Ground Transportation Podcast
Take your transportation business to the next level.
Kenneth Lucci of Driving Transactions and James Blain of PAX Training share the secrets of growing a successful and profitable ground transportation company. On this podcast, you’ll hear interviews with owners, operators, investors, and other key players in the industry. You’ll also hear plenty of banter between Ken and James.
Learn how you can grow revenue, train your team, drive higher profits, and boost owner income. Subscribe today!
Ground Transportation Podcast
The Retirement Myth: Why Your Business Isn't an Exit Strategy
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
Are you banking on the future sale of your fleet to fund your retirement?
In this candid episode, host Ken Lucci is joined by former ground transportation executive turned financial planner Steve Pitel of Socium Advisors and Northwestern Mutual. Together, they break down the harsh SBA statistics revealing that 70% to 80% of small businesses—and up to 80% of fleets under $5M—never successfully sell.
Steve outlines why treating your company as your sole retirement plan is a dangerous trap, why operators must separate "church and state" by paying themselves a market-rate W-2 salary, and how to build independent wealth long before planning an exit. From setting up tax-advantaged 401(k)s and SEPs to shielding against involuntary exits like the "5 Ds", this conversation delivers an essential financial roadmap for every founder.
In this episode, you'll learn:
- Why 80% of small businesses never sell, debunking the future payday myth
- How to pay yourself first with a market-rate W-2 salary from day one
- How 401(k)s and SEPs build tax-advantaged personal wealth outside the fleet
- Why building a risk chassis protects your family against the 5 Ds of exit
- How to establish emergency reserves for both personal and fleet protection
Connect with Steve
Learn more about Socium Advisors
Get out of the driver's seat and start building a REAL company. Join the Limo CEO Academy: the on-demand growth program built specifically for operators doing less than $1 million annually: https://www.limoceo.com/
Pax Training is your all in one solution designed to elevate your team's skills, boost passenger satisfaction, and keep your business ahead of the curve. Learn more at www.paxtraining.com/gtp
We've all heard the story about all these wonderful companies started in a garage somewhere and now they're the wealthiest people in the world. But at some point you have to create the separation. It's not about just paying me at the end of the year. Well, how did the groceries get paid for? How did the gas get put in the cars? How did the mortgage get paid? Well, I think we both know the answer to that. They're extracting whatever they need to pay their bills.
SPEAKER_00You're listening to the Ground Transportation Podcast with Ken Lucci of Driving Transactions and James Blaine of PAX Training. Learn how you can build a thriving transportation business with real profits, repeat clients, and enterprise value. And now for your host, Kenneth.
SPEAKER_01Well, good afternoon, Ground Transportation Podcast audience. My name is Ken Lucci from Driving Transactions. I'm one of your hosts. The other host is a gentleman named James Blaine from PAX Training. Honestly, I don't know where James is. I'm thinking of getting one of those air tags to put on him, like I used to have my dog, to figure out where he is around the country because he's always traveling. No doubt he is out today training a group of chauffeurs or coach pilots. Godspeed, James Blaine. We will miss you on this episode. But I am blessed to be joined by a true professional who, quite frankly, had been in the business longer for a long, long time before he exited and went into what I hope is an extremely successful career in financial planning because he's handling most of my retirement money. This gentleman is Steve Patel. Steve, give us your history in the Chopert space, and then let's talk about your pivot and how successful you are now in financial planning and investments. First of all, what welcome, by the way. Welcome.
SPEAKER_02Thank you for having me. It's an honor to be here, especially on September 11th. It's brings back quite some memories, and we're all lucky to still be here.
SPEAKER_01And we should be thinking about that every day during our political discourse and how we treat people because it was a tragic day, but what came out of it was a sense of unity that I I think you'll agree we just don't have now.
SPEAKER_02Yeah, there's no question about it. And yeah. I have quite the memory back in the Schauford space during those times and how we the the immediate high of getting everyone home, but at the same time, once everyone was home, and we helped out as many people as we could. The business literally went flat for a period of time.
SPEAKER_01Yeah, give us your background in the Schauford business.
SPEAKER_02I spent about 28 years in the ground transportation industry with various different executive places, but for the most part, was with Dave L. Boston Coach, and I was there till 2020 as their chief sales officer. Enjoyed a lot of good things, have a lot of great memories, some stories I can't tell.
SPEAKER_01Sure.
SPEAKER_02It was a lot of fun. I always had this dream of being in the financial services world, and I must say that I learned a lot being in the chauffeur at car space as I transitioned over uh to financial services. I left at the end of 2020, Christmas Day, actually, and started with Northwestern Mutual. I had already been a client for many, many years. Upon my sixth year, I was able to merge with the private client group, which is Socium Advisors. And we did that just this last July, and it's been quite a great ride. And I've got to spend a lot of time with the people that I worked with prior to coming into this space. So it's been a lot of fun.
SPEAKER_01For those who don't know about Northwestern Mutual, it's a great company, fantastic company. Give us just a little bit of a buy or a background on that company.
