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David Grau: All right. Good afternoon, everybody. We’re going to go ahead and give everyone just a second here. It always takes a minute to get everybody in and admitted, but in the meantime, I will put up our deck for you to stare at instead of Parker, Kristen, and I. So…

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David Grau: session here today. You know the title, presumably. You were kind enough to reserve time on your calendars to join us here, but it is growing your firm without limiting your future exit options.

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David Grau: This is a topic we talk about a lot internally, right? Because we see this happen where folks, they do internal succession work, right? They’re sharing equity, they’re doing stuff with their team, which is great.

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David Grau: And unfortunately, it just doesn’t end up panning out as well as they had hoped, right? They grow too fast, the team doesn’t grow fast enough, they don’t have the desire, but unfortunately, the documents that they use, the path that they chose.

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David Grau: ends up cutting off different options for them that they would have otherwise liked to have left open. And so that’s thematically what we’re going to focus on here today, that you continue to build and take action, that we can be as intentional about having our eye towards the future.

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David Grau: And not doing things that could close doors too early, that we’re not comfortable with.

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David Grau: Especially having that happen inadvertently, or that we can at least proactively be building our business in a way that we could pursue a private equity sale, or an internal sale, or maybe a merger, or who knows, maybe safety net. We could also just sell this thing to a peer and walk away in a couple years.

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David Grau: If you do it right.

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David Grau: most, if not all of those, can be options for you. Now, I’ll also acknowledge it’s going to be somewhat size-dependent, right? If you’re sitting here listening today, and you are an empire builder, you’ve got a billion in AUM, and you’re heading towards your next two or three.

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David Grau: you legitimately could pursue all of these options, right, if you’re careful. If you’re sitting here listening, you do a million a year in annual revenue.

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David Grau: you may or may not want to grow your business to the size where you do an internal succession plan, right? That may just not be in the cards as something you’re even desirous of. Maybe you don’t like managing people, maybe you don’t like people at all. I get it.

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David Grau: But there are still things, even if you cross that one off the list, that you could be considering in other options, other avenues, depending on the timeframe, what you’re trying to get out of it. So, that’s our focus here today. It’s gonna be a little different for each of you, but we are going to make sure that we hit all of the potential exit strategies and some of the do’s and don’ts.

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David Grau: Quick housekeeping items, real easy ones here. The deck that we’re going to be using here today

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David Grau: If you find it useful, interesting to reference back to, it will be available to you.

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David Grau: Our team will be following up with you after today’s session, so just let Sabrina, Craig, Nikki know when they reach out.

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David Grau: That you’d like a copy of it, and I’ll be happy to get it to you. The session is also being recorded, or at least I hope it is. You’ll get a copy of that in your inbox automatically tomorrow.

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David Grau: And last one is, we’re gonna have a quick poll question, or a couple questions, one poll here at the very beginning.

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David Grau: Case in point. This won’t slow us down or distract, it just… this simply helps us focus the content that we bring you in the coming months.

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David Grau: that it’s as relevant and topical, and that the content of those presentations is as useful and on point as possible. But to do that, we need your feedback. So, if you don’t mind just taking a second, there’s 7 quick kid or questions here. If we don’t see enough responses, I’ll just sit here and stare at you till the other 46 of you answer.

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David Grau: But looks like we’ve got answers rolling in. We certainly do appreciate it. It, believe it or not, is actually useful. In the meantime, I say it’s helpful for informing the content. It’s not helpful for informing the next three presentations, because those are already lined up.

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David Grau: But it answers here can actually help inform the content that we cover in each of these. The one next month is going to touch on mergers. We’re going to talk about that a little bit. I will specifically talk about that a little bit here today. So if you want more on mergers, the how, the why, to use this as a tool, join us in the April session. Equity Explained.

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David Grau: given the title, I need to explain what we’re talking about here first, and then they can explain equity. We’re talking about equity sharing, right? So, multi-class entity structures.

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David Grau: real and phantom equity, sharing strategies, granting, gifting, next-gen investor plans, right, where there’s a premeditated plan for people to buy in. There’s lots of ways to share equity.

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David Grau: We want to make sure you understand your options, that’s that session. And then Parker, actually, who’s here today with us, will be joining Julia to talk about the last one in June on the schedule that I’m showing you here, and that is on succession readiness and building your team.

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David Grau: So…

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David Grau: Three more sessions coming up, you’ve all been great about answering the poll questions, or thank you to the

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David Grau: half of you that answered them for us. Beyond the poll questions, I’ll give you a real quick background, right? If you didn’t get a chance to check out who SRG is, we haven’t had the pleasure of working together before. You saw the title, you read the description, and thought, well, I don’t care who says it, this sounds interesting. I get it.

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David Grau: So, SRG, we are a consulting organization that works with independent financial advisors helping you value, buy, and sell your businesses. Now, there’s a lot of room between those field goal posts.

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David Grau: But in essence, the things that we do, or the things that focus on and impact, in a very direct way, value the equity in your business. So, Succession Resource Group, we definitely do succession planning and a lot of it, but…

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David Grau: valuation work, getting the work done internally to make sure that your sale or your exit event can be optimized, stuff we’ll talk on today a little bit. Entity structuring, and not your basic, boring, go set up an S-Corp, right? Like, the 2.0 version of that, that you need.

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David Grau: employment contracts and going beyond the boring basic non-competes, equity sharing plans and programs, right? Like, that’s it in a nutshell.

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David Grau: And you’d end up hiring us, because at the end of the day, there’s lots of people that can talk about this. We will talk about it, we know how to do it. We’ve seen people do it right. We’ve seen people do it wrong, you can learn from both.

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David Grau: And we’ve got the in-house expertise, both the industry expertise, but also the attorneys, CPA, the valuation experts, a lot of credentials here is the bottom line. I would love the chance to work with you. I say a team of 20 professionals, I think we’re technically at 24, 25, but we have a dedicated in-house team that will help make this process smooth and turnkey for you.

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David Grau: So, without further ado, in terms of the content here today, three of us are going to tackle this, because we all bring different perspectives and have different levels of experience.

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David Grau: with the different exit strategies. So, I’m going to touch on both mergers as an option, as well as private equity deals and what we’re seeing out there. A little bit about them, but also, more importantly, the timeline and things to be doing to make sure that that’s a viable option for you. Kristen’s going to touch on the external exits, kind of a…

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David Grau: default option for all of you if the other ones don’t pan out, and then Parker’s gonna touch on internal succession.

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David Grau: Which I think for a lot of you could be Plan A, but we’re gonna talk about Plan B and C as well. So…

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David Grau: There are a lot of options, is the bottom line.

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David Grau: So, where do we begin? Well, number one, I think you probably know this to be true.

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David Grau: But it’s worth saying out loud for all of our collective benefits.

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David Grau: The earlier you start this process.

