002 Mastering Strategic Entity and Location Planning for Peak Profitability w/Grant Teeple

Join Sarah Jenkins in an eye-opening conversation with Grant Teeple, a distinguished corporate lawyer from Teeplehall LLP. In this episode, Sarah and Grant delve into the realm of strategic entity and location planning, focusing on how it can maximize profitability for businesses. Discover the invaluable insights and insider tips shared by Grant as he unravels the complexities of buying or selling a company, personal structuring, estate planning, and corporate governance.

Grant Teeple's expertise shines as he explains the importance of well-structured agreements, the emotional process of selling a business, and the keys to planning a successful acquisition. Dive into the world of entity and location planning and gain valuable knowledge about private equity versus strategic buyers, letters of intent, due diligence, and the factors that contribute to deal success or failure.

Throughout the episode, Sarah and Grant share notable quotes that encapsulate the essence of their discussion, offering listeners a glimpse into the expertise and practical advice they provide. From tax savings to mergers, from non-compete agreements to understanding different types of buyers in the market, this episode covers a wide array of topics designed to empower business owners and entrepreneurs to take their ventures to the next level.

If you're seeking strategies to optimize profitability, minimize taxes, and navigate the intricate landscape of entity and location planning, this episode of Paid To Create is a must-listen. Join Sarah and Grant as they demystify the world of business law and equip you with the tools and knowledge to thrive in today's competitive market. Tune in now and unlock the secrets to maximizing profitability through strategic entity and location planning.

Transcript

Grant Teeple (00:00):
Now's the time to take advantage of it, by the way. Right now, the exemption per person is $12.3 million. And if you're married, what is that? That's $24.6 million that you can give away to anybody on the planet, not just people in your family, for without a tax event to you or the person receiving it. Tax planning for estate purposes is really important and a lot of people don't realize how quickly they become wealthy. You buy a house and then you close your eyes and open them and 15 years passes, suddenly your house is worth millions of dollars, right? A lot of people have that event. Your businesses become worth a lot of money. So it happens quickly. And I think the people who do the planning are the ones who have the families that are be able to preserve the most wealth for the most amount of time.

Sarah Jenkins (00:44):
Welcome to the Paid to Create podcast where we dig into the secret strategies of successful creators making a lucrative living. So sit back, relax, and enjoy the show.

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Sarah Jenkins (01:40):
So Grant, welcome to our podcast, our Paid to Create podcast. We've invited you here today because you're our corporate law firm, but also we know each other very well and I've seen some of the things that you've done for other companies, not mine, but you'll probably do for mine eventually. What does your firm specialize in? Not just for me but for everybody.

Grant Teeple (02:00):
Sure, thanks. It's great to be here. I appreciate it. So my firm is Teeple Hall, LLP. We're a San Diego based law firm and we are a business firm. That means no divorce, no bankruptcy, no criminal, right? No personal injury, all the stuff that businesses need and business owners and entrepreneurs need from their personal structuring, their estate planning that owns their businesses all the way through the operational side, the corporate governance of the companies and then hopefully the American dream arrives and the sale of the company, or in some cases, the purchase of a company depending on what side you're on.

(02:34):
So we assist in all that. The firm is very heavily tax based because usually the transactions that are involved have lots of zeros behind them and a little bit of proper structuring for tax purposes can make you a lot of money in the end, both on your personal side and the business side. So our clients tend to be high net worth individuals and mid-size businesses up to about 500 million in sales. And if they get much bigger than that, then they're probably a public company and they're a little big for our shop.

Sarah Jenkins (03:05):
Kartra makes a little bit more than half a million every year, but man, I've used you for a long time and the tax stuff sounds very boring, but I will tell everybody that it saved me millions and the process was absolutely easy with your firm. So would you say that, is it tax stuff or is it other stuff for your company like the mergers or selling? What's your favorite thing to do?

Grant Teeple (03:30):
I think my favorite thing to do is selling a company or helping someone buy a company because we're creating something new. At the end of the process, you've either got a pile of money or you've bought a company and you have a brand new adventure. So we're building stuff and it's really great to build stuff and enjoy with your client their success and watch them either spend lots of money on yachts and race cars or whatever they do when they sell their company or whatever it may be, or buy something and have a great new challenge. And usually, you don't buy a company just to sit there and someone's going to do something with it. They're going to improve it or they're going to merge it with their current company. And so that's really fun process to watch.

Sarah Jenkins (04:09):
I don't know that many entrepreneurs get into businesses thinking they're going to sell or buy other businesses. I think that's a thing that you'd get into later down the road. But when you do get there, it's so cool, man, we don't have to talk about my fancy car or anything because it's very fun for me to drive and beat you in. But the things that you've helped me with, I went through the tax strategies for myself and my family and do you want to talk about that a little bit?

Grant Teeple (04:37):
Sure. So there's two places we really watch about structuring. One is your personal structuring. We watch out for the estate tax. What's the estate tax? That means there's a number and it used to be 2 million, then it was 5 million, then it was 12 million, and Mr. Biden wants to bring it back down to 2 million if he can. And what is that number? That number is what we call an exemption, and that means everything that's in your estate over whatever the exemption number is, is tax that guess how much, every dollar in your estate above the exemption, you want to guess? It's 50%, so match, so will you really...

Sarah Jenkins (05:14):
Federally or California?

Grant Teeple (05:15):
Federally. Federally, you're going to be at 50% tax and California doesn't really have an estate tax for that purpose, but that is a big deal. So what we try to do is help people who have more than the exemption amounts. We really try to help them structure their estate in a way so that in the unfortunate event of death, which is going to happen to us all, we leave the planet at some day, right? In that event, what happens is, is that we want to make sure there's as little in your estate as possible, and there's lots of ways to do that. There's dynasty trust, there's flips, family limited partnerships, there's gifting during the lifetime, there's all kinds of strategies, and they really, really make a lot of difference because nobody likes giving half of every dollar away to the government. And when that exemption comes tumbling down again, you're going to wish you did.

(06:02):
Now's the time to take advantage of it, by the way. Right now, the exemption per person is $12.3 million. And if you're married, what is that? That's $24.6 million that you can give away to anybody on the planet, not just people in your family, for without a tax event to you or the person receiving it. But if you've got more than, if it goes back down to $2 million, and every dollar after $2 million, you give half to the government, it really creates a big incentive for you to structure yourself personally. So that estate planning, excuse me, that tax planning for estate purposes is really important. And a lot of people don't realize how quickly they become wealthy, you buy a house and then you close your eyes and open them and 15 years passes, suddenly your house is worth millions of dollars. A lot of people have that event. Your businesses become worth a lot of money.

(06:54):
So people get above the... Some people think, oh, I'm never going to have $12 million or two or even $3 million, but you'd be surprised. The average median price for a home here in San Diego is well over almost a million dollars now. So it happens quickly and I think the people who do the planning are the ones who have the families that are be able to preserve the most wealth for the most amount of time.

