Ken Lucci 0:26

So welcome everybody to an exciting. Episode, another exciting episode of the Ground Transportation Podcast. my name is Ken Lucci from Driving Transactions. We specialize in financial analysis, enterprise valuations, profit improvement and m and a advisory services. My, normal co-host, uh, James Blaine from PS Training. Sadly, he is not here today. Again, he's out traveling. His is the ign. most likely training a stellar group, of chauffeur. And that's fine, that's good for him. But I am joined today. I've been looking forward to this, for a while. Um, I'm joined today by Phil Sheen from. President a Bonavita, benefits. And Phil, I gotta tell you, I've been dying to do this since I saw your presentation at the chauffeur driven NLA retreat event in Savannah. Uh, so welcome. I want to tee this up a bit and then I'm gonna let you talk about what you do. I'm, nobody gives a better bio than, than themselves about their business. So, but why I wanted to have you on. Was, we love what we do at driving transactions and we've been pretty fortunate. We have about, we've reviewed about 280 transportation businesses from a million to over 150 million. We've been blessed, working with the best networks in the industry, the best regional operators and local companies doing financial analysis and valuations. But you know. And I, and I honestly feel like we're experts at what we do because we've just had so much experience with it. But one of the things that's extremely uncomfortable for me is when we speak to transportation operators about exiting and we talk about their financial situation, and we observed that universally. The majority of them are making monumental financial mistakes. You know, number. one, they're not planning for their retirement. by opening outside investment accounts, which I hope you're gonna cover. They, they really are getting horrible advice. on tax, and some of them are not even taking W2 income. They don't have 4 0 1 Ks, and I see a lot of them in their prime earning years or even after sacrificing their own income, pouring it back into a business under the delusion. And that's exactly what it is. Under the delusion that when they quote, when I sell my business, it will fund my retirement. And this is why I wanted you on. So I could safely say to you that after reviewing 280 companies, I want every operator to listen to this. And if you don't wanna listen to my advice, talk to other operators who have tried to sell, talk to other operators who purchase companies. and by all means, talk to. As many successful people who've exited their businesses as possible. But I'd say 90% of industry operators, 90% of operators that sell their businesses, even if they're successful, it's not enough money to fund their retirement. So let's, let me start with teeing you up with some, some stats on small business sales. First of all, there are 30 million small businesses in the United States. At any given time, 15 to 20% of 'em are for sale. Half of them are owned by baby boomers, which bill I, I'm sure you see all the time. These people are getting towards retirement age, and that means any given time, four to 6 million businesses are for sale. Now, small businesses, here's the stat for all small businesses that typically average 3 million or less sales in business, which is 90% of private businesses, by the way. Only 20% of them will ever sell to any unrelated third parties, and they never sell for what people think they're worth there. There's just like, for some reason this delusion that their business is going to garner millions of dollars, people are lining up around the street corner to buy a limousine company and it's just not happening. So. It, it bothers me tremendously and it's something I never really encountered until I got into this space, into, into what we do in 2019, and it's heartbreaking to me to do the best valuation that you can to give the bene every benefit of the doubt to what they built and come back with a value that's market value. It's can be proven by every transaction that's got a comp and it's just not what they think it is. And, and I'm facing, dealing with people that are much older than me. I'm 60, and they're like, I say, what do you have for your retirement? Nothing. This is gonna be it. What, what are you, you've been taking practically no W2 income. So I wanted you on here. First of all, I want you to tell us all about your background and your, your bio and your company. but then I'm gonna ask you some questions and. I want you to be very brutally honest with what this, what every small business owner should be doing. This is good. We've got a good, great audience. We've got some young operators in the audience. We've got some good success, big successful operators that listen to us, but I, I, and I like to think that it's the power of more voices. And voices with, with expertise and credibility that get people to change their behavior. So first of all, what, what gets you into this? Tell us about yourself.

Phil Stetson 6:05

Thank you, Ken, and again, thank you for having me. I think that what makes me most passionate about the work I do is. It's a common thread that we're looking to serve an audience that, for the most part is managing a day-to-day business, month by month, quarter by quarter. And they don't really have a great insight into what their future looks like. And so I would say that looking backwards, to answer your question on what got me into this, I was a 21-year-old graduate from Rutgers, you know, New Jersey Pride and.

Ken Lucci 6:35

Very

Phil Stetson 6:35

Yeah, yeah. Rutgers graduate and I had entered the marketplace interested in becoming an advisor. I had taken a few interviews at Morgan Stanley and Merrill Lynch, and What kept me from going the traditional route of being an asset manager, so to speak, was the fact that I couldn't really control my own future and my own destiny. I would never really control my own promotions. It would be relegated to the time and place and the people that were coming in at that time. So when I had had a chance to become an advisor on my own. You know, that was really a great opportunity. But again, nobody wants to listen to a 21-year-old. Right. Probably knows nothing about life and even less about

Ken Lucci 7:13

Phil, I get, I gotta stop you there sometime. People don't wanna listen to a 60-year-old either. Right?

Phil Stetson 7:19

Right?

Ken Lucci 7:20

Especially when you're telling them things they don't want to hear. But, but, so you are an entrepreneur because you didn't wanna be a a small cog in a big wheel.

Phil Stetson 7:27

never. And, and kind of to stem back to what drove me to be an entrepreneur, my father was an entrepreneur, ever since he came over here from Russia, he came from over from Eastern Europe in 1981. And what I had realized was the very fiber of being an entrepreneur and a, a wise one was. Brought, you know, upon me because my father, when I was just a young kid, made some really big mistakes and he lost everything. He lost absolutely everything. And what would've been probably a track of middle class had thrusted me into you know, really an impoverished lifestyle. I mean, my parents got divorced when I was a very young kid. My dad, you know, got in a lot of trouble with the IRS. He made some really big mistakes. And when it came time to decide what market I would serve as an advisor, as an entrepreneur. I had decided that it would be my life's mission to help everyone avoid becoming my father, right? Make sure that as many people as at the very least, I could educate and coach and provide some guidance, whether they worked with me or not, if I left every single person with just a little bit of a better understanding of what their future looked like and what their options were. That's what made me extraordinarily proud of the work I did, even if there wasn't much success in the first three to four years. Right. And so, you know what my father did was he ran a business, which you and I had discussed in the past. It was a lifestyle business. It was a business that would not succeed without him at the helm. And that in itself is a major issue for business owners because if somebody wants to buy a business, right? You know this, somebody's buying it either to acquire new market share or. As a way to just create cash flow, right? So in this situation, my father made big mistakes with the IRS. He had never figured out how to succeed the business to another party or to his children. And that stems back to relationships and how to manage relationships with second generation heirs, right? Of business, operators. And so when it came time for me to decide who I wanted to focus on, it was the business owner. so, yeah, I've been doing this for 14 years. Just to give you a little bit of a background, I started

Ken Lucci 9:24

Okay. You still look like you're 21, Phil, which I find annoying, but that's okay.

