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A Simple 7-Step Guide to Optimize Your Business Exit

In this episode, Royal Standley shares a simple yet highly effective 7-step guide that helps you achieve maximum value from your business exit, whether it’s a sale to an outside party or an internal transfer of ownership to family or employees. Join him as he assists business owners define their ideal vision, and provides various strategies to achieve them. 

Episode 47 Transcript

Intro: Royal Standley of Oregon Pacific Financial Advisors, offering Securities through United Planners Financial Services, Member FINRA, SIPC, guides clients with empathy in discovering and reaching their financial goals, and creates financial plans for clients so they can live their life by design. In these episodes, he relates his expert financial insights and discusses timely topics. Royal strives for excellence and has a passion for sharing his knowledge and supporting his community. Now onto the show. 

Aric Johnson: Hello and welcome to Life by Design with Royal Standley of Oregon Pacific financial advisors.  Royal, how are you today?  

Royal Standley: I'm doing well. How are you doing, Aric? I hear you're, uh, under construction over there. 

Aric: Yes. I have taken apart my office, uh, for, uh, to get a little glimpse of how professional I truly am. I'm currently working off of TV trays. I don’t know.  

Royal: Perfect. Perfect.  

Aric: Not the metal ones, not those like sixties metal ones that my grandparents had. I don't know if everybody else remembered them, but these are wood ones, but they're really not much better. 

Royal: Oh, so they're the, the nice TV trays?  

Aric: Exactly. These are, these are the guest TV trays. We've pulled things up. These are the fancy ones, right? Here, sit on that chair covered with plastic and have this fancy TV tray. Anyway. We didn't, we didn't come here to talk about my, my office issues, Royal. We came here to talk about you and the things that you're doing with clients. 
And this is a totally new topic today that you've never even spoken about. So, I'm very excited. Why don't you tell us what we're talking about?  

Royal: Yeah, and I might, I might've touched on it a little bit in the past. We have done close to 50 episodes now.  

Aric: That's true.  

Royal: Um, but no, what I wanted to spend some time today on is just going over the process that we use when we're working with our business owner clients, uh, and helping them plan how they're going to exit their business. 

Aric: Hmm. Okay. Yeah, because that is, I mean, that's a huge, huge topic, right? I mean, it, it's, it's something that you definitely need to be planning for years in advance. It's not like, you know what, I think I'm going to be done in six months. 

Royal: Uh, correct. Correct. And, you know, usually if somebody has to be done in six months, you're usually dealing with something pretty major, like a health issue or something like that, where if you've done the right planning upfront, uh, can really kind of streamline that process and, uh, uh, protect the value that you've worked so hard to build in your business. 

Aric: Yeah, that's actually a really good point. I was actually saying it because I, I think it's terrible idea to try to exit in six months, but the point of if you've done proper planning, if for some reason you had to, absolutely had to be done in six months, because of that prior planning, you could actually execute that pretty seamlessly. I mean, it may not be the best scenario, but at least you could do it because of the planning. I didn't even think about that.  

Royal: Yeah, absolutely. You've kind of laid some groundwork there where at least you've thought about the idea of, you know, what happens if I'm not there to run my business or how do I separate from this? 
So, this is what our, uh, kind of seven-step business process does is help define some of these things. So, what I thought I'd do is just kind of walk through this. Now, it's not a seven linear step process because we're going to pick and choose which pieces we're going to start with and what we're, what we're going to apply in there. 
Well, our starting process, whenever we sit down with a business owner though, is starting to define their objectives when they start thinking about their business exit. And looking at some of the surveys that are out there, a large number of business owners have plans in the next five to 10 years to exit their business. You know, if you ask any business owner of a certain age, uh, when, when are you going to leave your business? Probably the answer you're going to get 80 to 90% of the time is going to be five to 10 years.  

Aric: Hmm 

Royal: I think there's a really good reason for that. Uh, number one, five years means you still have time to do the planning. And it's far enough out where if you change your mind, uh, maybe you just push it out another year or two.  

Aric: Okay.  

Royal: So, it's kind of this nice nebulous number where you don't have to be committed to anything. It's like, eh, tomorrow. It's not 20 years from now, it's five years. It's a nice, uh, kind of hedge there where you can kind of make decisions around that. 
Now, uh, I remember when I was working with my partner and mentor, uh, and he was talking about exiting the business, his plan was in five years, I plan on exiting the business. And that was his plan for about seven years. In five years, I'm going to exit the business. And finally, uh, you know, due to some health issues and, and also just age, he, you know, he kinda did set a final day when we started working towards that, but I know it from personal experience that, that five years out, I'm five years out from selling the business, you know, can be a bit of a moving target for a lot of business owners.  