SPEAKER_02So started in the late 1800s as simply as a life insurance company. Got some great stories around how they got started. Their first claim, they weren't even able to pay as a company. So the board members pulled the money out of their pocket to it was a train wreck. Wow. And they paid out the claim. And ever since then, they've been paying dividends. Fast forward to today, we've got two buckets. We've got the risk management side, which is the generic what you think is the life insurance side, and then the investment side. Just under a trillion dollars in assets between the two, if you put them together, like 400 billion in one and 420, don't quote me, uh on the other side. And then as they started to again move out of that life insurance space, they decided to create this private client group. And there are groups of us around the country that handle just that's private wealth, and that's what Socium Advisors is. It started with Scott Underwood when he started in the business 30 years ago, and we are approaching five billion in assets that we personally manage.
SPEAKER_01Okay, so the relationship between Northwestern and the private client group and Socium is what? It's not an exclusive relationship, meaning you don't represent Fidelity and the rest. You've chosen to be under the Northwestern mutual umbrella, correct?
SPEAKER_02So Socium is just a division, uh, and again, private client side of it. So the investment, it's a holistic approach. So it's not just okay, well, we're just money managers and give us your money and we're gonna park in a particular place.
SPEAKER_01Gotcha.
SPEAKER_02We take this holistic approach of looking at life goals. If we're talking about business, succession planning, right? But start to finish, it's just not about peddling uh a particular product. You mentioned Fidelity, we're not selling product. Gotcha. We are providing planning for individuals, families, and businesses.
SPEAKER_01So we both got together because we have a mutual client who owns a pretty large transportation business, and that's where I first met you. I knew of you from the showbridge space, but I was kind of so impressed with what you do. You are managing um some of my retirement. Talk to us about the entrepreneur and what your experience has been trying to get them to focus on their retirement. Does it vary with the age of the entrepreneur? What are you seeing out there as far as when you talk to people that have companies, what are you experiencing as far as their level of retirement planning or financial planning?
SPEAKER_02So if it's an entrepreneur, this is historically what I've seen. So in many cases, the entrepreneur will put all their blood, sweat, and tears into this dream of owning a business, creating growth, and if they have family, creating a legacy or succession planning. Many times what will happen is that everything goes into the business and there's no separation between we'll say church and state, right? So personal assets or personal income and what they're gonna do with the business. The problem there is that I hate to be their accountant because many times they can't separate the two.
SPEAKER_01Yeah, it's what we it's what we call you have a lifestyle job. You don't have a company, you have a lifestyle job.
SPEAKER_02They don't put themselves on payroll many times when we sit down with them to build a plan and we add well, okay, what should W-2 look like last year? Well, I only pay myself when I need to.
SPEAKER_01Right. Or I take year-end distributions, which are a balance sheet issue, a cash balance sheet situation. When cash is available at the end of the year, they'll take it.
SPEAKER_02Now that might work in the beginning, right? Because everybody starts somewhere, right? Like we've all heard the story about all these wonderful companies started in a garage somewhere, and now they're the wealthiest people in the world. But at some point, you have to create the separation, as you just said, right? It's not about just paying me at the end of the year. Well, how did the groceries get paid for? How did the gas get put in the cars? How did the mortgage get paid? Well, I think we both know the answer to that. They're extracting whatever they need to pay their bills. Our suggestion is you start as early as possible by creating two separate buckets: lifestyle, pay yourself first, let the company or the business build upon themselves. I know it sounds easier than done, but at the same time, and we feel that's the best way to create success early on.
SPEAKER_01Listen, I grew up, my dad was an entrepreneur, his father was an entrepreneur, his father was first generation from Italy. And my dad was an entrepreneur in the food business, supermarket business, and the liquor business. But he had very early on, you know, his modus operandi was to take the profits. First of all, he did pay himself a W-2, pay my mother a W-2 for working there. And then my brother, when my brother got in there, they all got paid a very nice W-2. They bonus themselves. But my father would take money off the table. He bought life insurance and he bought commercial real estate and residential real estate. The problem I see with a lot of entrepreneurs is they're constantly shoveling money back into the business. And the day never comes that they build wealth outside their primary business asset. Talk to us about that. If if uh if you were to talk to somebody who'd made it over the hurdle, they've made it over the first five years, which are treacherous in any business. But talk to us about someone who owns a business who are still in their prime earning years. What's your recommendation for them?
SPEAKER_02Okay, so it's twofold. The first thing you have to have at least as a family, at least six months of emergency fund. So cash on hand. Then separate on the business side, you should have two to five years of operating expenses. Two to five months. Five years for the business. Well, at least the businesses we're going to talk about today.
SPEAKER_01Yep, yep, yep.
SPEAKER_02Okay. Because you're going to tell us what the margins are, and you and I both know there's very small. And then again, go back to 9-11 when you have business just absolutely stopping for a large long period of time, but you still got to pay for the cars, you still got to pay for the employees. So if you don't have that runway, you're going to hit a wall really quickly. So to go back to your question, so build retirement planning. There's multiple buckets to build retirement planning in. So have a 401k set up for your business. Now, if you set a 401k up for your business, there are multiple ways to build it, as I said before, where it favors the owner above that maximum input.
SPEAKER_01Correct.
SPEAKER_02Okay. Now you need to do something outside of that. You need to do investing. Take advantage if you're a younger person. You know, the equities market can treat you very well. You have time for a little bit of risk to upswing on what the market's going to do for you. So now you've balanced out tax deferred as well as a taxable investment account. I know you're familiar with that. And then if you really get excited, then invest outside of that. You mentioned your father in real estate, so forth. But again, keep the wall completely separate. On the business side, you want to own some of your assets. No, owning a fancy car or a fleet of fancy cars is they're not really assets.
