Episode 14: Louisville Certified Financial Planner Jeb Jarrell interviews Certified Exit Planning Advisor (CEPA) Linda Ruffenach, with Execuity. She was the CEO of a large company. Now, she works with other business owners who are ready to begin maximizing the value of their companies and planning for succession. Linda and Jeff will discuss the process of succession planning and related topics.
Meet Linda Ruffenach
Linda owns Execuity Value Advisors. She and her team work with business owners to maximize the value and profitability of their businesses as a preliminary step to transitioning their roles. The end result is the execution of a successful succession to new owners and/or leaders. Linda comments that all business owners will eventually leave their respective businesses, either on their terms or someone else’s terms.
Linda was involved with a local, Louisville company, which eventually grew into an international business with multiple overseas offices and several thousand employees. She ran operations, moved into the CFO role and eventually became the CEO. Today, she leverages that experience and knowledge to help other business owners.
Managing the Evolution of Company Culture
Jeb asks about navigating what started as a local company with fewer than 20 employees to an international company with 3,000 employees, while trying to maintain a cohesive culture, internally. Linda explains that when the company began, they had a “Can Do” culture and worked hard to service their clients. There was also an intentional effort to ensure the employees were enjoying their individual roles and the company has a whole. While there were ups and downs, they successfully navigated the scaling process, with their culture intact.
Linda discusses the emotional aspect of turning over the reins. Every business owner will deal with this aspect at some time during and after the transition process. This can be particularly challenging in the family-owned business. The financial aspects are obviously important, but it’s also about values. There are tough questions to be considered and answered, before the process begins.
Linda contributes some valuable advice about working with a business broker. You need to find an experienced professional who will take the time to breakdown the aspects of the transition. You deserve to be comfortable with what certain terms or phrases mean and how they will impact the outcome. Unfortunately, not all brokers have this client-focused skill. It’s not just about the transaction. This uncertainty can leave a business owner with a higher-than-necessary level of anxiety. It can be overwhelming.
Staying True to Your Values
Because the process of selling your business is complicated and full of uncertainties, Linda recommends literally writing down your list of values; those things that are important to you as you attempt to navigate the transition. Refer back to it often to ensure you maintain focus on those values and factors. Losing sight of them can easily lead to a very poor outcome for you and the team your leaving behind.
Finding a Good Business Broker
Linda explains that there a many different types of professionals who can assist you in this transition. There are brokers, M&A advisors, investment bankers (depending upon the size of your company) and others.
Some business brokers are more experienced with selling smaller companies. There are several good ones here in Louisville. They can provide a business valuation and get your company listed. Others may dig deeper and work more closely with the owner to understand and target specific types of potential, strategic buyers. There may be an industry advisor who works mainly in your industry sector and can add a different layer of understanding or perspective to this process.
Larger operations, in the $2MM-$5MM EBITDA range, may benefit from working with and M&A advisor. Beyond the $5MM range, an investment banker may be a better fit, although many may limit their relationships to companies more in the $20MM and larger range. Remember, whomever you select should have familiarity with your core business. You might be surprised at how valuable that advisor’s insights may be as the process unfolds.
When approached by a business owner who is interested in selling the company, Linda begins with a 6-8-week period for due diligence and an overall assessment of the business. This will include a number of one-on-one discussions. A financial analysis of the business will be performed, as well as market analysis to get a solid understanding.
The next step is a review of the findings with the business owner. One of the tools Linda uses is called Value Builder. This is a 15-minute assessment she has the business owner complete. It provides additional information and insights. Then, another discussion is scheduled to figure out the best path forward.
Jeb sees value in having a business owner engage in some of these steps, even before actively considering selling the business, in an attempt to help him/her to build the value of their company.
Linda comments that 50% of businesses transition, unexpectedly, every year. Consider these factors affecting the business ownership:
Typically speaking, no one expects these issues to occur and many don’t plan for them to occur. There are steps a business owner could and should do, in advance, to be prepared when one of the above-mentioned factors occurs. That planning can help a business owner effect a transition on his/her own terms.
Review the Terms of Your Operating Agreement
Linda takes a few minutes to add this advice. A divorce, especially involving a partnership, can have catastrophic consequences to a business. Your operating agreement needs to be reviewed to ensure it has accounted for these potential occurrences. You don’t want to wind up with a spouse suddenly having partnership shares, which could affect the interest of the other partners.
Business partnerships can also be devastated as a result of disagreements. Emotions can run high in these situations. Again, the Operating Agreement can take steps to address how and what needs to happen when a dissolution of the partnership happens.
Returning to Linda’s Process
After Linda and the business owner have agreed on a path forward, she will put together a strategic plan to help it happen. It may be a coaching relationship with periodic check-ins to ensure tasks are being completed. It’s about accountability.