Sarah Jenkins (07:15):
Well, on that lovingly upbeat note about everybody dies, you actually hit some positive points, which was talking about the savings that you're going to give to your kids. So nobody wants to think about dying, but you're right, everyone does. And I will say unfortunately for me, I did lose my husband, he passed away, but we hired Teeple Hall back in the day and said, hey, we are looking at this life event, it's not going to go well, but we want to make sure all of our paper is in order and all of our ducks in a row because what can we do to minimize the damage to the family besides the emotional burdens obviously.

Grant Teeple (07:44):
Right.

Sarah Jenkins (07:44):
So you walked us through that process really well and very cleanly. It saved me millions and I will go, and I've talked on stage before, get your stuff together, get your stuff together before you want to. Andy would always talk to me before about, "Hey, we need to talk about our wills, we need to talk about." And I was like, "I don't have to talk about that. That's terrible." I don't want that conversation. But now, I'm so, so very grateful that we did. I'm grateful that you came to the house, how to sign papers, looked at everything, walked us through every part of it because it was so incredibly important for the savings that we can now pass on to our children.

Grant Teeple (08:23):
And in addition to the savings, a great reason to do estate planning is the process. People die and sometimes they die when you don't expect them to or people get sick. And the last thing you want to do is be spending time messing around with lawyers. So it's great when you...

Sarah Jenkins (08:39):
Depends on the lawyer.

Grant Teeple (08:39):
But depends on who it is, right. But if you're proactive in that way, because one of the... Especially it's men, we tend to die eight years before the women's. And so what happens is we end up usually having to deal with an aggrieved widow most of the time and they have their children, they have a lot going on and the last thing they want to do is be messing with the legal logistics. And if you've got just even a simple trust in place, forget the tax savings and things we just talked about, it makes the disposition of your estate, meaning how we administer it. We can do that in my office or any lawyer can do it in their office if it's a trust. If you have a will, you end up in probate court and that takes longer and that's a very arduous, and I tell you the emotional side of having yourself organized when you're having... When someone passes, it's a big deal emotionally as you know.

Sarah Jenkins (09:30):
A big deal.

Grant Teeple (09:31):
It's a big deal.

Sarah Jenkins (09:31):
And still deal with it years later.

Grant Teeple (09:33):
Anything you can do to make that easier I think is worth its weight in gold and not just the savings of tax savings, but just the emotional savings of having a smooth transition.

Sarah Jenkins (09:43):
The talks aren't fun in the beginning, but they certainly pay off in the end. I went to the bank and I was trying to get all of our bank ownership documents in order so I wouldn't have to go in after the fact and try to explain what had just happened because I don't want to talk about it. I was like, I don't want to deal with any of these dramas after the fact, don't want to deal with my family. So we ended up taking all of the time with you in your office to deal with all the trust stuff. So I didn't have to have those conversations. That was the thing I feared the most. And people that don't expect their spouse to die, which like you said, everyone does, but if someone dies suddenly or whatever, now you have to deal with all that stuff and you have to go to banks, you have to go to stocks, IRAs, like anything, social security and ask for money for your kids.

(10:21):
And that feels just really incredibly uncomfortable. It's such a bummer when you're already in a very low mood. But what you did do for me and my company that is doing really well was you saved us all of that headache so I could dive back into the company as a CEO and owner as soon as possible, which wasn't very long. I probably should have taken longer, but it's gone really well and I've really enjoyed having that company structure that you've already put in place. So I'm going to pivot. When somebody's just starting out, which a lot of people are just starting out, people go to LegalZoom, which that's not the best for right away, but is there a correct way you think that somebody would structure their business just starting out?

Grant Teeple (11:06):
Yes, that's a great question. A lot of people come in and they hear me speak or they read a book or they go on the Google and they read about all these great structures and I'm telling you, you can have the most elaborate structures in the world, but if you don't have a profitable business in the first place, what's the point of having a complex structure? I'd like to counsel people when they're starting new businesses, when they don't have a lot of value, when they are the startup business, to keep it simple stupid. Just as I always want you to have some kind of special purpose vehicle, what does that mean? It's a term of art that just really means some kind of entity, either a corporation or an LLC. Corporations, by the way, FYI are becoming fairly disfavored in the business world. Almost everything is an LLC of some form or another.

Sarah Jenkins (11:51):
Why?

Grant Teeple (11:52):
The LLC has a lot of flexibilities that corporations simply don't allow. Corporations have rules about who can own them and when. Corporations have certain other limiting factors. LLC is they used to be, when they first came along, people didn't even really think that they were going to survive. Excuse me. And now, they're the number one most formed business entity because of the flexibility. They're recognized in every jurisdiction now in the United States. They provide the exact same amount of asset protection that a corporation would. And again, the flexibility in ownership and the other different rules have made it really so that almost nobody is really incorporating anymore.

Sarah Jenkins (12:32):
Well, so when you're talking about... All of my companies are LLCs because I listen to you most of the time, and so when somebody does that, they have a business, they've got their LLC now, is there anything they should think about with their operating agreement, understanding that they're building a business to make money? And most people don't go in thinking they're going to end up selling their business, but a lot of them, if they've had a profitable business, do end up having the conversation should I sell?

Grant Teeple (12:55):
Right. So if you are the only owner of the LLC, you're the only person, it really kind of doesn't matter what your operating agreement says because it's just you and you can change your mind.

Sarah Jenkins (13:05):
Correct.

Grant Teeple (13:06):
But most people have partners or investors or people who want some form of equity in the business. And so on that point, the LLC is the operating agreement. And so if you have LLC, we have operating agreements, and corporations, we have shareholders agreements, and they're the same damn thing with different names. It's the rules of how the company operates, how it's governed. And the important things that I always watch for in any operating agreement or shareholders agreement are voting. Voting's very important right. You may not be the majority owner of your company, but you might want to have the ability to run the company, outvote everyone. So like Warren Buffett and some of his companies, he'll have corporations or LLCs and he'll have different classes of stock, right?

(13:54):
A, B, C, and D and he may only own 10% of the company, but that may be the Class A shares. But guess what? The class A shares, each share gets 10,000 votes and the class C shares get one vote. So you can own 10% of the company and still have the majority of the ability to vote. And how does that happen? That's in the operating agreement. That's where that's defined. So voting is very important I think especially if you're a minority owner. A lot of people get in business and have a minority position, they don't own all the company. And I think drafting into the operating agreement or the shareholder agreement, exit strategies for minority holders is helpful. After a certain amount of time I can force you, it's called a put, to buy me out at a pre-agreed formula or a pre-agreed amount.

