Business owners use a huge chunk of their resources to buying, fixing, and growing their ventures. However, only a handful does their due diligence the right way. Just because you earn the revenue you want does not mean you have a pass to completely ignore compliance. Joining Michelle Seiler Tucker is Aaron Young, the CEO of Laughlin Associates, to discuss how to avoid getting stuck in your due diligence. He explains the differences between sole proprietorship, S-Corps, C-Corps, and LLC in terms of returns and compliance. Aaron discusses how to protect your assets from all risks, the importance of running a board and hiring a broker, and the best strategies for building a thriving business instead of a glorified job.
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The Fundamentals Of Due Diligence With Aaron Young
I’m so excited to have my very good friend. We’ve known each other for more than a decade. We’ve met at some masterminds in California and we’re a part of a mastermind now. Please everybody, welcome Aaron Young. He is a renowned entrepreneur with more than 30 years of experience and he’s been involved in several multimillion-dollar companies under his belt.
Aaron has made it his life’s work to arm business owners with success formulas that immediately provide exceptional growth, exponential growth, and protection. That’s why I wanted to have Aaron on the show now because everybody who knows me knows I do mortgages and acquisitions. I specialize in buying, selling, fixing, and growing companies.
One of the biggest things that I have heartburn over is the due diligence when we’re expecting business owners to be compliant. We’re expecting them to tell me the truth, the good, the bad, and the ugly. We’re expecting them to have all their ducks in a row, all their documents organized, and run a tight and well-oiled machine and that is what Aaron does best.
Aaron’s been involved in lots of different companies. He’s bought them. He sold his own personal companies but what he does best is arming business owners with the protection and the compliance they need to, number 1) Keep out of trouble. Number 2) Run their business on autopilot. Aaron can talk about so many other things than what we’re going to talk about now. We’ll probably have him back on the show.
He’s here to keep you out of trouble, have your own well-oiled machine. When you’re in due diligence, then there will be no hiccups along the way. That’s the biggest thing. We get stuck in due diligence because we don’t have the meetings. Aaron, we don’t have all the stuff that we need to keep our business running smoothly. Why don’t we get started? Welcome to the show, Aaron. Tell our audience a little bit more about you. I can’t wait to hear what Aaron Young was like as a little young boy.
A story popped into my mind as soon as you asked that. I didn’t think we were going to go there. It’s so nice to be here with you in this setting and I want everybody to know that I too love this book. I’m the oldest of five kids. I grew up with a mom and dad who were great, who loved me, who thought I could do anything and they told me that. My wife has let me know that I’m the luckiest guy in the world because I grew up in a circumstance and at a time when everybody around me was telling me I could accomplish cool things.
That’s fortunate because so many entrepreneurs grew up in poverty like Tony Robbins. They grew up in a dysfunctional home and had a lot of childhood baggage. You had it on the flip side, which is amazing because we’re going to dig more into your story. I love hearing about it.
They didn’t have any money. Dad worked a couple of jobs and mom did daycare in our home so there are always little kids running around. They did what they needed to do to survive and raise five kids. I was born in 1964 so I was at the right age when Nike shoes came out. There was something called Britannia scroll jeans that were popular in ’77, ’78, or ’79. If I was going to have any of the things above Kmart or JCPenney, I had to figure out how to make the money.
I started making money as a teenager, as a young kid. I will tell a story fast. This guy at church calls me up one day. I was fourteen. He said, “Aaron, do you know how to paint?” I said, “Do you mean paint pictures?” He says, “No, paint walls.” I said, “I could do it.” He managed an apartment complex. I went over and for $3 an hour back then in 1977 or 1978, I started helping him turn apartments when somebody move out. I’d go in there and paint these apartments.
When I got to be sixteen years old, the guy that owned that building and a bunch of other buildings asked me to come to paint the exterior of his house, which took a few weeks to do a good job. At fourteen, I couldn’t drive. I was pedaling my little Schwinn ut at 16, I could drive. I said to the owner of all these buildings, “I don’t know what you pay your managers to turn these apartments, but I will do all of them, all your buildings for $10 an hour.” I’d been at $3 but for the manager so I tell this guy $10 an hour and he goes, “Done.” Before you know it, I’m driving around with a bunch of other teenagers like Tom Sawyer when they’re painting the fence.
Are you fourteen back then?
That was when I turned sixteen that I was able to drive. By sixteen I had 3 or 4 other teenage kids painting in my place and I’m going around, “We missed a spot. Do that.” By the time I was eighteen, we were doing entire renovations of buildings, redoing floors, appliances, countertops, and everything for that same company.
That was my first experience in going, “By just flipping your perspective, you can make a lot more money and get other people to do the work instead of being crazy running around like a chicken with your head cut off, trying to do all the work yourself.” We both work with entrepreneurs and that’s what most entrepreneurs think they’re supposed to do. Work themselves to death until they either close shop or find an exit and I learned young that it didn’t have to be that way.You can make a lot more money by getting other people to do the work instead of running around like a chicken, trying to do all the work yourself. Click To Tweet
Or die from a heart attack or some stress which happens quite often, believe it or not.
That was my first taste of entrepreneurism.
You are still in full-time school, right?
Yes. I was in high school. I go off to junior college because I had a 1.9 accumulative GPA.
However, you had a bank account.
I did have money. I didn’t ever like school. The high school I went to has the oldest radio station in Oregon. I was chief of staff in junior and senior. I was running the radio station. When I turned eighteen, I started a recycling company. We were the second recycling company in Portland, Oregon, which is a very green city. I had about 5,000 monthly customers. We pick up old newspapers, magazines, and stuff from about 18 until I got married at 22. I sold that business. That was my first sale. I made money.
