EP9: Securing the Legacy: A Financial Planner talks Essential Succession Planning Strategies for Textile Rental Companies With TJ Acerra

FULL TRANSCRIPT:

Eric: Hi, everyone. Eric Smith here. Your host of *Laundry Talks*. Excited for today's episode! Normally, I talk to textile rental professionals or people in the commercial and industrial laundry industry. We have great conversations, learn about their stories, and discuss the challenges they face, along with ways they solve those challenges. Today, I've gotten a few questions from listeners who wanted to learn more about some of the general business problems that operators face in this industry.

Things like succession planning, dealing with multi-generational family businesses, and insurance questions. So, I went outside the industry and brought in an expert today. I wanted to talk to someone who is a financial planning expert. Not just that, but someone who is a certified plan fiduciary advisor—a role that involves providing transparent information and always putting the client's best interests ahead of their own.

So, I'm pleased to welcome to the show, TJ Acerra from Our Wealth Group, who's going to help answer some questions I’ve got. I hope you enjoy the episode. Welcome, TJ!

TJ: Hey, Eric. I'm doing great. Thank you so much for having me. I really appreciate it.

Yeah, no, it's a great question. Thanks for asking. At Avail Wealth Group, we work with businesses and individuals to help them pursue their financial goals. There are many things that come up in life, so we want to help prepare our clients for those, and also make sure they're doing everything they can to plan for the future and obtain what they want most.

TJ: Yeah, absolutely. You know, each business faces important things throughout its growth, and when they mature in different stages. Working with someone who knows their industry and understands how to plan for unexpected events is crucial.

Eric: Let me jump into one of the key questions I had, which deals with succession planning. In this industry, a lot of businesses are family-owned, with many on their second, third, fourth, and even fifth generation. I saw a statistic recently that over 60% of small and mid-sized family-owned businesses do not have any type of formal written succession plan. Why is that, and why is it so important?

TJ: It's a great place to start. It’s alarming to see that 60% haven’t addressed it. It’s not uncommon, though. Many clients put it on the back burner. They know they should do it, but may not know where to start or who to ask for help. In some cases, they might even have a plan in place, but it hasn't been updated in years. Businesses evolve, and legal landscapes change, so it's important to keep these plans current.

Eric: How often should businesses update their succession plans?

TJ: I’d say at least annually, even if it's just a 15-minute review during an annual business meeting or a quarterly meeting. A lot of succession planning requires long-term thinking, but there are also short-term changes that need to be addressed regularly.

Eric: That makes sense. I’ve always been amazed by family-owned businesses in this industry. Some clients of mine are celebrating their 50th, 60th, and even 70th anniversaries under family ownership. It’s really remarkable. In fact, I want to give a shout-out to one of Alliant's clients, a company that’s celebrating its 100th year in business this summer — Lennaform, based in Ohio. It’s an incredible feat to reach that kind of longevity.

TJ: Absolutely! Reaching 100 years is remarkable. I’m sure they could teach me a few things. The amount of challenges they’ve overcome, and the success they’ve achieved, really speaks volumes about their resilience and commitment.

Whether it's 10, 20, or 100 years, these businesses have such a big impact on their communities and industries. Ensuring they can pass the business to the next generation is incredibly important.

It's not just about having a plan; it's about making sure that when the time comes to implement that plan, the business is ready. Ensuring that the team is educated, roles and responsibilities are clear, and that you have the right legal and financial advisors is key.

Eric: I did some research and found that over the past 10 to 15 years, 25 to 30% of Alliant’s clients have transitioned to new ownership. Even those planning to sell should have a succession plan, because you never know when unexpected events—like health issues or even a global pandemic—might come up.

And so there's all these things that you can plan for. There's a lot of things to plan for, and there's things that you need to plan for that you don't even know that are coming. So, well, let's talk a little bit about what your recommendation is, is like, what's the first step?

TJ: That’s a great point. You never know what’s going to happen, so it’s important to have a plan in place early on. If someone doesn’t have a plan yet, the first step is to outline the business’s goals and who the potential successors might be. That could be family members, internal partners, or even employees.