(14:39):
That's great because otherwise if you're a minority owner, you're captured, you're captive in that company until the majority decides they want to sell. So voting's important, exit strategies are vitally important in the operating agreement. And then I think that the other thing that is important and I think goes unappreciated is making sure that you have a seat at the board. If you're in a company, you want to be ideally able to be part of the conversation of what's happening with the company, where's it going? So if I'm a minority owner, aside from the ability to maybe get out things we just talked about, I'm going to want to seat at the board if I can, even if it's just to go and listen and be a fly on the wall. And more likely, since I never, I always like to talk and hear myself talk.

(15:24):
More likely, I want to participate in the dialogue with the company and help chart its future, which is going to be my future. So those are three big things that I look for in operating agreements always. If you sign an operating agreement with no way out, no ability to vote and you can't sit at the board, then you're just an employee with it. You're at the whims of, and what happens too, a very salient example that just happened two months ago is that guy was 37 years old, had a lousy operating agreement, and he went in, drove his brand new Porsche into a wall and suddenly the people in the company are in business now with this gentleman's wife, which isn't a problem, but that's not what they signed up for. And she doesn't have...

Sarah Jenkins (16:15):
Necessarily.

Grant Teeple (16:16):
It's not a problem. But when you get a partner, you're in a partnership or you're in a corporation and we all own a company together, we've made our deal together and suddenly you take someone out of one of those chairs and you plop somebody and you've never even met before, you don't even have a background before. This is why it's important to be forward-thinking and take care of all the potential permutations of what might happen in the company because this person may or may not be a rockstar. They may or may not have the background that the spouse had and it can create a lot of tension and problem in companies.

Sarah Jenkins (16:54):
Typically, when I partner with somebody, I have no idea what their wife's skills are, so I have no idea or their husband's skills are, like I wouldn't even know how to ask that. And that did happen to me too. We had where Andy was understanding that he was protecting me, protecting our kids, making sure there's a buyout agreement if he's not here. But then when he got ill and I started running the company in his place, I was like, I don't want to be bought out anymore. This is our company. We grew together, it's our baby. And now that I'm effectively running it and I love it and I love our employees, I love our product, I love our customers. I don't want to be bought out and I don't want to have to be bought out. I want to change the operating agreement. So we did, your office helped with that too, and that helped protect me and my wishes as a spouse.

(17:34):
And then he went to his partner, Hector and said, "Hey, we're going to bring Sarah in at a different level. You're not going to buy her out if I'm not here." And he agreed. So we had conditions and terms and all that. So we had all of the correct structure in place. Now, you've got the correct structure, you've got your profitable company, we're going to assume everyone's doing very well. By the way, if somebody decided that their operating agreement didn't allow them to vote, didn't allow... They said that they're basically an employee, they need to get a new law firm or they need to hire a law firm, immediately. I even told my brother and his company, I was like, "Have you talked to your partners, those five guys, all equal partners? Have you talked to your partners about what happens if one of them passes away, unfortunately?

Grant Teeple (18:15):
Exactly.

Sarah Jenkins (18:16):
So then do you want to be partners with that person's spouse? Do you want to have that person have a seat at your table? Do you want them to have voting rights? What are you guys going to agree as a company?" And they're like, "Oh shoot, we never thought of that." I was like, "Well, you would never think of that except that you told me to think about it. And then I had to walk through that process."

Grant Teeple (18:31):
Very few people are lucky enough to have your situation where you were already working in the business and knew the business and were part of the fabric of the business. But typically, that's not the case. Sometimes the spouse is in a wholly unrelated industry. They're a school teacher or a police officer or a male person or whatever.

Sarah Jenkins (18:48):
Most of the time.

Grant Teeple (18:49):
Most of the time. And now, they're thrust into the position of trying to make high-end decisions that they've never made before. And so it's something definitely you want to think about and you definitely want to contemplate it when you're doing your operating agreement.

Sarah Jenkins (19:01):
You can't say thrust on a podcast.

Grant Teeple (19:05):
No.

Sarah Jenkins (19:05):
Just kidding. So when someone goes with their company, they'll say, we've all been profitable, we've been amazing. All of operating agreements are correct. You've got your LLCs. At what point when somebody wants to sell their company, what would be going through their head? Why would they choose to sell?

Grant Teeple (19:17):
Sure. Well, obviously, one answer is the money, right? But...

Sarah Jenkins (19:23):
I said don't say the money.

Grant Teeple (19:24):
Well, but the reality is that isn't what forces many of the sales. A lot of times there's life changes. They've gotten old, they've gotten burned out, they have a health condition, the economy's changed, the technologies have changed, they don't feel relevant anymore. There's so many reasons where someone decides, even though I don't want to sell, it's a smart thing for me to do. And those external factors like that are a lot of the things. I should have looked the statistic up before I came but I didn't. But I think it's a third of the businesses in the country are for sale at any one time in a two or three year period. And it's not just because someone's chasing the dollar. A lot of times it is because of those other events that we just talked about that drive it. And you know what a huge reason to sell a company is? One of the number one beyond the profit motive is?

Sarah Jenkins (20:18):
Stress.

Grant Teeple (20:19):
Divorce.

Sarah Jenkins (20:20):
Ooh, yikes.

Grant Teeple (20:26):
Divorce. Because now, what are we going to do here? We've got this company, we own half of it. We have other partners who own the other half. We're getting divorced, someone's going to have to buy somebody out. Nobody can write that big of a check. So what you got to do? You sell the company and that's that.

Sarah Jenkins (20:38):
Like your house, it's your asset.

Grant Teeple (20:39):
Yeah.

Sarah Jenkins (20:40):
Yeah. My best friend, we're talking, she had this house that she saw come on the market totally unrelated to business, but it makes sense to me that you said that. And she said, "I found this house. It's a really great, great deal." And she goes, "And we've just been looking at this one area for years and years and years." And she goes, "But finally someone died and this is going to be awesome." And I was like, [inaudible 00:20:58]. She's like, "I mean, I really want the house. It's great." I was like, "There you go."

Grant Teeple (21:04):
Yeah. Death and divorce are huge reasons companies are sold.

Sarah Jenkins (21:08):
Death, destitution and divorce.

Grant Teeple (21:10):
That's right. Death.

Sarah Jenkins (21:11):
All the positives.

Grant Teeple (21:11):
I hate to say, but it's death, drugs and divorce. It's the triple D. Those three things account for more forced sales than people realize. And that's every day all the time.

Sarah Jenkins (21:19):
Hugs not drugs.

Grant Teeple (21:21):
And that's really why, just you ask about the sell side, but on the buy side, that's really where the opportunities are, because every night, the world spins and somebody falls off it, right? And there's a lot of opportunities to grow through acquisition. A lot of people kill themselves to grow their business 2, 3, 4, 5% a year. Well, sometimes if you do a strategic acquisition, you can double or triple your footprint, your profitability, the volume, or maybe you're buying, let's say you're a car manufacturer and you buy a tire company. And so you're buying something in your supply chain. There's lots of reasons to do acquisitions to make your company more profitable. And those deals are out there all the time and it's a great way to grow. So that's a motivation for the buyer and certainly the motivation for the seller other than death, drugs and divorce is sometimes they're just done.