On my first sale, I started one of the first cellular phone dealerships in the Northwest in 1986. I grew that up to multiple stores. The market shifted. I sold the stuff I could sell. I closed the stuff that I needed to close because it went to big-box stores and they didn’t want guys like us anymore. We sold off what we could. I got recruited at 29 to be Vice President of Sales for a multinational NASDAQ-traded company. I was one of three VPs that built that up. I quadruple sales while was there. I made a bunch of money in the stock and started buying companies in 1997 and have been doing it ever since.
How did you get into compliance? When I met you, your main business was around compliance protection and making sure that companies were equipped with everything that they need to keep them out of trouble and keep them running their business smoothly. How did you get into that?
One of the companies that I own does that. Remember I said I started buying companies?
You bought that company.
I bought a few Nevada and Wyoming incorporation services. My partner and I had five businesses that we had and we were focused. We also had a company in Rome, Italy. We had another one in British Columbia. I was doing a lot of things there.
Are all your companies congruent or were they all very different?
They were very different, from painting to recycling to cellular to financial services. We’ve sold frozen novelties. We’ve sold a special glass-like greenhouse. I’ve done all kinds of stuff over the years. I buy stuff. The compliance thing, I had these Nevada and Wyoming incorporators in the late ’90s and right around 2000. In 2001, the owner of the granddaddy of all the Nevada incorporators called Laughlin Associates, Mr. Laughlin died. Their trust lawyer knew me and knew that I owned other competing companies and said, “Do you want to buy Laughlin?” I did.
Now here’s the thing for your readers who want to buy or sell or grow a business. This company was 29 years old with 80 employees and about $9 million in revenue. They had seventeen lawsuits going on at the time. They were so suing clients and people were suing them. They had a 300% turnover in their employees. Every job was replaced three times a year. They had this weird, very sexist, alt-right wing. They had a prayer meeting. I don’t care if people pray. I’m a prayer, but to require your whole team to gather and have a prayer meeting every morning.
That doesn’t seem legal. Is that even legal?
I don’t know, but it was recruiting Nevada back in the day.
I believe in praying too. I don’t know if you could make your employees pray.
Women had to wear skirts or dresses. Men had to wear a tie. I don’t have any problem with professionalism either but it was a sexist culture. I won’t go into all the details. You said, how did I get into it? It was an opportunity. I thought I would fire all the employees, keep the age on the corporation, keep the client list and morph it under the roof of one of the other incorporating companies or resident agent businesses. I got in there and we interviewed all the staff the first week I fired 30 people the first week. You know how it is. You have your style, your 6P’s.
Whenever you’re buying companies, you have to have some formula you follow and I did that. One of the things that I’ve learned to do is that sometimes you have to fire people. You say, “Thank you for all you’ve done. We’re terminating your position. Here’s another position that’s available if you are interested in it. I know you’re in customer service, but I’m going to move you to sales. I know you’re in accounting, but I’m going to move you to the front desk.” They can come or not. That’s up to them.
That’s after you get to know the people. You get to know their skill sets and how they’re working right now in the current environment. You’re not just going in there moving people and getting rid of people.
In the first week, I interviewed everyone. I made little 3×5 cards for everybody and like a talent show, I laid them all out on the conference table with my partner. We said, “What do we want to do here?” We knew we had to get rid of the toxic part so we fired those people. We looked around and said, “We need to reorient the workforce here. Good to Great, whom do we want on the bus?” We did that and almost everybody stayed. We ended up with 40-some people and we utterly went through and started to fix the culture.
How do you get into compliance?
The first thing you have to do is go, “Let’s make sure everything’s working that’s supposed to work so we can still pay our bills.” What opportunities have been ignored? They were only in Nevada. We went immediately to all 50 states. They were only resident agents. They’ll form your corporation or LLC. Many years ago, LLCs were not super popular yet. We’ll form your corporation or LLC and we’ll be here if the sheriff needs to bring the lawsuit, resident agent and we can answer your phone and forward your mail if you want to have a Nevada corporation. That was the company.
We went to all 50 states. That was good. We have all these people with multiple companies and they’re asking ad hoc questions. How do these two companies work together? How do I know when it’s appropriate to move money between them? What’s my role? What’s the tax implication of this daisy chain? We were one-off consulting and this is a good lesson for your people. I said to my team, “We’re getting into practicing law without a license. We need to time out.”
I’d be careful because I get in and out of scenarios too sometimes.
It’s because we know a lot of answers, but you have to be careful, especially your team who doesn’t even know necessarily why they know the information. They know, “Here’s an answer. I don’t know what’s below it.” We went and got two legal opinions from big law firms and figured out what we could do. We offered a service. I was talking about this to a guy. All of a sudden, we had a thing we could do where we could be not legally, but de facto board secretary.
Because if you’re a C corp, an S corp, or a limited liability company, you have to have a board. Even if it’s just you. Even if you’re the only owner, the only director, the only officer, the only employee, if you want the tax deductions, if you want the asset protection, if you want that corporate veil to stand between you and the obligations of the company. The ship can sink without you sinking with it, you must follow through with it.
What you said is so important. I want to make sure everybody grasps ahold of that and implements it. You have to have a board no matter what, no matter how many employees you have.
It’s required by the law.
If you’re a party of one, you have to have a board. Most companies don’t have that. Of the small to mid-sized companies, what percentage would you say don’t have that?
I’ll say two things. One is that they all have a board, but they don’t know they do because they are on the board.
They’re not properly set up by law, correct?
Here’s what happens in my experience. Somebody says, “I’m going to quit my job and start a business. I’m going to start a side hustle or I’m going to do whatever I’m going to do, but I’m going to start doing something.” Maybe they start an entity, maybe they get a corporation or LLC or maybe they don’t. Maybe they’re only a sole proprietor for a while. They have been doing business as. They have a name, but it’s only them.