Aric: I can see that happening with you, Royal, honestly, because of how you work with your clients and the things that we've talked about with, um, the clients that you have. I could see you saying, yeah, I'll be done in five years and then a few years later, I'm not quite ready because you're just enjoying what you do. 

Royal: Yeah, absolutely. And, and I think that goes for a lot of business owners. So, some business owners just absolutely love what they do. Um, other business owners do not, and are definitely in that five year, no questions asked, I'm getting out. Um, and, and there's also a lot of factors there when we're thinking about, uh, selling a business is how do you transition the business? What are your goals there?  

So, step number one is really defining those objectives for that business owner of what they want to have happen to their business. You know, a lot of businesses, especially if you're maybe a professional single practitioner, you'll look at it, you just say, well, when I'm done, the business is done. 
Um, other people with maybe a larger infrastructure, um, might want to look at, okay, well, this is going to be a family business or has been a family business. How do we carry that on? Others might want to look at, can I sell it to my employees or a certain subset of my employees and others might just want to say, what can I get top dollar for, uh, out on the market for my business? 

Aric: Mm-hmm. 

Royal: So, uh, a lot of different, different ways you can look at it. It all kind of, it comes down to your personal opinions and then, uh, what you're really trying to accomplish there. That's step number one is just sitting down with the business owner, finding out kind of what their thoughts are on their business. 

Step number two is just as important and that's really where we start that financial planning process and kind of bring in all of our resources as financial planners, uh, to really start doing an analysis of - besides the business, what else have you accumulated? You know, have you been fully funding your 401k each year? Or have you been plowing all your profits back into the business? You know, have you been acquiring real estate or other, you know, hard assets like that, and really begin that process of doing an evaluation of, to say, okay, if you didn't have the income from the business, do you have enough assets outside of the business to actually retire on?

And I'll tell you, that's something we see over and over again with, uh, our, some of our business owner clients is they have plowed everything back into their business. It's something they understand, you know, it's, it's a very tangible reward system there. Uh, you know, I put this money back into my business I can increase my sales next year. Why would I, why would I diversify it? And I think that is a legitimate conversation to have. But one thing we see is if you're not, kind of, taking some money out of the business and maybe building your, your personal assets separate from your business, um, you can get into a little bit of trouble there where you really have no diversification at all. Everything is tied up in the business.  

Aric: That's a good point.  

Royal: Yeah. So really coming up with the idea of what kind of gap is there, uh, that a client needs to cover, should they sell their business?  
So, for instance, you know, if a client has been pulling, you know, a nice, a healthy income off their business, have they accumulated enough assets outside of the business to replace that? And if not, how much do we need to target to sell the business for, to make up that gap?  
So really understanding where that gap is in planning is really step number two, that will help us begin to move into the next steps, depending on what we identify there with the owner's preferences and with, uh, kind of our gap analysis for their own personal financial plan. 

Aric: Gotcha. All right. So, what is number three?  

Royal: So, step number three is really working with the business owner because we're not coming in there in that last six months. We're really trying to start this conversation anywhere from five to 10 years out. Um, you know, the more time we have to work as planners and advisors, the, the more value we can bring to the table. 

But step number three is really building and preserving business value. So, for instance, you know, let's say you have a business where you have key employees, um, who are maybe running the business for you. You know, you might have a great management team or a great sales team. Well, if you're planning on retiring and selling the business, uh, the question is, is where is the incentive for that employee to stay with your company versus taking everything they've learned from you and from all of their expertise and just go starting something on their own? 
So, that's really where we start doing an evaluation of kind of the, uh, the old SWOT analysis, strengths, weaknesses, opportunities, and threats, and really looking at, okay, what are the drivers of value in a business? You know, looking at those cashflow statements and that sort of thing. 
But also taking a look at what are the things that could be potential landmines here, uh, along the way. Is it, you know, your, your executive team leaving because they don't see a place for themselves, uh, in your transition plan?  
So that's where we can look at things like a deferred comp and other strategies, like, uh, phantom equity, uh, stock appreciation rights, and, and other programs there to really try to tie some of those key employees to your ultimate goal of selling the business. 

Aric: Yeah. I mean, I think that any, any employee that is going to be staying with the business will still have concerns about the new owner, right? I mean, that's  - so being able to get those things in place and help that transition, I think is huge because you just never know. Unless you have something in writing, you never know what could possibly happen, and you don't want the people that you've cared about for all those years and who've helped you grow that business for all those years, suddenly they're out of a job or they've been replaced or something if you don't have certain things in place. 

