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Nov. 18, 2022

Ep 271: How To Have A $30 million Dollar Exit With Mike Ringel

Ep 271: How To Have A $30 million Dollar Exit With Mike Ringel


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0:01 Hey, welcome to today's episode. I'm your host, Daniel Martinez. I have a special guest today talking about business exiting out of your business. So one of the big reasons why I've had him on the show is for selfish reasons. And I've told you that in the past, but we're gonna have interesting conversations and you're just gonna be a fly on the wall on this one. So, I have my guest, Mike Ringo, where are you out of right now? 0:24 Okay. I'm out of Marlborough, New Jersey, which is about 20 minutes from the Jersey Shore. 0:31 Okay, okay. I've I almost went to New Jersey on accident. Once ago, yeah, it was for a business trip. And the business trip, I literally got on the plane. And the person I was going there with, he's like, Oh, they canceled the event. And I'm like, Okay, I got off the plane. And I no offense in New Jersey, but the latest flight. He's like, why don't you just go and spend time over there? I'm like, who goes to New Jersey when you live in Southern California? 0:57 Right? You know, it's funny, people ask me where I'm from. And I tell them, I'm a New Yorker who happens to live in New Jersey. Right? I will never admit, even though I've been here 23 years, and probably not going anywhere else. You know, I'm a New Yorker, through and through. 1:15 Well, I appreciate sorry for all the New Jerseyans out there but nobody likes you. 1:23 No comment. 1:24 No comment. Okay, actually lives there. So you can't say anything about us the truth? is funny. I am all jokes aside for everybody from New Jersey. I don't visit there on purpose. But we're gonna talk about exiting out of your business. I think you froze a little bit, Michael. Yeah. Everybody here, we're gonna work through this, we're gonna we are, we're gonna work through this, it doesn't matter. We're gonna figure this out. So one thing, one thing, I'm really curious about expedited businesses that most people and I like, so we do real estate and businesses kind of correlation. Most of you that buy their house, they never, they only buy or sell the house only a few times in their lifetime. And especially with businesses, it's very, very sparse. And there's people that build businesses exit out of them quickly. So it's a thing they build over 10 510 years, 15 years, and then they once they exit out of it, they might not do business ever again. Or at least that type of business. So what's the importance of Exit Planning whenever you're building a business? Because I know a lot of people like they take all their write offs. That is detrimental to your business, but we can talk about that later. But yeah, well, let's let's, let's kind of talked about why it's important to exit and think about exiting. And when's the when's the when's when do you think about that? Is it when you start or is it when you're like, hey, I want to do this like next two years? 2:54 Yeah, no, that's a great question. You know, I believe the analogy I like to use is, you know, when's the best time to you know, plant a bonsai tree? And the answer is 20 years ago. The second the second best day is today, right? So most business owners get into business because of a passion of a purpose to make a difference in the world. A lot of them do it because you know, to build cashflow for their families for the employees to eventually retire. So if you think about what Stephen Covey said, you know, a long time ago which is you know, begin with the end in mind. You know, the most important day in your business is the day you start your business and you know, the second best day is you know, the day you leave your business and it's strategic planning and strategic planning should be done from the first day you start your business you know, we call it getting business exit be getting your business exit ready because. lose you again think I lost you again? For some reason I think we're back. 5:09 Yeah. Yeah. 5:15 Let's just continue. Can you are you can you edit this? 5:19 Filter matters, don't worry about it. Alright, so 5:21 worst case scenario is all if give me five minutes, I'll go upstairs and get a better connection. I think my different connections are, you know, knocking each other off. But let's see 5:32 if it does that, again, we'll play by ear, but alright. 5:34 So, so we're talking about, you know, when's the best time to start thinking about, you know, exiting your business. My experience, most business owners are so focused on working in their business every day, that they need to take time to work on their business, and working on their business means, right, getting prepared to eventually exit the business. And we'll talk about things to think about along the way, but it should start today. 6:04 There's one thing I really liked about this that I heard recently is that business isn't forever. There's ebbs and flows in businesses. And if you're not ready to exit, you might never exit you might miss the opportunity to like Blockbuster. 