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David Grau: the more value you will get, right? I got a couple bullets to get from point A to point B, but bottom line is that the earlier you start, the more value you’re going to get, because you will get more options. You’ll have more choices. You’re not going to be left to sort of respond to the one or two options that you have when you finally call us at age 65 with

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David Grau: The state of your business, and the fact that you want to retire next year.

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David Grau: we can still help you, and, you know, Parker’s team is great, Kristen’s team is great, we have a lot of really good, smart people here.

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David Grau: But just like a client that shows up on your doorstep, and they say, hey, I got $5 million, you think, great, I had an amazing client. They say, I retire in 6 days.

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David Grau: I’m age 67, what can you do for me?

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David Grau: Yeah, you can help preserve, maybe even grow a little bit, right? But have that client come to you 5 years ago, 10 years ago, you would have had a lot more options and could have provided a lot more value. The same is true here.

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David Grau: But at a high level, whether you plan for this, you don’t plan for it, you start early, you start late, you’re gonna have basically the same exit options, and we tried to list them down here for you, right?

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David Grau: The initial fork in the road is internal or external. It’s that simple, folks.

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David Grau: Like, the one thing that we’ve all got in common is we’re all leaving the industry, horizontally.

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David Grau: vertically, it’s coming.

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David Grau: The question is, who sits in the seat? Will we drag you out of your chair, or you voluntarily, vertically, get up and lead? Well.

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David Grau: That could be an internal sale to your internal team, that could be maybe a merger.

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David Grau: That could be an external sale, but to private equity, external sale to a peer… you have a lot

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David Grau: of different options. So, we want to unpack each of these things, because the choices you make, how you run your firm, who you hire, these things are all sort of influenced, right, by your ultimate exit path. If I know I want to do an internal succession, I want Parker’s team to help me with that.

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David Grau: Well, if I plan to do an internal succession plan in a couple years.

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David Grau: My hiring plans are gonna be different, how many people I hire, who I hire. I hate to say discriminate, but I’m gonna sort of discriminate, like, building an NBA team based on age, like, how much potential do these people have? I’m not doing that if I plan to retire in 6 or 7 years, try to get the biggest check from private equity. I’m going to build, I’m going to hire differently.

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David Grau: But I will also say, handing the mic off to Parker here, there’s also some just kind of universal do’s and don’ts. No matter what path you go down, if you listen to the things he’s gonna share with you here.

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David Grau: You will have a better outcome.

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Parker Finot: Yeah, absolutely. Thanks, David. And, to resonate with that point, obviously there are different pathways available to us, but we don’t always know which pathway we’d like to take. So, one of the premises here is to take actions that are going to help the business and not restrict those options later on.

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Parker Finot: So, with that said, we have some different categories here, some do’s and don’ts for ownership structure. We’ll talk a little bit more about this throughout the presentation, but understanding how your current structure could influence the future. So, that’s from a tax perspective, that’s even just from a basic ownership perspective.

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Parker Finot: So, get it.

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David Grau: go back there. Even from a basic ownership perspective, for instance, we find folks who say, well, I own the business, I also have some silos of business that I own with other folks. Okay, great. Well, how do you own that? Well, we don’t really have an agreement, we just know that we own it together. Okay, wonderful. Well.

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Parker Finot: that starts to present challenges for us, and then also, you know, the structure, the taxation of the business entity, that can influence future options as well. So, that’s one of those factors, is when you’re establishing the business structure, have an understanding of how that could influence your future optionality.

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Parker Finot: And additionally, as far as things to watch out for, you can certainly share equity in the meantime, but we would just advise that you have

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Parker Finot: Buyback clauses or bring-along clauses in your agreements so that you maintain that flexibility to steer the business in the direction you’d like to take it in over time.

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Parker Finot: The next category there, client relationships. So, certainly, of course, we’d advise to retain key client relationships with the owners of the business, and, you know, still incorporate staff where relevant, but really retain those relationships until you have a formalized plan or actual contracts and agreements, something that you can lean into to, you know, really substantiate the actions that’ll be taking place over

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Parker Finot: over time.

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Parker Finot: Next up is financials. In that sense, of course.

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Parker Finot: As you’ll hear in this presentation and otherwise, it does benefit to maintain

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Parker Finot: congruent financials. Ideally, you’ll have several years of financials that you can review, and they are comparable year over year. The chart of accounts doesn’t change, the categorization doesn’t change dramatically, things like that. So, that’s really helpful leading into any planning or transaction event. And one other watch out here I do want to highlight for you

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Parker Finot: It has to do with compensation, and…

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Parker Finot: That is to not pay your employees better than owners. And what I mean by that is we do periodically see instances in succession planning engagements where a team member is compensated on variable, comp with revenue or whatnot.

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Parker Finot: And they don’t have to participate in the risk of the business, or the downside of the business, they just get that variable revenue. When it comes time to buying in.

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Parker Finot: They say, wait a second, I have to pay money to absorb risk and also participate in the expenses? I’ve been participating in the revenue this whole time. So, that’s one of those watchouts that can complicate matters that we want to call to your attention.

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Parker Finot: Next, a few more items here, organizational resilience. What we’re talking about here is just the infrastructure of the business, primarily personnel, the team members, at play here.

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Parker Finot: Of course, there are lifestyle businesses, many of them out there, many do very well, many monetize the business very successfully, but if you have any ambition to grow the business and continue to escalate up

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Parker Finot: that value chain. Typically, you’re seeking to build out a team and transcend any plateaus that you may encounter.

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Parker Finot: By having that organization underneath of you.

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Parker Finot: So that’s something that we would advise in that respect. On the call-out side of things, though.

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Parker Finot: We would also, caution against assuming that

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Parker Finot: The right exit option is going to simply materialize for you. You may have a team underneath you, they may be qualified people, but you do have to really understand their desire to be a business owner, and their capability to do so.

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Parker Finot: We have seen and heard instances where we have a perfect successor, and they genuinely just don’t want to inherit the business, they don’t want to take it over. So, you have to be mindful of that.

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Parker Finot: For enterprise value, another common theme, benchmarking value.

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Parker Finot: commonly and often, we tend to advise every year. If not, I’d say at least every other year, but it does provide a lot of value to you, and David and Kristen are going to elaborate on that in today’s discussion.

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Parker Finot: One watch out, though, I would say, from the peer-to-peer deal side and the internal succession side of things, which is what I manage here at SRG,

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Parker Finot: Not to assume that market averages are an accurate reflector of your business. By default, most businesses are going to be above or below the average, so assuming that you are the average.

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Parker Finot: doesn’t always work, especially when you have, say, external capital involved. They need to corroborate the true or objective value of the business. If yours happens to be lower than what you’ve been expecting, they are not going to finance up to that amount. So, that’s something to be wary of.

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Parker Finot: In terms of legal and compliance, of course, we are advising that you have employment agreements with all staff. Of course, key personnel are critical, say, client-facing advisors and such.

