For every dollar that your business generates, you have three choices as the business owner. You can reinvest in the business, which if you want to grow and scale, that's of course what you're going to do. You can reward yourself through a salary or a distribution, and you certainly got to do that to cover your lifestyle. And then the third R is to repurpose it, to diversify away from the business.

Welcome to the Agency R podcast, where we help web design and digital agency owners create abundance for themselves, their teams, and their communities. This week we're joined by Kenan Carr, who is regional director and partner at EP Wealth, all the way from Atlanta, Georgia. He's a wealth advisor, and in today's episode, we'll be tapping into his experience and his free arts framework and discussing innovative ways that you can build wealth. As a business owner, we'll explore how agencies can find alternative ways of building wealth rather than just making profit in the agency, how to create systems that make you less essential to the daily operations of your business in case you want to exit, and how to secure your financial freedom so that retirement is a choice, not a necessity. Now, before we dive in, I want to take 30 seconds to talk to you about today's sponsor, Wix Studio. Digital marketers, here are just a few things you can do when you manage projects on Wix Studio. Work in sync with your team on one canvas. Reuse templates, widgets, and sections across sites, create a client kit for seamless handovers, and leverage best-in-class SEO defaults across all of your Wix sites. All right, time's up, but the list keeps going. Step into Wix Studio to see more. I'm Troy Dean. Stay with us. All right, ladies and gentlemen. Without further ado, please welcome to the Agency Hour Podcast, Canon Carr, Regional Director and Partner at EP Wealth based out of Atlanta, Georgia. Canon, welcome to the show. Hey Troy, great to be with you. Thanks for joining us. Now, uh that was a mouthful for people, just for those that don't know. Who are you and what do you do and what are you doing here on the Agency Hour Podcast?

Yeah, exactly. So uh so I am a part business owner uh or in former business owner. I uh was involved with a firm that was a wealth advisory firm. We ended up for about 17 years, I was with the firm and uh one of the principal owners. And then we actually went through a merger this past summer with a larger firm nationally, and we're gonna be the Southeast platform for it. But uh, you know, I'm in that space of uh, you know, broadly wealth management, but it's helping business owners ultimately succeed and building their business to sale. Uh and sale can mean a lot of different things, by the way, you know, and that but uh and ultimately creating uh you know value and legacy from it so um so that they're ultimately independent from the business. So that's uh that's the world we're in.

Can we before we dive in, can we just park here for a second? Because I have heard over the years, and I've experienced this myself, that business is one of the great vehicles to build wealth because there is, as a business owner, there's no cap on how much you can earn, right? There's if you think about like being an employee, if you think about investing in property, if you think about shares, if you think about crypto, if you think about, you know, any any anywhere you can invest money, uh you're not going to get the same return as if you invest money into a small business and or small to medium business, and then that business is run effectively and makes a lot of profit. That I mean, you can get returns out of even sweat equity, right? You can get returns on input into a business that you just can't get anywhere else. Is that is am I am I missing something, or has that been your experience that that business is just a great wealth-building thing? That's exactly right.

It's one of the greatest wealth uh generation things you can do, uh, but it has risk, right? So, you know, I mean, you can certainly get a paycheck that has risk, and there's cap to the upside there. Um, you can uh, you know, develop multiple income streams, and that, you know, that's good. But if you're just a passive investor, okay, you know, there's always so far you can go. You can certainly make investments in public markets and private markets, and sometimes you can get big returns there. Uh, you know, Warren Buffett's a great example, you know, he's you know, as an investor, so you can build great wealth as an investor in public and private markets. But, you know, one of the best vehicles around is being able to invest in a business that serves a need in the market, that has a unique process that's ultimately scalable, right? And so we'll talk a little bit about it in the show. You know, like you can certainly have be a solo practitioner or a sole proprietor, and there'll be a cap there because there's only so much work you can do in the hours of the day that you have. But if you can build a process that's scalable and repeatable that goes beyond you, like you said, the upside, you know, the sky's the limit.

Now we deal predominantly with small to medium agencies. Our audience are web design, SEO, digital marketing, AI agencies, automation agencies. There's a new breed of agency that we're cultivating here with some of our partners called a revenue automation agency. Yeah. Our our clients typically sell marketing and sales services or or uh business efficiency services to other business clients. So they're B2B. Now the profile of of most of our clients is that they're they started out as you know, Michael Gerber uh uh coins it. They started out as a technician who had an entrepreneurial brain fade and decided to become a business owner. Or the reality is most of them end up in business by accident, right? Because they have a skill, people pay them for it, they need to start invoicing, and then all of a sudden, three years later, they're in business and they've got a small team. And we have clients exactly like that. Yeah. Right. And most of those agencies are very hard to sell because it relies on Kyle doing the thing, right? He, you know, everyone comes to Kyle because he builds them a website. And I actually know a guy called Kyle, I'm thinking about right now. He builds a website, he does a bit of SEO for them, and maybe he gets the thing to 300 grand a year, or maybe it gets to a million dollars a year, but really without without him in the business, it comes to a grinding halt, right? So, two questions. One, how do we get Kyle out of the way so that the business becomes bigger than Kyle? Or second of all, there are a lot of people like Kyle that don't want to do that. They just want to do the thing and get paid for the thing. How do we how do we set Kyle up so that he's got some wealth? And at the end of the agency life, when he decides he doesn't want to do it anymore, he can hand his clients over to someone else, but at least he's got an SDEG and he doesn't spend 30 years working in something and then just shut it down, which would be a tragedy.