Phil Stetson 9:29

It is the hair. It's all the hair I've been able to keep, although I just had my first, I, I just had my first kid a year ago, so it's starting to go gray on the sides. I, I've done a

Ken Lucci 9:37

congratulations.

Phil Stetson 9:38

Covering that up. and so in, in reality, right, uh, over the 14 years that I've been so to speak, sharpening my pencil, I have taken upon myself to learn as much as I could for mentors. I think mentorship is huge. And I took along estate planning attorneys, corporate attorneys, CPAs, TPAs, who manage retirement plan adoption agreements, benefits experts, so that I could really become a holistic advisor to a business owner. in essence, the reality was is that I knew that I needed to prepare for the first 10 to 14 years of my career to be of true, meaningful value to business owners. And so when it comes time to make an introduction, which CPAs and commercial insurance brokers do often, or estate planning attorneys do, they know that I'm incredibly well versed in all things business owner, whether it's a, a

Ken Lucci 10:25

so most of your, most of your business not, but most of your business is referred business.

Phil Stetson 10:30

I don't do any outbound sales calls. I don't cold call anybody. I've been able to build and foster a lot of trust with other professionals in tangential, you know, industries who say. Phil not only knows his stuff, but his team backs him up. Right? He can really, not just plan, but execute, implement, and support along the way. So I've been very lucky, right? I would say that not a lot of 35 year olds run an organization with eight employees. Not a lot of 35 year olds have the. Breadth and depth of knowledge that I have, you know, accumulated. But when the passion for education and being able to help people is the reason why you're working so hard, it makes it easy. Right? And, you know, a lot of people early on in my career said, you know, chase, chase a good job. Get a great career, get good salaries, be able to live in the city or wherever you wanted to live, pursue your goals. And I said, you know, the reality for me was if I did what I loved every day, even if I didn't make very much money in the first few years, I would be happy in the long run. I've been very fortunate to be in an industry where I get to interact with so many different business owners across all walks of life. Whether it's the business going from a series A to a Series B, or a startup, or an organization that's looking to succeed itself to the next generation. There are so many areas of that conversation that I can navigate, not just basically, but in depth, to really help be a resource to a business owner.

Ken Lucci 12:28

so tell us about your major lines of business at Bonavita Benefits.

Phil Stetson 12:34

Sure. Great question. Uh, where it started and where it is today. It's, you know, everything evolves. Just like you said, you know, you really entered this space in a big way in 2019. We started out doing a lot of buy, sell and Keyman life insurance. I mean, that was the, you know, way I was, yeah. Where I was networking and marketing myself at BNIs and LA TIPS and all these organizations. It was predominantly, you know, what's the situation with your company? How's it set up? Is it a corporation? Is it an LLC? Are there operating agreements? Are there shareholder agreements? And you know, the more you talk about all of these things, the more you find yourself working with A CPA or with an attorney. And if you're interested, truly just thirst for that knowledge, you're gonna sit in on those meetings and understand what a shareholder agreement needs to have. Why?

Ken Lucci 13:17

so stop there for one second. Life insurance, Keyman, life insurance and life insurance products. You know, when, when I think of life insurance, I think, okay, well the average person thinks great. It's a benefit for when I die. But no, it's, you could buy tax deferred. It's, it's, it's, it's a tax strategy. It can be. a tax strategy. You can borrow against it

Phil Stetson 13:41

Yeah, absolutely. It depends entirely on the kind of policy you take out. Ken, just sorry for interrupting you

Ken Lucci 13:46

Yeah, tell us about that. So every small business owner don't think of life insurance as, oh my God, I have to buy it 'cause the people think I'm gonna die. Talk about, talk about the realities of buying life insurance as a tax mitigation strategy.

Phil Stetson 14:01

for sure. So we're gonna get back to the rest of the lines that developed in my business, but I'll, I'll touch on this. Particular area. If you're a business owner that, let's just say runs a successful company with a partner, one of the biggest challenges, just from a basic challenge that you need to overcome is in the event that you pass away by state law, your wife will inherit or your spouse will inherit the shares that you had owned in this LLC or at corporation, whatever it might be. Uh, unless of course there are operating agreements or shareholder agreements that would suggest otherwise. In that situation, your spouse may have zero knowledge of how to run a business, but is very much entitled to the profits of that business. Maybe not the compensation, which is oftentimes comes as a surprise to, to a spouse that inherits a business, right? You're not entitled to the W2 because you're not actively engaged in working for the organization, but certainly the profits, right? So one thing that business owners need to understand is that if there is. A partnership or multiple partners and you're disinterested in inheriting a spouse or, or you know, an ex-partner, decedent's partner, spouse into the business right there off the bat, you know, life insurance is there to provide the liquidity to buy out the care. But you know, going back to what you said, Ken, one of the problem is, is that a lot of people don't have a legitimate valuation. And that's incredibly necessary at that moment because, you know, you could say my business is worth $5 million. But if you know, you can sit with them and say, no, quite frankly, the legitimate value on a on a sale or the valuation of the shares is only two and half million, then your spouse is only gonna find out at the time of your passing that they might be only entitled to $1.25 million in a buyout. And that's not really.

Ken Lucci 15:40

you, a large part of what we Do, for valuation work is a valuation for the purchase of the Keyman life insurance. And it is an, uh, for partnership buyout, and then it's an update. We like to do 'em every couple years because we think that's where the, the, when the needles move,

Phil Stetson 16:00

do you think that, and this is a great, great way for me to ask you a question, having worked with some valuation analysts in the past, you know, how frequently will you do it on a company? Is it every three years, every five? What do you think makes sense for the market?