6:15 Yeah, you know. Yeah, it's agreed. I mean, I, in fact, the other day, one of our clients just sold their business for $30 million. And only. couldn't refuse. 6:44 I lost you again, man. 6:45 Yeah, I let me go upstairs. Give me five. Can you give me five minutes? Yeah, you're fine. 6:49 Just doing the same thing. Just joining the same Lincoln sencha. 6:54 Yeah. All right. Give me two minutes. I'm gonna go upstairs. You get right. You have a direct act where I have direct access, you're fine? 7:54 There we go. All right. I am back in perfect. There we go. I'm hardwired now. All right. We're good. All right. We're good. 8:31 All right. So you had you had you had somebody that sold their business for $30? million? 8:36 Yeah, $30 million. Actually, they just closed on Halloween. Right. So only a few days ago. And they were exit ready. Five years ago, the business was struggling. They actually did really well during COVID. And somebody came along and said, We love your business. We want to buy it 9:19 maybe I'm hardwired now. I don't know. Alright, one more time. I mean, I should i I'm hardwired. So there's no Wi Fi. 9:30 No, I don't even know. 9:32 I keep going. I think we can do it one more time. I'm hardwired. So it may be just the Internet access around here, but I've never had this happen before. 9:41 Maybe it's New Jersey. I'm gonna blame New Jersey. 9:43 Probably jersey. So anyway. You know, and what the thing that we do is we work with companies and business owners like him, such that when they when they do sell their business, they're confident in what they're going to do with the money. Right with Talking about tax strategies to mitigate capital gains taxes. We talked about, you know, what are they going to do with the money and the psychology of money? You know, where? Or how are they going to invest the money, and more importantly, is the amount of money that they get going to allow them to produce the cash value to live the lifestyle that they're currently living? 100%? Yeah. So 10:24 that goes to the point, like, if, and you got to understand that I really got to educate people on that too, because they need they need to understand the tax implications if they sell their business. It's gonna hit them hard, especially to get 100% cash value. 10:43 It's, it's criminal. I mean, you work your whole life, to build a business, you put your, your your sweat equity, the sacrifices that you make, you know, the purpose that in your business, the goodness that you do, you sell your business. And then depending on where you live, you know, federal and state capital gains tax, you know, 30%. Yep. And so a $30 million business has to pay the government $9 million. Before the business owners get anything now, there are a couple strategies to defer capital gains, you know, some of them by being in the real estate business. But, you know, in the end, a lot of times business owners just pay the tax, take the net proceeds, and move on. 11:33 That's crazy. What are like the beginning steps to get like, the exit ready? Because I think, is there like a timeline? Depending on each business size? Is it like, what's like the 123? basic steps ABCs of exiting your business? 11:49 Yeah, that's a great question. Well, first need to understand that there's 100% certainty that you will lead your business on day 100% 100%. No doubt, either, you're gonna leave it on your terms, or on somebody else's terms, right. So and there are only three ways to leave a business, right, you could either transfer it to an insider, and an insider could be a partner, a family member, or employees. And there are pluses and minuses to doing that pros and cons. So, you know, one of the big pros is that you know, who your who's buying your business, and hopefully, they'll keep the culture the same. And, you know, they'll be able to keep all the employees, the negative is that most employees who buy a business or partners don't have the cash flow of capital to do so. Yep. So therefore, somebody is going to have to finance it. And it's usually the business. And there's a double taxation, if not planned properly, that could occur where 60% of the, you know, the value of the business could be lost to taxes. So if you do it that way, there's certain things we need to talk about. The second way is you can sell to an outsider. Right, so either through a broker through some sort of an auction, you know, I've worked with a dental practice, and a m&a company came over and said, We want to buy your practice. And so they weren't expecting it. But you know, they offered a premium because they're consolidating dental practices. You know, the third way is you could die with your business. Yep. Yeah, I mean, you could die while you're in the business running it. And if you don't take the proper steps to prepare for it, it could be devastating to the employees and devastating to your family, and could be worth nothing. Or, you know, you could just be in a service type of business where you say, You know what, I'm just going to work until I die. Yeah, so those are the three ways to leave a business. And, you know, there are pros and cons to each one of them. So