Yeah, no, there's so uh two things there. One, so uh you asked two questions, basically. So it and I think you said Kyle, right? So as an example. So, you know, Kyle's starting out by himself. There's only so many hours in a day he can work. So uh right, if he just stays doing that work himself, you know, he can uh pull and you can actually build a good um lifestyle that way, right? It's not gonna survive you and just go ahead and say, look, you know, it's a lifestyle business. That's called a lifestyle business. And you're gonna uh pull money each year, um, hopefully enough, right? You got to grow the business, keep and retain clients. But um, that is a good little business. And when you shut it down, you're not gonna nobody's gonna buy it, right? Because when you're ready to leave, there's nothing to buy. So you have to have deliberately along the way uh pulled money out and set it aside. Uh, basically, you've had to do two things. You've had to uh what I call reward yourself, so pull out enough to uh uh support your lifestyle, but also repurpose uh money from the business where it's tied up in the business, pull it out, diversify it uh into what I call liquid wealth or at least some other private investments. Um so we'll pause there. That's if you just, you know, uh Kyle by itself. But there's a second part of your question, which and I'll pause and let you when we kind of figure out where we want to go next. And that is building a business beyond you. And how do you invest in that business to scale it so that when you walk away, the business is independent of you and somebody can buy it? Somebody can say, hey, look, you know, Kyle, I know you want to leave, uh, uh, or maybe I'm buying it, but I want the risk totally tied to you. I want a bigger business. How do you help Kyle build that business? We do both, by the way. We help people just, you know, harvest their business and we help people uh build that uh financial independence as they grow their business. Um and it's called the three R's framework, which we can get into a little bit later in the program.

Great. Let's let's uh I'm gonna do the I'm gonna do the harvesting first because the second bit's more interesting to me, right? Building a business and building a team and building a legacy is more interesting to me. But let's talk about, you know, again, fictional character called Kyle who just wants to operate a business and makes a couple of hundred grand a year. And then he, you know, in his early 50s, he's like, I'm done, I'm tired, I'm sick of my clients, I don't want to do it anymore. What can he be doing between now and then to make sure that he's set up for retirement and he's not gonna rely on, you know, a pension, but he's actually setting himself up for to have a nice retirement and provide for his right.

If it's so if he's never worked for a corporation and he's worked his whole life, I mean, some people become single proprietors coming out of a business. So sometimes they'll leave a large corporation and have retirement assets uh kind of started. And that's a good way to do it, right? You build a little bit of a Nest egg, then you go out on your own and start, and you're not starting from scratch. But if Kyle, in this case, somebody for 30 years who's built his own business, um, you know, it would be a mistake to just pull out enough from the business to cover your living only. Because at 50, you're gonna say, hey, now I want to walk away, but guess what? You've got to keep working to keep pulling a salary because you got nothing to live on. So it means winding it back. You know, at some point 20 years before, you've got to ask a question Am I going to reinvest in the business to scale up in growth and grow? And that's gonna be the next question you and I are gonna be talking about. So the answer to that is no, I'm not gonna spend the business to grow. I'm gonna do just enough to do that work I love. Well, okay. So now I need to at least know that I can get profit margins big enough to where I can support uh basically not only pulling a salary and some kind of distribution, but building a retirement nest egg deliberately each year. Because the most important thing to do is start saving early. If you're going to say, you know, 30 years from now, retire. Because compound interest is one of the most powerful forces in the universe. Your investments over time will compound and grow. And if you start saving at 25, you're gonna and do it regularly, you're gonna be much further ahead than it's if you start in your late 40s. It is dramatically different. So uh that means, yeah, intentionally setting up retirement accounts, both taxable and tax-deferred, um, that uh create those vehicles where you can start forcing yourself to save and just, you know, and start doing it. And I'm not talking about saving just a cash account. I'm talking about putting it into investment accounts that will grow over time.

What are some of the examples of those investment accounts? Like in Australia, we have uh, you know, we have managed funds where our superannuation, we call it superannuation here in Australia where our superannuation, I think you guys call it the 401k. Is that the same thing?