Eric: What about employee ownership programs? I’ve heard about some businesses selling to larger companies or competitors, but what about internal sales, where employees become part owners?

TJ: Yes. So, Employee Stock Ownership Plans (ESOPs) allow employees to become partial owners of the company. This can help preserve the culture that the original owner or family created, and it often has tax advantages for both the selling owner and the employees. It’s a win-win situation when structured properly.

Eric: That’s interesting. I’ve seen some companies use management buyouts as well. Can you explain the differences between those two?

TJ: Sure! A management buyout is when key management members buy the company, as opposed to all employees. It’s a great option for businesses where a few individuals are deeply invested in the future of the company, but it’s not as common as an ESOP.

So that was one thing. I'm glad you brought up because I think, business evaluations are, you know, a lot of times a business owner has an idea in mind of what it might be worth. But it it is important to get a true evaluation done and know what was the businesses really worth. And yes, we do help out with that. And we do work with, you know, experts across the country.

I think 2 things I'll highlight. First is what are ways that we can increase the value of our business, right? Once we get that evaluation done, is there anything that we can do to increase that evaluation? So we do spend some time there. And then on the flip side of the coin, the second thing I'd like to bring up now is what are the tax implications. How do we minimize the amount of taxes that are paid upon the sale, whether that's, you know, doing it through an installment over time or some other type of tax.

We can't control the laws, you know, and the IRS has as a tax code that we have to abide by. But, you know, every financial decision we make has a tax impact. So the more we know about it, the more we plan for, you know, the more we can say.

Eric: Outside of this industry, stepping away from the industry, I think sometimes is important because you know we can really learn from best practices of people that have already done things. One of the things that we see is on, you know, the succession planning is sometimes there's a little bit of tunnel vision on the succession planning.

If you don't know all the options you have. I've had people tell me before I just heard this company sold. I would I wish I would have known and I've got tons of interest and I would have reached out but I didn't know. And I think that's just maybe the nature of the beast when someone's, you know, thinking about selling, it's kind of a little bit more of a secretive process. But sometimes maybe opening up your options, utilizing someone, you know, a third party. Is that fair?

TJ: Yeah. It is fair, I think working with someone who's seen things play out, who has, you know, experience dealing with those transitions. You know, who studies ones that have gone unsuccessfully to make sure that our clients go successfully? Like, there's so much value in that. So really, you want to know all your options, but to giving the educational what those options and how they're going to play out often makes them more comfortable, willing to consider alternatives.

Eric: And just from looking outside the industry, you see the same thing with mid-size companies or you seen the acquisition kind of helps and flows in other industries too?

TJ: Yeah, it's all over. Right? There's, you know, we have this huge generation of baby boomers that built these businesses up. So it's a very hot topic right now. And, you know, I think that's why it goes back to what I brought up first is aligning with their goals. Because it's not always selling through the top dollar. It's hey, how do we continue those business, continue taking care of our employees. And that's what we like to find.

Eric: We want to talk about other expertise area, we see benefits and one of the things that you spend some time is helping companies optimize the benefit to offer. So they are employees with obviously the goal is to provide good benefits but also make sure you are competitive as you can be and you know new hires and recruitment. So let's talk about benefits, and it's no secret that we are not going to focus so much on wedges which is on top of mind of everyone from employees, what we really want to focus more is on benefits. I know you help companies select and administer plan so quick point for you, I read "companies that do offer they forward plan their employees are 70% more likely to stay with that company". Do you have similar information or does that sound true to you?

TJ: Yeah. We do see some more information. There's studies and statistics. We look at all the time and that capacity. And, you know, just to put it simply, the less financially stressed someone is, the better they're going to do it their job. Right? So it just all shines through with the value of what a company's offering is, much more than than just the salary and all those benefits, as far as the benefit package can really make an employee feel valued.

Eric: And what do you see that the best companies are doing with their forward paying enrollment programs?