Sarah Jenkins (22:12):
Right. So I don't want to breeze over it, but just so note anyone that doesn't understand what is an acquisition.

Grant Teeple (22:20):
An acquisition means we're going to buy something. Just like when you go in the store and buy a gallon of milk, it's not a simple...

Sarah Jenkins (22:24):
You've acquired the milk.

Grant Teeple (22:26):
You acquired milk, right?

Sarah Jenkins (22:27):
Costs you some money, you've acquired the milk. Okay.

Grant Teeple (22:30):
And lawyers, we use lots of fancy words for buying and sell a company. We call them acquisitions, we call them liquidity events. There's lots of things like that. But at the end of the day, you're just selling something.

Sarah Jenkins (22:40):
Wow. That's why I asked to make sure that nobody's slipping through the cracks. I certainly had to be educated myself. So I have a question in front of me. It says, who's the seller [inaudible 00:22:49] Jackson, what does that mean?

Grant Teeple (22:50):
Well, the seller is usually the person who owns either the shares of the company, if it's a corporation or the membership units if it's an LLC, or the seller many times is a company that has assets. A lot of times when people do purchases, they don't want your company, they just want the assets of your company. Now, why would that be? Why would someone not want to buy the company versus its assets? Well, I'm asking myself the question. The answer is because of liabilities. If I buy your company and it turns out four months ago, you were not giving your employees proper break times, or let's say some manager and an employee were having a relationship that was sexual harassment or something. When that lawsuit comes...

Sarah Jenkins (23:36):
Never happens.

Grant Teeple (23:36):
Never happens. No one has sex anymore.

Sarah Jenkins (23:38):
No.

Grant Teeple (23:39):
When that happens, the company gets sued every time. So instead of buying your company, if I just buy all of the assets, I mean, I can buy your phone number, I can buy your trade name, I can buy your trademark.

Sarah Jenkins (23:50):
Client list.

Grant Teeple (23:51):
I can buy your client list, I can buy... I don't need your corporate shell, I don't need your LCC shell. All that's going to get me is sued. So if I leave you with the shell and I buy the assets out, then when that lawsuit comes, they don't sue the assets, they sue the company. And you've got the company, it was your company and you can deal with it.

Sarah Jenkins (24:07):
Unless you have decent lawyer process and you have no liabilities as I have no liabilities.

Grant Teeple (24:13):
So there's a bias, this is a little going down the hole here, but there's a bias for buyers to buy assets because they get away from those liabilities that we just talked about. Plus those assets, you can depreciate them, which is a thing that we do in taxes so that we can pay less taxes, we can depreciate those assets. But if I buy your shares of your corporation, not only do I have the liabilities now, because I have the corporation, but you can't depreciate shares in stock. On the other side, so on the buyer side, well, I want to buy assets for those reasons. On the seller side, you want to sell your stock versus sell the assets. Now, why is it? I'll tell you. Because I can tell you're gripping to know the difference.

Sarah Jenkins (25:01):
Oh, I'm like, where were you when I had to sell some shares back in the day before you? And I was like, crap.

Grant Teeple (25:02):
So the reason sellers want to sell shares is because when I sell the shares in my company, and typically you've held those shares from more than a year, you get what's called long term capital gains. That means when I sell those, my company shares it's 20% federal tax. If I sell the assets, it's 36% tax. So, it's 16%.

Sarah Jenkins (25:27):
Doesn't that depend on where you are?

Grant Teeple (25:28):
Nope. Nope. That's federally. It's a federal tax. It's anywhere in the United States. I mean, I guess if you're in another country, they have different tax rates. But in the US, a seller wants to sell their shares so they can enjoy a 20% tax rate. The buyer wants to buy the assets because for the reasons I just talked about. And so there's a natural tension between a buyer and a seller. The buyers want to do asset purchases, sellers want to sell their shares to get that improved tax rate. There's some ways to compromise in the middle, but that usually becomes very important part of the negotiation.

Sarah Jenkins (25:59):
Well, there goes my plan to move to Florida, that wouldn't help me at all.

Grant Teeple (26:01):
Yeah, correct, correct. Texas, we have states that have no state income tax, but what I'm talking about is just the federal rate, which is everywhere, no matter what state you're in, right?

Sarah Jenkins (26:14):
Right. Every time I write my quarterly, my taxes to the California, the great sunshine state that we pay for that sunshine, I write it to the federal. I cry a little. Just a little bit.

Grant Teeple (26:26):
Just be glad you don't get all the government you pay for.

Sarah Jenkins (26:29):
Yeah, definitely not. And my vote is incredibly unequal in California. Okay, so when you're looking at... So we've talked about the seller, now we want to talk about the buyer. There are different kinds of buyers.

Grant Teeple (26:41):
Yes. Typically, there's going to be, we lump buyers into two categories. One we call private equity. These are effectively banks or investment funds if you will, who are buying your company for one thing only. They want that guaranteed consistent return so they can put it in their portfolio.

Sarah Jenkins (27:02):
I want that. Can I have that?

Grant Teeple (27:03):
Yeah. Right. So some of these funds, and when we have recessions or when the economy's good or bad, everybody thinks that it'd be great to be a fund. But the problem is when you've got 20 or 30 or 40 or a $100 billion sitting there and inflation is four, eight, now 10%, right? They need a place for this money to go. There is so much money out there right now to buy companies. So the problem is they need to buy a profitable company. If the company isn't kicking off a profit, you're just trading dollars. They need to put their money somewhere where they can keep up with the inflation. The most funds I know are happy. This I'm talking private equity. These guys with billions and billions of dollars, they're happy.

Sarah Jenkins (27:50):
Like you and I, obviously.

Grant Teeple (27:50):
Like we all have.

Sarah Jenkins (27:50):
Billions and billions.

Grant Teeple (27:50):
They're happy to get a one or 2% return as long as they know it's going to last for years and years and years because they're just trying to not lose money, getting eaten up by inflation. So private equity is all about your profitability. Now, the other thing about a private equity buyer, one of the large hedge funds in the world, one thing about the private equity buyers is that they also want a company that they don't have to come in and run and reinvent the wheel. They need to see that the company's there has a track record, has a strong management team, has a history of... So that they can just effectively acquire the company, stick it in their portfolio, and then let it sit there and generate money.