Is it so that's uh just one example, but in the yeah, in the US we have 401ks, which is a pre-tax way of saving money. Um we have uh you know SEP IRAs for smaller businesses. You know, there are so many different vehicles that you know you can do a Roth uh IRA or a Roth 401k, which is an after-tax contribution as well. And a lot of different ways to do it. Uh the key, you know, and you have to pass some tests too to make sure that, you know, if you're a small business, you're not uh overly rewarding yourself, particularly if you have some employees. So there's some tests to do, which we don't need to get into on this program. But the point is those vehicles exist. And uh having those, I often tell clients, you know, think of your money in buckets so that you don't mess with it. Because a lot of people will say, you know, I've got cash over here and uh, you know, I'm gonna pull from it and and and even though it's for my retirement, I'm gonna go ahead and buy a boat, right? Or buy a car or spend on a house upgrade. Um, you know, that is not the per if you're creating a bucket of retirement money, let it do its work. Don't pull from it, right? You gotta so create those buckets and don't let them uh uh uh mingle. You don't want to co-mingle the purpose of the different buckets. Um, but yeah, those are just some of the examples that uh, you know, in the US are are possible for business owners.

Got it. And then let's say now you you you can do that like so. Let me give you one example. In Australia here, we have, I mean, you know, we have some very flexible loopholes in our legislation which allow us to do things like I can buy commercial property out of my superannuation fund. So my super fund can buy commercial property that and then my super fund can rent that commercial property to my company. So my company pays rent on a building here at the moment. This is exactly what I intend to do, by the way. Uh, and my superannuation fund will negotiate with the owner of this property and buy the property, and then my company will rent the property from my super fund. So my own company is basically paying off the repayments of a property that is owned by my super fund. I can only do it with commercial, I can't do it with residential property. So the question I'm asking is even if you're a small business owner and you don't want to grow a team and sell your company, are there things that you can do within the business structure to build wealth, or is all the wealth building done by sort of taking the profit out of the business and then investing that profit into personal wealth strategies?

Um there uh there may be some exceptions to doing that. I mean, we always recommend uh creating it separate from the business so that it's not tied to the business and it's diversified wealth, right? Because um the cash you've tied up in the business, uh, and again, there may be some vehicles within a business to do it, like you were describing. Um there are restrictions on using pretax money, for example. So uh, you know, there it's it's it's not that flexible to do in the US. Um, there may be some loopholes here or there, but most important is, you know, if you're if your money's tied up in in your business, uh, you can't get it out very easily. So you want to be building that separate, the whole key is diversified wealth, uh, particularly in the early stages, liquid diversified wealth. And by liquid, I mean, you know, you can turn it into cash in a reasonable amount of time, um, but still be getting a good return on it. So um, and then as you once you build up enough, you know, and there's a key, you know, you you need to know how much is enough for you to live independently from your business. That is the first exercise here. So uh and and in our three hours framework, that's the first thing we the first question we ask is how much is enough? Um, because to walk away from your business, you need to know what that number is so that you can either build your business to support that number or be pulling diversified wealth out from that business so that when you close it down, that wealth exists, right? So um, so having it outside the business and diversified to me is is going to be the fastest, cleanest way to do that.

Got it. Okay, so this feels like a good segue into the three R framework, but also let's say that you know we've convinced Kyle to grow a team and actually get to multiple seven figures a year. We've got plenty of agencies that we work with who are multiple seven figures and have team and are doing you know, seven figures a year in profit. And again, in Australia, most of those agencies are just buying property because that's the way in Australia we I don't know if you know, but I'll I'll tell everyone. In Australia, we have this law called negative gearing, which basically means I can buy an investment property and put a tenant in there, whether it's commercial or residential. And if uh what what happens is if that property is geared in a way that I lose $20,000 a year on that property, that $20,000 loss comes straight off my taxable income. So I pay less tax, right? Now it's a it's a it's completely screwed the property market here in Australia. We have some of the most unaffordable property in the world. The average Australian young couple with kids find it very, very difficult to buy property because they're they're trying to buy property at an auction up against investors who will outbid them because every property that an investor owns just means they pay less tax, right? And that's the way it's been for years and it's never going to change. So our property market gets completely distorted and screwed here in Australia, and there's really no way out of it. Um, but that's what we do here in Australia because we're a nation of convicts. So we digress, yeah. Yeah, we digress. In America, what happens? How do I, what do I do if I'm making a million dollars a year of profit out of my agency? What do I do with that money? What would you advise me to do? What's the three R framework? Walk me through it.

Yeah. Well, so the three R's is built on the principle, and it works best for someone who said, all right, so I'm beyond my startup phase, uh, and I'm now, you know, my business is established and I now want to grow it. Um so that's where the what I call the three R's work so beautifully. It's a dynamic cash allocation model. So it's based on this one principle. For every dollar that your business generates, you have three choices as the business owner. You can reinvest in the business, which if you want to grow and scale, that's of course what you're gonna do. Uh you can reward yourself through a salary or a distribution, and you certainly got to do that to cover your lifestyle. Uh, and then the third R is to repurpose it, to diversify away from the business. And over time, that the diversification is often ignored, that third R. And you see business owners reinvest in the business, reinvest for growth, and reward themselves, either too much or not enough. But as we started talking about at the top of the program, if you're ignoring that third R uh and start too late, it's harder and harder to walk away from the business unless you just sell it uh perfectly with perfect timing. So, and and we'll talk about that. I call it the Hollywood entrepreneur. It works, but there are no guarantees, right? So the three R's is that dynamic framework to say, all right, so I know you want to reinvest for growth. How do you know how much to reinvest? I know you want to reward yourself for living, and I know you need to create that diversified, repurposed R for that long-term independence so that you can sell your business when you want, how you want, uh, and and and live that legacy and life afterwards that you choose.

