you all have the same risk profile personally? so get on the same page there.
Cannon Carr
00:27:34
Understand exposure to market volatility. understand, you know, with your illiquid business, how comfortable are you operating lean and not, you know, having some some things in life. So that's the risk profile personally on the business side you know it's looking at the income statement, looking at the balance sheet, you know, finding out what could go wrong. and, you know, there, you know, I like to, we've got a list of about 20 things you can say. All right. So, you know, what does this look like? What does this look like? And and you try to quantify it as best you can with a number, but sometimes it's just qualitative. And then you, you know, we can score it so we find out really what are those 4 or 5 things that really matter. And out of those 4 or 5, you know, usually a business owner will say, yeah, I was aware of three of them, but wow, I didn't realize that 1 or 2.
Cannon Carr
00:28:17
Yeah. And that's such a useful exercise. So now we can start managing the business to manage that risk as best as possible in the context of your own risk profile. And that informs, again, the three R's, you know, are you over investing in the business and starving that your own independence or are you over? Are you rewarding yourself too much? Right. And starting the other two? I mean, some owners pay themselves too much, some way underpay themselves. And that can be a problem at exit as well. So yeah, I'm kind of babbling here, but you can see how it's just.
Lee Murray
00:28:48
Oh yeah, It's all connected. For sure. What? I'm curious, your thoughts on, using debt for growth in your business.
Cannon Carr
00:28:56
Yeah. the answer is it can help. And the answer is it can be a real liability. So. Yeah. you know, I think, you know, and here, you know, I won't speak for, capital markets and business owners themselves, but conceptually, you know, debt can be a real tool to accelerate growth.
Cannon Carr
00:29:15
Once you've proven your model works. Yes. at least that's the way I like to think about it. So, you know, prove your model works. And then when you see that and your goal is to scale it rapidly. third party debt can help. the challenge is, as a business owner, you often have to be responsible for it yourself. And, I mean, if there's a way to have it secured to the business, you know, that's better. But sometimes it doesn't happen that way, so you've got to secure yourself in there. Yeah. I mean, that's why the risk profile is so important and the liquidity is important. And making sure that you can manage, you know, that kind of debt level because it'll, it'll, it'll squeeze people. So, So when it can be a real tool to scale and often say people don't be afraid of debt. but at the same time, you know, you want to be you want to know your business. is is ready to perform for you.
Lee Murray
00:30:06
Okay, so let's go back to your exit, your, you know, your experience there. And let's kind of bring this full circle where, you know, a company, you know, a founder creates a company. And over the years, maybe it's three years, maybe it's 18 years. Right. But they built a substantial business, and either they are now wanting to look for, you know, buyers or buyers are approaching them as they enter into that time frame, which could be two months. Probably not. It could end up being more to like two years, three years of selling. What? How should they be thinking about liquidity during that time period as they look to exit whatever the, you know, that exit might look like, are there some kind of do's and don'ts of what you should be doing, you know, with your money or not with your money?
Cannon Carr
00:30:56
Well, do you mean like, do's and don'ts? Like, in terms of, like, if you've already.
Lee Murray
00:31:01
Don't go buy a.
Cannon Carr
00:31:01
Boat.
Lee Murray
00:31:03
Like, don't go buy a boat.
Cannon Carr
00:31:06
Well, you know. Yeah. I mean, like, so, I mean, that's always. It's so interesting. Lifestyle creep happens to owners and this isn't in the. You're putting this in context of exit. yeah. But whether it takes it or not, I mean, lifestyle creep, particularly when times are good, we see that happen all the time and people spend owners spend way much more than they should. and you want to be and you don't want to be funneling too much through the business. So, you know, I mean, that's. Yeah, you know, it's best to have it, you know, transparent on your own. Right. Exactly. but, yeah, you know, boats depreciate fast and that. Yeah. you know, that is not a, that That's not a long term growth plan.
Lee Murray
00:31:49
So but that but that's a great point that you make I mean kind of subtly there is that you don't want to have I mean, I, you know, a bigger company, you're probably not gonna have it like that, but even smaller, you're looking to sell.