SPEAKER_01No, the depreciating assets that it's that's not an investment strategy. It's a depreciating asset the second you drive it off the lot.
SPEAKER_02Right. Oh, and then the other delusion is that well, every time it leaves my lot, it's making me money. Well, you really need to analyze that. And that common client we have that is very good at it, understanding what every mile does, every time it goes off that lot, there's also the possibility that it's going to go down, right? Correct. I think these are all different places that you need to grow. Now you've taken care of your business side, right? The benefit side, investing, do the same thing on your personal side. But I can't stress it enough. Pay yourself first. And if for some reason the business needs to be reinvested in, if you've done all these other things, there are good ways to, there are equitable lines of credit that you can obtain. You if you have brick and mortar, right? That's an asset. But just because you have accounts receivable doesn't mean you're going to continue to be successful.
SPEAKER_01What what do you see as the biggest misnomer in small businesses who say, Steve, I'm just gonna when I retire, I'm just gonna sell my business and that's gonna fund my retirement. What do you think of that strategy? I'm being facetious, obviously.
SPEAKER_02Yes. Well, those folks that say that are also those folks that have nothing else. They don't have an IRA, they don't have a 401k plan, they haven't invested in the market, right? They've done nothing but put everything back into the business, and that is their future. That's how they're gonna get over the goal line, and that's just not gonna happen.
SPEAKER_01So thank you, John, by the way, for all of those in the audience. John is our lovely producer. So we're showing a slide what happens when a business doesn't sell. Here's a couple of things that I I like your comments on. The reality, the sad reality is between 20 and 30 percent of all businesses sell. And the smaller businesses, the below 5 million, it's more like the 20% of those businesses ever sell. So what happens to the rest of them? If you look at why the business sells, let's hit that first. Only the most financially profitable and only the most well-kept and accurate business financial statement businesses ever sell. So if your business is just top-line revenue and you can't demonstrate a profit on accurate financial statements, you're not going to be one of those 20%.
SPEAKER_02Audited financial statements.
SPEAKER_01At the very least, reviewed. Audited is the gold standard. So when you talk about the 20 to 30 that will sell, it's they have pristine financial statements, accurately reviewed and audited by outside CPAs. They're not playing games, they're always profitable, they're paying themselves a handsome W-2 wage. So what happens to the businesses that don't sell? Well, some people just continue operating them. Others, about 30% will transfer to a family member, a son or daughter. Frankly, I saw that in my own family and kind of shook my head and said, you know, my poor brother didn't really have a choice. He was just groomed to take over the supermarket business. And he didn't really have a choice. At the end of the day, you really have to think about do you want your son or daughter to go into this business? Or is there an easier way for them to make an income in their prime earning years? They sell to employees or partners. That's less common, but it does happen. 50% of the business is statistic. This is all SBA, by the way. And it's also the Exit Finance Institute that did a pretty 86-page report on this, but most of this is SBA. 50% of these do what's called an involuntary exit. It's it's the five D's. The owner dies, they become disabled, there's a divorce or some other kind of distress, or there's a disagreement within the structure, and the business just disintegrates. So how do you convince someone that wants to build a business to sell, that they're putting, if they're depending upon it to fund their entire retirement, they're putting all their eggs in the wrong basket. How do you deal with that?
SPEAKER_02If you look at the involuntary exit, right? So I'm answering your question by saying that if you build a strategy, there is a strategy around planning for death, disability, yeah, I'd say everything but maybe disagreement. Okay, there's simple planning that can be done, not a heavy lifting. In many cases, they can be favorable. There's favorable tax treatments to doing planning around that. Okay. So let's just say that that's the worst thing that can happen out of this chart. Ways to protect yourself around that.
SPEAKER_01Talk about the death piece, because I agree with you on this, and I think it's overlooked and misunderstood.
SPEAKER_02It's simply put, life insurance. The business owns it, business pays for it. And then depending on how the business is structured, whether it's family, whether it's a spouse, or there's a partner, you literally can build around that. And when I say not heavy lifting, I'm talking about, you know, out of pocket.
SPEAKER_01Well, and on top of that, the business pays for the life insurance.
SPEAKER_02They own it and they pay for it. That is correct.
SPEAKER_01Correct. And so we had a situation where a person was going in for open heart surgery, and the the gentleman is a good client, a good friend. And he called me, he said, Look, something happens to me. I've told my wife you're the first phone call. The life insurance policy will pay to bring in a CEO to run this business until you sell it. And I mean, that to me is just the basics of planning. If you own a business and you're employing staff, you have the lives of those staff that you're responsible for. At the end of the day, you are. So if something happens to you, and we've seen it three or four times, this winter, a guy died in a snow snowmobile accident up upstate New York. And at the end of the day, if your wife is not intimately involved in the day-to-day running of the business, you're in real trouble. So I think your point there is it's not heavy lifting, it's an easy element to talk to us now about disability.
SPEAKER_02So before we move to that, just think let's say you have a partner, right? You have two partners, and one dies. Well, if you don't do any of that planning, all of a sudden now you're in business with the widow.