And is there is there like a rule of thumb, like a percentage? If I said you, you know, well making a million dollars a year in profit, what would you suggest? Like I keep a third, you know, reinvest a third and repurpose a third?

So of course the answer is it depends, right? And it depends on one or two key things. So um it depends on going back to what I call that North Star. How much is enough for you to walk away from the business? And you want to know what that number is, right? It's and and so you know, if your time frame's 20 years from now and you've got another a number, let's say how much is enough for you is you know, 10 million US or 15 million US or 20 million US. All right. So now let's say you're fortunate to where your business is generating a million in profits. Where are you, you know, and what is your business worth? You know, if your business is only worth 8 million and you're you got another 10 years, all right. So let's build that plan. And this is why Kyle, you know, if he's trying to scale that business, having that deliberate management plan to build the business beyond him is so important because he's gonna have to create, you know, uh, and by the way, when you sell, you don't get the top line value, you get net of taxes, net of debt, net of fees. So, you know, if he wants, you know, to retire or walk away with 12 million, you know, he's got to build a business of, you know, 18, 20 million dollars. So if he's only at 8 million today, that reinvestment is so key. So that first million, he's got to be pulling out just enough. So, you know, there's no a third, a third, a third here. It's like, all right, that's if his priority is to really hit that North Star, pulling out less today for a living, uh, investing enough, you know, pulling out enough to separate and build that nest egg, but still heavy reinvestment. But it could be five years from now, you know, he's hitting on all cylinders, the business is growing a lot faster. All right, that million now, I've got a little bit more luxury. I can put maybe half of that or uh uh 800,000 of it into that nest egg and let it start compounding over time, uh, and and you know, and the business is able to kind of reinvest for it. Just you can keep business money in the business, keep reinvesting, you don't have to pull pull out an exorbitant amount. So, um, or or reinvest to the exorbitant amount. So it's a it's a fluid, and that's the beauty of it. It's very fluid.

I guess the how much how much do you need to rule, how much you need to live. There's some big variables that are gonna come into play there, right? Cost of housing. Like if you own your property, if you don't have cost of housing by the time you sell the business or shut it down, then you how much you need a year is dramatically different, right? Whether or not you've got the kids are grown up and they're already through school or you've got to put the you still put the kids through school. I'm a late bloomer. We had our first child when I was 44, which means I'm gonna be working until I'm 168 years old to put my kids through school, right? So there's a few variables there. In terms of the the reinvestment, it's something that I've definitely done a lot of is reinvested, much to my uh wife's chagrin, is I've reinvested money back into the a back into the business to help it grow and help it scale. Again, I'm I don't I don't want to try to labor this point too much, but is there a is there a general rule of thumb that if you're sitting down, particularly with business partners, if you've got business partners who are taking a salary and we've made a million dollars a year profit, and one business partner says, Well, I'll have my half a million dollars, and you say, and the other business partner says, Well, I want to reinvest my half a million into growing, scaling the business, how do you navigate? Like, is there a general, well, you should reinvest this much back into the business? That's what everyone does. Is there a best practice, or is it just a conversation that you need to have on it on a case-by-case basis?

It's a little bit of both. So, like if you've got uh business partners, you broadly need to be on the same page, right? This is where things break down when one business partner uh doesn't want to grow as much and wants to pull money out, uh, you know, another one wants to invest in uh heavily. Um, and you've got mismatched uh uh interests, right? So uh that just requires you know working together, you know, to do the best you can. Um, but you know, I mean, like reinvesting in the business, uh, you know, if if you are you know covering just basic um you know capital expenditures each year, I mean it you know, it could be a you know 5% of revenues that you're reinvesting in, and that's you know, that just keeps kind of managing them and you could pull. It out, but you know, you need to just keep basic maintenance capital. Um, you know, and I'm making it up, but broadly, you know, though that'll be between five and you know, 10, 12%, depending on what kind of business you're in. Um, but if you're investing for growth, which means, all right, I'm not just doing maintenance capital, but I am uh, you know, adding employees, I'm adding, you know, five uh uh uh two operations people and and three uh salespeople, um, you know, it that's a much heavier commitment, right? You're having to invest uh back into the business. Now you can use third-party capital too, um, but you know, that's a different equation too. So um whose capital are you going to use? But if if you know, but often in the startup phase, you know, you're proving out the model, you know, you're you're investing alongside uh any third-party capital you're using. So um, so there, you know, you could be investing uh much heavier.

Okay, so you we've kind of done a little bit of a, well, this is how much I need to survive, and this is you, these are the factors in terms of reinvesting. What are some of the strategies? If I came to you and said, well, I got you know half a million dollars a year, I want to repurpose it, where would you start? And I'm and I'm based in the US, where would you start? What's the I guess there's a combination of like a safe bet versus a you know higher reward? It's like the higher the reward, the higher the risk. Is it, you know, is it to distribute that money across like a managed sort of fund or to sort of even out the risk portfolio? Just kind of walking me through what that typically looks like.