thinking, knowing that, the first thing to do is to get a value of your business or business valuation. Okay. Right. So most business owners, in fact, 98% of business owners do not know the value of their business. Right? If you wanted to know the value of your home, or an approximate value, you can go to And you can type in your address, and you can get a value of your business. And most business owners don't get the value of the business for many reasons. Number one, it could be expensive. It takes a lot of time, it's intrusive. And once you get the number, you got to do it again and again and again over time. Well, we have certain software, just like Zillow, using big data, and only three years of tax returns to get a really good, accurate valuation of your business. And once you know that, you could say to yourself, well, here's the value of my business. And I don't know about you, but you know, people might look at the value that somebody else does. And they say no, no, it's way too low. Right? Because it's your baby. You know, you've been working on it for years, it was your idea. But you gotta remember a business, real estate. A car is only worth what somebody is willing to pay for it 100% 100% 15:20 For all my real estate people, that was not real estate advice, Zillow. I want to give that give that disclaimer, because people are going to be laughing because I was internally laughing because Zillow was buying houses that there's a low price, they lost money. So 15:38 I'm using Zillow as a as an example. Right now. It's a business strategy. 15:46 I wanted to break the ice there because I caught that and I'm of your life. And so let's talk let's talk about the meat, the meat and potatoes of this. So some businesses have as s summit businesses have assets, physical assets with real estate or assets as far as like equipment, and what's an F FF FF any case, little epiphanies, 16:08 we mean, the furniture and everything else, the equipment? Well, so there are there are physical assets to a business, right? And then there's goodwill. 16:18 Goodwill, what would it be like Goodwill? One? Well, 16:21 the the reputation, the branding, or the but again, you know, something is worth what it could do for you, not the price. So, you know, I had a business owner client of mine who died early, and he had about 5000 patients. All right, so he's a doctor had 5000 patients, he died, suddenly, he had no business transition plan didn't even think about it. It was creating a ton of money for himself and his family. Never thought about what if? Okay, so what do you think the value of his business was to anybody else on the day he passed? 17:02 It's the client list your your your your personal data? That's a personal data, like you can't give away like medical information, but it's a database of customers that are that come to him regularly. 17:14 Yeah, in a medical field, in a traditional business. Yes, I agree with you. 100%. In the medical field, those files were worth nothing. Really? Yeah, because there was no transition. There's no handover, there was no introduction that says, I'm going to be leaving in a few years. Here's your new doctor. Okay, right. So 5000 patients got a letter that said, Unfortunately, he passed away, you need to find a new doctor. That's it. That's it, the family sold it for a discount on the value of the equipment. That's 17:46 it. That's, that's crazy. I did not know that. 17:50 Yeah, but but in other businesses, you know, you value the real estate, right? You value, your customer list. You know, the value the inventory, there are things that you can specifically value but in a service based business, you know, same thing with law firms, architecture firms, CPA firms, if there's not an introduction or a hand to handshake between one person another, it's not worth anything. 18:16 So having, so not having pretty much not having your exit plan, it devalues your asset as a whole? Because there wasn't anything ready to exit. Yeah, paper as far as what assets were available to sell. 18:31 Correct? And then once you know that number, right, what we'd like to do is take a look at, you know, how much money are you going to want to have, right, that you need to generate, to live the rest of your life comfortably. Right? So how much cash flow? Do you need that your assets to generate? Because in the beginning of the business, you're on, you know, you're climbing the mountain, right, and you're accumulating assets. And then you get to a point where you sell your business, and you have a net worth. Now that net worth has to produce cash flow. Right, so we take a look at how much cash flow you want to have. Right at the end of, you know, I guess, during retirement, what do you personally have on your balance sheet now? And if you sold your business for the amount that the valuation came back for, would that fulfill the gap between what you have and what you need? Okay, and if not, how do you add value to the business over the next X amount of years to get to that number? That if that number, your balance sheet will produce income for the rest of your life? 19:43 So you said you said again, you look at three years