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Parker Finot: But really, the extent of your business, everyone should have a formal agreement, and you do, or we do, rather, advise you not to let those agreements fall out of

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Parker Finot: relevance out of current state. We’ve seen the employment agreements, or the business entity agreements where both parties agree, hey, those terms are no longer relevant, but we disagree on what the current term should be. We don’t have anything in writing that supports this either.

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Parker Finot: So, those are some of those, general high-level do’s and don’ts to

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Parker Finot: Increase value and preserve flexibility over time.

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Parker Finot: Now that we’ve covered that, let’s move into a… our first focus, our first exit pathway, which is internal succession.

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Parker Finot: We’ve broken this out into roadmaps for each of these options. For succession planning, we tend to advise between 5 to 10 years for that roadmap, and that 5 to 10 years begins when you have at least one viable successor.

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Parker Finot: We’ve certainly had clients that were interested in succession planning, but they don’t have a single successor in the business, or imminent to join the business, and that can present challenges.

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Parker Finot: So…

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Parker Finot: Within the roadmap here, we’ll go through the stages. Also, we’ve got some turquoise bubbles there with SRG services that support each of these phases.

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Parker Finot: For the initial foundation stage on succession planning, of course, again, you want to start with having a team in place, and testing their resolve and commitment, and just their ability to perform the role that they’ve been hired for.

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Parker Finot: Beyond that, once you’ve gotten some baseline personnel on the team, then you want to, again, or rather, identify the successors in more depth, and really continue to grow and cultivate their talent, and elevate their responsibilities.

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Parker Finot: To help ensure that they are capable of progressing and advancing in the firm, and taking on more than just their day-to-day job in some capacities.

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Parker Finot: That’s a good proving ground, which of course requires time to fully assess and understand.

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Parker Finot: At that point, once you’ve got some good confidence around the successors, that’s when we would advise to map out the succession plan from start to finish in a written format, a formal written format.

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Parker Finot: I will say, it’s quite rare that we ever have succession planning engagements where current gen and next-gen personnel have full understanding of all implications, all considerations, everything they were thinking before they started working with us is exactly how the plan unfolds. So, that’s where going through that…

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Parker Finot: in-depth, detailed process is very valuable. It helps outline all considerations and details around the starting and ending of the plan.

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Parker Finot: Additionally, when you’re building out the plan, it’s quite common to have, say, initial equity transfers occur, and also, at that point, you may need to reinvigorate or develop new entity documents, so those are some complementary actions that you might take around that time.

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Parker Finot: Continuing in the roadmap here, you would generally expect to continue to affect equity transfers year over year, over that next phase there. And then, ultimately, at the final sale, you’re seeking to ensure there has been successful retention of clients, successful

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Parker Finot: Transition of those clients to appropriate parties.

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Parker Finot: And ensuring that the business has a sufficient investment to maintain itself following the current owner’s departure.

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Parker Finot: So, that’s… that’s the high-level roadmap. We’re gonna get a copy of this deck, so you can always refer back to that. It is subjective, it varies. Some are shorter, some are longer.

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Parker Finot: The one key point I would mention, it goes back to David’s point, is the earlier you get started, the more options you have. We’ve certainly had folks show up at 18 months, 24 months.

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Parker Finot: It’s possible to get it done, but it absolutely limits our options, so wanted to highlight that.

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Parker Finot: Next, let’s talk about some more of these action items that you can implement in succession planning. There are, of course, others, but these are some of the critical components.

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Parker Finot: First and foremost.

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Parker Finot: the knowing your why. So, when it comes to internal succession planning, generally speaking, you should be convicted of the outcome of transferring the business to the successors, as opposed to an external sale.

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Parker Finot: The reason for that is you may very well be able to obtain a higher value from an external sale or merger type of outcome.

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Parker Finot: But that’s not usually why folks are undergoing internal succession. They want to preserve their legacy, they want to preserve the business as it operates now for the clients to minimize disruption. They want to award the folks that have helped build them, helped build the firm with them.

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Parker Finot: So, that’s really… understanding why you’re going down the pathway is important.

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Parker Finot: And I’ll just say briefly that you can still obtain a great return on internal succession. It’s not wildly different in all cases. It just depends on the planning and execution as far as how it’s going to be monetized.

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Parker Finot: Next there.

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Parker Finot: Recruiting and retaining successors. So, I’m sure most folks on the call are aware that the industry is facing a shortage of new advisors and just qualified people that not only can do the job, but ultimately become a true successor. So, that’s where it is very beneficial to ensure that you have a good team in place.

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Parker Finot: And if not, certainly be seeking to recruit and retain these folks here.

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Parker Finot: We do see…

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Parker Finot: as I mentioned before, not every person that’s qualified actually wants to be a successor, there’s that lens, but then also, we tend to see a ratio of 1 to 2, or 1 to 3 owners to successors, where these, these transitions are effectively implemented, so…

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Parker Finot: It’s not always a one-to-one ratio, which, again, enhances the reason why you might need some additional people.

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Parker Finot: Next item here is implementing equity sharing planning, and so the key aspect I want to mention here is, one, it’s generally optional, right? You don’t have to have a formal equity sharing plan in order to have a succession plan, but a lot of times.

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Parker Finot: successors have a concept of, you know, the fact that it’s difficult to purchase the business after they’ve helped build it. So if you’ve got the equity sharing plan, it can bridge those two incentives.

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Parker Finot: Keep those two things out, aligned, rather, and also just provide a formal way to recognize what this contribution or award would be, as opposed to trying to

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Parker Finot: Accomplish this as you’re going to affect transfers and potentially running into tax or misalignment issues.

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Parker Finot: The last item there is creating that written plan. Like I mentioned before, that’s the best way to ensure that you have a comprehensive and thorough plan that addresses both parties or all parties’ goals.

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Parker Finot: And concerns, and so that’s something that we would advise. The term succession plan gets thrown around a lot.

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Parker Finot: A lot of the contingency agreements or LLC agreements, they plan for catastrophic events, but they’re not planning for proactive, premeditated transitions of equity amongst partners.

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Parker Finot: One more slide here on FAQs, and then I’ll be passing it off to David here. So, a couple things.

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Parker Finot: for… that we tend to hear asked a lot in succession planning. When and how should I have the business valued? Well, when, I think we’ve covered pretty, pretty thoroughly, but how is another question. There is a market-based valuation, and there are income-based valuations at a high level.

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Parker Finot: That are applicable here. Most folks are familiar with the market-based valuations. Those are those revenue multiples you tend to hear, commonly quoted.

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Parker Finot: But not everyone is understanding that, generally speaking, for succession purposes, you should have an income-based valuation. So…

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Parker Finot: That’s something our team here can talk to you more about, and just understanding the difference at a bare minimum is helpful, whether you’re using MarketBase now.

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Parker Finot: And may need the income later, or you really need an income base now, it’s a good distinction to know.