Well, so the short answer is it's not rocket science. Keep it simple. Uh, you know, complexity and illiquidity uh creates challenges, right? You're already ill liquid in your business. So uh, you know, I tend to say at least for the first um I'll call tranche of uh of investment, you know, you you want it to be liquid to give you that cushion because liquidity gives you options when bad things happen and you've got to navigate, you know, disruption to the business. Um once you get enough uh there, and you know, again, uh it doesn't make sense to give you an exact number there. I mean, if you're you know if you want to retire on uh you know 10 million US and you are uh or or 15 million US and you've got um you know 2 million today in liquid funds and you know you're 20 years away, you're doing pretty well. You've roughly got the right runway. You know, if you've got five years, um, you know, you need to build up more of that liquid wealth. Um, but uh but and and keep it straightforward and and simple. I mean, I you know, I creating a managed fund of diversified stocks, diversification's key. Diversified stocks, diversified bonds, we can get into that a little bit. Um, adding uh some elements into alternatives is is is fine, particularly if they're available to the average person. Um soon you can look into private investments and private markets, and um there, that's a whole nother conversation, a whole nother podcast, right? You it always sounds great, um, but most of the time your buddy next door is not the one to invest in. And it's you know, so many business owners, small business owners get advice from their, you know, their neighbors, their country club buddies, the guys they play golf with, uh, and they heard these deals. Um, that's not the best source of advice, and it's usually not the best way to make your private investments either. So um, you know, professionals help, right? And and um, you know, and uh many entrepreneurs are saying, you know, I don't want to pay taxes and I don't want to pay fees. Um, and that's you know, yes, I agree, don't pay a lot of fees, but paying for professional help, good CPA, good wealth advisor, good uh uh valuation person, good uh business attorney, all those are worth their weight in gold uh for advice. So but the short answer is yeah, just uh uh I would keep the the investment investments you make simple at first.

What a what a very sexy what yeah, they're not very sexy. What are some of the what are some of the riskier uh uh uh investment vehicles that you would avoid? I know a lot of people in this in my space, in the agency space, we live online, we see these opportunities every day, we see crypto, we see NFTs, what what are some of the things that you would just you know you just tell your clients don't do that, it's too risky, unless you never want to see that money again?

Well, uh so crypto's a good example. So I would say I don't say don't invest in crypto, right? Um I would just say, you know, don't bet the farm on crypto, right? A lot of a lot of people, uh, when it's when it's got a lot of momentum, and you saw this with meme stocks too. You remember the meme stocks, what, two years ago when you know in the US, GameStop was uh, you know, was doing great and and uh AMC theaters was uh getting hyped up. Um it's a movie theater, right? It shouldn't be trading at whatever it was, uh 100 times earnings, 200 times earnings. So, but it was um there's a lot of hype in markets, right? And so crypto, crypto can create wealth. And uh, but you know, I I like a disciplined process around it. I don't want crypto to be such a big part of a portfolio that if it really surprises you to the downside, you have to start all over again, right? So if you're trying to knock a home run in you the business that you're building, you know, your the diversified wealth is not designed to knock a home run. And so this goes to another component. So I talked about the North Star being important. The other thing that's important to understand is your appetite for risk and the risk profile of your business. When those are in conflict, that can be extremely disruptive too. So if you're really betting the farm on your business, um, don't bet it on crypto, right? And uh, but the flip side is let's say you've got such a stable cash business and you're not looking to create this massive exit multiple and you've already created, you know, uh uh pretty you're well on your way to creating diversified wealth, you can you can start taking a little bit more of a bet on crypto. Um, you know, uh crypto can can be a a uh wealth generator, but I don't want it, uh I don't want you uh counting on it.

And I think a lot of inexperienced investors see crypto as a short-term, you know, this could go gangbusters and I'll double my money. In fact, I've seen I've had friends double their money in crypto and then leave it there and lose it. I'm like, dude, you just doubled your money. Like, where else can you double your money except the casino? Like it's just nuts. It doubled your money and then didn't take it out. I've heard over the years that like, you know, property in Australia uh gets about a 5% rent yield, right? So so you're earning about 5% on the value of your property. What's the what's the if you know if I came to you with a percentage and said, hey, look, I can get this percentage on return on my investment, at what point do you say that's worth going after? And at what point you say, hmm, I think this sounds too good to be true. Is there a number that we should be looking at roughly?