Ken Lucci 16:13

Three.

Phil Stetson 16:13

Three.

Ken Lucci 16:14

absolutely every three. Look, you're sure changing yourself if you're doing it. on one bad year, trailing 12 months, and you're also being unrealistic if you're doing it on a year that we just worked with somebody who had a $10 million contract that went away, and I'm like, okay, well. You are really not gonna value the, the market is not gonna pay, this was a sale. The market is not gonna pay for a contract that's gone, Right. Never coming back. So we like to do every three years. Now, we do update when we have retained clients, we do update them every year for the sake of what we do for them. But from a life insurance perspective, it would be every three years. From an exit planning perspective, it's usually every three years. So talk about the, the talk about what everybody hates, right? Everybody hates they, they do well, and at the end of the year, their, their accountant says to them, you owe 50 grand in taxes. Talk to us about life insurance as a tax mitigation strategy. First of all, it's a legitimate expense, by the way. It's a totally legitimate expense.

Phil Stetson 17:21

I mean, I mean it, I would suggest that, you know, CPA would be best to address that and most times what I've found is that LLCs and S Corps, because their pass through entities, don't tend to benefit from insurance deductions the same way that a C corporation does, for instance, right? Where benefits are tax deductible and they don't have to good tax on. So I would definitely refer back. CPA on that question, but I will tell you that in the scenarios where they could possibly use a bonus arrangement where they're funding an insurance contract, then you don't need to buy life insurance as a means to just mitigate the risk of a premature passing, right? You can certainly build it into an asset long term that is leverageable by the business or that is provided to a key executive. It doesn't have to be an owner. Right. You can have a key executive in the business that if they were to pass away, it would leave a, a substantial challenge to the business' operations, their sales contracts, their relationships. And you can reward a, key executive with an insurance policy where if they die, the benefit goes back to the company. But if they're alive, then cash accumulates in the contract. And yes, that cash value can be leveraged. It could be withdrawn, it could be borrowed against. I don't wanna get stuck on life insurance because it

Ken Lucci 18:29

No, no, keep going on all your benefits.

Phil Stetson 18:31

yeah. it was, it was a piece of my business that I still am very well aware of. And, you know, I think business owners tend to, I, I always joke, Ken, if I sit on a plane and someone starts talking to me and I'm not really interested in talking 'cause I have to do work, all I have to do is I say, I sell life insurance. And they shut up. They, they immediately headphones go on, they turn into the window and that's it. 'cause nobody wants to talk about it. But the reality of it is, is that so many topics that I address business owners don't like talking about. Right. They don't like talking.

Ken Lucci 19:00

join. Join the club.

Phil Stetson 19:01

Yeah, they don't, they don't like to have to, contextualize their futures. They don't wanna have to quantify their futures. Right. And the problem there is that, you know, Stephen Covey said it best, and I talked about it in my presentation in Savannah, Georgia for the executive retreat. I said it like, you have to begin with the end in mind. You have to think about where you're gonna be 5, 10, 15 years from now. And, and, and the business owners that are young enough to hear this and do something with it, right. I hope this serves as some form of motivation to really take stock of where you wanna be in 10 to 15 years. Because if you continue to buy depreciating assets, you know this, right? Like what happens in a sale, Ken, right? I'm either sell buying a phone number, right? And And the assets, right, which is really more of an asset sale than anything else, or a commission based sale, or I'm doing a stock sale. But how many businesses do stock sales in your industry? I'm just curious.

Ken Lucci 19:52

Oh. Uh, from what we do, it's Eight out of 10 of them are asset based sales. 20% are stock based sales, and the stock stock agreements selling the actual corporation is usually the larger transactions that we deal

Phil Stetson 20:07

Yeah, but they do it for the reasons that, generally speaking, the rest of the industry wouldn't do it for. Right? Like, you know, in your industry, you're doing a stock sale because somebody has an incredible workers' comp or an insurance rate on their policy, and you wanna absorb that as opposed to bringing the fleet under

Ken Lucci 20:21

There's a lot, Right? There's a lot of good reasons to do stock sales, and if the company is extremely well run, there's every reason to do a stock sale, but in a lot of cases, they're not very well run, So, you have to do an asset sale because they have. Pending liabilities. They've never been profitable and their books aren't good. so that's what leads people from a perspective of, choosing an asset sale versus a stock. You know, they'll, they'll, they'll make that choice. Then we're working on a very large transaction now that is actually rare. It's an asset sale, but it's, you know, it's a business over, let's just say the, sake of argument. It's over. $30 million. Normally those size businesses are stock sales. So we talked about 40 million small businesses, 90% of them are less than 3 million. What, what other products do you specialize in?

Phil Stetson 21:17

so I would say that for a business owner that's, you know, sub $3 million in revenue, which means that their EBITDA is somewhere, generally speaking, between what, 12 to 20%, maybe a little bit higher, depending on how many coaches or shuttles they're utilizing.

Ken Lucci 21:30

Average is about 17%. If they get into the motor code space, it'll be 21%.

Phil Stetson 21:35

So in in this scenario, the question that that business owner needs to address is, can they. Distance themselves from that business and convert it from a lifestyle business to a business that they can sit back, hire in some great operators and keep the cash flow coming until obviously, you know, industries change or evolve and then they have to figure out how to tackle that. So in that scenario, when we thought about, when I thought about it, 'cause I am the sole partner of the organization, I'm the sole owner of Bonavita Benefits group. When I thought about what. Story. Am I weaving? What, what fabric am I building here? It's one where you have to think as a business owner on how to attract and retain talent. Right? That's, that's spot two for me. Spot two beyond the life insurance when I started a long time ago was how do you attract and retain talent? And when you're thinking about, all of the work that, you know, some of the organizations within the industry do, they're, they're there to help. Figure out what's competitive pay look like in the marketplace? What are you paying a CDL driver? What are you paying a a, a driver of of an SUV or, or a sedan, right? But no one's really talking about the elephant in the room, which is that a lot of people really tend to, once you get up higher up on the comp spectrum, they wanna make sure that you're taking care of their welfare, their financial futures, right? And so in this industry in particular, I've found that. Overwhelmingly, not a lot of people have set up solid benefits to attract and retain talent, medical, dental, vision, short, long-term disability group life. A lot of people in this space have not thought about a retirement plan, even a basic one. Forget the concept. I'm gonna bring out a little bit later in this, in this conversation, which is, how does a business owner really take advantage of a retirement program? But you know, if I'm a 35 or 40-year-old. And I'm thinking about my future. Why would I want to go work somewhere where I'd have to figure out my own insurance? And I don't think I'm gonna have anything you know, across the finish line of my career into retirement with, it's, it's,

Ken Lucci 23:24

That's the number one Achilles heel when small businesses are are, competing for young talent. The young talent. Is asking the question, okay, what's my comp, what's my benefits? And what, my position gonna look like 3, 4, 5 years down the road? Do you think it's because the small businesses don't have the benefits plan set up? Do you think it's 'cause they think it's really expensive?