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Parker Finot: Compensation structuring, this is one where a lot of times you’ve got folks that are in an equity position and a non-equity position merging together, so a lot of times you’re gonna have folks with dedicated comp plans and perhaps owners with no comp plans. Not that that’s a best practice, but it’s something we see.

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Parker Finot: And so that’s a gap that you have to bridge in that process, is…

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Parker Finot: equalizing compensation, for all owners. I already went through the, you know, not paying folks better than owners, so that same concept applies here as well.

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Parker Finot: Couple more here, as far as gifting. A lot of times we hear folks say, well, I’m just gonna gift some portion of the business, that way, you know, they can be rewarded for what they’ve done, and they don’t have to pay tax on that, that gift.

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Parker Finot: Well, unfortunately, in most instances, when you’ve got employees or contractors of a business.

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Parker Finot: The IRS, upon audit, would generally deem that to be not detached and disinterested generosity, so they would typically categorize that as a grant of compensation in which taxes would be due. So.

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Parker Finot: That’s, again, going back to that equity sharing planning we talked about. There are other ways to accomplish these things with perhaps better tax efficiency.

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Parker Finot: Lastly, what if I change direction following successor buy-ins? That goes back to my earlier point on that universal do’s and don’ts. Just make sure that your governance framework is supportive of the business at that point in time, and reserves certain decision-making powers for key owners or majority owners, so that you still have the flexibility to

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Parker Finot: Guide the business over time, while still, allowing for some equity transfer in the meantime.

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Parker Finot: So, with that, I’m gonna pass it over to David, and he’s going to give a deep dive on the merger, aspect.

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David Grau: Yeah, perfect, Parker. Good segue here. So, shifting gears from focusing on the internal team, but something that if you do focus on the internal.

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David Grau: Can even help with the merger and make you more attractive to outside teams you might decide to partner with.

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David Grau: What I’ll say here is, to make a merger successful, to make it viable, and for you to really, I don’t want to say enjoy the outcome, but right, to get the most out of it, qualitatively and qualitatively.

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David Grau: It is initially about understanding the roadmap, right? So Parker showed you the roadmap for the internal. Takes a little bit longer than the merger one.

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David Grau: Kind of, and I’ll show why. And that’s gonna be different as I talk about private equity, and then as Kristen talks about external. The timelines are all different, but there are all timelines leading up to

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David Grau: the eventual sale or transfer event, and then there’s stuff that happens after that event. But here I’m talking before the merger even takes place.

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David Grau: What should we be doing and thinking about? So, number one, you think about the why.

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David Grau: Alright, if you’re thinking about the merger roadmap, the timeline, some of this is going to start with why. Like, why would you contemplate a merger? And that’s generally… it’s…

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David Grau: To scale, it’s to grow the firm, enter a new market, offer a new line of business, right? There’s lots of reasons why you might consider a merger.

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David Grau: And to do it right, and to achieve those objectives, right, there’s stuff that we need to be doing ahead of time, which we’ve tried to lessen this timeline for you without being too exhaustive.

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David Grau: Both internal things you should be thinking about and doing, hence the notes here on this slide.

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David Grau: But also the things that we can help you with at each of these milestones. So, thinking 3 years out, 2 years out, you’re focused on internal housekeeping. It’s the boring part, I promise. It’s looking at your P&L, making sure your finances look good.

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David Grau: your leadership structure, right? Like, do we have the right people in the right seats, doing the right jobs? And so, this is a good chance to make sure, again, the financials are starting to get looked at, and maybe cleaned up, right? But for now, we’re just looking at them.

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David Grau: We’re starting to define what in the world it is we’d like to try to solve if we did a merger, right? Is this solving for succession? Like, I talked about the new market, a new line of business. Do we just want to get bigger so we can eventually sell the PE? I don’t care what your why is, it’s more about defining it in this early stage.

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David Grau: And not just simply getting

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David Grau: a letter in the mail talking to a peer who says, you know what, Parker? I got a great idea, I’ve been thinking about this, and Parker says, you know what? That’s not the worst idea I’ve ever heard. And then we start to really dig into it, but it’s kind of reactive, right? That’s the majority of the mergers that we end up working on, and they can work.

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David Grau: But they work better when you have thought about it leading up to the event. So you get your internal stuff in order, we do the entity work, right? We make sure that you’re set up… not the entity you set up when you first formed your RIA or your operating entity if you’re under an IBD. Not that entity.

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David Grau: That was fine when you started, and you had, you know, two employees and you. But here you are now, with millions of a year in revenue, or a million, I don’t care what the number is, right? But you’re very different than when you first set this up, so we’re going to optimize the entity, we’re going to make sure we’re doing the valuation annually. If we’ve got equity that we think we should be sharing with some of the team members, we’re doing that before the merger.

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David Grau: Believe it or not, we have a lot of this come up, where during the merger.

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David Grau: one of the two merger partners is talking about adding other team members who really should be recognized as a partner. They just never did it. Well, if you didn’t do it, why are we doing it now, right? We already have enough change. So do this stuff early, and do that in that strategic clarity phase, 3 years, 2 years out.

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David Grau: Then you get within a year or two, and we’re thinking now about, like, actually starting to kick the tires, have some conversations.

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David Grau: preliminary due diligence. Before we get into, like, the actual structuring work of how this might look.

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David Grau: Right? Doing valuations, figuring out division of ownership, and then letting a firm like ours come in and actually put form and structure around this, right? Like the plan of merger that has to get filed.

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David Grau: So, a lot of slides just advanced randomly on me. So…

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David Grau: As you lead up to this, ultimately.

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David Grau: You can see down here at the very bottom right, transaction execution date. Yeah, we can definitely help you here.

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David Grau: But to get the most out of this, we helped you back here, optimizing the partner comp plan design, so when we show up to do the merger.

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David Grau: I’m… We show up to do the merger.

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David Grau: We’re in a much better spot.

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David Grau: So…

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David Grau: Things you can do, can’t do here? Well, you’ve got a lot of options if you start the process early, but again, if what you end up with is a letter in the mail, or a conversation with a peer, and you decide you want to do the merger.

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David Grau: Some of the challenges you run into that lead to a less than desirable outcome is, right, we never really thought intentionally about the operating agreement or the entity structure that we’re using. The comp plan design’s not messed up, but it’s definitely not optimized.

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David Grau: Park talked about internal succession, making sure that the team members aren’t paid better or based on gross revenue. The same thing carries through here. You can do a lot of stuff proactively to make sure you get the most out of this.

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David Grau: So, and again, if you have more questions on the merger stuff that I’m talking about here, we have, A, the whole session coming up, and B, we’re going to try to save some time for questions, and there is a Q&A panel, and we are looking at it. So, merger action items, like, things to be doing now. Number one is think about your… say your, if you’re listening as the owner, your exit timeline.

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David Grau: If you tell me you want to retire in the next 3 to 5 years, then don’t do a merger. I don’t care if you’re knee-deep in the conversations, saying, I already found somebody.