Yeah, so I mean, when you look at it, let's go back to one point, like you said, somebody double their money in crypto, didn't get out and lost it, right? Um, it's so important to sell, have the discipline, and this one's such a boring word, but it's so important to have the discipline to sell something that's doubled that well. Doesn't mean get out of it, don't sell all of it, you know, sell it back to your basically starting position and rebalance it into something else uh to keep it diversified, right? So you'll get over-indexed to it. So just that that's a good uh an example. But you know, in public markets over the long term, if you can get 10% annualized, your annualized return, that is a good return. And uh the problem is a lot of people at any year can say, oh, I can do so much better than that, right? 10% is not that great. I, you know, I'd love to double uh and do 100%, you know, in a year. And um and but you know, 10% over a 20-year period is an extremely good return, right? Because that compound interest that works for you. That's why I go back to say, don't be fancy with your diversified assets. If you're betting the farm on your business return, keep the, you know, keep a diversified, boring portfolio in public markets that's well constructed and try to generate that 8 to 10% return. So the 8 to 10% return is kind of my benchmark for a long-term uh annualized return. Any one time, any one year, though, you know how the stock market is. It can be up 30%, it can be down 30%. Um, so you're shooting for that average. If you're getting a return, uh private markets, by the way, can be better, right? And you know, you know this, but private markets you can get up to 16 or 18% return. Uh it's illiquid, but that's that that can be great. Um, but you know, the the problem is once you start seeing returns like that um as as kind of like a long-term matter of course, yeah, it's riskier than it than you're uh assuming.

And when you say ill liquid, it means that the money is tied up in a private market typically for for long term. You can't sell it until a future date. Yeah. So, okay, Kyle's uh built the agency, he's got it to, he's doing really well, he's built some wealth. Uh, he he's done. He wants to get out. What are some of the things that he needs to think about now so that in five years' time when he wants to exit, that it's not the value's not tied to him and his uh his skill set or his IP.

So Kyle, you know, Kyle needs to start thinking about how is he gonna exit his business five years before he does it. Uh if not even not even sooner than that. But you know, some entrepreneurs are like, uh, you know, 10 years is too far away. But you know, three to five years before a sale, you want to start thinking um uh uh in advance about that in a couple dimensions. You want to know what the market is gonna pay for. So you want to interview investment bankers, you want to interview uh other operators, you want to interview people who are buying your business to find out what is creating value. Because yeah, heads up, Kyle, it's they don't want to necessarily buy just you because they're gonna overpay. They want to buy a process underneath you. So Kyle needs to be building today for five years from now that process that when he steps away from it, it still works. Uh, you know, in a marketing agency, that means you've got a team of people who are, you know, doing whatever the design, the coding, the marketing, the communications that, you know, you might have that expertise in as Kyle, but you're training others to do it. So that when you walk away, they do it just as well. And you got more of them, so they're doing it at a bigger volume. So um, you also want to know that you've got a market that is going to pay, you know, for your service, right? So that you're doing something different. It's not a commodity, right? So a buyer is gonna want to walk in and say, I want something independent of Kyle. I want something that the market uh is in demand for, that you own a customer, and that customer is so excited to add this product that they're gonna stick around even after Kyle leaves. And um, and you know, in that, and so there are other things too, but you want to be thinking about so what is the market gonna pay for? Secondly, Kyle's gonna have to be thinking internally, how do I build that team that takes over for me? Um, it and this is where ego has to step aside. You know, I mean, if you're so many business owners can have an ego. Um, they're and and then it's not that they're arrogant, it's just like, I know how to do the work, and it's and others can't do it as well. He has to be able to walk away from that and know with confidence that he's trained people to take over and let them make decisions and trust them. And that's building a culture, and we can talk about that. Um, and then the third thing he needs to be thinking about the one, we talked about uh, you know, knowing what the market pay for, two, knowing what's important internally in the business to build beyond you, that's kind of the succession plan. And then the third thing is that financial cushion, right? How much uh how far away is he from that building that North Star dollar value so that he has it and it, you know, and then when he sells it, um, you know, it completes the perfect picture, right? The how we all and and this is why it's so important, you know, and I hope I'm not talking too long here, but um, you know, we all know that Hollywood entrepreneur who had a great idea, sat in their parents' basement, you know, uh worked for five, 10 years, had a celebrity IPO, and retired. But for most business owners, it doesn't work that way, right? They're they're building a business and uh they've got family obligations, they've got things in the community that are important, they got a lifestyle they want to support. And then if disruption happens to the business and they haven't created uh separate wealth, diversified wealth from it, they've got nothing and they're having to invest harder and harder in the business. And if you're young, that's fine. But if you're in your late 50s and want to walk away and that happens, you're in trouble. And so um that's why that diversified wealth is so important. And that's why you don't want to just say, hey, my business is my retirement. You know, you want to build wealth before you retire, uh before you sell. And then, but selling just adds uh extra punch to it, right? So it completes the whole wealth picture. So um took me a long time to say that, but that's uh such an important point.