tax returns is that like the standard of three years, they'll get three years or sooner we'll 19:51 do is use our software, right uses big data. We get three years tax returns and some financial statements. and using big data, we can produce a 28 page report that says, here's the value your business, here's the value compared to other companies like yours, many key performance indicators, and then once you know that number, then we could start building systems heading value, locking in employees, creating your business so valuable such that, you know, maybe the business is better off, you know, with you're not even here working in it. 100% Yeah, so, so yeah, so first thing to do is get a value of the business, once you know the number, then say, well, that's not what I want, I need three times that, what are the value drivers that are out there that could drive value so that instead of being worth 5 million, it's worth 25? million? 20:50 And what's what's, what would be a key value indicator to raise the value of you're exiting that business? Sure. So some people want a 5x 5x Potentially their money? What's the lesson? Yeah. 21:02 Yeah. So if we take a look, think about the some of the value drivers, right, from an asset point of view, the most important resource, the most important asset that you have as a business owner, or your employees. Okay? Right. So how do you incentivize your employees? How do you not just provide benefits? Right? Everybody thinks a 401 K, medical dental, that's going to keep people, you know, attracted to your business. Right? It's not mean that's offered by every firm. But what about, you know, incentives? How about golden handcuffs? Non qualified deferred compensation, right? Meaning that if you sell your business, you want to make sure that your top people stay through the transition, and after, it's valuable for the buyer, if the buyer knows that the management team is going to stay? Because you've locked them into the business? And should they leave, they're leaving a lot of money on the table. They'll be incentivized to produce and to stay with the new business owner. 22:04 Yeah, 100%. Yeah, cuz that's always the I mean, if everybody like, we're in the midst of trying to acquire businesses, and that's always like, a scary thing. And like, if the management leaves it, who's actually gonna run the business that operates a big business might not even be in the business itself. 22:19 Right? Right. So we look at the employees, that is the biggest asset, you know, that a business has. And we can create plans to, you know, incentivize people to provide compensation for them to hit certain targets to get certain comp, but really to provide what we call golden handcuffs. Right to keep them, you know, locked into the business, 22:44 is that like giving equity if investing does happen unexpectedly, or if it's planned in the future, they get equity. 22:53 If the owner of the business wants to give equity away, they could, but you don't have to, we can create something called phantom equity. Okay, right. So phantom equity is basically just like, it sounds, it's kind of, but when I was in a business with a couple other partners in the 90s, it was the fourth person in and all I wanted was, and I was taught, you know, get equity, I want equity, did ownership, ownership, ownership ownership? And then somebody said to me, No, you really don't want ownership, right? Because then you're responsible for all this stuff. You want to know that if the business is sold, right, or transitioned, here's how much you're gonna get. And I'm like, Ah, got it. Because I really didn't care about, you know, only owning the shares, they were worth nothing, unless the business was sold. So that's what we kind of did, you can use phantom equity, where we create a plan, and the business owner doesn't have to give away real equity to those employees. You could use, as I mentioned before, non qualified compensation is another way to do that. So there are a lot of ways to to make sure that happens. And you need to make sure that you have key man insurance on all those employees. Right. So if one of those employees dies, right, it takes money to replace him. 24:20 Okay, so I'm so glad you said key man insurance. Okay. I heard about it recently. I've never heard it before, literally about a week ago, really? And I've never like this is something like I've been in business for five years. Never heard of that literally till about a week ago. So can you understand the importance of keyman insurance? And what does it do? Because I know a lot of people have never heard of it because I've never heard about 24:44 it for sure. Now, do you have your business partners? Yes, I have one. Okay. You were a business partner. And do you have a Buy Sell agreement? 