(28:29):
That's really important to the private equity that you have an excellent management team, and I'll talk about that a little later about some of the reasons deals fail. The other type of buyer is what we call strategic. So this is someone who buys you because it assists them in their current business. What's an example of a strategic buyer? Well, let's say we had the example before about a car company that buys the tire company. They're buying someone in their supply chain. So now, they're going to have hopefully uninterrupted valuable commodity of the tires coming at their direction. They're not the whims of having to go out and look for a vendor. So if you buy your vendors up, that's a strategic play. You may be buy a competitor of yours so that you can combine the companies or you might buy somebody who's in a related space where you have the same types of clients.

(29:22):
For example, people who like flowers, for whatever reason, who buy flowers a lot also tend to buy a lot of chocolate. So you might have a flower company...

Sarah Jenkins (29:30):
No, I don't.

Grant Teeple (29:30):
... and you might go into the chocolate. Well, I'm just saying.

Sarah Jenkins (29:33):
A normal amount of chocolate.

Grant Teeple (29:34):
Okay. So the strategic, that means the purchase isn't just because of the company's valuable, but the company you're buying has something that's going to enhance your company. Same clients, vendor, supplier, maybe even your own customer base. You can acquire people who are in your customer base, so you own effectively businesses that also then to your clients. So you have that strategic buy and you have the private equity. Those are the two things. The strategic buyers though, be careful, because they usually are going to buy your company and they don't really care about your management team that much. They're going to probably use their management team. They're going to probably fire a lot of the senior people and your trusted longtime employees if there's any redundancy. They already have an accounting department, they already have a HR department, they might roll in a few of the rock stars. But when the strategic buyers buy, it's typically isn't a great thing for anybody who wants to stay and work in the company.

Sarah Jenkins (30:30):
That's right. Because you said the private equity, they don't want to touch it. They just want something that's guaranteed money for them.

Grant Teeple (30:34):
Right. They want...

Sarah Jenkins (30:34):
That make sense.

Grant Teeple (30:36):
They don't want to come and rebuild it.

Sarah Jenkins (30:37):
No. Obviously, I don't want to fire my staff, they're amazing and excellent, but would I fire someone else if I acquired them? I don't need two heads of HR, you're right. So you think of it that way. Take some of the emotion out of it, maybe.

Grant Teeple (30:47):
Yeah, maybe.

Sarah Jenkins (30:49):
So you've gone through what the seller, the buyer. How often do you think deals go through? If someone's sitting at the table and someone gives them, what is it, a letter of intent?

Grant Teeple (31:00):
Yeah. Right.

Sarah Jenkins (31:01):
At that point, they do their due diligence. They talk about all the things in the company that are going well. They talk about all the things in the company that are going wrong. That amount becomes different depending on what they find. If they are super excited, it could increase. More often, I think it probably decreases a little bit, because when they're looking at the things that are wrong with the car, you don't have seats. Okay, well, I'm not going to pay the full price for the car because it doesn't have the seats.

Grant Teeple (31:28):
Right.

Sarah Jenkins (31:29):
But what percentage of deals do you think make it? Give us just a guess in your experience.

Grant Teeple (31:35):
Yeah, I understand the question. The deals that make it through the letter of intent phase, most of them probably go through, not all of them, but most of them. If you can get through the letter of intent and what's the letter of intent? The letter of intent, it's a non-binding agreement, but what does it really do? Why do we have letter of intent? What it really does is it provides a roadmap for the transaction, for the process. And the letter of intent should include all the material terms of a deal. All right. What's a material term? Price is always a material term, right?

Sarah Jenkins (32:07):
The material term.

Grant Teeple (32:08):
The material term. The guy or gal who's selling the company, I'm going to want a non-compete for them. So that's a material term to me. I'm not going to do this deal. I'll buy the company from you, the very next day you're going to go out and start a competing company, right?

Sarah Jenkins (32:22):
Nobody will buy like that. It's unheard of.

Grant Teeple (32:23):
So that would be material to me. Sometimes it's material for many people to get certain key men and key women to make sure that when you buy the company, they're going to come along with the acquisition. Because if they're not, the last thing I want to do is buy your company. Have you sign a non-compete and then have your top team and staff go start their own company and start competing with me, right?

Sarah Jenkins (32:42):
I didn't think of that.

Grant Teeple (32:43):
Right. So it's all about people. So having good transition of key employees, it would be a material term to me. It would be a material term to me to make sure if you have certain vendors and specialized pricing that after I close the sale, I'm still going to be able to have that great relationship with that vendor and that specialized pricing. That might be a material term. It may be a material term that certain clients that I get to interview and before I close the deal to make sure that these clients are going to be there afterwards and they really understand. So there's an infinite potential amount of material terms that you could have. So what the letter of intent does, it lays out all the material terms.

(33:24):
The second thing the letter of intent does, which is key. This is to me, it's almost the most best reason to do the letter of intent aside from all the key material terms, is it lay out what the process is going to be for the acquisition, here's what's going to happen next. I'm going to do some due diligence. I'm going to want to see your accounting. I'm going to want to talk to your key people. I want to talk to some of your top clients. I need to do some market research, whatever it may be for me to do my due... What we call due diligence to make sure that what you're selling me really exists, to make sure you really own the company you say you own, to make sure you really own the intellectual property that you say that you own in the company.

(34:03):
I want to check all that out so that when I buy either the assets or the shares, I'm getting what I think I'm getting and what you think you're selling me. So that having that due diligence process explained to the letter of intent is super important. And then it'll also explain then the letter of intent. The process of what will happen in terms of how we'll wrap the deal up, how you'll be paid, when you'll be paid, especially by sellers who have never done it before, they spook easy. And if you call them up and ask them for something that they weren't expecting, like wait, what do you mean that you need to see my past three years tax returns? What do you mean you need to see all my bank statements? What are you talking about? Do you think I'm a liar? What's the problem here?

Sarah Jenkins (34:50):
These are normal questions that I asked you. It's fine.

Grant Teeple (34:52):
But you would think they would be normal. So if you don't surprise your seller, if there's no surprises, because they've seen this letter of intent, they see all the material terms that you're looking for, the process is well described what's going to happen to them, that way when it happens to them, they expect it to happen and they're in a good mood versus like hold on a minute, I need to talk to my lawyer about it, and deals, we try to get a deal done from letter of intent to closing in 45 days if we can. Because one thing on both sides, seller and buyer side deals get stinky like fish if you leave them out in the counter too long. They start thinking, man, maybe I should be selling for more. Man, do I really want this sell? What could happen?

Sarah Jenkins (35:32):
I guess you're back for less.

Grant Teeple (35:33):
Maybe I don't. Right. And so you want to have this process laid out showing how you're going to go from soup to nuts from beginning to end in 45 days or less and make sure that seller saw that letter of intent. That's a roadmap that getting to the end of this and they bought on because it is like a roadmap. Because if you don't know where you're going, you will definitely get there.

Sarah Jenkins (35:57):
That's your favorite thing to say.

Grant Teeple (35:58):
It is, one of them.