Yeah, no, I I I love it. And it there's a lot of value there and a lot of clarity. I think the John Warlow, fantastic uh podcast, Built to Sell, wrote the automatic customer, wrote Built to Sell. Uh he I learned from him years ago there are three different types of acquirers. And I just love your thoughts on this. Like the three different types of uh people that will buy your business. One is the owner-operator, right? Someone who wants to buy your business, come in and operate it. Now, typically I've seen deals done and I've seen agencies sold to another owner-operator, and typically it's a vendor financing deal where, which is, I think it's a crappy deal for everyone, but anyway, that's you know, it happens, is where the vendor who's selling the business says, all right, well, we'll sell the business for a million dollars, but you'll pay me out of future profits over the next three years. So the current business owner basically just gets to stay home and take their salary for three years until the money's paid off. The problem with that is that you've got to bank on the fact that the new owner-operator knows how to actually run the business, it isn't gonna screw it up. And I've seen this happen where a guy had to actually take over his old business again because the the new owner-operator was just driving it into the ground. And so he had to come back and rescue it. The second type of acquirer is a private equity group, you know, a company that's got money, they want to invest it somewhere, they're not getting the usual returns that they were getting out of, you know, bonds or stocks or foreign exchange or whatever or property, so they want to put it in the small business. They buy your business, but they want you to manage it. Typically, I've actually been offered, this has happened to me, I've been offered a couple of times by a private equity group. They pay you a lump sum up front, and then they do what's called an earnout where you stick around for three years, you meet these particular metrics, and then you can earn the bulk of the money uh over the next three years if you hit the metrics. The problem with that is typically, you know, you're no longer in control of your PL, and all of a sudden you see all these expenses on your PL that you never saw before because the private equity group's sharing around their expenses to make sure that they never have to actually pay you the buyer. I don't mean that that they're doing that maliciously, but hey, it's business. That happens all the time. The third type of acquirer is the strategic acquirer, and the strategic acquirer is the business that has massive potential upside to buy your business. So, for example, a buddy of mine had an SEO, uh had an AdWords agency here in Melbourne. He sold it to an SEO agency because the SEO agency didn't do ads and he didn't do SEO. He had a lot of clients, they had a lot of clients, he had a great process and a great team. They came in and said, Hey, we want to buy your company so that we can offer your team and your services to our clients, and we can offer our services and our team to your clients. So massive potential upside was a strategic acquisition. He did very well out of it, and I think now he's going and building some AI stuff. So have I missed anything? Is it is there another type of acquirer, or is does that kind of sum up the three different types of acquirers that are in the market?

Well, so oversimplifying it, you hit three key ones out of four, right? So those three, you know, partner, uh strategic buyer, uh, uh, uh owner operator, uh, and a private uh market, each, you know, a buyer, each one of those serves a purpose and has some pros and cons to it. The fourth one is you do sell it to employees, and employees are able to buy the business. And you it stays its own business, but it you you create a succession plan of management and buyers. Um that takes a lot of deliberate planning. It's actually it's popular in the US, um, but it's uh it takes a lot of deliberate planning and and uh uh it's so you know it it you have to start earlier than you would if you're doing one of the three options you talked about.

I've heard this. It's it's it's I've heard I've heard uh people talk about the exit without the exit, right? So they the so the so the owner, in fact, I'm sure I don't want to go down this rabbit hole, but I'm sure this is what Alex Hormozy did, if you don't know who he is. He did this with gym launches. He's he's a guy that wrote the book, $100 million leads and $100 million offers. He's he he kind of says that he's generated $100 million. 46 million of that came from him selling Gym Launch, and I'm pretty sure he sold it to his employees. And um he calls it the exit without the exit. So just walk us through what does the business then take on finance to buy the business, and then the o the employees end up with some vested shares if they stick around for a certain period of time, and then the company just repays the the finance. Is that the way it works?

Uh there are a lot of different ways to do it. You can uh do you can uh do sweat equity to where you're uh if you achieve targets, you know, you you distribute equity uh to own uh to employees, you can have employees gradually buy an owner out. Um, there's an uh there's something called ESOP, which uh is is complex and doesn't work all the time, but it can be uh attractive. I I don't have particular expertise in it. But what you've described is a generically a common way to do it, where right, you uh you have leverage um on the business that will uh or the employees will, you know, will have to take on the liability of the uh leverage, right? Um, and pay it, you know, be able to uh that buys the owner out, and then the employees gradually, you know, uh pay down the loan. So um that is a common way to do it. And what the reason it requires thinking up front and and way in advance is because it doesn't happen overnight, right? It's usually a slow process. A lot of your your employees don't have money lying around, right? So you've got to find a way to have them through their earnings gradually buy the business. And that's why you know it can take 10, 15 years. But to choose that option works very well for that business owner who says, you know, I want this brand and this company to stick around. I love, you know, these employees are great and they love the business, you know, so it will live beyond me, it will enrich them. And maybe, you know, maybe it means something in the community too. Maybe it's the community identifies with it. So, you know, there's a real good reason to have that exit without an exit, if you want to think about it that way.

I guess the fifth option we haven't talked about is an IPO, which is very difficult, right? Because I mean that's another way to actually sell it. But also isn't there a isn't there a crowdfunding option here? Isn't there like a if you're a say you're a creator, like a Mr. Beast, right? And you've got a massive audience. David Bowie did this. David Bowie actually sold shares in David Bowie, right? He he he he so isn't there a way to go to a community of a thousand people and say, hey, look, for a thousand dollars, you can own a piece of this thing, right? Now that's a lot of shareholders to uh keep happy and and to share dividends with, but a thousand people invest a thousand dollars each. I can't even do the math on that, but it's ten million dollars, right? That that you did now you own a piece of this thing, right? Is that is that like crowdsourcing an IPO without actually going public, just crowdsourcing the funding and and having a bunch of people if you're a community-based organization or you're a an organization that has a has a wide audience?