24:55 Yes. Okay. 24:58 Yeah, and so most business owners do All right, so the first thing we need to do is talk about getting a Buy Sell agreement. And a Buy Sell agreement should be created when everybody's happy. Right? Things are great. We are excited to start in the business. And in there, we need to talk about certain contingencies. What happens if a partner dies? Right? What happens to his, in your case, 50% of that equity? Right, I ran across a business owner many years ago, whose partner passed away, right. And the partners wife was entitled to 50% of the business. And the value of the business was $1.5 million. So the other business owner was now partners with his ex partners or former partners spouse, she was entitled to $750,000. Where was it going to come from? Yeah, right. Well, income from cash flow in the business paid out over time. If it's spelled out in an agreement. It could also come from key man insurance in the form of life insurance. Right? So you and I are business partners, right? We have a $2 million business, God forbid, something happens to either one of us, we have a million dollar life insurance policy on each person. Right? Let's say I pass away, the last thing you want to do is be partners with my wife and business. Yeah, right. I'm not gonna I'm gonna leave it right there. But you know, she's gonna come, hey, you know, my husband is owed a million dollars, either is going to come from the cash flow, the business is going to hurt your business, or you have a funding mechanism in life insurance, that says, you get a million dollars, you give it to my wife, she gives you 50% of the business back, you own 100%, she has her money, everybody's happy. So key man insurance is Insurance on the key people in the company. Now, one of the things that most people forget about, is that the probability of you becoming sick and disabled, is higher than your dying. 27:11 Yeah, it's access everyday life happens. 27:15 Life happens. So if you if you and I business owners, and I get sick and can't work, and I'm your top salesperson, well, your business, our business is suffering. But worse, I'm still entitled to 50% of the profits, because I didn't die. I'm still here. Yeah. So there's something called key man or disability buyout insurance, where a certain amount of money comes into the business for you to then pay me and I'll give you the shares back. Right, the other thing is, you can take insurance out in the form of key man life insurance or keyman, disability insurance on your topic, salespeople, right on your key executives. So the key people in your business, if your top salesperson, right, who brings in 30% of the revenue in your business suddenly passes away. Not only is a devastating impact for, you know, for him and his family or her and her family, but also for the business for themselves. Right. So if you the life insurance policy on that person, right? The spouse could be that could be taken care of the business could be taken care of. It takes time to recruit, find and train somebody new. So those are the ways that you could protect the biggest asset that the business has, which are its people. 28:43 That is okay. I'm really glad we covered that because everybody keyman insurance is a necessity, go look unto it, find out how much does this cost? The business in general is expensive. 28:55 So yeah, so that's a great question. It depends on you know, the person, yeah, the age and if they're healthy or whatever, right. So life insurance and disability insurance depends on the age and health of the person. And you can get different forms, it can come in the form of Term insurance, which is the least that requires the least cashflow. Okay, all right. But it ends at a certain time. So if you get a 20 year term policy, after 20 years, it's over. And you may not be able to get more insurance and if you could it's going to be based on mortality and your age is going to be a lot more expensive. permanent insurance or whole life insurance creates cashflow, right, I'm sorry, cash value for the business. It requires more cash flow. It also has some really good tax benefits to it. And it also creates a pool of money, right cool cash value. So one of the things that most business owners also don't think about is what if a business owner wants to leave the business but isn't sick or disabled, but just want Leave, they want to retire, right? Or what happens if they commit a felony? Or what if something else requires them to leave the business? Well, if you're using whole life insurance that builds cash value, in the Buy Sell agreement, you can say, Look, you know what, upon you wanting to leave with to get a value the business, we get some appraisers to do it, right, we won't use Zillow, this time, we'll really get real appraisers to do it. Right. And you have a pool of money, say, Look, you take this pool of money, which is in the life insurance will pay you out a little bit more, and that partner leaves the business. So requiring the least amount of cash flow, right would be a term insurance, you can do permanent insurance. And if you don't have the cash flow to do it, depending on the size of the policies, you can actually use other people's money through something called premium financing. Whereby let's add a $10 million death benefit, right? Because our business is worth 20 million bucks. Yeah, you can finance it. So there are a lot of different ways to put it together. But first and foremost, is you need to put the Buy Sell agreement together, you need to have it reviewed, and then you need to find the different funding mechanisms that are going to come into play, if something should happen. And if it doesn't, what would it be great to have a asset, and that comes in the form of permanent insurance. 