Phil Stetson 23:47

I mean, there's two factors. I think that it's a headache, and I do this on a daily basis. You know, we manage benefits for close to 175 companies. they're across the industry. I think that for a small business, they say, I don't have the bandwidth or the wherewithal or the knowledge to really be able to. Hunker down and take care of something like this. And so oftentimes that leads them to say, I'm not gonna even look at it. And that makes it a sticking point for an employee to say, look, I can't continue to work here for more than two or three years 'cause I'm not putting any money away. My family doesn't have health insurance. And, and it becomes a problem. I will say I, I, I will say though, in in this industry in particular, what I have found. The work I've done with a couple of clients is that you, your tenure is, is really, there's a huge gap for tenure. Right. And what you find is that the individuals who work with an organization for three, five plus years, they tend to have all of these things kind of taken care of through a spouse, possibly, right? Like, I have a spouse, she provides insurance, I'll drive. It's not a big deal. It's good money, I'm good. But for anyone kind of in the middle. I've seen that there really isn't a whole lot of tenure beyond one year to three years or four years. You're either with a company forever or you're in and you're out within the first year or two. And so it's this gap that I think. Businesses in this industry can really compete on to suggest I'm not just gonna give you an extra dollar or two per hour, which by the way, is subject to payroll taxes and all the taxes that the employee or the employer have to pay, right? From a payroll perspective. But I'm gonna make an offering available to you so you can feel secure in this role long term. Right? And so for me, I have found that. The headache of trying to figure out how to procure this is challenge one. The bandwidth on managing this is challenge two and challenge three is evaluating a, a comparable, or, what I would say is a competitive offering that would attract people to participate.

Ken Lucci 25:36

So what does it look like? What is the benefits plan that you can put into, you know, just a medium-sized limousine transportation company? What does it look like?

Phil Stetson 25:44

sure. So there's a few ways to enter the marketplace. The first is to say, you know, I have my payroll provider. I'm gonna figure out how to source benefits by way of that payroll provider. I can work with a broker. We can link that directly into payroll. A lot of people are unaware that you can set up a benefits program and link it directly into your payroll system so that as you hire or off board clients or employees, excuse me. It's very easy to manage itself. An alternative is to work with a professional employer organization. Right. Which is a PEO. And that in itself is, is I could do an entire meeting on, but that is a co-employment relationship that you build with a company that is an HRIS system and they become the single source solution to payroll workers' comp, unemployment, tax filings and all benefits.

Ken Lucci 26:26

Do you offer, PO or no?

Phil Stetson 26:28

Yeah, absolutely. Of the, of the 175 clients we work with. Give or take, around 40 of them are with PEOs. Insperity, prestige TriNet, A DP, total Source Justworks. Correct. Yeah.

Ken Lucci 26:39

Nice. Nice. So, so the operator goes from writing payroll checks or using their own payroll service to their employees now become part of a large PEO.

Phil Stetson 26:50

Exactly, precisely. And that co-employment relationship allows them to access what I would say is a substantial, a possible substantial savings on what they would normally procure in. The marketplace as a small business, if they were to go route one, right, where they'd figure out how to work with a broker to procure the medical, dental, vision and all the coverages, and then figuring out how to tie that in right to their payroll system. So it's a little bit more automated. me. Where PEs professional employer organizations find a huge value proposition to individuals in your space is the workers' comp piece. Right? And I'm, I'm specifically focusing on the. Operators that use drivers who are W2 employees, not the iOS so much, right?

Ken Lucci 27:29

With you. Hundred percent with you.

Phil Stetson 27:31

Because if your workers' comp is say seven or $8 per hundred, because the cost of workers' comp is directly tied back to the risk and the state cost for that particular insurance carrier, then by blending your organization with A PEO, where maybe 80% of that. Pool population is white collar. You're benefiting from a, an insurance solution that you couldn't access because the PEO is self-insuring and using a captive on the workers' comp, and you're not gonna do that unless you're paying two, $3 million a year in premium workers' comp's very hard to self-insure because of how big the risks could be on, on claims. Then in addition to that value, right, you're getting state unemployment insurance reductions because that's an experienced cost, right? Based on how much turnover you have in the year, and access to the benefits in what I would say is a Fortune 500 offering, right? Big carriers, national networks, and it's all tied into one system.

Ken Lucci 28:25

So your po, what's the smallest size from in terms of employee, or is it annual revenue to be attractive to a PEO? What is it?

Phil Stetson 28:36

So realistically, most PEOs won't play in a space with less than five W2 employees. The risk of the healthcare doesn't outweigh the, the potential losses.

Ken Lucci 28:45

there. I mean, that, that's easy. That's, that's the typical million and a half or above. You'd like to think 2 million or above. And so you're basically saying to me that if I have five W2 employees, I can get basic Fortune 500 kind of benefits through a PEO.

Phil Stetson 29:03

Correct, correct. And the challenge, the challenge is, is that you have to figure out which PEO is the right partner. So again, like as a business advisor, which is really what I call myself, you know, I have letters like Chartered Financial Consultant or CFP after my name, but I really function as an overall business advisor to most clients. We work with. In that, in that space in particular, it's about finding the right partner within the PEO marketplace, right? I mean, there's probably, probably 400-500 PEOs in the country, believe it or not, right? There's a lot of them and it's about finding the right partner. We've recently, and again, this is not to, to. Tote or, or talk about, uh, the association health program. But we recently, in September of last year, became the brokers of record to the Association Health Program by way of the National Limousine Association, the NLA. So NLA members who are listening have access to an incredible opportunity to, to. Take a similar approach of pooling their employees with a much larger pool, but it doesn't require that you lug along with that, the payroll, the workers' comp, the state unemployment that could sit on its own in what we call a captive, right? A large captive insurance program. And, and, and again, people who are listening to this, who are involved in captives, they understand the value of them, right? Because it can significantly drive down their cost of their commercial liability. Insurance and professional liability, all of that, but in this world, it's a healthcare captive, and so that is a really attractive offering because by way of your partnership or your membership with the NLA, you're able to access that program, right? Without that, you're not able to access that.