TJ: Yeah, so those things are probably very top of mind, Automatic enrollment, and as soon as they're eligible, Automatic increase. A lot of companies are now, updating their default investment option, to a target date fund. Typically, in the past, it was money market funds, which are going to return as much as the market over the long term.

With secure act 2.0. You know, law passed by Congress now plans have to offer the Roth 400 and K option. So we're seeing a lot of people start to offer that ahead of time before it's mandatory. And, I think employee education is the biggest thing for a lot of our new clients that we're getting in the 401 K space. They complain that no one's educated their employees on what the benefits are, how to how do they work, how to get the match right and maximize what you're doing. For retirees.

Eric: I do think education is important, because I remember a long time ago my first couple contributions and you see that on your check, I was like men this basically is locked in a vault till 59 and a half, and I though that was going to be a life time, which I guess it is, but I'm a bit closer to that then I was when I started so I kind of see my younger self for at least contributing the minimum at the beginning, the most valuable dollar you have. 

TJ: Yeah. Because time is going to catch up with you, right? And you're going to wish you started earlier. If you hadn't. And for the people that have, like, what seemed like such a small dollar amount to start is going to compound and grow over time to be, you know, phenomenal asset retirement.

Last time we have to spend looking for quality employees. You know, the more efficient a business is going to be, right, with the more educated they are, you know, and the less stressed about finances they are, the more focused they're going to be at work as well. So it really does come full circle.

Eric: Do you come in sometimes and see maybe that the company needs a little bit of help understanding the benefits they should be providing relatives to competition as far as recruiting and retaining talent? Is that part of the education that has to happen?

TJ: Yeah, that's definitely education on the employer side, where they have to realize that it's not always the dollars game. Sometimes it's a benefits game. Or what else are you offering outside of the salary? And you know, we've had situations where it was between them, you know, a smaller company in a bigger company, and we were able to win them over with having the right benefits, the right structure and, and the community as well.

And I think with our team, we work well with the HR department. Whoever's in that area, for the business and just, you know, being an additional resource for them, has been so valuable because they don't always know who to go to, what providers they should be working out, what different things they should be looking at. So just getting an unbiased opinion on what they should be looking at very about.

Eric: Have you seen in your experience anything you have gotten to work with companies and seen maybe some type of benefit that the company offers, and you are like oh wow that's very cool, I haven't seen that before. Anything that comes to mind?

TJ: Yeah. I've seen, like, transportation benefits like that always surprised me. You know, commuting to work, having that cost covered. And I think one that people always talk about and is important is maternal and paternal leave. So those those are popular. 

Eric: I've seen more and more people offering English as a second language classes and training, and you don't always know exactly what people are going to grab onto. But there's so many different ways to add to your benefit package outside of just pay and that's great. One other thing, I wanted to talk about of one of the things you also provide is insurance guidance for clients as far as an assessment that other insurance needs been met, are there ay gaps. What do you do when you go in an assessment for company insurance needs?

TJ: Yeah, I think there's two couple ways to look at it. First, we want to, when we're doing the succession planning, make sure there's a buy sell agreement that's, you know, legal, properly set up, making sure it's a funded by sell agreement, taking care of, you know, keep in people and the business, making sure they're protected.

And then all the other areas, making sure cyber insurance is taken care of. What about business continuity insurance? We talked about Covid earlier. Not many people were prepared for that. So there's insurance to protect against that loss of revenue. And those are really hot topics right now. The cyber and the business interruption insurance.

Eric: I assume and there is no secret that cyber insurance cost is going up, but it's almost a necessity. Is something that in 5 years that a lot of operators probably will be in the radar and is always a must buy item. Do you have any advice on how to start looking for the best cyber coverage?

TJ: Yeah, it's just working with a team that's independent and has access to, a lot of the larger carriers out there, that are offering the coverage at a good cost. And also, it just as important making sure they have things in place that can lower that cost of insurance. So having incident plans, different like two factor authentication. There's a lot of things that we can do on the cyber insurance side that actually gets your premiums down. It just takes a little bit of work and preparation. So we really do advise our clients on you know, finding a good coverage, negotiating that rate and doing as much as they can to bring it down.