31:26 And that's how you bring value to the company because there's a cash value built up already in the in the exit strategy of the business. What does What does? Like if that person gets quit or quits, or you have to fire that employee, that's a high executive that brings in that certain amount of money that like cut off and bring in a new person, or how does that work? There's that a key man? Or? I'm really I've never heard, I've never, like I said, I'm learning a lot about this. So this is 31:57 extremely helpful. Yeah, so So let's say the person leaves the business, right? Depending on how it looked, the business owns the policy, right? So the person doesn't leave with the cash value. Unless it's unless it's part of an agreement or arrangement that says, Look, if you leave the business, you're going to get x, right, and you can use the cash value of the policy to fund it. But yes, if a new person comes in, they would have to go through underwriting because it's all about, you know, insurances based upon age, health and mortality. So, yes, you would have to go through underwriting again, and then decide which is the best policy that that meets the needs. And there are different ways to structure it, depending how many people how many partners, but, you know, protecting the biggest asset that you have, which are the people who produce the cash value, sorry, the people who produce the cash flow for the business. Right is really, really important. Because as you mentioned, you know, life happens. Just, you know, 33:01 represent. Okay, so we're talking about adding value through life insurance, which is, I think, a great nugget for everybody here listening that get it within the mind. What does. So what determines the value? I know there's different types of businesses that have like a multiple. And it's you're not making sure you don't write off all your income? Having good, good, good, good books in place, like what are those, like keys? I know, I might have mentioned a few of those. But what's the word that was like? Key points? Like? What are the things that you need in place to have exit? Ready? 33:35 Yeah, so everything is based on cashflow. Okay. You know, if you think about it, you besides going into business for a purpose and a passion, right? It's about making money. Right? So people go into business to create cash flow. When you're in business, right? You're creating cash flow, and you need to find different tax advantages, tax advantaged ways to move money from your business balance sheet to your personal balance sheet. Right? And then at some point, the business is going to be valued based upon cash flow. Right. So you're right, if you do take a lot of deductions that are not so you know, business deductions, you know, sometimes business owners do, you know, meld them together? Right, when you do the final valuation, there could be some add backs, right to it, that, you know, you took these deductions, but you really shouldn't have and, you know, that could change the cash flow of the business. But the business itself is built on is valued based upon that cash value. And the goodwill, as I mentioned before, you know, the brand, the amount of the employees that you have, I mean, there's certain, you know, that ranges, that that the business could be valued on, you know, somebody buying your business could also look at your client list. You know, if they look at your client list, and they find that Only a handful of clients produce most of the revenue of the business, your business is at risk. Because if you lose one of those clients, then you've lost a significant amount of cash flow 100%. My, my business partner, before we started working together had a food distribution business. And one of his clients, right made up a significant amount of the revenue. They went out of business. And it hurt my partner at the time, they didn't diversify their practice, they didn't have, you know, a lot more clients, and they wound up going out of business because they want they lost one key client. 35:41 That's crazy. Yeah, a lot of you don't think about that. And especially if you're in the service based industry, you really have like five key clients, 10 clients, and one of them brings them the most money and they might drop you, they might fire him, I got a business. I can be huge, 35:57 huge. So yeah, so take a look at your client list. And diversify your client base by not only getting more clients within the same, I guess, niche or industry, but try to diversify outside of what you're currently in right now. I mean, if you think about it, you know, there's certain things that happen in the economy in the marketplace that we have no control over, that could totally crush our business. You know, people in the real estate business in December, last year, people in the mortgage business December last year, probably never saw the significant increases in, you know, the Fed rate