Uh intriguing idea. And it's it's one I I haven't put in practice and don't know, so can't really comment on it. I will say crowdfunding and friends and family funding, uh, which is a little bit different of it, but a variation of it, is a good way to get started sometimes. When you're if you need to raise $50,000, $100,000, that's not a bad early stage funding to do if your business is just getting started, because you know, nobody's gonna look at you yet, right? You friends and family may all you have, or crowdfunding. Um what you've intrigued uh described as intriguing, uh, but uh haven't haven't seen that really generate a big uh business success yet.

Yeah, yeah.

A thousand by thousands, a million dollars, by the way.

I just checked my math. There you go. Um, hey, uh Canon, uh what what so just walk me through what is EP? What do you actually do for clients? If I come to you as a business owner and say, hey, you know, I need some help. What services do you actually provide? And what's your business model? Do people pay you for a plan? Do they pay you for management of wealth? How does that work?

Yeah, well, in a nutshell, pay us for uh uh financial planning, pay us for uh wealth management, investment management. Um they pay us for tax, you know, and wealth management means a lot of different things. It's it's uh tax planning and tax prep, right? It's it's reviewing estate documents. It's um, you know, it's looking at your insurance needs. So it's it's looking at all those things that say, you know, you've got a wealth picture um and you you know you want to be able to protect it, you want to be able to grow it, you want it to be able to do those things you want it to do and and avoid bad mistakes, right? So, you know, it it involves all those things, you know, tax, insurance, wealth management, uh investment management. Where I really get excited is on top of that, working with a business owner that says, you know, not only do we have those things, um, but we have a dynamic way of uh helping you grow your business over time. Because, you know, if you build a plan today, it'll be if you're a business owner, it's often stale, you know, uh two years from now, right? Because something happened to the business. Maybe it grew faster than you thought, and uh, or maybe it you lost a big client, you lost 30% of your revenues and lost some employees. And you're constantly having to say, all right, so am I reinvesting or am I rewarding myself or repurposing? So that three R's framework is designed to get you to that North Star, uh, managing the risk of yourself and the business along the way to uh to have you be successful, right? Um, and so what I do is really spend time with business owners to say, you know, um, let's think about your exit. And even though I'm not an expert in your industry, I'm gonna force you to say, all right, if you're gonna commit to a strategy, you know, how are you gonna, what are those key milestones every quarter? And you got to tell me how you're doing with it. And at the same time, as you hit those milestones, are you repurposing and building that independent wealth bucket? Because what we find time and time again is when you have independent wealth, you get a premium on your exit. If you don't have independent wealth, you're often forced to sell and you sell at a discount to people you don't want, to situations you don't like. And so that's why that's the magic and it's underappreciated, just the the power of the independent wealth that you're creating alongside the business.

It will give you a premium because you can sell when you want. I love that you've got you're right. And it's it's the same with you know any finance. Like if you have money, banks will lend you money at a very competitive. If you need money fast, you'll pay a premium for it and you'll take money from people, as she said, that you don't like in situations you don't like. Uh, I love the fact that you've got a framework too, because it makes EP wealth um a saleable asset, right? You've got a bunch of advisors who work with clients that follow the same framework. It's not reliant on Canon Car turning up and and weaving your magic every day, that it's actually systemized and process driven. So I love that you uh eat your own dog food and you're you're walking the walk uh as you as you talk the talk. Um hey, this has been a fascinating conversation. We could we could spin off multiple episodes just too. Yeah, we can we've created about four or five episodes. Exactly. And we will get you back in the future for part two for sure. Um, where can people reach out and say thanks for this and get in touch?

Yeah, so you can find me on LinkedIn, right? Canon Carr uh at LinkedIn, we can put it in the show notes. Uh you can go to epwealth.com and you know go to the Atlanta market. Uh you'll see our team there. Um I've also got a podcast called Business Owner Tales from the Trenches, where we explore similar themes to this. Um, you can find that on any uh any uh where you get your podcasts. Um and any of those three should be able to get you in touch with me.

Awesome. I just connected with you on LinkedIn. I'm looking at your LinkedIn profile now. I'll have a look at the Business Owner Tales from the Trenches podcast. We'll put all the relevant links in the show notes. Thank you so much for spending some time with us on the Agency Hour. Really appreciate your generosity.

Uh Troy, really enjoyed the conversation. You're asking great questions and uh and I look forward to staying in touch.

Awesome. Thanks, Canon. Thank you. Hey, thanks for listening to the Agency Hour podcast and a massive thanks to Canon for joining us from EP Wealth. If you'd like to learn more about building wealth and growing your occurring revenue, check out the links in the description. Okay, folks, remember to subscribe and please share this with anyone you think may need to hear it. I'm Troy Dean, and remember there are more than 500 varieties of grape grown in Georgia.