Now, I’m not going to spend much time on sole proprietor. Just say this. If you’re a sole proprietor, you can have 1,000 employees. You can have 1 million employees. You’re not obligated to have an entity. Just remember, everything that you own is at risk. The art above your couch, your grandfather’s coin collection that you inherited, everything. If you have a problem, if you get sued and if you lose because they’ll name you, you’re going to lose some stuff.
You can lose everything.
I can tell you story after story of people that have come to me after that and said, “I can never go through that again.”
I don’t know why anybody would ever be a sole proprietor. It makes zero sense but go ahead.
It’s easy and if they’re only getting started, they don’t have a few hundred dollars to start. They don’t do it and then they get going and they go, “Nobody’s ever sued me. Nobody’s ever threatened me. I’ve never been audited.” They live in this Pollyanna fantasy world of, hopefully, that’ll never happen. “I don’t think it will. I’m nice. I’m honest. I’m small.” These are all fantasies. These are all lies we tell ourselves to make ourselves feel better.
With a sole proprietor, everything’s at risk. Hundreds and hundreds of years ago, merchants in Europe primarily would lease or rent a boat, or a big ship and get a crew. They would put merchandise on the ship and they would sail to some other port, sell that stuff and buy other stuff. Go to another port, sell, buy and they would make some money, theoretically.
If you’ve ever seen any of these little wooden ships, they’re not the most high-tech kind of boat. A lot of them went down. Scuba divers love that because there are wrecks to go dive around. Ships sank. People are still looking for gold doubloons and pieces of eight from the 1400s because the ship sank. The merchants understood that there was a risk and all their investors for the voyage understood there was a risk.
They would go to the crown, to the monarchy, and say, “Help me out.” The crown would give a special differentiation for a corporation. The corporation separated the business activity from the owners. As long as you followed the laws of how to run the business, the crown and the law would acknowledge that the ship sank. It sucks. Everybody lost their money. Some people died. It’s bad, but the merchant has protection against the investors. That was probably before insurance. There was no protection against what went down in the ocean but they have protection from these guys.
That’s where these things came from and what small business owners now who are generally goodhearted, kind, and good people don’t understand or they somehow reject that the only reason to have a corporation or LLC is for all the benefits like protection against creditors. “I owe that money. The company does but I set myself up right.” The company didn’t work and I say goodbye to the $200,000 I owe to the vendor because this didn’t work. That’s why entities exist. There are tax deductions to give you incentives. There’s lawsuit protection to give you incentives because so few people in the population will take the risk to be a business owner.
The main reason is protection against creditors that the small handful of creative slightly insane people we call entrepreneurs will get up after failure and try again. Because if you had to carry around all the debt from that failed company with you for the rest of your life, you’re like Marley’s ghost with the chains on A Christmas Carol. He is dragging all these chains of all of his misdeeds. The government knows they need entrepreneurs to keep going. Entrepreneurs and small companies under 50 employees create 86.3% of GDP. 86.3% of our circulation of money is created by companies with less than 50 employees. The government needs you guys to function.
Small business is the backbone of our economy employing over half the US workforce.
Another study I read said that 83% of all new jobs created whereby companies of 100 employees or less. Almost all the new jobs are coming from entrepreneurial ventures. You might think, “100 employees is a lot of employees.” That’s considered a small business.
We talked about that. We talked about a sole proprietorship. Why don’t you take a couple of steps further and talk about the difference between S corp and C corp real quick for our audience? We’ll get into further protection and why these small businesses need compliance and protection. They have the board, but why do they need to run it the right way and make sure they’re compliant?
They need to do it.
They don’t even know they have it. I’m sure it’s a huge awakening right now.
I’ll talk about that. You said C corp, S corp, and LLC. Those are the most common business entities. When people say to me, “Aaron, does it matter?” I had one person that you and I both know from years ago when you and I first met. She calls me up on Thanksgiving day. She says, “We’re rebranding the company and we’re wondering. What do you think? Is it better to say Inc or LLC?” I said, “It’s not a branding issue. Are you incorporated or do you have an LLC?”
I’m incorporated. Seiler Tucker is incorporated.
The point is that she’s a smart person, too. She was successful, but she didn’t understand that there was a difference. A lot of people don’t. First of all, right now, everybody’s forming LLCs. Probably 70% of what we do is forming LLCs. I love LLCs. I have a number of LLCs personally. It’s like saying, “I have a motorcycle, a minivan, and a dump truck.” You can go from home to the grocery store on any of those. You could drive a dump truck to the Safeway or Piggly Wiggly or whatever. You can drive it over there or you could drive the minivan or you can ride the motorcycle. It’ll get you from point to point and that’s C corp, S corp, and LLC. It’ll get you from point to point.
What I always say to people is if you’re going to take five kids to school or the park, do you want to do it in the dump truck? You’re going to throw them up in the bed of the dump truck and then pour them out when you get there? Are you going to put them one at a time on your motorcycle or are you going to put them in the minivan or are you going to use the minivan? If you want to move a rock, are you going to do that on the motorcycle one little bag at a time?
What you want to do is get the right tool for the job. There are reasons to use a C corp, an S corp, or an LLC. They’re not one size fits all. They do not mix and match. You get the right tool. You have a hammer, a screwdriver, and a saw. They do different jobs. You could break the board with the hammer, but it’s going to be a pretty ugly break. It’s so much better to saw it.