and inflation and interest rates. Yeah, the housing market, you know, values going down very quickly. And now a lot of people that I know, and maybe you're the you're the expert in it, but you know, their businesses in real estate, and they're having a hard time now 36:58 100% It's not economics thing here, but it lowers the cost of money or lowers the value of money. Yeah, what you can sell things for. So whereas a capital where you can sell your business for that much money, much more money, it might be less, because of all the interest rates affecting your your total price that you could sell it for. Can we talk about a little bit about tax strategy that types of tax exit strategies that a CPA won't tell them that they can use when exiting a business? Because if you're if you're selling multi millions of dollars, like I said, you said earlier, you could take a $30 million business could be nine $10 million. Yeah. Cut out Shaffer, Uncle Sam. So what's what's what's a couple of key factors to lower their tax liability? 37:45 So this isn't tax advice. Right. And while I am a CPA, I don't practice. So 37:53 tax advice. Yeah. Right. So informational purposes only. 37:57 Yeah, I was gonna say for entertainment purposes only. So for the businesses that I just mentioned, we looked at different, you know, ideas, number one is just pay the tax. Right? There's some people say, you know, what, I just want to pay the tax, and I want to move on. We've looked at something called opportunity zones. Okay. So, you know, I don't know if you're familiar with how opportunity zones work. But I'll just share it with your audience very quickly. The federal government created these opportunity zones, whereby if you put up there, within six months of selling your business, or a piece of real estate, if you move money into a opportunity zone fund, or an opportunity zone, right, that actually, the one we looked at was was building some residential buildings in, in a major city, right, in a low income area, you actually defer the capital gains tax to 2000 to 2027. So now, you still owe it. All right, but you will have to pay until 2027. So now you've had, you know, three years or four years to be able to have an asset grow to hopefully cover the capital gains that you would have paid. And if you hold on to it for 10 years, then there's no capital gains on the initial investment. Right. So for example, if you move a million dollars, that was capital gains into an opportunity zone, right now, you would defer 300,000 in tax until 2027. If that property is refinance, and you took some money out, you could pay the tax. But if you that million dollars, 10 years from now, if you held it for 10 years, you there's no capital gains tax on the growth of that million. 39:51 Okay. And with inflation, that's less money to 39:56 it is less money to write so you have to think about it. Do you pay the tax? Next now, and figure out ways to, you know, invest over time that can produce inflation? Or do you say, You know what, I want to own some real estate? Here's a very tax efficient way to do that. And so here's I'm gonna take a portion of my proceeds, and we're going to put it here. 40:16 Gotcha. Opportunities zones, that's a great one, what's you have any other ones? 40:22 Sure, we can look at something called charitable remainder trusts, or charitable lead trusts. So let's take a charitable remainder trust, right, you take the million dollars, you put it into a trust, called a charitable remainder trust, let's say that trust for the next 10 years, and there's a whole calculation on on how to figure this out. But let's say they pay 5% or $50,000, a year back to you. And then at the end of 10 years, whatever is remaining goes to charity. Now, you also get a big upfront tax deduction for that. Right? The problem is with a negative is that you're you've lost control of the money, right? You've basically given it away for the tax deduction now, and some cash flow for the next 10 years. Yeah, right. The there's the opposite, which is the charitable lead trust, that says you give a million dollars to the lead trust 5% goes to charity. So 50,000 a year goes to charity, and 10 years from now, whatever remainder goes back to you. And you get a substantial tax deduction today, the negative of that, or why some people choose not to do that is you're giving up control of that money today. And a lot of business owners I talked to they want their money, now. They are they love to have control of their money. So they decide they just gotta pay the tax. Right. The other risk in some of these strategies is what if the capital gains rates are higher in the future? And it's interesting, we were looking at some other strategies a couple of years ago, that wound up on the IRS Dirty Dozen. So, so while they could be done, implemented there, in a prudent way, right, it could open you up to IRS scrutiny, not the three strategies I just mentioned. Right? Those have been proven and tested over time. But there are strategies that you've just type in IRS Dirty Dozen, you'll see the ones that they are aggressively going after, for people abusing the tax system. 