Lee Murray
00:32:00
You don't want to have your personal and business funds commingled because it gets real tricky at the, you know, for the buyer to be able to untangle that and say, what kind of value do we really have here?
Cannon Carr
00:32:10
Yeah, I know there are two challenges. One, the IRS. Yeah. you know, you get penalized, but to know a buyer is going to come in and and look, you know, where our our cost legit. And this is going to be a problem. Like if you're underpaying yourself as an owner. Yeah. You can say, hey my you know, my EBITDA is high and I'm trying to get a big multiple. They're going to come in and say, look, when you're out, you're going to have to hire talent. And by the way, you know, we're going to have to pay double what you're paid. So that dings your EBITDA right there. So yeah, won't be market priced on your your thing. And you don't want to be running.
Cannon Carr
00:32:42
you don't want to be missing expenses. But you also, you know, you can you can run expenses through. And that would actually if you stop doing it would improve EBITDA. But. ERS can often, upgrade problems with IRS. So we just see for the most part it just makes it cleaner.
Lee Murray
00:32:58
Yeah I like that. It's it's good I mean I, I think you know people that I don't want to pay themselves the market rate are sometimes they're humble. Sometimes they just want to pour back into the company and various other reasons. But but sometimes it can be a bad thing, you know.
Cannon Carr
00:33:13
It's, it's it and again, it's stage a company, or stage in your journey, right. To get a business started. Many owners underpay themselves. and frankly, I, you know, some of us have done that in times to, in our own business where, you know, you'll, you'll rely on the distribution, rather than the W-2, right. Yeah. But to, to handle that.
Cannon Carr
00:33:35
So, but, so to get a company off the ground makes all the sense in the world, you need to hire talent. You're going to pay them more than you. That's fine. But at at transition, you know, somebody's going to look and figure out, you know, do they need to, you know.
Lee Murray
00:33:51
Cost adjust for how they adjust that? Yeah.
Cannon Carr
00:33:54
Yeah.
Lee Murray
00:33:54
hey, this has been a great conversation. I, I've heard that you're writing a book. It's almost ready.
Cannon Carr
00:34:00
it's probably about two thirds done. I want to get it out. Spring, summer next year. Yeah. and.
Lee Murray
00:34:06
It's called personal profit. How to seek financial Independence for your business. I definitely want to read that.
Cannon Carr
00:34:10
Yeah, well, that's the concept. We haven't finalized the topic yet, but it is around. It's all about the three R's. And okay, we've got some great case studies and some great examples of, how to apply the three R's for yourself. And, and how do you learn from others who have either done the right thing or haven't done the right thing? And we actually build three case studies to walk you through each one at a different stage in their business.
Cannon Carr
00:34:31
to kind of really understand how the three R's works.
Lee Murray
00:34:35
That's great. Well, once it publishes, we'll have to have you back on and talk back through those case studies. I think that'd be really interesting.
Cannon Carr
00:34:40
Yeah. No, I would love it. That'd be great. Look forward to it.
Lee Murray
00:34:43
Awesome. Okay, well, if we want to send people your way, where do we send them?
Cannon Carr
00:34:48
well, so, you can check out, EP Wealth Advisors, EP Wealth Advisors website and then go to the Atlanta market. And so you'll find that's where our hub headquarters is, is Atlanta. And so I'm the regional director for the for Atlanta and the broader southeast area. And you can find, you know, my team's information there and certainly my information. And then, eventually we'll have, you know, kind of a separate web page two for the three R's framework.
Lee Murray
00:35:17
Cool. and, are you on LinkedIn?
Cannon Carr
00:35:20
Yes. Oh, and I'm on LinkedIn, too. Yeah.
Lee Murray
00:35:22
Okay. We'll make sure we put that link there for them to go there, but, Canada, this is great.
Lee Murray
00:35:27
Thanks a lot. it's really cool hearing your story. And, I think it's super valuable for everyone listening.
Cannon Carr
00:35:32
Well, it really appreciate the opportunity. And, your, your questions and and preparation showed that you totally spoke the language and get it. And, and I appreciate you highlighting it.
Lee Murray
00:35:42
Yeah. No problem. Well, we'll have to have you back. Let us know when your book publishes.
Cannon Carr
00:35:45
Awesome. We'll do that.