The difference is if you’re going to raise money, if you’re going to have a bunch of outside passive investors, if you’re going to go public, if you want to be acquired by a public company, if you don’t want to have multiple levels of stock and different rules around different classes of stock, it’s a C corp. If you want total privacy, then you want to get a Nevada or a Wyoming C corp because it doesn’t tie back to your personal tax returns. That’s one.
Most businesses are it’s either just me or it’s me and my spouse. If it’s you and your spouse or it’s you by yourself. You’re putting the money in. You’re the investor and you’re maxing out your credit cards. You’re taking out a second mortgage. You’re doing it. It’s you. It’s your business, an S corp, in my opinion, is ideal. Why? There are two reasons. You can be a W-2 employee of an S corp but you cannot be a W-2 employee of an LLC where you own more than 14% or 12%. That depends on your state.
Also, a C corp.
You could be an employee of a C corp, but C corps comes with a lot of other things to consider. C corp, for most small businesses, is either overkill or should be the top of the food chain or the mothership that everything else goes back up to. Until you get far enough down the path, most people don’t need a C corp right now but an S corp is great. Why S corp? You could be an employee and that’s cool. Spouses can both be owners.
There are 1 million things you can do but most entrepreneurs have, “I’ve got this thing going. I’ve got some money from this MLM thing I got involved in. I’m still working a W-2 job. I get $1,500 a year from this oil well that my grandparents invested in and I have all this money. My spouse is doing something. I’m doing something. We have various streams of income.
An S corp all just goes in onto your Schedule C. Everything sifts out. You take whatever deductions are appropriate and it’s an easy way to combine all of your jazz. This is considering you’re not mega-rich yet, but you’re doing well. You’re making a $100,000, $200,000, $300,000 or $400,000 a year from various sources. If you’re under that $400,000 a year, an S corp is a good way to operate and it can go much larger.
They can. There are a lot of larger businesses that we work with that are S corps.
Over time, if you have enough money coming into your home, you may start wanting to create greater separation of all that for tax planning purposes but let’s not go too down that rabbit hole. The last thing I want to say is LLCs. If Michelle and I are going to start a company together and we’re going to both be involved in it, we’re going to bring resources to it, we’re going to use our superpowers to make it work, an LLC is fantastic.
It’s utterly flexible. Michelle could own 90%, but maybe I own 10%, but I brought all the money in. We’re losing money for the first year so I say, “I’m going to take 100% of the losses,” to offset other gains in my portfolio even though she owns almost all of the company. It’s not like a corporation where everything’s done based on your pro rata share ownership.
With LLCs, you can make up the rules. You can change the rules midstream. They’re super flexible. An S corp has to be owned by an American human being, whereas a C corp or an LLC can be owned by people from almost any country. It can be owned by another corporation. An LLC can be owned by a trust or a nonprofit. It’s good.
For mom-and-pop shops, S corp is great. What else are LLCs good for? You can transfer assets easily in LLCs. If you’re going to own real estate, that’s going to be transient. It’s going to be moving through. You buy and sell, it’s an LLC. If you’re going to do oil and gas leases, invest, get the deduction and not pay any tax on that because you get to use pretax money on oil and gas investments, LLC. It’s a great place to own stuff like that but then the LLC is going to be owned up here probably by a corporation of some sort, a C corp or probably C corp.
If all of a sudden you’ve got 5 or 6 or 10 LLCs, then you have a C corp up here that nobody knows who owns and they’re the one member of all these LLCs. You start to create a circumstance, where you, the human being, own nothing but control everything which is where you want to be. That’s a thumbnail sketch of C corp, S corp, and LLC.
You can also make that transition. You can go from an S corp to a C corp.
Only every three years. They don’t like you to do it because based on what’s going on and what Congress has just passed or what’s going on in your state, you could shop for the cheapest tax treatment every year and the government, like anybody else, wants predictable revenues. They won’t let you do it. An S corp starts out as a C corp and then you make this S selection.
What do you see as the benefits when selling a company or when packaging getting ready to sell? Do you see any benefits of having an S corp over a C corp, a C corp over an S corp, or an LLC? Do you see any benefits for that when you are planning your exit?
No, because when we’re selling, we’re starting to compartmentalize everything because we’re only selling those assets. As the seller, I may want to look at how we’re currently structured as I’m preparing to sell to make sure I’m in the most tax advantage situation or I have something to do. The money’s going to go somewhere without it going through the capital gains gate.
Which shows a lot of different strategies and that’s a whole other show.
That’s what you’re great at. It’s something that you want to have a professional help you with that before you do it. I had a guy call me a few years ago. I charge an hourly fee to ask if you want me to look. Everybody’s like, “Can I just pick your brain?” I’m like, “No. You cannot just pick my brain.”
Do you mean I’m not the only one that gets that? People are like, “I bought your book. Can I talk to you for a few hours?” I’m like, “No.”
I spent $18 or $27.95, for which Michelle probably got $4 or something and all the money goes to the publisher. People appreciate what they pay for anyway. If you give it to them for free, they usually don’t act on it. If you charge them a hefty fee and you’re legit, you can teach them something. I know you can Michelle and I believe I’m in that category too. People will take action.
Somebody called my assistant. They want to have me look at the contract. They’re going to sell their company. I said, “I need at least two hours up front,” which is $2,000 an hour. This is not the work I want to do. I am not a consultant. I’m not a lawyer. I’m not a CPA. I own companies. That’s what I do, but I do know some things. These guys paid. They were a little grippy about it. I had an hour. I wanted one hour to read the document, which took more than an hour, but that’s what I charge them, and an hour for the conversation.
We sat on a phone call for 40 minutes probably with them telling me all their stuff. Their lawyer was on there and their accountant was on there. They were telling me all the reasons why they think they have this dialed in. I said, “Have you guys looked at this section here? Because I’m of the opinion and the lawyer and CPA can tell me if I’m right or wrong, but I think if you fix this, you can save yourself several hundred thousand dollars in the sale in taxes.” It had to do with exactly how the company was owned.