42:43 Okay, so. 42:45 So, you know, the clients that I mentioned that, that just so what I do is I lay the choices out for my clients, right? Strategy, number one, pay the tax and move on. Right? I'll teach you how to invest properly based upon Nobel Prize winning, you know, academically tested investments based on math and science, with, you know, speculating and gambling, right. Or you can go down the opportunity's own route, or you can go down the charitable remainder trust route I mentioned, or a combination of all of them. But it all comes down to how much money you're going to want to live on for the rest of your life. If this is your last business that you're selling. At a percent, you know, and the cash flow that's produced by the net proceeds. 43:34 Yeah, I love how you you frame that because that's, you have to you have to frame it that way. As far as what what do you need to live off of? And is this it? And you have the candidate like if that's it, because that might be it? 43:47 You might be? It might be, but most entrepreneurs, alright, they're not going to sell their business and move down to Boca and sit by the pool. Yeah, their minds. They're active, their minds are going they they've walked past a store and they see opportunity. Right, so they want to be liquid, they want to be able to have to take advantage of those opportunities when they do come up. 44:13 What is a quote that is yours or somebody else's that you resonate with? I think you might have mentioned that earlier. But if you have any more, 44:19 any more quotes, something is worth what it can do for you not the price you pay. Oh, right. Something is worth what it can do for you. Not the price you pay. Too many people look at cost. Yep. Many people look at fees. How much am I paying in fees? I can't believe I'm paying too much. But what are you but it but if I could show you right or somebody shows you, here's the result you desire. Here's how to get to the result. Right. The other stuff? Doesn't matter. Doesn't mean Yeah, 45:00 everybody loves to like the fear of loss, even if it's minimal fear of paying a fee, if you're very well, that's opportunity cost that you might have to pay, but you'll get a better result. Yeah, 45:11 I mean, I'll give you a great example. I mean, in the investments that we do, and we work with our clients, we use structured and engineered funds. And in doing so, right, the fees are a little bit higher than if somebody just went online and bought something. And if we take a look at right now, when we're talking, I think the the NASDAQ might be down 30%, and the s&p may be down 20%. Our portfolios are down a fraction of that. Yeah. Now, you know, our fees are a little bit higher. But the loss is significantly less than if you wound up doing it on your own. So again, something is worth what it can do for you. Not the price you pay. 45:57 Hmm, this is I really want to bring you back again, because I feel like we barely scratched the surface. Episode. I just ah, this is so good. I think we touched a lot of key points. Mike Ringel, and LinkedIn and then there'll be a link in the bio, set a schedule a call with him and his team to see how you can exit your business properly and start setting up that plan because he lives in mind. 46:25 Great, yeah. Thanks. Thanks for having me. I had a great time. I I need to talk about this. For a long time. Like you said, We just scratched the surface 46:33 barely scratched the surface. I think there might be a part two so keep an eye out for part two. We might cover it thanks for your time. We appreciate it and go check out his Lincoln bio schedule call with him. You will not regret it. Have a good day.

Daniel Esteban MartinezProfile Photo

Daniel Esteban Martinez

Host/ Ceo/ Speaker

I have been an entrepreneur since 2018. I come from a regular home just like most people. My dad worked on the roads in the Chicago area for over 30 years. He always taught me to work with my brain, instead of my body. Your body can only take so much abuse. I learned so much from my father. He always pushed me to work smarter and not harder.

I have owned and operated a trucking business for 2 years. I started learning real estate in 2019. Fell into the Data & Skiptracing business in 2020. My partner Anthony & I started Hivemind in 2021.

I have done a ton of different jobs coming up from painting, to door-to-door sales, telemarketing, truck driving, and loading trailers. What I learned most is that I want to stay in the digital business space. The leverage you can have delivering digital products to the marketplace can yield limitless possibilites.

I started The List Guys in 2020. It is a data and skiptracing service. We provide seller and buyers list nationwide. My clients have been getting great results and I am proud to help people killing it.

I started the Hive in 2021 with my partner Anthony Gaona. It is a real estate and business mastermind. It also comes with a all in one CRM, that can host unlimited websites and users.

Starting the Hivemind has been an amazing journey so far. Seeing one of our users make his 6 figure month in June 2021 leveraging our software, I know there will be plenty more to come!