SPEAKER_01Correct.
SPEAKER_02And that might not be the best thing. Or it gets stuck in probate somewhere. That might not be the best thing. So disability, same concept. Literally, you run the structure the same way. Where the business owns it, the business pains for it.
SPEAKER_01Owns a disability policy.
SPEAKER_02Correct.
SPEAKER_01Excellent. Okay.
SPEAKER_02One step further, long-term care. You can build that out the same way. Right. So, and we'll just let's just treat that as a disability. And the divorce, it's the same thing you said earlier, Ken, but no death.
SPEAKER_01Right.
SPEAKER_02You can build, you can build policies around that. The same thing with let's just say that you you have a business that's extremely successful and the tens of millions of dollars and someone passes away, well, who wants to pay the tax bill? Well, if you build the life insurance correctly around that, the tax bill can be paid through the life insurance.
SPEAKER_01So here's a few things for the audience. Number one, none of that works unless your business is profitable. If all you are is a hamster on a wheel and you're bringing in revenue and then you're paying it out, you've got nothing left over. You know, frankly, there's no value there, but you also don't have a vehicle to build wealth. At the end of the day, I see entrepreneurs that are in business. I don't know why they're in business because they're not showing any profits, they're not showing W-2 income. To me, it's like a dodge. Nothing wrong with that. That's what you want. But don't come to a guy like Steve and say, I need to build wealth. And don't come to a guy like me and say, I need to sell this thing if you don't have a true company that has growing revenue, actual profits, the owner being paid. So talk to us about a little bit about from an entrepreneur's perspective. Is there a percentage you would say? Or is there, I guess it's individual. But if I own this business and I'm able to put aside money every single year, when do you think is a good time for me to be considering how to plan an exit, how to plan succession, etc.? When do you start this planning process?
SPEAKER_02I think you start it from day one. Now, I think your argument back would say, okay, well, wait till they're successful. Well, you just that day is just gonna You can always build this chassis and we can fill in the blanks as we go. Right.
SPEAKER_01I think the people don't understand the value of compound interest. I don't I don't think people understand that even if you can put a thousand a month away when you're 25 years old or 35, if the business is older than five years and you're not paying yourself market wages, what you would make on the open market, you got a problem, right? Because you're in the your prime earning years, and at the end of the day, we only go around once. There's only one period of time in your life that's prime earning years. So the the beauty is if you're a business owner and you're making a profit and you buy, you could buy life insurance. There's cash value to life insurance, you can borrow against the life insurance. But the beauty is you start making some decent money and you put it aside and pretend it never existed. I don't understand why in society we don't teach people in school about compound interest, or at least we don't focus on it.
SPEAKER_02And all those things just mentioned, they have a ton of tax advantages to them. So you know, well, hey, I got $100,000 sitting in my checking account. Well, that's great. That every day that costs you money. Yep. It's going in reverse to what you just said, right? So just simply put, oh well, I still want to be liquid. Well, that's fine. Let's be liquid. But even if you took, remember, I said two to five years, it depends on the size of the business. But even if you put that in an operating account where it is compounding interest and it is being managed by an advisor. Right. Even in what's going on in today's environment, it's a lot better off than either under the mattress or going to Vegas and just throwing it away on the table.
SPEAKER_01Well, the other the other thing from an entrepreneurial perspective, I see, having grown up in it, I see the the emotional attachment that entrepreneurs have to their business. And it's actually the worst part of my job is to deal with entrepreneurs who are so emotionally attached that when you talk about exiting, you're almost talking about them, I mean, losing a family member. And in my situation, when I talk to them about the financial metrics, I have a call at 4:30 this afternoon with someone. Their business, they've lost a third of their revenue and all of their profits, and their business needs to be completely re-engineered. But I think when you talk to people about the shortcomings of their business, it's like telling them their baby is ugly. At the end of the day, there's a reason why only 20 to 30 percent of all businesses sell to third parties. And if you're under 5 million, it's more the 20% mark. It's because it wasn't built properly. And what we're talking about here today, any operator that's out there that's in their prime earning years, I want you to listen up. You should be setting aside, I don't care if it's a hundred bucks a day, a thousand dollars a week, a thousand dollars a month, that should be gone away from the business. You shouldn't need it to perpetuate a big lifestyle. I see a lot of people in this business with big lifestyles. Big lifestyles, meaning there's Porsches on the balance sheet. Exactly. The Rolexes are two or three Rolexes on the arm. And at the end of the day, along with that Porsche on the balance sheet, there's a lot of debt. So what we're talking about is building a company beyond yourself and using the company as a vehicle to build wealth along the way. Why do you think people think that it's easy? Well, I'm just gonna keep investing in this business throughout the years, I'm gonna plow money back into it, and I'm gonna have a huge payday. Where did that come from? First of all, it's a terrible misnomer, but where do you think that came from? Why do you think people think that?
SPEAKER_02Because they have a great month, so they have a great six months, or they have a great year, and all of a sudden there's this excess cash flow. So they think, okay, well, this is gonna keep going. This is just gonna it's gonna keep growing. Or I'll give you another example. All of a sudden I picked up five extra accounts. So let me go buy a ton of inventory of vehicles, right? They don't think through, all right. Well, I picked up all those accounts, but you look to see what the pattern's gonna be. Or you and I've specifically talked about this. Well, I bought one bus, I'll buy three more.