Eric: And a lot of those compliance measure are now in the newer policy or basically requirements, so to get the policy your are going to have this document of compliance requirements that you will have to meet and so that's become obviously a standard in this agreements.

TJ: Yeah. Because you got your general requirements. But if you can check off some that aren't mandatory, that will also help you get your cost down as well.

Eric: You know, what else are you seeing on, you know, insurance trends or rates even on the vehicle side, our industry's sprout based delivery industry, they're delivering right to business to business. So, you know, vehicle incidents are going to happen from time to time. I see there's cameras everywhere now, there's even some AI that's coming into the camera systems on the truck and geofencing and things like that. Where do you see happening on the flee insurance?

TJ: I think it's carriers are smart. They're always trying to get as much information as they can. But having that document, that evidence, helps the business, too. At times. But, from what we've been say, it's just making sure you're staying on top of your policies, working with the right brokers who know which companies to go to for certain types of risks, and how to lower those risks and other ways.

Believe it or not, you know, sometimes you get loyal to a company, but they're not always loyal to you. And and you got to make sure to shop around.

I was going to say, depending on the business's size as well, there's different strategies that they can employ over to you know, lower their cost of insurance and keep more of that overhead in their pocket. So depending on the size of the business, they should be looking at other strategies to protect themselves.

Eric: I have some personal questions too, to give the audience a little bit of information. So a question and a recommendation. TJ, if you got a expense paid vacation for one week anywhere around the world, where are you going?

TJ: Good question! Would probably be like Thailand or Bora Bora. Somewhere across the world because I haven't traveled overseas yet, and I love scuba diving, so tropical beach. And, you know, being under the water with the fish and coral could be, Yeah.

Eric: Tell me, outside of Laundry Talks, and all the different financial planning podcast probably in your playlist, any fun podcast that you listen to recently that you might recommend?

TJ: Laundry Talks! No, no. Yeah. Now, most of the ones I listen to are financially related, so. The compound in France, it's hosted by downtown Josh Brown. He's on CNBC all the time. He's very open and upfront, transparent type of guy. So I like that.

Eric: How about a show you have seen from start to finish in the last year that you would recommend?

TJ: It's not a new one, but I always find myself going back. I've seen it. I think they have 12 seasons. I've seen them multiple times. Modern family, it's just a classic show. It's got good values. It makes me laugh. It makes me cry. I'm not afraid of that. It's one of my favorites.

Eric: Last question, you live in the NJ area, are we getting any sport affiliation update from you? Who's your favorite team? Who's your favorite athlete?

TJ: So it might surprise you. My favorite team is the Pittsburgh Steelers. So when I started playing football, we were the mama saltines. We a black and gold. And I said, the Steelers is my team. So I've been there many times. You know, probably a lot of people want to hear Giants or Eagles or Jets. But no, I'm a Pittsburgh ride or die. 

Eric: Thank you for sharing all of your expertise, I love having experts on the show just to provide some information. We really appreciate you joining us today!

TJ: Yeah. Thanks again so much for having me. I'm glad we could put this together. It was fun.

Eric: Hey guys, I hope you enjoyed this episode of Laundry Talks and make sure you come back for more! One final thing. My family, my wife and my daughters, we were having a discussion and laughing over a date earlier this week about just kind of the differences in generations and how we pay for things and what forms of payment we like to use.
And, you know, I still write a few checks, from time to time, although that number's gone down. My daughters, I don't know if they've ever written a check before. They don't use a lot of cash. They use a lot of electronic payments, you know, like Excel and Venmo. And that change is not only happening on the consumer side. It's also happening on the business side. And we're seeing in all industries and especially the textile rental industry, that less and less people are, are using, you know, setting up customers on code terms, less people are processing, manually written checks and obviously a huge uptick in credit card and ACH transaction. And so you want to learn more about some of those changes and then how they're impacting your business?
Click the link below. We've got a great e-book about integrated payments in the text oriented industry. I think you'll find it informative and interesting. So thanks again. Have a great day!