Ken Lucci 30:32

See, I wasn't aware that the NLA program changed to you guys.

Phil Stetson 30:36

yeah, no, it did in October of last year, and of course. Like anything, when you become a new broker to a plan, you really have to understand what's going on prior to us joining. But since we've joined, we've really been able to triage some of the challenges that, you know, individuals who participate in it have faced and we've, we've been able to grow it and grow it with. The resources that my firm brings, which I think, you know, again, to a small business owner, you don't have the bandwidth for everything. So when we work with our clients on benefits, we give them an in-house HR benefit specialist to work with, not for, just from an administrative perspective, but we also give them an employee benefit specialist. So if employees have issues, they have somebody they could talk to directly, not a one 800 number.

Ken Lucci 31:16

Yeah, and you know what your CPA doesn't know the HR and the benefits aspects of things. So you basically, you are like having a a fractional HR, HR consultant right there

Phil Stetson 31:30

Yeah, I, I mean, in a way, I, if I would, to change my title, I would say, you know, a, a fractional. C-F-O-C-P-O. I mean, there's a million things that I can do for a business owner, and that's where it gets a little tricky because when people hear the name Bon Vita Benefits group, they think, oh, the guy does benefits. The guy can do our health insurance or our PEO. Uh, but they missed the 401k, they missed the succession planning, they missed the advisory. Right. Which, you know, we're gonna get to. So you start the business in 2011, Phil Sheen, that's me. Right? You start off with buy, sell. A lot of the people we were doing buy sell arrangements for came back to us and said, Hey, our brokers really don't know anything about health. I mean, we're small groups. We have seven, eight employees. Can you figure out how to help us out? And this was right around 2014 when the a CA laws started to change how insurance carriers identified small business owners in the marketplace. We went from zero groups to about 12 to 15 groups within six months, and I, I said, you know, this is a, a real niche for me to find myself in. I'm doing the life insurance, I am the insurance guy right now for everyone, which was hard to shake right off later on in life. And so we started building a practice around providing small to medium sized businesses with benefits. Benefits administration solutions, you know, connections between the carriers and the payroll systems. And we've really been able to support that with additional staff members that, again, stand in like fractional HR people you don't have to pay for. I mean, that's the benefit, right? Yeah. So, so that was exciting. And then, you know, another evolutionary, you know, change in my business was that a lot of these business owners eventually came back to me and said, you know, a DP screwed up our 401k. Can you look at it? And this is something I can't. Begin to tell you, not that I'm gonna take ADP's name in vain 'cause there are some things they do really well. but a lot of these large organizations can, their sales compensation arrangements are all predicated on moving units volume, right?

Ken Lucci 33:26

Exactly, and, and, and once you're in, I'm gonna say it for you. They don't give a shit. They don't care. They don't care about you. In a lot of cases, they don't.

Phil Stetson 33:35

And And what's worse about specifically the 401k space? I started getting referred to people who had set up 4 0 1 Ks. When you set up a 401k, that is a legal document, you're setting up an adoption agreement, right? And that adoption agreement, along with the filings have to be registered with the IRS on an annual basis, the 5,500. And that adoption agreement isn't easy to just snap your fingers and undo. So you really need to make sure that you get your 401k adoption agreement right. Off the starting line, because if you don't, then there's a strong likelihood that the triage will be ineffective, right? The correction of that adoption agreement or that the triage will require that you give more to employees than you had ever intended on doing initially. So. Right around the time where I started getting introduced to 401k opportunities, I said, look, I know what I know really well. Life and health incredibly well, dental, vision, all the insurance benefits, the PEO marketplace. But what I'm lacking here is A, is a real, genuine understanding for the 401k and profit sharing and pension space. And so what I had done was I had, uh, I'm gonna give Peter Coleman a shout out here. Uh, he's the managing director of a company called The Benefit Practice, and I said, Peter, I cannot represent 4 0 1 Ks or TPAs unless I know everything about them. I mean, that, that's literally who I am, Ken. I'm not gonna talk about things I don't know. I'm only going to talk about things I do, and I cannot represent myself as a professional in a world where I don't understand it. And, uh,

Ken Lucci 34:53

Especially if it's that complex. You're

Phil Stetson 34:55

yeah, and, but that's a sad part, right, Ken? To be honest. A lot of business owners are being called incessantly by salespeople who know how to sell a product, know how to schmooze somebody, but they don't understand how the sausage is made. And quite frankly, once they've moved on from that sale, they're no longer tied to the relationship. Somebody else is an implementation or account service. And so what I found for me is that taking Peter on as a mentor, learning the ins and outs of an adoption agreement, understanding what. capabilities, profit sharing programs have for, companies that are business owners or pension programs, cash balance plans or variable plans. It equipped me with, again, just another arrow for my quiver, right? Like, that's pretty much what it was. And you know, that space has grown dramatically. We now manage 50 company retirement programs, across a number of providers.

Ken Lucci 35:42

By the way, so let's, let's stop there for a second. How big do I. have to be to, to offer a 401k plan?

Phil Stetson 35:48

So it's interesting, you might say, you might say, oh, don't I have to be a, a huge employer? No. The answer is that that's not the case. Right? It's a matter of how you set up the plan. The larger the company really, when I say the larger the company, I mean, when you have more than 15, 20 W2 eligible employees. Eligibility just for anyone listening on a 401k for the, from the 401k perspective is a thousand hours or more, right? You become eligible for retirement plans if your adoption agreement is built that way. If your adoption agreement is one hour of work, then guess what? Anyone is eligible to participate and get money from the company. And so that's where, again, like you really need to be careful on how you're advising clients on setting up these programs. Uh, but in that sense, companies as little as 5, 7, 10, 12, 15 employees can set them up. And what people don't

Ken Lucci 36:31

Do, do you, do you, you know, we, we struggle with, we, we help people. With obviously budgeting, financial performance, and we've always seen companies struggle with bonus plans. Do you think 4 0 1 is a good incentive?