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David Grau: It will be the most stressful 3-5 years of your career, and it’s right before you retire. So you will definitely be ready to retire by the time it’s done.

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David Grau: The challenge is, on the timeline front, Mergers can support.

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David Grau: founder exit planning, right? Like, we did one recently where you brought two pretty big firms together.

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David Grau: Because, frankly, one of the founders at the other firm, he had a lot of equity, they’d grown very quickly, and he had sort of outpaced his internal team’s desire or ability to afford him.

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David Grau: But by virtue of merging with another similarly sized firm, they did actually solve that problem, but they were thinking about it in the year or two leading up to it, in their conversations, in the search for their partner to merge with, right? They were very intentional about it, and so it did work.

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David Grau: The employment agreements I mention here because, again, you’re merging firms together, the thing that has value in your business.

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David Grau: is the client relationships. We need to make sure that those things are protected. As your firms grow, right, you know how you grow and scale these firms. It takes people.

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David Grau: If you end up losing any of those people, and they’ve been servicing your clients for a handful of years, the relationship has been handed off. And so there’s a good chance that one of your advisors could leave because they are not loving the merger, or their role in the merger post-transition.

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David Grau: And so they leave, and they take a bunch of clients, which impacts your equity post-merger. Make sure you’re protected. And I’m not talking about, kind of, your boring, lame, non-compete, non-solicitation stuff, like, we could check those boxes, too, with you. We do a lot of employment contracts, but we’re doing the 2.0 version, right?

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David Grau: But we’re focused on some other more strategic strategies

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David Grau: to lock your team members in, to make sure that they can’t leave and take clients with them without paying you for them. And there are better ways than just the non-competes to do that. So make sure that’s on your radar. And again, you don’t want to do that the month or even the year before you decide to do a merger. You want a little bit more lead time. We want the ink to have dried.

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David Grau: Clean financials and update the entity agreements. Again, here, it’s about optimizing, so that when you do merge, you don’t show up with an S-Corp, where

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David Grau: Alright, well, now we gotta do an actual, like, statutory reorg. It’s gonna be much more complicated, much more expensive. It can work.

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David Grau: But it’s one of those things where you say, okay, shoot.

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David Grau: if I could go back and get that time machine from Napoleon Dynamite, go back, I would have done something a little bit different, right?

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David Grau: Well, that’s our goal here is, right? Start thinking about it ahead of time, have those conversations with us, so you tell us, hey, I want to merge, and here’s who I’m kind of thinking about in a couple years, or in a year or two.

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David Grau: anything that I should be doing now to make that a better outcome, the entity documents are almost always on that list. So just, if you haven’t looked at them recently, dust them off, take a look at them, and if you’re unsure, message us.

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David Grau: FAQs here, so…

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David Grau: what should I be doing now if I think a merger might make sense later, right? Maybe not right this second, but soon. So…

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David Grau: Going back to the things we’ve talked about, but I’ll reiterate them, and that is…

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David Grau: Value of the business on an ongoing basis, right?

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David Grau: Yeah, the value doesn’t matter right this second, because you’re not merging, but we want to create that track record. And thematically, you’re going to hear us say this more than once. You already have. But valuation’s a good one to make sure you’re informed and you’re ready and the business is optimized. The other, again, going back to the why.

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David Grau: like, what should you be doing now if you think a merger might make sense later? Think about what problem it is you’d be solving, right? Because that’ll help as you start having conversations out there.

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David Grau: If you’re, you know, affiliated with a broker-dealer, or you’ve got your favorite custodian or two, like, talking to your relationship manager there, like, hey, I’m thinking I might want to merge, and here’s the problem I’m trying to solve. They can help make connections. We can help make connections. If you don’t know why you’re thinking of merging, aside from just getting bigger.

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David Grau: That’s a little harder, right? So I’d be thinking about the why first, the valuation second would be some really good initial to-dos.

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David Grau: Second FAQ, frequently asked question, are people doing mergers for growth or exits? Mostly growth. I mean, almost entirely growth.

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David Grau: But you can put sort of a 1B on this, on the exit strategy, if you’re strategic in who you pick. It can solve both at the same time.

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David Grau: But you gotta be careful, right? We’ve had a handful of firms we’ve done mergers with where they’re trying to grow so that they can maybe look at private equity, but they want to get as big as they can, get some critical mass.

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David Grau: drive some margin expansion, but the firm’s merging together, the partners are all 57 to, like, 63, 64. This is a very real scenario we’ve seen recently.

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David Grau: The problem with that is that the PE thing doesn’t work out, we have created an internal succession crisis. So…

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David Grau: It can be done for an exit strategy for one or two people. Just be strategic about thinking on it. The other is mainly it’s about growth, right? We’re bringing firms together, we’re creating margin expansion, more size and scale to go buy practices, to enter new markets, like you talked about. So it’s mostly growth.

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David Grau: And that would be my number one reason. Third question, a little bit easier here, but easier because I know the answers to the test. How’s ownership determined in the merged business?

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David Grau: Valuations.

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David Grau: Right? And not taking, like, a multiple of revenue, or even an EBITDA multiple, and applying it to both businesses. Not saying I can’t work, but it is an imprecise science.

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David Grau: that may be equally imprecise, but it’s not equally imprecise, right? It might have been right for one of you as an average multiple, because you have a pretty average practice. The other practice, you may have much more valuable clients, much more efficient service model. You could have old clients and no multi-generational planning, right? There’s a lot of stuff that doesn’t necessarily show up in the financials.

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David Grau: So, do the valuations, that is our basis for the delineation of ownership. If that doesn’t land you where you want to be, we got other levers we can pull on, right? Equity buyups, governance rights, you can set it up as a manager-managed company, so, you know, Parker, Kristen, and I all merge.

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David Grau: I come out as, like, the 5% owner, but I’m obviously, you know, the youngest in the group, and therefore they want me to be the person running the show.

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David Grau: So, small ownership stake, but they hire me as the manager to take care of the daily operations, right? There’s lots of ways to skin that cat.

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David Grau: Which leads me to the last one, and that is, again, kind of on point with what I just wrapped up with. How do I make sure I don’t lose control? Don’t merge with a firm twice your size.

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David Grau: Short answer, right? Like.

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David Grau: A, don’t merge with a firm that’s, you know, substantially larger than yours, because you’re not going to be the anchor tenant, you’re not going to come out the other side of the merger.

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David Grau: I mean, because at the end of the day, a merger looks a lot like an acquisition. Two firms come together, one comes back out the other side, and it’s usually the larger

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David Grau: enterprise that does that. There’s other ways you can tip the scale, though, right? If you’re intentional about building a robust brand, a great culture, there’s lots of things you can do.

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David Grau: To make sure that you’re the brand we want to show up on the other side of this.