Sarah Jenkins (36:00):
Yeah, man, material terms are so very important. I don't understand a lot of them when we went through... We've been to the selling table a couple of times. One, we thought we were going to sell back when Andy started not feeling well and started getting ill. So he's like, "Hey, let's just sell some. I can make sure the family has this guaranteed income." And I was on board until we been through it a couple of times because like you said, that 45 day mark, man, we're starting to renegotiate our own process on selling it. As a business owner, are you even ready to sell your business? It's an emotional thing.

Grant Teeple (36:28):
It is emotional.

Sarah Jenkins (36:30):
You've done it. It's your baby. You are not going to be excited to sell it unless the number blows you away. If it doesn't, if it seems reasonable, which I think probably a lot of them are reasonable, then you start to question it after 45 days. That's what happened to me is they said, "Hey, we'd like to continue due diligence. It's been 45 days. We're going to give you another letter of intent." I said, 'No, thank you. I am now uninterested in selling to you. The process has been exhausting and expensive."

Grant Teeple (36:55):
Yep. That's right. And that really is what... I'm glad you said that. That's one of the most important parts of the letter of intent that I forgot, which is if you do a good job on that letter of intent with all those material terms and what the process is, if the seller doesn't have the stomach for it, they won't sign that letter of intent, which it's sad you didn't do the deal, but it's sadder to sign, to do a poorly written letter of intent. Spend 20, 40, a $100,000 with your attorney only to find out right before closing, there's something that they can't live with. Oh, you want a non-compete, you never brought that up before. I'm not doing the deal. You just billed how much with the attorneys? To find that out, you should find that out on day one.

Sarah Jenkins (37:35):
Well, I only know because I've done it myself and actually have gone to stages and spoke on it because I thought, I don't know about these things. And as a business owner, I wish somebody would've told me. I didn't think to ask you ahead of time. We went to the, "Hey, we want to sell our company." You're like, "great, here's how it goes." But we didn't think about the incredible expense of the due diligence of its software. It's much, much higher. Because you have to have a data room where they're looking at your code. They bring specialists, especially if you're selling for upwards of tens, if not hundreds of millions of dollars. They're going to do a really great deal with due diligence to make sure they're getting the right thing.

(38:13):
But what happened with me was we saw that it took our entire top staff away from growing the company. So I've wasted, because we did not end up selling. We've wasted over a month of trying to get together everything of why we're awesome for the potential seller. And fun thing was they still wanted to buy me and I was the one that said, "Nah, I'm good. I actually really like my company. I'd like to keep it. I wasn't quite ready to sell." It wasn't even the number. I was like, "I'm just not ready. I think we're going to grow and I'm not done growing it and our staff is excited and look at our numbers. Why wouldn't you want to buy us? Of course, you would."

Grant Teeple (38:46):
Well, that's a perfect example of why you want to find out early if the deal's going to work versus later because you waste incredible amount of human and resources and money.

Sarah Jenkins (38:56):
Well, think of your top staff, what do you pay them? If they're being paid a 100,000 or more a year and you've got six or seven of your top C-suite or your top management team working on this due diligence, they are not managing their team as effectively and they're not growing or being creative about growing your company. You did say something earlier that I thought was interesting. When you were talking about the non-competes, which I never thought about until it was brought to my attention in the material terms, that non-compete, for me as the business owner, I understand, hey, I own a software and so if you buy it, you don't want me to go next week and take all the knowledge I have and create the competitor for you.

(39:31):
You've just bought it. I should be quiet and go retire or do something else that's not the software. But you also mentioned the upper staff, like C-suites and the upper managers. And that actually brings me to a good point. When you're talking about the LLC and the voting rights and the company stocks and stuff, that's one reason to give equity to your upper staff. So they will sign that non-compete and they're excited about the deal.

Grant Teeple (39:56):
That's exactly right. And people don't appreciate the fact that non-competes in every form in every state and most countries are not enforceable except for one exception. And that exception is when you sell a company, you can be asked to sign a non-compete, but otherwise you can't make your employees sign non-competes. But if your employees are owners, right? If they're owners, then they can be... And in your operating agreement, you build in that, hey, if for any reason you ever sell your stock, you're going to agree not to compete for a few years and that's built in, that's going to be enforceable against them. So it's giving equity employees, while giving equity is not everybody's favorite thing to do, but nowadays in the marketplace, you have to do it to get certain talent. And one of the benefits is then you can wrap them up in a non-compete.

Sarah Jenkins (40:46):
Well, if you're going to the due diligence thing, you said, they want to talk to your key staff, so it's buying your company. If it's a strategic buyer, they aren't necessarily going to keep the upper staff, but if it's a private equity, they do want to keep that upper staff. So you want your upper staff to actually be excited that you're selling. So they're going to help the deal, not crush the deal, not make it take longer, not be in grumpy pants. We don't want that. So having them have an ownership stake too gives them that incentive to help sell the company.

Grant Teeple (41:12):
That's right.

Sarah Jenkins (41:13):
And be happy about it.

Grant Teeple (41:14):
That's right. It does.

Sarah Jenkins (41:15):
Which we all want. So when deals do fail, because a lot of times they do fail, what are some of the reasons that deals don't work out?

Grant Teeple (41:25):
Sure. So there's a whole panoply of reasons that are out there, a virtual cornucopia of them, but maybe some of the most common ones, common reasons that they fail is you get into the due diligence and even the sellers have been believing their own press and then you dive into their books or their company records and they find out that the company isn't as profitable as they say it is. And so that affects the value. And if the value gets affected too much, sellers aren't going to want to sell. One of the more common things, especially in today's world of intellectual property, which we call IP, is that the company won't own its own IP. And they think it does because of course we own it, because we have it. Well, classic examples, a software company that's had a number of developers work on their code over the years.

(42:15):
And if you're an employee, your company is deemed to own your work, that's great. But if your brother-in-law worked on some of the code and then gets divorced from your sister and he hates you if for whatever the reason is or people die or disappear...

Sarah Jenkins (42:31):
It's so negative.

Grant Teeple (42:33):
... and they're not employees, well then, what happens? Their code is their code. Even though you're using it, it's in your company, it never goes away. You don't get it. It's not a gift. And so if you can't demonstrate that you own all your intellectual property, that means in the case of a software company, your code, in the case of a sales coaching company, let's say you have a nice big coaching company. I know a lot of your clients are coaches and they have a lot of materials, and those materials are going to be subject to copyright.

(42:58):
If it's a picture or a literary work or a recording, it's going to be copyright. Well, who took those pictures? Who wrote that song? Who wrote that? Who wrote that copy? Because if it's not your employees or you, then you have independent contractors doing it or third parties doing it, and we have to run around. It's very common in deals that when we're trying to sell the company, the buyers comes along and ask for proof that you own all your intellectual property. Well, we're chasing now people who used to work at the company 10, 15, 20 years ago to get them to a sign this, whatever it might be, the copy or the code or the pictures. And of course, what do these people do when you come to them and they put their hand out? So yeah, I'll sign it for a piece of the deal.