SPEAKER_01Right, right.
SPEAKER_02So you you have to look at the big picture because it's cyclical. Or look what happened in the entertainment business and how it affected some of the suppliers out there.
SPEAKER_01Listen, you you've lived through 9-11 in the business, the financial crisis in the business, and the pandemic. Now, there's a reason I believe this is the number I use 40% of the operators never made it out of the pandemic. And most of those disappeared in the first 90 days before the PPP, the employment stabilization, or EIDL or Main Street loans. They disappeared in the first 90 days of the pandemic. Why?
SPEAKER_02Are you asking me that question?
SPEAKER_01Yeah, why couldn't they make it the 90 days?
SPEAKER_02Because they didn't put a dollar aside.
SPEAKER_01There you go.
SPEAKER_02Right, and and they the Porsche is still in the garage, and the watches are sitting on the winders, and they just came back from the Ritz in Paris.
SPEAKER_01So at the end of the day, if you accept the statistic that only 20 between 20 and 30 percent of businesses ever sell, give us a two, three, four, or five-step plan. Assume I'm in my prime earning years, what would you do today?
SPEAKER_02Okay, so first let's take care of us as an individual or a family, right? We have a family, every family has bills. Well, take one of those bills and call that your savings account, regardless of where you're gonna put it 10%, 15%, whatever you can scrape aside, but you need to be consistent. And every time at the end of the month, beginning of the month, you're gonna pay a bill, you pay yourself. Correct. Okay, so that's personal side. You can do the same thing with your business, put it in your operating account so you get past that 90-day hell that many went through. We all went through it, and I can remember towards the end of March of 2020, and up to then everything was great, and it literally turned off. 100%. The world literally stopped, and we were all told go hide. Well, do that math, and just think about how you had all this revenue you didn't plan for. Right, you might have planned for 30 days, 60 days, you didn't, like you said, Ken, you didn't plan for 90 days, you didn't plan for 180 days. And by the way, that PPP money was just a band-aid because your revenue in the chauffeur car business, the crown transportation business, it didn't come back before it ran out. No, and then you mentioned Main Street. Look at the VIG that they wanted when it was time to pay it back.
SPEAKER_01Oh, we'd have another episode on this. The Fed just sold the remaining Main Street loans to an investment firm called Marble Gate. And I know those guys, I haven't figured out yet what they're gonna do with them. But you know, number one, fundamentally, foundationally, if you own a business, you need to make sure that you're making at least for your position what you would be making on the outside if you worked for somebody else. And if you're past three to five years and you're still not able to earn, listen, I I didn't finish college. I have an associate's degree. I think I'm five credits short. Maybe I'll go back. Who knows? But I want to be able to earn, I've always earned more, but I want to be able to earn as a business owner what I would make if I was doing that same job for someone else. That's number one. Why are you depriving yourself of that same W-2 income? All my clients, I look at what they take in, all my clients do extremely well. But if I'm a general manager of a chauffeur company and the market is 125,000, 150,000, uh 200,000, depending upon the size, why as an owner, what's the rationale for not taking that out as a W-2? The answer is you're not making a profit if you can't. So, as you said, number one, pay yourself.
SPEAKER_02Pay yourself, right? If you're an owner, I think that if we're talking about some of the services that you and I are both familiar with, it shouldn't be below 300. Correct. You could go as high as 600. And then if you wanted to bonus yourself at the end of the year based on profits, just like if you look behind me, just like all these, you know, there's Verizon, there's Comcast, right, there's Mellon, they all do the same thing. They pay their employees a nice salary. And then when it comes time to bonus, it could be three, four times what their salaries are. That is, in our opinion, that is what you should do in order to be a good business owner. Think of yourself, I'm the president, but I'm an employee. I might be the guy making most of the decisions, but I'm still an employee and I deserve a good salary. I got to put my kids through school, right? I got to make sure that my family is fed well. I would like a nice home. If you want to do all those, fine. Just be the employee. You want to work hard, be the employee working hard. You know, be there day and night.
SPEAKER_01Well, the other piece of that puzzle is if you're not paying yourself a W-2 and your income is not consistent, you're not building your personal credit. That's the second reason. A lot of these guys get into trouble because the business credit is crappy, right? It's lousy because they have slow pay. They don't take a W-2, so their personal credit is in the toilet. In addition to that, they're not funding Social Security. Now, you know, I think you and I both agree. You're not looking to, you can't live on your Social Security, but the W 2 that you pay yourself, you are contributing to that. You are paying, you are building a Social Security nest egg. I'm in my prime earning years. You talked about something that I find interesting. You said build the chassis. What do you mean by that?
SPEAKER_02One one more comment to what you just said. Some business owners do the opposite, they'll personally sign for everything. So now if the business goes the it has to liquidate, I love your chart there, so they got them here in front of me. If the business has to liquidate, they're going to take themselves down with the business.
SPEAKER_01Happens all the time.
unknownYeah.
SPEAKER_01Happens all the time.
SPEAKER_02In my opinion, that is just an absolute no. Do not personally sign.