Phil Stetson 36:48

So you're touching on such an incredible point, and it's a part of my practice that we meet with our clients kind of towards September and October to evaluate the profitability and figure out whether or not there will be a bonus pool. Some years, there are some years there aren't bonus pools. What people tend to forget, and they don't do this because they're not paying attention, but they just don't realize it. If I wanna give out a 80,000 or a hundred thousand dollars bonus. Pool to say 30 or 40 employees, right? Those employees are likely relying on that money to pay for presents, for vacations, for credit card bills. And so when you start talking about shifting a bonus pool to possibly some form of a deferred benefit, like in a 401k or a profit sharing plan, you end up starting to play a little bit, uh, of a game of optics, right? How will my employees receive that As, as, uh. As a way of maybe still paying out the same a hundred thousand, but maybe putting 25 of it into profit sharing or 401k contributions. But people don't know what's good for them. Like that's the reality of it, right? And what's good for most people is to save, and most people don't. And so for me,

Ken Lucci 37:48

Uh, you, you, you, you're, you're a hundred percent right. I mean, my father taught me what compound interest meant.

Phil Stetson 37:54

and that's,

Ken Lucci 37:54

I didn't learn that in school. My father taught me

Phil Stetson 37:57

I think Ben Franklin said it's better than sex. Right? I think that that's actually a Ben Franklin quote, if I'm not mistaken.

Ken Lucci 38:03

I would ag, I would agree with him, whether it was Ben that said it or not, compound interest is fantastic.

Phil Stetson 38:09

so the earlier you get to the starting line again there, the better you are, right? Compound interest is very simple. Comp, uh, simple. Story to tell. The money you earn interest on that interest will earn more interest long term. And the earlier you get to a saving strategy, the easier it is to complete. let me go back to what you asked, right. Really quickly. You said, you know, do I have to be a company of 30 or 40 or 50 or 60 in people to do this? The answer is no. But there are also some legislations that have been passed in the last year or two. Depending on what state you are, and depending on how many employees you have, you are mandated to offer a retirement plan, and people are completely, you know, unaware of that as a problem. It's a big sales push for companies like Paychex and a DP, which are trying to sell 4 0 1 Ks. They're saying, getting compliance with us before you get penalized by the state you're in. But again, it's so important and crucial that you set this thing up with the goals of the organization or the ownership. At the heart of it, because if you do it wrong, it's not great, you know?

Ken Lucci 40:15

Yep. And, and more and more companies that I deal with where the operators are young and, and you know, I've got one particular that we just did a proposal for, and he is doing a great job, but I've said to him, I said to him, he struggles with his number two, number three, and number four People and he wants to create a team that will run the business without him. And this is what comes up, is how to bonus out and how to incentivize the team and how to build a long-term team that will stay with you instead of the constant turnover entrenched employees.

Phil Stetson 40:53

I mean, but think about this, right? You know this. If I'm gonna pay out a hundred thousand dollars in bonuses to say, employees that are making less than $176,000 a year, 'cause that's the social security threshold for taxation, approximately, I'm gonna have to pay approximately 10% in a payroll load between workers' comp, social security, Medicare, and possibly some unemployment tax. If you have a high wage cap in your state, so if I'm gonna pay a hundred grand, it's gonna cost me $10,000 as a business. If I instead pay 80, I'll save $2,000 in taxes, and that might go towards the cost of running a 401k plan.

Ken Lucci 41:25

Yeah, I'd, I'd rather pay to my employees than the federal government.

Phil Stetson 41:28

And that that's, that's priority one. Honestly, I'm gonna say something that's gonna be difficult for anyone to hear on this call. I hate one kind of client, can I be honest with you? It's juicy. I hate clients who do not care about their employees. I do not wanna work with them at all, because at the end of the day, what I'm doing is not really meaningful. It's not gonna create any differences long term for any families or any people. And it just, it's not the kind of person I like to work with. I like to work with people who care about their staff because they realize. It's, if it weren't for that staff, they wouldn't be driving $150,000 AMG They wouldn't

Ken Lucci 42:03

Well, it you, I, I feel the same way. And our, I, I, I call it, I just spell it out this way. If you are running a lifestyle business to perpetuate your business sooner or later, it's gonna bite you in the ass, number one. Your employees are gonna resent you. Number two, you're not gonna build a company that can survive without you. I choose to deal with and work with people who want to build a company that is based on people and profit. Those two things go hand in hand, and, and that's when it comes down. I'm with you. I, I'm a hundred percent with you. I, I, when I, when I deal with lifestyle businesses, they usually. They never want to talk to you when they're doing well, but they won't leave you alone when they're not doing well. When business is down or when something has occurred. And because they are the end all and the be all. And there's, listen, there's nothing wrong with lifestyle businesses, but just realize what you, what you've created, you created a job for yourself.

Phil Stetson 43:01

Exactly 1. That you're not gonna be able to walk away right from without selling. What? Just your depreciated assets on the balance sheet. That's pretty much all you're

Ken Lucci 43:10

A a and you're, you know, and, and I, I, I gotta tell you, I mean, I, I, I have a saying with my clients, when you stop listening, I stop talking. So when I find that I repeat myself three or four times and saying the whole same thing's over, and what I hear is, yeah, but my business is different. No, it's not. You know, the thing with the lifestyle business. The thing with all small businesses, they hit a ceiling and the ones that don't grow beyond the founder. Okay, beyond just number one, caring for the founder, those become companies and to me. You cannot become a company without attracting and, keeping talented people, and you're not going attract and keep talented people unless you have the things we've been talking about For 30 minutes. Unless you've got the benefits, unless you've got, unless people portray you, oh, wait a minute, that's Ken's company, or that's Ken's business versus that's an ambassador limousine in sedan. So at the end of the day. what you provide is basically you provide all of the products and tools that if, if the small business person takes advantage of them, you can be on the same level playing field with Largest companies in the, in the, in the country.