Everybody sat there quietly and the professionals were like, “He’s right.” Sometimes even professionals need somebody like Michelle Seiler Tucker who understands the transactional nature of it versus only the pragmatic process, “Here’s how you write a contract. Here’s how you do a tax return.” You need somebody who’s looking at the transaction and what the byproducts of a transaction are. That’s why a business broker is so important.
It’s an M&A advisor. Business brokers are for pizzerias and coffee shops. M&A advisors sell larger businesses.
Somebody who’s in the business of helping people buy and sell, especially mergers and acquisitions. Acquisitions are easy. Mergers are hard. It’s easy to buy something, but to get it to fit in with something else is very difficult. That’s why somebody who’s in that as a professional is important and that’s not me. That’s you. I’m glad people are reading. I have no idea how many people are reading, but I hope a lot of people will pay attention. If you’re trying to sell something, don’t keep your own counsel. Make sure you get some other perspective on it because you may leave thousands, hundreds of thousands, or millions of dollars on the table for something that you simply don’t know you can do.If you are trying to sell something, don't keep to your own counsel. Get some other perspective on it because you may leave millions of dollars on the table by something you don't know you can do. Click To Tweet
That’s a brilliant point because I’ve been doing this for years. I’ve been doing this as long as you and I’ve known each other and every seller is like, “I got my attorney. I have my own CPA.” We have this conversation before I ever start working with them because I’m always educating and saying, “You probably have a great attorney and CPA for what they do, but how many deals have they done? How many M&A transactions have they closed? How many tax mediations have they done? Did they know anything about DSTs, the deferred sales trust?” The answer is no but they still won’t use these professionals.
What you get with a true M&A advisor is their circle of influence. You get their resources, their attorneys, their CPAs and they know what they’re doing. I have a group of CPAs and attorneys. I have attorneys who are also CPAs. They are licensed and both professionals. They know so much more about what they’re doing than the local CPA or the local attorney, but people become stubborn.
We got a guy for whom I can save about $12 million in taxes and he doesn’t want to use the DSTs. He’s like, “No. That’s okay. I don’t want to use it. I don’t want to lose control,” but if you know anything about certain DSTs, you’re not losing control. Yes, it’s this armed length because if it’s not at arm’s length, then you’re going to be taxed on it but there’s a trustee. They can’t spend your money without your authorization to do so but they don’t listen because they think their professionals know everything.
It’s always so important to align yourself with the M&A advisor that has that professional team. Even with that professional team, my attorneys will say, “If you hire Michelle, I’m going to save you about 10% on your bill because she does all the heavy lifting.” When it comes time to do that negotiation, they don’t know what to do. I come up with 20 different ideas and they come up with maybe 1 or 2.
They’ve never done it before.
That’s not their job. Their job is to legalize everything and make sure you’re protected and make sure that they’re decreasing your tax liability and that you’re not going to get bit in the end because of reps and warranties, and so on and so forth. That’s such a huge point.
That’s why I love what you do. I want to go back to those entities because the other thing that we’ve talked about a little bit, but I haven’t said, is this. I’m closing on two companies right now. Both of them are entrepreneurial businesses. One of them, the seller has never sold a company before. She came out of school. She’s a CPA. She built the company up. She’s making money. She’s hired a bunch of people. There are about 8 or 10 people that work there for her and they’re growing. We’re going to bring her under the tent. She’s still going to be an owner. We’re going to be owners, but we’re going to now have a lot of influence in the direction of that business.
One of the hardest things was to get her with all of her education, with all of her gifts, with all of her success to see the strata, owner, board member, and employee. In her mind, that’s all one thing. It’s mine. It’s my business. In writing up the agreements, I said, “You’re an owner. That’s not going to change but if we come in and now we’re in it for half of the responsibility. You are an owner, but you could quit. You could walk away and leave it to us to have to pick up the pieces. Your job is separate from your ownership stake.
Whenever I hear business owners go, “I didn’t have very much money, so I gave these people these shares and now they’re causing a problem.” They thought, “I brought this person and I gave them 10% of my company and then they quit.” You think you’re going to get the shares back, but you’re not. They have the shares now.
When we start to understand there’s a difference between ownership and board, even though it may include them, it’s separate from owners or operators. The board is supposed to look at what decisions or should we sign the lease? Should we loan that money? Should we take the loan? Should we increase the CEO’s salary? Should we start a health insurance program, a 401(k)? Should we do a 401(k) match? Should we keep money in petty cash in the drawer? There are thousands of items that are by law required to be written up in a board resolution.
If all of a sudden the readers are going, “I’ve signed leases. I’ve put money in petty cash. I’ve given myself a raise. I’ve started up buying health insurance.” You did all those things when you were on the board of director mode. You didn’t know it, but you were. Why? It’s because you’re on the board of director mode. Everybody thinks about this for a second. Michelle, you think about it too. When you are relaxed enough in your brain, you’re not only doing what’s in front of you. When you’re chilled out enough that you start to get creative ideas about what to do with the business, where are you?
Most people tell me, “I’m in the shower.” You’re on an airplane. You’re driving in the car. Some people say, “It’s when I’m falling asleep.” Others say, “It’s when I wake up abruptly at 2:00 in the morning.” I’m thinking about those things. You’re then in the board of director mode. You’re not an owner at that moment and you’re not an officer. You’re the board of directors, even if it’s only you alone. If you’re standing in the shower, sitting on the airplane, or driving in the car, you’re not going to go, “We need to call this meeting to order. Let’s take roll. We have a full quorum. We’re going to dispense with the reading of the minutes of the last-minute meeting,” because we’re in the shower.