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David Grau: So let’s shift to another interesting one, right? So mergers, we’ve done more mergers in the last, probably, 4 or 5 years than I’ve done in my entire career. It’s happening a lot as teams have gotten bigger. Private equity is the same way. This used to be reserved for only the biggest and best firms out there. And now.

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David Grau: There’s a lot of really good firms doing a million, two million a year in revenue.

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David Grau: That’s not huge. It’s a good practice, but it’s not a great business yet. And…

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David Grau: they’re getting offers, too. So, what can you do here? Well.

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David Grau: Similar to the mergers, PE sales can happen to you, right? Like, the offer just shows up and you take it, or you can be more proactive with it. So.

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David Grau: Best part is, Again, the more work you do on things like the internal succession Parker talked about.

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David Grau: the more viable this strategy is, and frankly, the shorter the timeline you’re likely to need to make this be viable and successful. So it’s not mutually exclusive. Frankly, if you aren’t good about doing internal succession, that’s one of the things that will probably cap your value on a private equity sale, because they don’t want to buy your job.

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David Grau: So if you’re thinking you’re gonna sell.

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David Grau: private equity as a succession play, good luck, because there’s some, again, universal truths with PE,

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David Grau: Buying the business or running it.

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David Grau: ain’t what they’re looking to do here. So, as you look at the roadmap here, you’ve got the institutionalized build stage, right? This is trying to create a business that doesn’t need you, that’s as efficient as it is.

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David Grau: In reality, on paper.

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David Grau: as it is in your financials, right? We oftentimes see what look to be really good firms, super efficient, and you go to their financials, and there’s no money left over.

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David Grau: Well, it’s because they’re just… they’re running a bunch of stuff through it, they distribute everything as compensation. We need to right-size this ship, we need to really get those financials tuned up, right? And that’s a delicate balancing act. You invest too much, your financials suck, right? There’s no profit left over. Well, 10 times zero is still zero.

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David Grau: You can go the other way with it, and I literally had this conversation earlier today, where they’re generating 60% profit margin.

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David Grau: That is not going to get you a 10 or 11x multiple, because you’re not investing enough back in the business. Therefore.

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David Grau: tons of profits, really low multiple. So, it is a balancing act, right? So, the valuation’s really important here. You get to the growth stage, I say growth stage, you should always be growing, but really in earnest, in that 3, 4 years leading up to potentially selling, we are hammered on growth.

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David Grau: And really, again, we’re not focused on necessarily just inorganic growth, because that can be dicey.

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David Grau: Right? To go buy a business, and then a year or two later, like, hey, by the way, remember we told you, you know, we’re taking over as your new advisor? Also, we sold to private equity. It’s just rather disruptive, so give yourself time between these events. So focus on organic growth.

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David Grau: market preparation stage, pick the tires on a handful of firms. Don’t be the advisor who gets the letter in the mail, you’re flattered at the offer, and you deal with one firm exclusively. They’re gonna try to get you to do that. They’re gonna give you lots of compelling reasons why that’s a good idea. It’s a bad idea.

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David Grau: You get one bite of the apple on selling.

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David Grau: Two if you really screw it up and somehow can rebound. But really, you get one shot at doing this right.

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David Grau: Don’t be rushed, don’t let anybody create any sense of urgency, and I promise, the more you are aware of it, the more you’ll notice they’re doing it. Buyers are smart, especially aggregators and private equity firms, because this is not their first rodeo.

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David Grau: So, lots of things you can be doing. What are some specific action items I would encourage? Number one is the entity structure.

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David Grau: you cannot show up with an S-Corp here and think that the private equity deal is going to work, right? Like, we… it worked fine to get to where you are now. Now we need something a little bit more robust, a little bit more intentional.

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David Grau: So, do that before you’re doing this deal. Otherwise, they’re gonna give you the entity structure that they want you to have.

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David Grau: And that may or may not be perfect for you. If you’d have done it right and been intentional about it.

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David Grau: this would have been a non-starter. You wouldn’t have even had to have the conversation, and frankly, they would have been impressed.

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David Grau: Should you already set up properly for them to make this investment.

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David Grau: Compensation plan design, another important one, right, going back to Parker’s earlier comment.

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David Grau: We’re not talking about any kind of revenue-based compensation, no splits, get this stuff clean, and get it locked in. Specifically, lock it in for partners.

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David Grau: We want a good, clean, sustainable compensation plan for the entire advisory team, including the owners.

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David Grau: Because if you don’t do it, they’re going to do it for you.

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David Grau: And they’re really good at doing this math. You don’t want them messing with your P&L.

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David Grau: So…

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David Grau: Get the comp cleaned up, which translates to clean financials, right? Make sure those P&Ls, again, you’re somewhere in that safe range, like 30-35% profitability.

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David Grau: You’re still lean, you’re still efficient, but you are reinvesting enough back in the business.

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David Grau: So get the financials tight, and then go back to the process refinement. Like, keep building towards a firm.

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David Grau: That could someday exist without you, because that is what you’re going to be evaluated based on if you want to talk about private equity.

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David Grau: So what are they looking for? Well, I just told you part of it, right? They want a turnkey operation. We get this question a lot, because people… they’re either going to start pursuing it, or they’ve already gotten some interest, and they’re wondering, like.

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David Grau: am I what they are looking for, right? Or am I just selling out here? Well.

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David Grau: They’re looking for turnkey organizations.

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David Grau: Which either means you’ve got an owner who’s transitioned all the operational duties to an amazing staff, or the owners are just gonna stick around and keep working for another at least 3 to 5 years, and working to grow the firm.

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David Grau: So, Trinkie Firm, owners staying on for 3 to 5 years, and they definitely want steady, organic growth.

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David Grau: Signs used to be the delineator here, but like I said, it’s…

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David Grau: Size is still a delineator in many cases to get the values that you’re hearing about out there, right? You might be getting interest from private equity, and they might be talking about paying you, you know, a pretty high multiple.

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David Grau: But when we see the final result of the deals for firms doing, let’s say, a million in EBITDA versus 10 or 20 million in EBITDA, the deals don’t look the same, right? So you can get it done at either size.

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David Grau: But in this case, bigger is generally better. But you can mimic a lot of the attributes in the bigger firms, even a smaller size, if you’re intentional. Number two here, private equity valuations. Are they as high as I’m hearing? Yes and no, is the short answer. Yes in terms of the multiple they’re paying. No, when you start digging into the terms.

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David Grau: In reality, if you have 2 million

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David Grau: in EBITDA, they’re probably gonna pay, let’s say.

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David Grau: $20 million as a value. But they’re gonna pay 60% of that at close? You think, well, that’s not terrible.

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David Grau: it’s not all in cash, it’s going to be a combination of equity and cash, and then the rest of the value is going to come through earn-outs and compensation, hitting growth hurdles that you probably haven’t hit in a very long time. But if you can hit all these things, you can get all the money out of it.

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David Grau: So the answer is, the value could be there if you’re strategic and you start early enough.