Royal: Mm-hmm, mm-hmm. And that's something we'll identify there when we're talking through step number one, identifying your exit objectives of, you know, how do you want to make sure you're taking care of your employees?  

Aric: Yeah.  

Royal: You know, some, some people really want to make sure their employees are taken care of, and that's something that we can help kind of plan around. 

Step number four is, you know, I think a lot of people assume, okay, I'm going to sell my business. So, I'm going to go and find a third party to purchase it. And that's really step number four.  

Now what we find in reality is a lot of people go into the process of selling their business, thinking that that's going to be the best option for them. Going out onto the market and finding an outside party to come in and buy the business. 

Now, depending on the size of the business, that might be true, but for a lot of kind of more mid-sized type businesses, um, let's say in kind of the value of maybe, you know, two to $10 million, maybe $20 million, that might not be realistic. There might not be enough other, uh, competitors or other business owners that want to kind of lay down that kind of cash to buy your business.

So, step number four is really evaluating, uh, is it going to be a sell to a third party? Um, or do we move into step number five, which is transferring your ownership to insiders? Which is really just, uh, transferring the business to somebody you already know.  

Aric: Got it.  

Royal: You know, the next owner might just be in the home with you already, especially if you're looking at a family business. So, is it something where you're going to be looking to sell to, uh, your children or other family members? That's something we see quite often, and there's a lot of planning that can go through that. Uh, could it be a sale to a key, uh, management team?  

Or possibly even, and this kind of splits the difference between selling to a third party and an insider sale, uh, setting up an employee stock ownership plan, which is really where, um, you know, here in the Northwest, uh, we have a few different companies that have done this, where you actually sell your business to your employees. So, it becomes an employee-owned business. I know the large, uh, grocery chain here, WinCo and Bimart, uh, both of those organizations have that, uh, uh, uh, ESOP, employee stock ownership plan structure there, where they are employee owned.  

Aric: Nice. Nice. Now I know that you're covering from a very high view here, all seven of these steps, but I would love to maybe prompt for a future podcast, uh, whether that's a guest or whether it's just you and I talking about it. Um, the different ways you can structure a sale. Because I know that obviously if there's somebody that you're planning to sell it to, maybe key management team, uh, there may be a buyout over a number of years, you know, if you're selling to a third party, a lot of times, I'm assuming, maybe I'm wrong, but they're going to be purchasing it and kind of you're done in the first year of the purchase is done and you've, you've made the sale, but there's all sorts of different structures. Could we do a podcast on that in the future?  

Royal: Yeah, absolutely. Absolutely. And you're absolutely right. A sale to a third party is something, um, you know, you can get done in a relatively short period of time. 
Now, the question becomes is, are you getting, uh, what you want out of that sort of deal? Um, are you kind of maximizing your returns there? And that's really where, working with somebody who understands this process, uh, can add quite a bit of, uh, value to what you ultimately get there, especially if you're looking at a third-party sale like that. 

Aric: All right. Well, that takes us to number six then.  

Royal: That's right. So, step number six, and remember, steps three through seven, we're doing these throughout the process. Um, so we're not necessarily just doing all of these, uh, you know, one by one, but step number six is business continuity. 
This is where we want to make sure that should something happen to the owner or owners, um, before that sales date, what happens to the business? So, this is where we're looking at, uh, you know, what happens if the owner is disabled or, uh, you know, uh, dies before we get to that sale or transfer of ownership? 

We want to make sure that, you know, the business that you have spent years building up, you know, that is, in most cases are very large sources of your net worth and your income for your family doesn't disappear if something happens to you. How do you protect your family? How do you protect your employees? Um, you know, should something happen to you. 
Now, businesses are structured differently, and this is really where our analysis upfront really helps us to say how much of the business is wrapped around the owner versus the rest of the employees and management team?  
And that's just, just something that we can help clients work through, you know, as they're planning this transition and working on business continuity is making sure that if something does happen, uh, their families are taken care of and their business is taken care. 

Aric: Yeah, that's fantastic. I mean, that's, again, that's vitally important to talk to somebody who has some experience with that. I think that any business owner wants to make sure all those T's are crossed and I's are dotted. So that's fantastic.  

Royal: Absolutely. The, the other part of this, with business continuity, especially if you have multiple owners, it might be pretty easy to say, well, if, if, you know, owner one dies, you know, owner two, we can, we can do a buy-sell agreement, that makes it easy. But what happens if owner one and owner two just decide they can't work together anymore and because they don't like each other anymore, um, tear the business apart? So that's another piece of business continuity that we can come in and, um, take a look at, uh, to really give some, some different ideas of, of how do you structure these things, so, you know, what happens if, if owner one goes through a bitter divorce, and, and has to sell out of the business to, uh, create some liquidity. You know, what happens if owner number two has to go through a bankruptcy? Uh, not because of the business, but because of other things.  