(43:38):
So you really want to be what we call exit ready. And exit ready means before you sell, it's really a good idea to come see somebody like me or somebody who knows how to sell companies and we'll go through and do all the due diligence that the buyer's about to do to you. And when we run across the freckles and there's always a freckle, right, or a problem, then we can fix those. We can get out ahead of those things so that when the buyers do come along, everything's already nicely packaged. Hey, look, our ownership's all square. I mean, I can't tell you how many times, how many cases, there are lawsuits, there are where somebody will sell a company and then somebody comes out of the woodwork and says, "Hey, wait a minute. You told me when the company is sold, I was getting 20% of this."

(44:20):
No, I didn't. Yes, I did. No, I didn't. Yes, I did. Well, do you think the buyer wants that headache? They buy a company and they're in a lawsuit over who owns their company? Right after that, they don't. So ownership of the company, ownership of the IP, those are two huge first things we look at when we are doing diligence on the company. The next problem that companies face and is a challenge to sales all the time is they don't have their HR in order. We come in and we look at how they've run their company, how they've dealt with their employees, and we realize they've got half their company are independent contractors when I know their employees or half the company isn't being taking their breaks or half the company isn't doing some other thing, that would be a violation of the labor code.

(45:05):
Well, out here in California, we have PAGA, P-A-G-A, a Private Attorney General Act. If you sue your employer because they didn't give you enough break time, you're allowed now in California as that plaintiff to have your lawyer audit the entire business for all of their employment practices. So now, this one tiny little break time case is now basically a class action against everybody in your company covering all of your employees. And these guys come in, these plaintiff's lawyers and they audit each, they want to see their pay stubs to make sure the pay stubs have the right form. They have a checklist and they'll always find something and it becomes the full employment act for the plaintiff's attorney. So having your HR department locked down and tight and having good employment practices is another thing that will cause a business to fail because nobody's going to buy a business for 10 or $15 million, I'm just going to say, if there's five or 10 million of liability on it, right?

Sarah Jenkins (46:03):
Oh, that's weird. Yeah.

Grant Teeple (46:04):
It happens. It happens...

Sarah Jenkins (46:04):
My math doesn't work out.

Grant Teeple (46:10):
... all the time. There's two other things I want to touch on that are common things that might be relevant to the people who watch us. Another common reason that a deal will fail, especially in the strategics, is that they'll have an emotional attachment to the company and a feeling of loyalty to their staff. We literally were doing a deal about two years ago, just over $20 million. It was accounting software company out of Fontana of all places, and who would know that Fontana had that kind of company? But anyway, we were probably two weeks from closing the deal and a seller called up one time when it became clear to him that my client was going to fire everyone there because it was a roll up, or another accounting firm by another company. He says, "I'm playing golf with a guy who worked for me for 20 years, and he was saying how happy he was to be working at the company. His kids are in college and how his life is going good.

(47:02):
And I knew, this is my client talking, that this guy wasn't going to have a job in a month, and I don't know how he was going to put his kids in college and he says, "I can't do that. These people are my friend. I can't sell." It was a really sweet story, but this is why we like to get deals done in 45 days if we can, because people start thinking and having those types of seller remorse. It's a real problem. Finally, and especially this is the private equity one, the management team. If your management team is made up of Cousin Eddie and a bunch of yokels that you've cobbled together, they may be doing great. It may have brought the company to where it is, but if private equity wants, they want to come in and see a professionalized management team so they can fire and forget. They put them in their portfolio and then don't have to really supervise them again. And I have literally, I'll never forget, it was a health food supplement company.

(47:55):
We were going to sell it for $22 million. They flew in from New York on their Learjet or whatever their big private jet was. We picked them up. We came in because you always interviewed the management team if you're private equity before you finalize the sale, that's part of your diligence. So we passed all the initial diligence. They came to do the meet management team. Usually, it's a day long meeting. The guys were there an hour and they went and got in their jet and flew home and sent us a nice... And told us on the way out the door, "I can't tell this to my board. These people may be doing great, but they're not professionalized enough." Right?

(48:27):
They're sitting in the meetings with their chew and spitting in the cups and just not having the presence. It was a horrible. And we try to put all the lipstick we can on the pigs to clean up the management team. But one of the things we'll do if a client comes to me and says, I'm ready to sell is I'll go as part of our diligence, we'll look at their management team and I'll say, look, we need to go hire some people who can sit the table and talk private equity with the private equity firms and give them the confidence. Because if you don't have a real live strong management team, a professionalized management team, you won't get private equity. They just can't.

Sarah Jenkins (49:04):
My pastor used to make jokes about the summer dresses. He's like, "Girls, summer dresses look amazing. Keep those at home, not in the church." And he goes, "But if the barn needs painting," and I was like, ah."

Grant Teeple (49:14):
Oh no.

Sarah Jenkins (49:16):
He's like, "Wear makeup, look pretty, like go to church, dress respectfully or whatever." I think that's really funny. So I'm not worried at all. Definitely not stressed, but asking for a friend, how would you make sure that you own the IP code?

Grant Teeple (49:28):
Well, the best way is probably have your lawyer look at it for you, right? Because IP ownership is a difficult thing, but there's two ways. There's in what we call invention assignments, and we have all of our employees and all of my client's companies, even though as an employee, I get your intellectual property, we also get an assignment from them. And those assignments, especially with the dev groups and the marketing people who create content or code, it doesn't matter so much for your sales people. It doesn't matter so much for your human resources to have those sorts of things.

Sarah Jenkins (49:59):
Check your code.

Grant Teeple (50:00):
But anybody who's creating any type of content for you, any kind of intellectual property, A, they're an employee, that's your first line of defense. Second, those assignments are good. And then third, anybody who's independent contractor, you make sure in those independent contractor agreements that there's an assignment in those agreements so that for the money they're getting, they're assigning to you all the work that they're creating. Those are really the best ways to proactively protect your intellectual property.

Sarah Jenkins (50:29):
We obviously already have that.

Grant Teeple (50:30):
Yes.

Sarah Jenkins (50:30):
So we don't have to talk about it. Later, you can bill me.

Grant Teeple (50:32):
Yeah, you do.

Sarah Jenkins (50:36):
I know. I don't cry when I write your checks. I do cry when I write the tax checks, but just wildly different amounts. Okay. So I think we've covered a lot of what you do or what you would suggest other business owners do or think about when they're going through an M&A, emerges and acquisitions or a selling or buying of a company. Is there anything else you think would be important to touch on that we've maybe missed?