Phil Stetson 44:28

and it's easier, right. To do it for, you know, the last piece I wanna really touch on here, 'cause uh, you know, I know our time is coming up is the fact that 401k and profit sharing plans, that's one document, generally one plan, right? But the, the ability to consider a cash balance pension plan or a variable defined benefit program, right? These programs allowed the business owner, assuming they have the right W twos and the right variables, the demographics of the organization to take much larger deductions from the business and put it directly into the retirement accounts that they have. We've worked with a lot of organizations that might have 20, 22, 25 people where the business owner might be in their fifties or sixties, and they are successfully run businesses. They might be LLCs. Everything is subject to self-employment tax, and that's important. People don't realize that, Ken, when you're talking about retirement plan contributions, social security and Medicare tax have to be paid on the salaries by which you are attributing a retirement plan contribution for. So if I.

Ken Lucci 45:27

So you're taking distributions. You can't, you

Phil Stetson 45:29

Can't use those. So if I'm a, if I'm an S corp and I'm, I'm doing what's right and let's just say I'm taking $200,000 in a W2 and I'm taking $300,000 in a K one right distributions, or I just leave it as profit in the business at the end of the year that I'll pay tax on that $300,000. You can't do anything with that compensation to create retirement plan contributions. You're only using that 200,000 number, which means that yes, you might be able to get $31,000 out. Personally, 'cause that's the max for anyone over the 50, you know, year mark to defer on their own personally from their salaries. But if I want to come up with a pension plan or a profit sharing plan, it's directly tied back to that $200,000 number, not the overall $500,000 that you're profitable or taking comp on. So in in that world, you know, we're able to sit down with a 55 or a 56-year-old and we can accelerate their retirement savings. By millions if they have the correct variables, the components of the organization. Within only a five or six, seven year period, right? I'm not even kidding. You have two, $300,000 contributions. You can't do that in a 401k or a profit share, but in a pension plan, it becomes a viable solution for a business owner or their partner and or, or together, right? Yes. You ultimately have to give something to the staff. In that case, I'm not sitting here and saying, you're not going to, but what you have to give to the staff, which is also tax deductible to the business. It wanes in the amount of tax savings you receive just on that $300,000 deposit, right? If you're in a 40% tax racket, you're losing 120 grand on three, $300,000, right? We can, you and I are math people. If you put 50 away for the staff and you hide 300 for yourself, you're still netting out 70 grand just in tax savings. Do you get my

Ken Lucci 47:07

And, and, and I don't know if, if you agree with this statement, but I find that people say, well, my CPA didn't tell me that your CPA is not a tax planner. They're not a benefits person.

Phil Stetson 47:18

so many CPAs are in the business of filing returns and not proactively giving advice, right? And the

Ken Lucci 47:24

Exactly. They're not certified, first of all, they don't have your, They don't have your certifications and they're also it something like 90% of CPAs are not tax planning certified.

Phil Stetson 47:36

No. And, but like, you know, the reality of it is, is that they work in the lane that they've worked in for years, and they work with the variables that they're comfortable with working on. And, and if that is in your, in our industry here specifically for, for those that have chauffeur, you know, chauffeur and companies, it's depreciation. Right. That's it. That's like all you have. Maybe you can advance a few expenses before the end of the year. Right? But at the end of the day, depreciation's now back on on the docket, right? With the O-B-B-B-A bill that.

Ken Lucci 48:04

A hundred percent depreciation is back, but you know, at some point,

Phil Stetson 48:10

I was rooting against that. Believe it or not, Ken, I was rooting against that because it might actually give the business owners the wherewithal to say, oh my God, I cannot continue to reduce my income and the taxes using the assets I'm buying for the business. And I thought for a second, oh my God, this is a great place for them to fit in a two, $300,000 deduction for themselves and do something good for themselves long term, you know?

Ken Lucci 48:30

Right. Well, to your point, okay. I've seen, huh. This is a notorious story here at Driving Transactions where we had three years ago, we had a client we love him, but we, he shall remain nameless on Christmas Eve. He called us and look, we're like a lawyer. We, we, we, we work bankers and lawyers hours. You, Chris, around the holidays. We could take two weeks completely off at the end of the year. Well, this particular person called, uh, new Year Christmas Eve and said, oh my God, I've just, you know? we, we realized we just, you know, we made two or $300,000 and I, I need to go out and buy a vehicle. I spent. Between Christmas Eve and New Year's Eve negotiating his purchase of a motor coach reading over his purchase agreements and it, it was like, we're not doing this anymore. So for what we do, we don't do tax planning. We give you a tax prep report. As of July, we know what you've done For the first half of the year, we know your cost structure, so we're gonna extrapolate the last half of the year by looking back at your numbers, Right. Last year. So we're gonna give you one tax prep report in July, and then the other, the most important one to me is the one in October. Okay. But to your point. Most of these guys say, okay, well their advice is okay, go out and buy a vehicle and we can depreciate all of it. Well, the sad part is most of these guys are not paying for it in cash. Right. And unfortunately they're adding debt to their company. So, so just, and, and I know it's not The case for everybody, but just give us some, just some broad strategies on tax mitigation.

Phil Stetson 50:08

Sure. So let's just suggest for a minute, let's use your story. Can we use that for a minute? You get a call on on Christmas Eve, oh my God, we have $300,000 in profit. What are we gonna do with it? Right. And this is to no offense to the unprepared owner, right? Which quite frankly, accounts for a lot of them. What if I were to say that you didn't have to burn the profit before the end of the year to still be able to claim a hundred, $200,000 deduction? You see, most people don't realize that when the secure act, the original one, not 2.0 came out, it had given people a much longer time period to launch retirement programs retroactively for the year prior. So people think I have to set up, uh, a 401k profit sharing plan, pension plan. For 2025, I've gotta do it now. Yes, in some cases you do have some deadlines. Safe harbor plans require deadlines and notices to participants. But profit sharing plans and pension plans, you can set up as late as the filing deadline or extension. Right? For the prior year? For the, for the prior year. So what, right now, let me give you an example. I have a organization that we're working with in the industry. And they're, they filed an extension for 2024, right? They, they didn't wanna file on time, and that's fine. Some business owners don't have the time earlier on in the year.

Ken Lucci 51:20

a lot of people do that as a strategy. I get it.