Even if it’s you by yourself.
You feel like you’re schizophrenic, but if you have a corporation or an LLC and if you’re taking corporate deductions and you’re wanting corporate lawsuit protection, you’re wanting the corporate veil to separate your personal stuff or some other company that you own stuff from over here, you must by law hold board meetings and write a resolution at or near the time that the decision is made. When you get audited, it doesn’t matter how great your financials are. If you haven’t written anything in your minute book, if you haven’t put your name on a stock certificate, taken it out of the three-ring binder, and put it over in your safety deposit box, you don’t even own the company.
You got to say that again.
If you haven’t issued yourself stock, you don’t own the company.If you haven't issued yourself stock, you don't own the company. Click To Tweet
This is huge. How many businesses are compliant?
We have huge numbers of clients. I speak to thousands and thousands of people a year. We have almost 50,000 customers. I would say when we meet people, 95% plus are not doing this.
That’s not only small businesses. That’s medium-sized businesses. I’ve seen businesses with 100 or 500 employees not being compliant.
The ones that you’re probably describing, I call them not small, but closely held like, “I own the business.”
I have a brother and a sister right now who own a $65 million company that we’re selling and they’re not compliant.
It’s because they talk to each other all the time. They’re not thinking about official board meetings. They’ve grown up together. They know each other. I’ll give you two quick examples. One was a guy. I was speaking at a big conference center. I was rushing through the empty hallway to get backstage because I was late for my talk.
There were banners up with our faces on them all over the place so people knew I was one of the speakers. I’m hustling down the hall and this guy all bent up on crutches, the thing that wraps around his forearm and he’s limping all broken and crushed down the thing. He comes around the corner, I’m hustling. I go, in my mind, “I hope he doesn’t talk to me,” but he stops me. “Aaron, can I ask you a question?” “Sure.” “You don’t know me, but I’m one of your clients. I use your Corporate Veil program. You guys do my minutes and resolutions. A couple of years ago, I left my home to go run an errand and I got in a terrible car accident and that’s what happened to my body.”
He said, “The worst thing was I was at fault. I caused the accident and the other people were also severely injured.” They sued us and they got all my insurance money, but they got everything. They got the house, the boat, the vacation house, the retirement money, and the kids’ college money. They got everything but they couldn’t take my business because that corporate veil was in place. We were able to rent a home and I was able to take care of my family, meet my obligations, and take care of my medical issues and all this stuff. I lost all my personal stuff all, but they couldn’t take my company.”
There’s a reason why you want the corporate veil in place, why the minutes, resolution, stock ledger, and all that are managed properly. The juxtaposition on that, the flip side is I go to speak at this women’s business conference in Indianapolis. This cute and pretty young African-American lady comes running across the room and throws her arms around me and gives me a big hug. “Aaron, I’ve been so excited to see you.” I’m like, “Who is this? I don’t know who this is.”
I said, “Why were you so excited? What’d you want to tell me?” She goes, “A few years ago, I became one of your clients and you guys do my minutes. You call and your team’s great,” but after a year, I thought, “I’m pretty small and I see what to do. Am I a sucker? Am I stupid to keep paying this company to do this?” she said, “But I renewed and I renewed again. Every year I wondered, ‘Am I foolish that I’m doing this over and over again?’” This is not a lot of money. This is inexpensive. I’m talking about $50 a month to use the service.
$50 a month could save their life.
The first year’s $1,000 and it drops down to $499 after we’ve got you caught up. I’m not here to sell anything. She wanted to throw her arms around me and thank me because she said, “I applied to be a government contractor as a double minority, a Black woman.” She goes, “Do you know what the first thing they asked me for was? Three years of minutes in resolutions. They wanted to see my minute book and see three years that I was operating like a real business.”
If she had a business, then she was getting a government contract.
She wanted to become a vendor to the government.
Yes, as a business.
The first part of their due diligence was three years of minutes in resolution and she said to me, “I had them.” It’s pretty dull. “We’re going to write down your minutes. We’re going to ask you questions and figure out what needs to be in resolution form. We’re going to make sure your stock ledger has the right things written in it.” That’s not like, “Make $1 million in a month or drop 50 pounds in 60 days.”
It’s not like that. “Come to the beautiful resort with all the beautiful people in bathing suits and sun and drink your piña colada.” I don’t do that stuff. I do stuff that’s for amenities and make sure they stay compliant. Our mission statement is, “We build a fortress around our client’s personal and business assets.” That’s what we do.
Every business owner needs that.
Everyone does. We have tens of thousands of clients. We don’t do the sexy stuff. We do all the structural stuff so you can go out and build whatever mansions in the clouds that you want, but we’ll make sure that your foundation is solid. One of the most critical places where people mess that up is not remembering there is a board, not having regular board meetings, not writing the things down in proper format, and then putting them in your minute book.One of the most critical places where people mess that up is not having regular board meetings or writing down minutes in the proper format. Click To Tweet
What happens if you don’t do that? If she didn’t have Laughlin Associates, she didn’t do that, she’s trying to get a government contract, which can catapult our business to the next level, what do you do? Do you go backward and try to figure all that out? Can you go backward?
You can if you know what you’re doing and you don’t do it fraudulently. Let’s say you wanted to sign up for the service. It’s $1,000 that first year and that’s going to go forward from now for twelve months.
$1,000 a month for the first year.
$1,000 for the year. It’s $80 a month or whatever. We’re going to call you every month we’re going to interview stuff out of you. We’re going to create the record, but we’re also going to go back up to five years and interview that stuff out of you and create all of that as well. Anybody can do it, but you have to know what questions to ask. You have to know what things need to be written down. You need to have some ability or do your own research to figure out the right format. We do it all the time. That’s why we have over 200 law firms that send us this work because they say we’re cheaper and faster than the paralegals.