So that business continuity conversation, I think some people just look at it as what if the owner passes away, but what happens if ownership is forced to change, not just because of death or disability?  

Aric: Yeah. Yeah. All right. Lucky number seven.  

Royal: So, we wrap all of this up, and this is part that, you know, can kind of be, again, throughout this process. And this is really where we start looking at the retirement for that business owner. 
Okay. Um, are we going to be able to sell the business for enough to replace their income and meet all their goals that they have for their future and their family? And then ultimately that just kind of shifts also into doing the estate plan. And so much, especially with larger businesses, you'll see the sale of the business, really integrated with the estate planning. 
Just to define the estate plan, that's really where we're looking at that transition of assets, uh, um, due to death. Um, you know, how does that function there? What's the owner's goals as far as the wealth they've created and passing it on to, you know, charities, their family -  A lot of different decisions there. 

So, by having a seven-step process that we can go back and refer to and really dig in, uh, no matter where the owner is at is really pretty powerful because ultimately the goal with exit planning is to help the owner define what their ideal vision is for that and helping them achieve that. 
It's not, it's not a cookie cutter process in any way, because we're, it's really customized to what, uh, an individual owner or individual business is looking to accomplish here.  

Aric: Yeah. Well, those seven steps are obviously incredibly important. I like the fact that you prefaced this was, it's not linear, right? It's not going to be in order marching down the field here. It's, we have to look at the entire purpose starting with step one, of course, because you want to know what the foundation of it is, but really knowing where somebody wants to go, and then being able to create that vision, uh, for that next five, seven, 10 years, whatever, whatever it may be. 
Um, any closing thoughts for today's podcast? 

Royal: So, I think the biggest closing thought at this point is, you know, for our, our, our, uh, business owner, uh, listeners here is, you know, start thinking about it for yourself, okay, well, what do I do with this thing I've put all this energy into? Based on my conversations with business owners, not many of them have a concrete idea of, you know, how they get out of this.  
So, start asking yourself those questions of what do I want to have happen, and then give us a call. Um, and let's start having this conversation and this dialogue to help you start laying out that plan and laying out that groundwork, uh, to really make sure that, uh, you're taking advantage of all of the benefits business has given you, including the exit from that business. 

Aric: Yeah, absolutely. Great advice. Royal, I know that you, um, speak to your clients about this, your business owner clients. If somebody is listening to this and they want to reach out and enter this conversation with you and just kind of pick your brain on what maybe they should be thinking about and doing, what is the best way to get ahold of you? 
Royal: Visit our website at Or give me a call at (541) 772-1116.  

Aric: All right, Royal, thank you so much for your time today. Great information. I know that any business owner out there who has not taken the time to create their plan is going to find tremendous value in this. And I hope they do reach out and start this conversation. 
So again, Royal, thank you so much for your time.  

Royal: Yeah, my pleasure. It's good to be here.  

Aric: And the last thank you of course, goes to your listening audience. Thank you so much for tuning in and listening to the Life by Design podcast with Royal Standley. If you have not subscribed to the podcast yet, please click the subscribe now button below. 
This way, when Royal comes out with a new podcast, it'll show up directly on your listening device. This makes it much easier to share these podcasts with your friends and family. Again, thanks for listening today. For everyone at Oregon Pacific financial advisors, this is Aric Johnson reminding you to live your best day every day, and we'll see you next time. 

Outro: Thank you for listening to the Life By Design Podcast. Click the subscribe button below to be notified when new episodes become available. The views expressed are those of the presenter and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax or legal advice. 
Individual needs vary and require consideration of your unique objectives and financial situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning. 
Advisory Services offered through Oregon Pacific Financial Advisors, Inc. Securities offered through United Planners Financial Services of America, Member FINRA and SIPC. Oregon Pacific Financial Advisors, Inc., and United Planners Financial Services are independent companies.  

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Please note that discussions in these shows are for educational purposes only. Information presented should not be considered specific investment advice or a recommendation to take any particular course of action. Always consult with a financial professional regarding your personal situation before making financial decisions. The views and opinions expressed are based on current economic and market conditions and are subject to change. All investing involves risk, including the potential for loss of principal. Securities offered through United Planners Financial Services (UP), Member FINRA/SIPC. Advisory Services offered through Oregon Pacific Financial Advisors, Inc. (OPFA). OPFA & UP are independent companies. Neither OPFA nor UP offer tax or legal advice.