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David Grau: For a lot of firms, no, they’re not as high. But they’re not really any worse, either. So then you just go back to the Fed component.

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David Grau: Last two here, how do REAs get a PE deal to consider? Well, number one, check your inbox. You might have one already. If you don’t, continue checking. Two, let us help represent you, because we’re talking to these firms, we’ve seen these offers, we know good offers, we know bad offers.

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David Grau: We can help make sure that you get enough offers that you can consider both fit and price, and be kind of picky.

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David Grau: Last one, does valuation even matter now if we’re not doing anything for a couple more years?

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David Grau: Yeah, I mean, it’s about creating the track record of showing the PE firm, who is quite literally making an investment, right? That’s their lens. That, yeah, we’ve grown by 8% as a compounded annual growth rate, but our value has grown by 12, right? That’s a good trend to see, as opposed to the inverse.

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David Grau: And to do that, you need to be tracking your value on an annual basis, right? So you… value aside, so you can identify the key drivers and detractors.

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David Grau: So, that hits on both the merger and the private equity. There’s lots more FAQs, right? I mean, I cannot tell you the amount of private equity offers we’ve looked at and or helped negotiate in, like, the last 12 to 24 months.

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David Grau: Kind of like mergers, it’s more than my entire career combined, so it’s really picking up steam.

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David Grau: So I think you’re gonna see more of it, and we’re trying to make sure you’re equipped for it.

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David Grau: Let’s say you don’t pursue this. You don’t do the internal succession plan. Mergers, you’re 50-50 on it. Well, the default option for all of us, right, when we decide to exit, if we don’t do anything else, is selling to a peer, an external sale. So, Kristen, I’ll let you land the plane safely on this one.

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Kristen Grau: Thank you.

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Kristen Grau: As you’ve heard from the team, advisors have several ways to exit their business, whether it’s through internal succession, mergers, or partnerships with PE-backed firms.

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Kristen Grau: But, another path that can create significant flexibility is external cell.

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Kristen Grau: And this often opens up the widest range of buyer options and exit structures.

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Kristen Grau: So this roadmap is going to highlight your four stages that we typically see in an external sale that both preserve flexibility in how and why a transaction eventually happens. So, stage one is value optimization, and this should usually happen 3 to 5 years before

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Kristen Grau: an exit strategy.

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Kristen Grau: So, this is where you’re having a regular valuation becomes very, very valuable, because it provides you not only feedback on how you would

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Kristen Grau: Look in the market today, but it also helps provide insights

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Kristen Grau: on how sellers can make adjustments, whether that’s improving profitability, refining the client service model, addressing client demographics, but those sort of KPIs will help the seller make improvements that show up in the business, but that takes time.

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Kristen Grau: And so, when firms can start this process early, those changes can come full circle before a sale actually takes place, allowing the sellers to not only

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Kristen Grau: look more optimized with buyer firms, but often translates into stronger multiples and more competitive deal terms. So, valuation early is really, really key, so long as you make improvements based on that valuation.

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Kristen Grau: The second stage is really about seller readiness.

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Kristen Grau: This is where firms address any structural or contractual issues that could restrict a transaction, and also where financials are cleaned up and strategically positioned.

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Kristen Grau: And where the seller begins to formalize their wish list, defining what they want from a transaction in terms of structure, partner profile, and their role after sale. Do they want to stay on for 3 to 5 years? If so, in what capacity? How do they want to get paid? Or are they hoping to transition quickly? What does that look like?

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Kristen Grau: By doing this work early, sellers are much better positioned to pursue an external sale on their terms. Rather than being told what they should want, they know and can go into those conversations with what they do want.

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Kristen Grau: The third stage is buyer engagement.

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Kristen Grau: And this is typically, again, one to two years before an exit strategy occurs. So, this is where buyers and sellers start to have conversations and start to evaluate each other, evaluate the business, evaluate if they’re a good, cultural fit, strategic fit.

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Kristen Grau: And because buyer… or excuse me, seller firms have already optimized the business.

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Kristen Grau: And they’ve addressed their seller readiness concerns, sellers can go into these conversations from a position of strength.

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Kristen Grau: They can compare buyers, understand different, different, different…

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Kristen Grau: Deal structures, and they can identify the partner that best aligns, not only with them, their clients, their staff, but also the long-term goals.

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Kristen Grau: Once the right partner and structure begin to take shape, then we can move into the transaction execution stage. And at this point, the focus really shifts to finalizing the terms of the deal. How do we structure the purchase agreement, complete due diligence, and define the client communication plan?

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Kristen Grau: Now that we have an overview of the roadmap for an external sale, let’s talk about specific things that you can do along the way.

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Kristen Grau: So, a lot of these items are somewhat repetitive, but that’s because all of these things happen in an exit strategy, but the purpose or the why behind them may vary based on what exit option you choose. So, first and foremost.

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Kristen Grau: You want to make sure that you have reviewed your governance documents. Things like operating agreements, shareholder agreements, any other entity documents.

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Kristen Grau: These documents often determine how ownership can transfer, and what approvals may be required for an exit.

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Kristen Grau: So, not only do buyers want to see the original executed documents to confirm that those exist, but accessibility is equally important, and oftentimes these documents are required for lenders. So, if you don’t have them, it just creates

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Kristen Grau: Delays that are unnecessary.

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Kristen Grau: Additionally, addressing governance early will help ensure that the structure of the business won’t restrict how a future sale can be completed based on your goals.

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Kristen Grau: In other words, you know, if you’re set up like an S-Corp, in David’s previous example, and that’s not going to work for what you’re trying to accomplish, changing that earlier is going to prove to be a better strategy.

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Kristen Grau: Another important step is reviewing existing agreements that could impact an exit.

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Kristen Grau: So, this could include things like a contingency or continuity agreement, employment agreements, non-competes, revenue sharing agreements, client ownership provisions, or forgivable loans.

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Kristen Grau: In many cases, these agreements were created years earlier, and they might not align with the current structure of a future sale, or even the role that the seller intends to have after the transaction.

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Kristen Grau: It also may restrict you from selling altogether, or at the timeline that you want to sell at.

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Kristen Grau: So, making sure that you review these documents early will give you the opportunity to identify potential conflicts.

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Kristen Grau: Update those terms if needed, and just help you avoid unnecessary surprises when you’re at the ninth inning, you know, ready to come into home base and camp.

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Kristen Grau: Beyond documents, another important action item is simply being clear about what you want from a transaction.

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Kristen Grau: So, similar to Know Your Why, this is Know Your What.

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Kristen Grau: And, this is because external sales can be structured in a variety of different ways.

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Kristen Grau: Some sellers might want to step away quickly, others might want to stay involved.

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Kristen Grau: Sometimes they want to continue growing the firm for many years after the sale in different roles or different capacities, and so the more that you can prioritize

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Kristen Grau: the want factor.