Interestingly, Linda explains her differentiated approach. In her words, “I don’t solve the problems for you. I ask you the questions so you can solve them for yourself.” In many cases, the owner already has the answers, she just needs to get them out of the owner to provide additional clarity and progress. It instills a sense of ownership in the process and the resulting decisions. It’s a much more collaborative approach.
Common Challenges for Business Owners Intent on Selling
There are some common challenges Linda sees. She addresses them head-on.
The first most common challenge deals with the financials. Linda’s early experience was very numbers-driven. Nonetheless, many business owners don’t actually know where/how they make money; it’s just there, so [we] must be doing well.
Distinguishing between recurring revenue vs. reoccurring revenue is extremely important, but again, many fail to understand this aspect of their businesses. Linda explains that reoccurring revenue comes from repeat purchases, but will little or no allegiance to your brand. Recurring revenue revolves more around a subscription-type income stream. Recurring revenue can significantly increase the value of a business.
Linda comments that every business can develop a recurring revenue model, but it may take some creativity to get there.
Let’s digress from the Common Challenges discussion. Jeb and Linda discuss the fact that she actually has a business coach. There can be tremendous value in working with a good coach. Jeb asks Linda how someone should select a business coach.
Linda had a general business coach who helped with some confidence issues and other internal factors. The coach she currently works with focuses more on helping consultants market themselves and their grow their practices. She describes an interesting question her coach recently asked that really stumped her.
Jeb and Linda spend a few minutes discussing the things they fear about their businesses and success. They discuss the phenomenon known as “imposter syndrome.” Linda comments on her realization of how she must continue to lean-in when it comes to the natural gifts she was given.
What Does a Good Team of Advisors Look Like?
Linda explains that this isn’t the same for every business, because needs change with scale. However, this is worth considering. Having a good financial advisor and well-established banking relationship are both very valuable parts of a business owner’s advisory team.
A good bookkeeper and accountant can also be incredibly important, especially if you’re not particularly strong financials and financial analysis. You may select a different accountant as your financial complexity grows. That’s perfectly normal.
A good trademark attorney will definitely be important for protecting your brand and brand-related assets.
Having an experienced business attorney is a crucial member of your advisory team. Your agreements and contracts are extremely important.
Linda also recommends having a group of connections who also own businesses. A mastermind group is a valuable resource for both perspective and accountability. It’s important to have people outside of your specific industry.
Marketing is another aspect of your advisory team. Understand that managing and executing all of the marketing tactics is probably something you could do. However, is that the best use of your time and resources?
Thinking about Selling in the next Couple of Years?
Jeb asks Linda about actions a business owner should take now, if they are seriously thinking about selling in a couple of years. There are many variables that go into determining the value of a business. Even if you have a friend who sold a business, it doesn’t mean your business will sell for the same or more. There may be variables going on behind the scenes you don’t fully realize or comprehend. The comparison may not be equitable.
Linda discusses how many people fail to actually prepare for the transition ahead of time. Linda encounters this and also those who simply decide to walk away from their businesses. She explains that when a small business closes, it has an immediate impact on the local market and the employees who worked there. If you identify a potential internal candidate, you should invest in that person so they will be there and be interested in remaining, once you begin the transition away from running and/or owning your business.
Is It a Good Time to Sell?
Again, there are many variables beyond just the state of the economy. For the last year and half to two years, it’s been a seller’s market. That may be beginning to level off. This may also depend on the industry of that particular business.
If you have a business with good, positive cash flow and the return on capital is there, those are the ones people will fight for, if they are for sale. Unfortunately, many business owners still don’t fully understand managing cash flow. There are some reputable online websites to help business owners to learn more about finance and the financial aspects of business, in general.
Handling the Post-Sale Transition
There are various ways this takes place. Some former business owners are able to just walk away and pursue other interests. Some are willing to stay on for a defined period of time to help ease the new owner (and key clients) through the transition. There are many hybrid models that can be effectively negotiated as part of the sale.
Linda explains that unfortunately, 3 out of 4 owners say they either regret the decision to sell or were unhappy with it, one year later. The primary reason is because the former owner feels he/she didn’t get the price they wanted for the business. Another reason is that there was never really a plan for life after the sale. Linda recommends business owners should view the process as a transition, not simply a sale or exit. What will the next chapter look like?
Best advice Linda’s every received: “In life, you can choose to take passengers or hostages. Passengers are a lot more fun to travel with!” As you begin to make plans for your transition, make sure you have the right people around you who want to be there with you, rather than just dragging them along the way.
Want to Contact Linda?
Linda encourages business owners to reach out to her. She’d be happy to learn about your business.
We’d like to thank Linda Ruffenach for taking the time to share her perspective and advice for business owners considering the sale of a business.
At the end of the day, you should sit down with a qualified, investment advisor who can help you to think through your strategies. A good advisor will bring a solid perspective, but also know how to develop and implement your strategy. You can schedule a meeting with Louisville Certified Financial Planner Jeb Jarrell, by clicking this link.
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