You are. I own a company because I have multiple companies as well. I partnered with business owners and we have a law firm that was doing ours, but they’re so freaking expensive and then you got to remember to call them. You got to remember to follow up with them. You got to remember to do what you’re told. You guys make it automatic, it sounds like.
It’s done for you. We call you. If you’ll spend 10 minutes a month with this, you’ll be okay. The first couple of months will be more because we’re trying to get everything caught up, but we do it all for you. You don’t backdate. I’m going to give everybody a hack right here. When you go backward, remember you have a board of directors every single year. The shareholders reelect the board and that also needs to be in your corporate minute book, the reelection of the board.
If you want to add the owner as a board member.
It’s super easy to do it if you’re the only one but every year it changes. It’s not static. It doesn’t just stay on the board. There must be an election every year. The current board can go back and reconstruct the documents and can ratify the decisions of the previous boards. It can all be done but almost no entrepreneur I’ve ever met wants to do that stuff because it’s not fun.
They’re too busy working in a business, not on the business.
Full disclosure, but if you saw the movie Frozen, there’s the scene where she breaks out of everything and she’s like, “The cold never bothered me anyway.” She builds her ice castle. That’s how most entrepreneurs want to be. They want to have a vision and make cool things happen. What they don’t want to do is go back and go, “What’s the niggly little paperwork stuff that has to be done?” It’s because they’ve got big visions.
That’s why when you’re selling a company or you want to buy a company, you go to somebody like Michelle. If you want to build something big, make sure a company like ours or your law firm that you were using is making sure the launch pad for your rocket is solid so the rocket doesn’t go poof and kill all the astronauts. It takes off. You know what it does with Elon Musk. It goes up, it does what it needs to do, and the booster comes right back and lands where it took off from. You can build whatever you want but make sure your systems are right.
You got to put the protection in there. That’s my seventh P, protection. You gave so much great advice and I hope everybody follows up and contacts Aaron. Everybody needs this. You’re talking of $50 a month. Look at that gentleman that would’ve lost his business. Not only did he lose his health. As Aaron said, he’s broken up. He lost all of his personal belongings. If it weren’t for Aaron or for the Laughlin Organization, he would’ve lost his entire company.
This is so important because you don’t know what contract you’re going to get just like this lady who got a government contract. Moreover, big companies are looking for vendors and suppliers who are doing their due diligence. Clients are starting to do their due diligence and beyond anything else, buyers who are looking to buy your business are doing their due diligence. That’s why it was so imperative for me to have Aaron the on the show.
I have something that’s free that will help us figure out, “Where are they with their minutes and resolutions? Are they using their entity properly? Have they done their stock right?” It’s all free. When we talked, we didn’t have any plans. I said to my team, “What can we do that will be high value and that we can offer for free if somebody doesn’t know where they are? Do we have something called the snapshot that looks at what energy are you in? How have you done on your compliance? What are you missing?” It’s that thing and it’s on our website for $399. We sell them all the time but I said, “What could we do?” They said we could do a snapshot. I said, “If Michelle’s cool with that, I’ve got a QR code that they emailed or texted to me.”
That’s so kind of you and generous of you. Every single one of my readers should 1000% get this.
Here are some things that are free, useful, and in alignment with what we talked about. I want to say this. I’ve been around Michelle Seiler Tucker for a long time now, for a number of years. She is the real deal. If you’ve thought about working with her if you want to buy something or sell something, talk to her if you want to get some guidance on how to tighten up things that are loose.
She didn’t ask me to pitch for her. I’m only telling you. I see her in lots of different settings with lots of different people and she is the real deal. I’ve met a lot of people who make claims but can’t follow up. It’s like they learned it in a book. They’ve never done it. They know how to talk the talk, but not walk the walk. Michelle is legit. If you’re thinking about doing something, at least, give her the chance to her two cents in on your transaction.
Thank you, Aaron. I appreciate that.
You deserve it. You’ve done great things. This book, by the way, she asked me, “Have you read it?” I said, “I’ve skimmed through it, but here’s what I know. I knew Michelle and she’s also got Sharon Lechter on here. If you ever read Rich Dad Poor Dad, do you think Robert Kiyosaki wrote that? He didn’t you. It’s got Sharon Lechter’s name on it. Sharon was the brains behind that operation. Sharon is the one that the Napoleon Hill Foundation came to step into Napoleon Hill’s shoes and write more books. It’s Sharon and Michelle, dang because Sharon is a CPA. She’s about management and you’re about corporate transactions and mergers and acquisitions.
It gets even better than that because you know this too. Her husband is an IP, Intellectual Property attorney. He threw his two cents in there and talked about IP and how to protect it.
He’s great. I’ve spent a lot of time with them. I love Sharon. As a matter of fact, we showed up at an event one time. This was after there’d been a tragedy in her family. It was her first outing out and we somehow ended up on the same airplane. It’s not unusual because we’re flying to the destination. She said to me, “Aaron, will you be my date for the next three days? I need somebody to stand with me.” I said, “Absolutely.”
It was one of the greatest compliments anybody’s ever given me in a business setting because she was having a hard time. She’s talking about it now. It’s her story to tell. I won’t tell it. She talks about this thing. I was sitting with her and Michael when they got the phone call. We were sitting together listening to Barry Spilchuk give a talk. When I got your book and realized that you and Sharon had done it together, I thought, “The combined level of experience and practical application between these two people is super powerful.” Get the book and read the book.
Thank you. It’s endorsed by Steve Forbes.