SPEAKER_01Well, let's face reality, in the first few years, all of us had to, but if you're beyond five years and you still have to sign personally for things, the business has no enterprise value. We work with people all the time, and we will do a valuation for the business in anticipation of a major borrowing event. So that will show when we do the valuation, right? We calculate the balance sheet ratios, we look at the cash, we look at the fleet value, we deliver the valuation to the company and say, now show this to your bank. Now show your financial forecast. That's the kind of instrument that you can use so that you don't have to personally guarantee. Somebody called me the other day, and they they're getting into the motor coach business, and they're not a client of ours. They want our help now to figure out how to price their motor coaches. I said, Okay, so when are you going to buy motor coaches? He said, Oh, I bought two. And now you're coming to me to price it. I said, Okay, so you spent like what 1.2? No, no, one point $1.5 million I spent. And I said, just curious, who's you who who'd you get the loan? And he told me, and he said, you know, and I had a personal guarantee, personally guarantee it. It's just like to me, it was almost like you know get favorable interest rates. No, terrible.
SPEAKER_02No one thinks about that either.
SPEAKER_01No. Well, the bank had no problem lending me the money because I put I put you know 10% down. And listen, my dad taught me a long time ago, just because the bank will lend you the money doesn't mean that they think you're gonna pay it back. They all they know is they have good asset coverage. So go ahead. Talk to me about the building of the chassis. I I like the concept.
SPEAKER_02So you you just put these placeholders inside that box, right? We'll call that chassis a box, right? So it goes back to your first chart, right? So we can build all these, put the life insurance in place, protect against disability, protect against outside forces, whether you know there's a marital issue or disagreement with a partner, just build it so you're safeguarding around it. So that's one. And again, these aren't heavy lifts, so it's not like someone's gonna stand there and say, Okay, well, write me a check for you know seven figures. And secondly, at the same time, put this benefits package together, take care of yourself first as the owner. And as I said earlier, there's ways to build a 401k, or if it's really small, if you're doing just a step around taking care of your retirement in the future. And then if you're young, there's an equities play that is out there. The market is still going to outperform what you may need in your retirement years, than if you didn't do it at all.
SPEAKER_01Oh, and I guarantee you the market will outperform your show for transportation business. If what you set aside every year or every month is managed properly, there's no doubt in my mind that it'll be exponentially worth more than your shopper transportation business.
SPEAKER_02Oh, yeah. We know what the margins are, right? And it's a race to the bottom many times.
SPEAKER_01So talk to us about how many small businesses, let's just say between 1 million and 5 million that are founder-led. How many of them have 401k plans? What's the difference between 401k and SEP for our audience, please?
SPEAKER_02So 401k, we'll just say it makes sense when you get to more than four or five employees.
unknownOkay.
SPEAKER_02And there's a uh employer match, right? If you're like a sole proprietor, uh, you could even do a solo 401k, but depending on anything under a million dollars, uh I think that this set makes more choice better choice because you put more into it. I think it this year in 2026, you could put 70, either 70, I think it's 72,000 you can put in or 25% of your your gross income. So it's you're putting something aside, like you said, now I'm not gonna think about it, I'm not gonna touch it. Yeah, they don't give out pensions anymore, but they offer stock uh provisions, they offer profit sharing. If you work for a bank, in many cases, some pretty hefty bonuses come the first of the year, right? So you can do all those things, but again, you can build these boxes, the little boxes inside this chassis, and preparation for a positive future. And then to go back to thinking of my previous life. Yes, I bought two buses. I probably paid too much in interest. I put the money down. I don't know if I'm ever gonna make it out, but I'm gonna go talk to Ken now to see if I can fill the seats.
SPEAKER_01It was just, it was like to me the cart way before the horse and a total lack of planning. And listen, I I'm an I I consider myself a pretty decent entrepreneur, and I've done shit like that as well on a gut. But you don't buy a $700,000 depreciating asset, you know, at pretty damn close to double-digit interest without without without a complete plan in place. What is my cost? What's my break-even? What's my revenue potential, etc.? Well, all our retained clients do well, but we work with an extremely large motor coach company, and we just started working with them in the past three, we reviewed the past five years, and they've had taxable income in the millions. And the first thing I said to them is, you need a different CPA and a tax, you need a certified tax planner. Talk to me about the treatment of the CEP and the treatment of the 401k, especially the match.
SPEAKER_02So again, depending on how you build it, and you're talking about these larger revenues, you get two things, right? And I can't speak to specifics, but say that the money you put in, you're reducing your own income.
SPEAKER_01Yep. Okay. Yep.
SPEAKER_02All right, so that's reducing your taxable income. Right. The company on the other side gets the same advantage. Correct. Right. So if you're the majority shareholder, now you've kind of oh, and then you're matching the other employees, right? So provide you with an additional tax advantage. And we have a specific department that's all they do, right?
SPEAKER_01Well, you and I talked, and I referred you to a company. This guy's retained clients again, they all do well, and this company's doing well. And I said to him, you know, what do you? And I'm not a tax guy, and I'm not a financial planner, but we're looking at taxable income because we've done his forecast. And I'm like, geez, what do you have for 401k? I don't have one. And my employees don't. And he says, you know, I think we should look into that. Do you think that the 401k as a benefit is important in hiring and retaining quality employees? I know that's a rhetorical question.