Phil Stetson 51:23

And, and, and that's fine. But what we're talking about with them is where their funds went at the end of last year. Do they have the funds that they can make a contribution of two to $300,000 and, and claim it in 2024? For their return. People don't realize that. So with retirement programs, yes, some plans need to be set up in the year that you wanna utilize them, but other programs like profit sharing plans and pension plans, you can leave the money on the, on the income statement at the end of the year, come back in March, April, may, June, July, and still launch a plan for 2024 and get the money off of your, off of the income sheet for Pro from like a tax perspective. So.

Ken Lucci 51:58

Interesting.

Phil Stetson 51:59

It's, it's really unique. You know, and I'll tie this all back to the same story, right? Like it comes back to my father, right? Had my father had the good advice that maybe he would've met me. I would've told him that the CPA is doing something questionable and don't listen to them. Go find another CPA. Think about your business from a perspective of where you're gonna be in 20 years and how you get out, or 10 years or 15 years, right? And think about how you're gonna accumulate the money. And when you think about accumulating money, whether it's. Investing outside of a retirement program, which, yeah, we're gonna talk a few seconds on here. put the money away in the most tax effective manner. Phase one, right? Phase one is to save as much taxes as you can, and that aligns with CPAs and that aligns with business owners. Phase two is don't overindulge in retirement programs because you're only going to have one type of dollar to pull out of an account later on, and it's all gonna be subject to income taxes at that time, right? Ken, if I put $3 million in a 401k and I say, okay, I'm ready for retirement. Every dollar that comes out of that thing is gonna be taxable and it's. Really anyone's guess on whether tax brackets are gonna be higher or lower than they are today in the future, right? And so you could end up doing yourself a disservice. But then diversify outta that. So the last component of our relationships that we've really loved, and this is what I think really makes a difference, is we've aligned ourselves as quarterly advisors to review the profit and loss, identify the tax liability, pay the tax, and then figure out what does the opex need to look. Like, you know, OPEX is operating expense reserve, right? So what does the opex need to look like and what is in excess of that, right? That isn't being attributed towards a retirement plan contribution? Take it out. Take the chips off the table, put it into an investment account and a brokerage account, a managed account. Invest in the s and p 500. Do something to do to earn more than what it's earning in a checking account in the business, or a savings account in a business.

Ken Lucci 53:49

afraid to do it.

Phil Stetson 53:50

You know, and, and people say, well, what if my business needs it? No problem. It's as easy as taking a distribution and then making a contribution, a shareholder contribution. It's literally just the same thing that you're doing, except you're leaving it in the business. Right? And what business with the liabilities that you guys have to face in your industry wants to have 70 $800,000 in a bank account, right?

Ken Lucci 54:09

No, It's a target.

Phil Stetson 54:11

It's a target. It's a hundred percent a target. So, so what we've loved about the relationships that we've fostered and we've really molded is the fact that when you work with a firm that is equipped to, to navigate so many disciplines, you know, shareholder agreements, estate planning conversations, retirement planning benefits, and ultimately succession planning, which is what it all leads back to. You get an advisor that's literally like building yourself a board of directors where two or three of those roles are filled by somebody who has the knowledge. Right. My biggest challenge, quite frankly, is that I, I don't, I need more people, I need more staff, right? That's the reality of it. But for the relationships that we've built that, you know, we have calls quarterly. We have calls weekly or monthly, whenever we need to, to identify the problems. It's important to align yourself with that kind of a, like that kind of a sales person, right? Because we are all salespeople, right? At the end of the day, can you sell your service? I sell mine. But you're, but the accountability measure, right, is completely different to people who are entrepreneurs like us than to the corporations that simply throw thousands of units into the marketplace on a monthly basis,

Ken Lucci 55:16

Yeah, and, and, and I think you're setting yourself up for disappointed. Dis disappointment is a small business. If you don't have. A trusted advisor that you can pick up the phone and say, listen, Phil, I get this idea. What, what, what should I be doing here? Versus you? You're gonna be calling your rep from Paychex or a rep from any of the big companies, and they're not gonna take the time to learn your business. It's the argument that we have with people all the time. Your CPA does your taxes. He's not interested in knowing your business. Listen, we, unfortunately, we have to stop there. But tell us how people can reach you. If you wanna give out your cell number, give out your cell number, give out your email.

Phil Stetson 55:55

So you could reach me on (973) 953-1700. That's my cell phone. My office is (201) 523-9997. And if you need to reach me, it's PHIL Phil dot sheen, S-H-E-T-S-E-N, at prudential.com. Now just quickly, Prudential. It's not my only brand. We represent everything in the industry across the board. It's just where I hung my shingle when I was 21 years old and they let me build my own company and they let me have full autonomy in my own office, my own staff. So if anyone on this call or anyone listening to this call obviously has a question, my time It's valuable, but I'm happy to make. If anything happen, I, I'm happy to help people, help educate and coach people. Look at an adoption agreement. I'm not gonna charge for that. I'm, I'm really there, like I said, Ken, to help right. Prevent anyone from becoming my father. That's literally

Ken Lucci 56:49

And, And, you have to give to get, that's why I do so many webinars and so many education programs, so many free white papers, and that's why we do this podcast. Sometimes we can have, you know, a, a conversation that that can be a little zany. But this one is important to me because, and I, and I really wanted to have you on because it just, when I re meet people that have built a business over 30 years, it's their blood, sweat, and tears. It's the only thing they ever done. And when I tell them, well, this is the. This is, this is the only thing it's worth. This is what it is worth. And the fact that 20%, only in 20% of the cases do these businesses, any businesses sell, especially seven day a week businesses. It's disappointing. So my message to everybody who's listening is, it's not too early to start an investment account is, and my. My friends who own businesses with more than five W2 employees, you owe it to yourself to have a benefits plan 'cause you're gonna attract better talented people who could help you build a company. Phil, thank you so much for uh, your time today

Phil Stetson 57:57

Ken, thank you for the opportunity. Really appreciate it. I'm so happy to share my knowledge.

58:02

Thank you for listening to the ground transportation podcast. If you enjoyed this episode, please remember to subscribe to the show on apple, Spotify, YouTube, or wherever you get your podcasts. For more information about PAX training and to contact James, go to PAX training.com. And for more information about driving transactions and to contact Ken, Go to driving transactions.com. We'll see you next time on the ground transportation podcast.