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Kristen Grau: The better you can communicate that during the sale process, and make sure that you ultimately receive that in the end.

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Kristen Grau: And then lastly, and what I think might be most crucial, is making sure that third-party reports are cleaned up and ready to go.

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Kristen Grau: So often, with RIA practices, or insurance firms, or even some broker-dealers, you might not have the best reporting.

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Kristen Grau: Or, even if you have phenomenal reporting, you have reporting in 6 different spots.

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Kristen Grau: And so, reporting in one area isn’t going to look the same as the other area. And connecting clients and accounts and all of that information, which is so important from a buyer due diligence perspective.

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Kristen Grau: becomes… A huge burden.

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Kristen Grau: Additionally, you know, buyers, while they love Excel reports, they don’t want to see an Excel report that you created.

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Kristen Grau: So many sellers are like, hey, here’s a quick version of my clients.

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Kristen Grau: Well, do you have something that supports this Other than yourself

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Kristen Grau: That’s ultimately what they want to see. So, make sure that you can get these documents, make sure they’re cleaned up, make sure they’re organized. This helps ensure that there’s continuity from report to report.

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Kristen Grau: Helps buyers understand the data, makes everything a little bit more solid so that they feel comfortable writing maximum, values, and it avoids confusions and delays.

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Kristen Grau: Now, let’s talk about some common external FAQs.

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Kristen Grau: The first FAQ that we have here is, when should I talk to potential buyers?

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Kristen Grau: This really depends on your goals for the transaction and how you plan to navigate that external sale process.

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Kristen Grau: Some sellers might prefer an advocated process, where an intermediary like ourselves help manage buyer conversations. Others might choose the non-advocated approach and communicate directly. Regardless of the approach that you take, the key is that any meaningful conversation should occur with an NDA already in place.

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Kristen Grau: You do not want your business information, or even the fact that you are selling, just being shared out in the space. You really want to make sure that that information is only available to people who you share it with.

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Kristen Grau: Next question, how are external sales typically managed? So, an external sale transaction can be managed in a number of ways.

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Kristen Grau: Some sellers communicate directly with buyers, others are going to work with an advisor, like I previously mentioned. Ultimately, the advantage of working with someone like us, an intermediary, is neutrality.

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Kristen Grau: Right? We can help you manage communication, coordinate diligence, evaluate opportunities based on your objectives, your timeline, your needs.

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Kristen Grau: We don’t have to meet other criteria, like keeping assets on platform.

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Kristen Grau: Or making sure that we have satisfied the needs of a particular advisor that we want to stay.

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Kristen Grau: We are focused, truly, on helping you find the best partner, or helping you create a deal structure that works with the partner you’ve found.

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Kristen Grau: And helping structure the transaction in a way that works best.

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Kristen Grau: Common mistakes typically made before a sale, really, that is underestimating the amount of time it takes to complete a transaction.

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Kristen Grau: This may be one of the most important decisions of your life. It’s the sale of your baby, right? It’s something that typically you’ve had for 20, 30 years, that you’ve developed from scratch, that you may have paid a lot of money to obtain. This should not be a decision that you take lightly.

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Kristen Grau: Nor should you put this as a task list item that kind of falls to the bottom. This really should be provided and given the time that it deserves.

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Kristen Grau: And in some instances, that might mean that that’s a full-time job. So, make sure that, you know, not only are you

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Kristen Grau: understanding the timeline, the roadmap, right? The 5 plus years prior to when you actually want to exit, but when you’re at that last phase, that you’re putting forth the time that it deserves, so that you can get the results that you want.

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Kristen Grau: To wrap up the four exit options that we discussed, internal succession, mergers, private equity, and external sales, let’s talk about the three pillars of exit optionality.

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Kristen Grau: So, here…

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Kristen Grau: This framework really highlights the different pillars that help create the most optionality for advisors over time. And while these pillars may not apply to every single firm.

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Kristen Grau: In the same way, they’re generally encouraged because they help you expand the range of transition options that are available to you, or that you can help kind of create availability for. So, the first is operational independence from the owner, the founder.

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Kristen Grau: And that’s essentially making sure that the business doesn’t rely or revolve solely on you.

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Kristen Grau: Second, have a clear leadership path.

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Kristen Grau: Make sure that the people inside the organization can grow into larger roles and help carry the business forward. And then lastly, make sure that there is financial transparency. Have clean financials, consistent reporting, and a clear understanding of the key drivers that drive the value of your business. When all of these elements are in place.

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Kristen Grau: Advisors typically have far greater flexibility when evaluating exit options, which is the whole premise of today’s webinar.

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Kristen Grau: So, if those web, pillars help create optionality in the business.

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Kristen Grau: The next slide that I wanted to touch on, and I know we’re running out of time, is just what are the best practices to do that?

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Kristen Grau: So, quickly, start with the end in mind.

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Kristen Grau: Having clarity about your long-term transition goals will help you ensure that the decisions you make today support the outcome you ultimately want in the future.

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Kristen Grau: get that valuation. It’s really a pretty low-cost investment.

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Kristen Grau: And by doing so, and tracking your KPIs, tracking your value, making improvements on an annual basis.

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Kristen Grau: I can guarantee you that your value not only will increase exponentially above and beyond your growth rate, but you will have such a better understanding of the industry, the market.

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Kristen Grau: The way… the exit options that are available to you, and the negotiation power that you have, is truly limitless if you do that.

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Kristen Grau: Build intentionally. Make sure that you have a 5-10 year plan. This really goes back to start with the end in mind, but if you have that plan in place.

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Kristen Grau: You… the decisions that you make, like leadership.

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Kristen Grau: Staffing, clients that you bring on, those things impact your future plans. So, really build with a plan in mind, a 5, 10-year plan that also incorporates the end so that you can create a strategy that will work for you.

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Kristen Grau: Leverage your equity. The value you’ve built in your business can be used strategically, whether that’s supporting growth, partner… bringing in partners.

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Kristen Grau: or creating more flexibility, so make sure that you leverage that. And then lastly, seek objective advice. Neutral guidance, I cannot reiterate enough. It really just allows you to receive an unbiased perspective and involve

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Kristen Grau: It helps you involve the right stakeholders at the right time to help you maintain that momentum that you need, while also driving better results.

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Kristen Grau: I know that we are at time today, so we really appreciate it. Ultimately, we hope you join us for some upcoming webinars, same three webinars that David mentioned at the beginning.

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Kristen Grau: One about merger in April, led by Nicole and Ryan, equity, held by Nicole and Julia, and then succession, held by your very own Parker, as well as Julia. So, please do join us for those webinars. We want to make sure that you’re getting the information that you need and how you need it.

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Kristen Grau: And then our team will be following up with you, shortly. So, as a quick reminder, the deck will be available within 24 hours. Our team will follow up via email and phone. Ultimately, we really appreciate your time today. Thanks for listening, and we look forward to seeing you on the next webinar.