Steve Forbes is fabulous and he’s right on the front but I’m going to tell you, here’s a guy with an interesting perspective, Rob Angel, the inventor of Pictionary who realized he didn’t know how to get games on the shelf. He licensed them way back when and he’s been a multimillionaire ever since. Every time you buy Pictionary, Rob gets paid. There’s a guy who didn’t try to fight the system. He worked with the system. Ron Klein is the guy that automated the bond trading market and created the magnetic stripe on your credit card. Michelle Seiler Tucker has got a bunch of cool people in that book.
I need you on here. We have a bunch more testimonials on the front, but we need Aaron Young.
Brian Tracy is one of my friends. He’s the first guy that asked me to speak when I got done with that whole mess. Les Brown is a dear friend, and Jack Canfield just invited me to go to Peru. I’ve only interviewed Tom Hopkins. I had breakfast with Mark Victor Hansen a few months ago. These are the badasses of the industry. These are business titans. They sold Rich Dad for $500 million. Hang out with people who are doing what you want to do. That’s Michelle. You’re in the right place because you’re with somebody who’s with the right people that makes all the difference versus somebody who goes, “I technically know how to do it.”
Also, hang out with Aaron Young, too. As you just said, he knows all these people. He’s best friends with all these people.
We know each other because we met in places where you’re with a certain group of people. You look back at the impressionist artists like Matisse, Manet, and Monet. They all hung out together.
Your network equals your net worth.
Disney Channel, I just watched Industrial Light & Magic and they’re talking about George Lucas, Steven Spielberg, and the Godfather. All these directors were buddies. They’re all broke. Thomas Edison, Ford, and Lindbergh were in a mastermind group. They all lived on the same cul-de-sac in Florida. It’s not a matter of, “I know them all too.” It’s a matter of when you get in the right circle, you start knowing people in the circle. If you want to get to that circle, figure out an entrée and an entrée may be working with somebody like Michelle to even get in the room. You can’t buy your way into the room. You get invited.
You got to ask the right questions. You got to serve other people to be able to stay in the room.
You can’t be self-serving. You got to be additive. Make smart choices. I’m going to give a shameless plug. If you want to exit rich, make smart choices along the path. Begin with the end in mind. Know what you’re working toward when you start so you’ll form the right entity. You’ll do your corporate compliance. You’ll put buy and sell agreements in place. You’ll do all the things that will give you the greatest likelihood of success. I’m delighted I could be a part of this. I hope people will let us help them out. I’ll email you the snapshot. You can put it somewhere.If you want to exit rich, make smart choices along the path and begin with the end in mind. Do your corporate compliance and buy agreements in place. Click To Tweet
Thank you, Aaron. We’re going to talk about how to make your program part of my program because it starts with compliance. It starts with getting your ducks in a row. It starts with doing things the right way. It’s not what you know that gets you in trouble. It’s what you don’t know. I guarantee you, so many entrepreneurs are like, “I’m one person. I have 25 people. I didn’t know have a board.” Now, you know. You need to implement, you need to organize, you need to hire Aaron Young’s company, and move forward. Take advantage of that snapshot.
It’s where you are, what’s working, and what’s not working.
Also, hire Laughlin Associates. Thank you so much for being on the show and thank you for that great plug. I’m going to have to have you on more often.
I also don’t go on programs if don’t believe in the people. That’s sincere, Michelle. I don’t go on programs where I don’t believe in what somebody’s doing.
Thank you so much. Do you have any last-minute go-to nuggets or any last-minute hacks you want to tell our audience?
I would just say this. There is no better thing you can do for yourself than figure out what you want out of the effort you’re putting into whatever you’re doing. Don’t just work to work. Work to accomplish something and get specific. If you do that, as Thoreau said, “You’ll meet with a success unexpected in common hours.” It’s the way you get into the room. It’s the way you advance quickly. It’s the way you land on your feet after a problem when you get clear on the outcome that you want.
You can go to somebody like Michelle and say, “Michelle, here’s what I’m trying to accomplish with selling my company. Here’s what I’m trying to accomplish by buying something and you know why you’re doing it and where you’re going instead of, “What can I make money at?” If you get clear on the outcome and quit worrying about how you’re going to get there, the other stuff fills in. People suffer from a lack of specificity. Get specific about what you want and you’ll find you’ll get there much faster.
That’s what Think and Grow Rich talks about. In my book, Exit Rich, we talk about the GPS exit. You said what I always say. “Start with the end in mind,” is what Stephen Covey said, and then figure out that destination and know what you’re worth now. Get crystal clear and that takes more than just thinking about it in a shower or on the airplane. You need some deep soul-searching and some deep meditation. I’ve been trying to meditate. You know how fast I have been there and it’s hard for me to sit still. Thank you so much. It was a pleasure having you on. It’s good to see you again, my dear friend.
It’s nice to see you and we’ll be together in November 2022.
We’ll have you back on and thanks a lot to all my Exit Rich fans, everybody who reads Exit Rich, and this episode. This is some brilliant information. It’s easy to stay compliant once you engage Aaron, his team, and Laughlin Associates. Share this with your coworkers, your fellow entrepreneurs, your family, your friends, and everybody you know. Share this information because it could save your business, your life, and your family.
Thank you so much. Until next time, we’ll see you on another episode of Exit Rich.
- Aaron Young
- https://LaughlinUSA.com/snaplead.com – snapshot
- Rich Dad Poor Dad
- Think and Grow Rich
- Exit Rich
About Aaron Young
For over 20 years, Aaron Young has been empowering business owners to build strong companies and proactively protect their dreams. An entrepreneur with several multimillion-dollar companies under his own belt, Aaron has made it his life’s work to arm other business owners with success formulas that immediately provide exponential growth and protection.
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