Grant Teeple (50:59):
Yeah, I think maybe the only other thing that a business really wants to watch for is where and how they're being taxed their business. As we talked about earlier, some states or seven of them don't have a state income tax. So if you're able to locate your business in a state without state income tax, you're going to avoid that tax. So California here, it's a 13.5% tax, right? Estate income tax. So if we can move your company out of the state, it really works great with internet companies to be able to do that. Publishing companies, all kind, that is a huge advantage. I mean, people kill themselves to get 2, 3, 4 more percent profitability in a year. Just by moving out of California, you can get 13.5% more profitability if you can do it.

Sarah Jenkins (51:43):
Well, Tesla's in Nevada, they [inaudible 00:51:45] up and moved a whole factory.

Grant Teeple (51:46):
That's right. What people don't really appreciate is you can have your business in California, but it can be owned by your Nevada company or whatever state might not have that state income tax. And so that's a way to... You can't avoid all the taxes in California. When you're here, you're going to have to pay for the sales you have here no matter what. You're going to have a sales tax, you're going to have employees here. You're going to have those withholdings that are for them. But at the same time, that parent company can charge its subsidiary for the IP that it's licensing to its subsidiary.

(52:20):
And we're going to license the IP to the California company, and we're going to charge as much as we legally, legally, possibly can do that. Why is that? That creates a deduction for the California company. That means there's less profit in California. That means there's less tax in California and that those payments for that IP license, they go to the parent company where they realized over in Nevada or some other state where there's no state income tax. So right there, there's a very simple way to avoid taxes and you can still have your business in California and have its headquarters not in California.

Sarah Jenkins (52:52):
Legal strategies are amazing. I access as many as I can, and your law firm tells me when I can't do something, when I can, and I listen every time.

Grant Teeple (53:00):
But wait, there's more. Not only...

Sarah Jenkins (53:05):
No.

Grant Teeple (53:05):
Yeah, it's true.

Sarah Jenkins (53:05):
Does it come with spatulas?

Grant Teeple (53:06):
It does. Not only can we put your company in a state without the state income tax, but then we have a choice of what type of taxing you're going to have. There's only two types of taxes that exist out there. There's a corporate tax at 21% for what we call C corporations or LLCs that make a C election. Same thing, no difference. Or there's the ordinary tax rate. The C corporation is taxed at 21%. Thank you, Donald Trump. Otherwise, ordinary taxes are up to 36% federal. So if you can have a business in California, if you don't have the C election, it's 36% federal tax to you, plus the 13.5% state tax, effectively 50% tax, right? That same business, if we move it to a Nevada or a state without state income tax and we make the C election to have a C corporation, the top of it to go to 21%, you just moved your tax rate from 50% to 21%. You just saved 29% on every dollar of taxes you pay.

Sarah Jenkins (54:08):
Well, I have that now.

Grant Teeple (54:09):
You have that now, but now everybody else listen to this...

Sarah Jenkins (54:13):
Should do the same thing.

Grant Teeple (54:13):
Well, it does. It makes sense to have a C corporation once you're making more money than you need. If all the money comes in, you have to distribute out right away. It doesn't really give you an advantage to having the C corp. But if you have a profitable business, you are going to have a C corporation. There isn't one major business that I know of, there's no business that makes any real profit that isn't at the top a C corporation. There isn't. There aren't any.

Sarah Jenkins (54:38):
Because why would they?

Grant Teeple (54:38):
One other little tiny thing I know is that if you have foreign investors or people from Canada, Europe, wherever it may be...

Sarah Jenkins (54:45):
Oh, no.

Grant Teeple (54:46):
... they only, only, only want to invest in or own parts of C corps because if they own anything that isn't the C corporation or an LLC with the C election, then they create US tax event for them and they're going to have to pay taxes at home and in the US. So the last thing I wanted to share with you here today is not only these other things we've talked about, but take stock in or maybe that's not a good way to say it. Be mindful of the type of entity you have and where you're located. It can save you up to 29% on your taxes. It's crazy.

Sarah Jenkins (55:17):
Do you know what's really boring?

Grant Teeple (55:20):
Lawyers talking about taxes?

Sarah Jenkins (55:21):
Tax percentages. But you know what's really fun with the money you saved? Going and buying things like boats.

Grant Teeple (55:26):
That's right. Well, you know what Warren Buffet said, "The eighth wonder of the world is compounded interest," right? You thinks it's the eighth wonder of the world, but this is really that, isn't it? Because you're now paying maybe 29% less in taxes, or even if you just avoid the state taxes, 10%. Well, that year after year after year, that money that gets reinvested in your business and other capital assets, it's having that compounding effect and we can all be like Warren Buffett.

Sarah Jenkins (55:55):
So last two questions. What are the states that you do not want to own a company in and what are the states you do? Just off the top of your head, just a couple.

Grant Teeple (56:05):
Sure.

Sarah Jenkins (56:05):
Absolute no-nos?

Grant Teeple (56:07):
Absolute no-nos are California and New York. And it's because the state taxes are so darn high and it's because the regulations are so high. We call California the left coast, the employment laws, we talked about that PAGA lawsuit. It's just ravaging employers. It's impossible to be perfect. And you have a 100, 200, 300 employees here in California. Inevitably there's going to be a challenge there on one of them. So the amount of regulations that we have here in California on all levels, plus the highest tax rate, I'm surprised anybody does business here, and New York's the same way nowadays. Anything along the coast, this isn't meant to be political, but basically the Democratic states allows you to do business in, then the Republican states tend to be more business friendly. So we love Nevadas, we love Texas. Those are the states. We like Florida, we love those states because they are more business friendly. Wyoming's an awesome one.

Sarah Jenkins (57:00):
But Texas does have a caveat. You've got, when it hits a certain amount, it's not no [inaudible 00:57:06].

Grant Teeple (57:06):
Yeah, it becomes, there's 1% after 500,000 or something, so there's some amount of tax, but compared to California, it's a walk in the park.

Sarah Jenkins (57:13):
Oh, no. I signed that on tax bill to Texas State, and I just laughed my way to the bank. It's great. And then very last question before I thank you for your time and all of this incredibly valuable information for a business owner, what are you going to do with the rest of your week?

Grant Teeple (57:28):
What am I going to do with the rest of my week? So what is today, Thursday?

Sarah Jenkins (57:31):
Don't say solve my issues. Mine are all solved already. It's fine.

Grant Teeple (57:33):
Yeah, yeah, yeah. I think that really my next big plan is to see who's going to win this Super Bowl here between Kansas City and Philadelphia. I'm kind of leaning towards... I like Mahomes, so I'm hoping Kansas City wins it.

Sarah Jenkins (57:45):
Yeah, my son's a Mahome, so if I vote for somebody else or I say vote, but everyone says root, then he gets mad at me. So I'm definitely going to root, vote for Mahome.

Grant Teeple (57:56):
All right, great. Well, thanks for having me. I appreciate it.

Sarah Jenkins (57:58):
Yeah, thanks for your time, man.

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