SPEAKER_02Absolutely. No one's walking in the door without some type of benefits package.
SPEAKER_01No, it's true. And when do you think, as a business owner, is there a revenue threshold where you should be saying, I need to get serious on providing benefits?
SPEAKER_02I wouldn't be able to put a number on it, but I think the minute that you build a company, it's the first thing that you want to think about. I have clients that they're self-employed in different industries, and we've set them all up in either an individual plan of some sort or depending on the the amount of revenue, then we you know we'll go to something a little bit more sophisticated. But it is in my opinion, it's something that as soon as you feel secure financially, and maybe that's two to four years in, then you move forward and you do something like that. Because if you have a nice general revenue, why do you want to pay taxes you don't have to pay?
SPEAKER_01Part of it is to me, is I don't see CPAs getting creative on tax mitigation. That's really it's a specialized degree. It's a specialized certification. Tax certified tax planner. I think nine out of ten CPAs don't have it. And the CPA, typical CPA, is really all he's doing is taking the score of the game that's already finished. He's retrospectively recording Correct, filling in the blanks. And at the end of the year, he's going to tell you what you owe in taxes, whether you made money or lost money, but none of them can tell you why. And it's the reason that's a statement I can tell you definitively, it's the reason we exist, because we can tell you what metrics are off on the business, what metrics need to be fixed, what metrics need to be improved to do even better, et cetera. So as a general rule, and I used to think this is just in the chauffeur space, but I do believe it's most small businesses. Most founder-led businesses. In fact, I'm writing a book on this called From Grind to Great. I don't know if we've cleared that title yet, but it's all about founder-led businesses. It's all about the seven-day week daily grind. And it's all about the business being all-consuming, never ending, always on your mind. It's if you don't have children, it's your child. If you do have children, it's the extra child that gets more attention than your real children.
SPEAKER_02And there's the burden, Ken, of taking care of the children because you think their legacy is your business. Correct. Which I was going to mention when you said and you nailed it with the CPA, because you really want a tax specialist that is working in tandem with your wealth management advisor. Then you need to go into the next level, which I got to build a trust. That's the umbrella above all of this.
SPEAKER_01Correct. Correct. So let's Let's back up a step. Most people never get past having just the CPA. That's level one. The only reason they have it is because they have to file taxes, right? He calls me, he's got to sell his business, and he tells me I haven't filed the taxes in three to three years, but they're being filed now. And I said, Listen, I don't even need to see the business. It's not something I can help you with. Because if if it it number one, it tells you me that you've not taken the basics seriously. So number one, they all have a CPA because they need to for tax purpose. When should I start having a wealth planner?
SPEAKER_02We think the same time you start with a CPA.
SPEAKER_01At the end of the day, my answer is as soon as the business is stable and you're turning a profit, we all have seasonality. I have great clients in upper Midwest in the New England, and they all sweat January, February, March. I'm like, guys, unless you're going to move that equipment to Florida, it is what it is. We're yet to prepare. Anyway, once your business is making consistent profits and you have enough cash to sustain the business in regular operations if the regular crap hits the fan, and you're paying yourself a nice W-2. First of all, that should be from day one. Once you've done startup and you haven't paid yourself and you're eating peanut butter and jelly seven days a week, you'll appreciate paying yourself a W-2. But when you're paying yourself a decent W-2, to me, that's when you need to start looking at a financial planner. And you should have the financial discipline and start building wealth, to me, by setting aside part of your W-2.
SPEAKER_02Yeah. Well, I would argue that you can start that day one too, because it's not necessarily, it doesn't have to fall in the expense column.
SPEAKER_01Right.
SPEAKER_02So we build plans out. We're not sending you an invoice just because you gave us the dream and we put it on paper, and it's a financial roadmap. You can see, and we can do it based on what you believe you're going to earn, what you believe your expenses are going to be. It's not something where you have to wait till you get to that second, third, fourth year, or you're at a W-2 stage. We can still start you now. I mean, I've got clients that you know they were successful in one business and they're adding on the next, and they thought that they needed to wait. And meanwhile, we helped fund the second business.
SPEAKER_01Correct. Correct. It's never too early to start. When is it too late to start?
SPEAKER_02We'll just say it's a little bit more challenging as you get closer to that wish of retiring. And then when they realize that there are discrepancies in what the value is, and now they realize they're gonna fall short. So, as you said this before, then they can't really leave. Right? But just make now we're kind of backpedaling.
SPEAKER_01Right.
SPEAKER_02The other thing that I see, this might be a little different, but I've done everything I need to do because I have a million dollars in my 401k. Well, what happens when you retire? Now you went from your accumulating years of having an income to now you're gonna start taking your distributions and the market, because your money's still in the market in a 401k, regardless of how you have it allocated, right? When you turn, we'll say 65 and you need that money, and we've now flipped it to an IRA. Happen if the market does really poorly and you still need that 60 or 70,000 a year to live on, correct. And if the market goes backwards, correct, now you're eating away at your principal, compounding interest. Well, there's come the inflation also compounds itself, right? So it just keeps getting worse, and that's why more buckets as soon as possible help you sustain the lifestyle that you want to live at retirement.
SPEAKER_01So, you know, it's funny. I retired once when I was 41 and it didn't stick. I had sold a medical alarm company in 205. And one thing I figured out quickly, you spend more money in your retirement than when you're working, because 24 hours is a long time to fill when you've got no place to go during the 12 hours of light. So it's a misnomer to think that, well, I'm just gonna downsize my life a little bit. I hear you 100%. There's just no question in retirement. If you've been well prepared, you can spend and you can live a good lifestyle. But if you haven't prepared and you think at the end of the rainbow is the sale of your business, and that's gonna fund my complete retirement, you're gonna be disappointed. By the way, statistically, I've never met a seller who was realistic on what his business was worth. Never. I've conditioned them to the market, and the ones that actually listen, I've proven yes, I accept the reality of what my business is worth. Only eight percent of people sell their businesses for what they originally thought it was worth. Eight percent out of that 20% that sells, only eight percent of those people sell the business for what they thought it was worth.
SPEAKER_02And then there's that earnout period, right? Because the money's financed somewhere.
SPEAKER_01So why many companies don't sell? These are the true statistics from the SBA. 21% is because the buyer has unreasonable demands, they don't want to put money down. You can see 30% is because of unrealistic seller demands. That's usually around price. Usually the seller is way out of their mind on what they think the business is worth. The no market for the resale of the business, that was really surprising to me until I drilled into it. The no market for the resale of the business comes down to this. A buyer could recreate your business for less than what you're asking. So talked to a guy the other day, does $2 million worth of revenue annually, very consistent, $2 million a year for the past five. He wants $1,750,000 for the business. And I said, okay, so that means that if we're at a 10% profit, right? Net profit about 10%. So when you $2 million, you make $200,000, even though you run the business seven days a week. That means that whoever buys the business is going to make money about eight and a half, nine years from now? Doesn't make any sense. So the reality is that's where the no resale comes in. Unrealistic seller demands about 30%. Lack of capital or financing, 6%. That's all about the fact that the business does not have the financial statements or the financial trends to support a loan. 21% unreasonable buyer demands. We're seeing in our industry that an operator, operators are the prime candidates to buy other operators. And the reality is they're looking at your business not only as to how your business runs, but through the lens of their own experience. Seller misrepresentation, we've had that. We catch that when we do financial valuations and reviews. And then inaccurate values, I've got to tell you, most of the time that's when they have their CPA do the value. There's a company for sale, been for sale for a long, long time, and their CPA is handling the sale, and he's completely botching it. I feel terrible for the owner, and I'm not going to reach out. It's not my business, but they're handling it improperly. You know, their CPA called me to see if I had buyers, and I said, you know, what did you value the bit the value of the business at? And he told me, and I said, it's just not going to sell. Economic uncertainty is only 7%. Poor lawyering and advising is about 9%. Nothing kills a great deal like a good lawyer, right? So at the end of the day, I asked Steve on here because my only frustration, I love what I do, but my only frustration is dealing with sellers who are just not realistic on the sale process. It's long, it's detailed. Steve is here to talk to the next generation of operators coming up, the ones that are in their 30s and 40s that have a love for the business. I know all of you and know most of you. And what I'm telling you is build wealth outside. Build wealth outside your business. Do not think that building a business, you're going, there's a massive pot of gold at the end. 80% of business sales have contingencies. What does that mean? You're not going to get paid cash at closing. 65% of private businesses have seller financing. 95% of bank financing on the sale of business is through the SBA. So what does that mean? The financials of the business you're that you're trying to sell have to be perfect. The financials of the seller's business are actually as important as the buyer's business, because the SBA wants to make sure that the business fundamentals, the business that's being purchased, is is going to be a good value and it's going to be able to carry the banknote. Final thoughts, Steve, on if uh you had, you're not, you're not old enough to have a son in the business, but if you if you had a son who owned his own business and he's passed the startup phase, what would you advise him if the goal was to maximize building personal wealth in his in his prime earning years? What do you tell him?
SPEAKER_02Start early. Be persistent, be consistent.
SPEAKER_01And pay yourself. Pay yourself. You know, there's enough of a sacrifice owning your own business. I mean, you and I have talked where I'm like, I can't come to the phone. I'm just slammed with slammed with I work every Saturday. And there's a lot of sacrifices to owning your own business. One of them shouldn't be you're the last to get paid. And one of them shouldn't be that you're not earning as the owner of a business what your market rate would be if you did the same job as an employee for somebody else. So listen, I hope this has been informative to everybody listening. Steve Patel, how can people reach you?
SPEAKER_02They can reach me. I guess the easiest way would be by phone, which is 267-799-6770. I can also provide my email address, which is Steve.patel. That's P-I-T-E-L at NZNancy, M is a Mary.com.
SPEAKER_01So Steve Patel, thank you very much for spending an hour of your valuable time with us on the Ground Transportation Podcast audience. I hope you enjoyed it. James Blaine, my co-host and partner in crime. I hope you're out there training a bunch of chauffeurs, and I look forward to a co-hosted episode with you real soon. And Steve Patel, remember, just keep an eye on my retirement fund. Appreciate everything you do.
SPEAKER_02Thank you, Ken. Have a good day.
SPEAKER_00Thank 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 PaxTraining.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.
People on this episode
Podcasts we love
Check out these other fine podcasts recommended by us, not an algorithm.