Your Life, Simplified, Podcast with Mariner Wealth Advisors:
George Fernandez: Thank you for downloading this episode of “Your Life Simplified”. My name is George Fernandez, and I’ll be your host for this episode. Here at “Your Life Simplified”, we strive to bring you relevant and timely topics that simplify your life.
For business owners out there, there is one particular event that needs simplifying, and that is the transition as you walk away from your business. It is not a matter of if it is going to happen; it is just a matter of when it is going to happen. When that time does come, the question then is: Do you want it to do it on your terms or someone else’s? Here at Mariner Wealth Advisors, we have a specialized group that actually works with our clients and helps them navigate through this process. Whether it’s combining sellers and buyers or buyers and sellers, or negotiating the deal, Tom Tilley of our Mariner Capital Advisors actually works very closely with our clients on this process.
But today, we’re going to focus our attention on another piece of the puzzle. That piece of the puzzle is you, because without realizing it sometimes, we might actually derail the entire process.
Well, to help me understand and better communicate and walk through this process with our clients, I have someone here with me to help us walk through this conversation, Denise Logan, who we call The Seller’s Whisperer, has walked through this with many clients over the last several years to walk through the process of transitioning away from your business and the right way. So, Denise, welcome to the show.
Denise Logan: Hi, George. It’s so nice to be with you today.
George Fernandez: Yes, we’ve had this conversation on many occasions, and it’s really great to kind of gather back together, especially at the time of this particular recording. There’s a lot going on in the economy right now. I would imagine that it is probably affecting business owners as they consider the transition away from their businesses, especially at this time. Before we talk about that, why don’t we give the folks, our listeners, maybe a little background of who you are and how you became The Seller’s Whisperer.
Denise Logan: In my early life, I was a mental health professional, and then I became a lawyer. I watched deals unraveling for all the reasons that were not what was being said. You know, in this market, it’s so valuable to understand what’s going on for an owner. Less than one third of all deals that go to the marketplace actually close. That means that of business owners, only one third of them are actually reaping the wealth from the work that they have spent their lives building, and to me, that’s a tragedy. We spend a lot of time thinking about a wealth event, but if an owner is unable to successfully exit their business, all the planning is for naught.
One of the things that I saw with that low close ratio, was that we needed to try to find another way to help owners navigate the transition. Ten years ago, I started working one-on-one with owners and their advisors to help them navigate those predictable emotional obstacles that can prevent them from letting go, and looking at how to help them avoid what in the industry is called seller’s remorse – owners who do sell their business but then feel sad about it later and wish they hadn’t.
George Fernandez: That’s incredible; I mean, you know, you said that it is one third, and when you think about that, that’s a lot of people. I mean, at last count or the last research I’ve read, there are about 30 million business owners out there, so just one third of them, that’s a lot of business owners out there that do struggle with this whole transition. When you consider that they’ve worked at it their entire lives and this is probably the largest asset that they have, and this is probably the asset that is going to carry them through their own personal retirement, which is a significant issue that we need to look at how we address. I really appreciate the opportunity to be here today.
Let’s kind of dig into top questions to talk about this topic, starting with why do you think some successful business owners have a hard time letting go? Let’s hit that head on right there.
Denise Logan: One of the questions that I always ask an owner when I first meet them is: What does work provide for you? And it’s very easy for the transactional professionals to get focused on the money. Money, of course, is one of the many things that work provides for us, but when we drop down, we should be able to find somewhere between ten and twelve distinct answers to that question: What does work provide? So, aside from money, for many of our owners, it’s a place to go. We’re recording this during the time of coronavirus, when many of us are stuck at home. I’ll bet lots of your listeners could imagine that if they could get out of the house and be someplace else that would be something that work provides. Another thing that work provides for owners is their sense of camaraderie and friendship. For many owners, their employees, their peers, their customers, their vendors, are their friends. George, you and I have had this conversation before, who are your Saturday friends or who are your weekend friends?
George Fernandez: Yeah, exactly.
Denise Logan: Think about those pieces of what’s going on for our owners, when they start to contemplate letting go of their businesses. We want to look at those many things that they’re getting provided. Sometimes it’s power. The things that come up later in answering that question, what does work provide, are the ones that can derail the deal later. Can I tell you the story of one owner?
George Fernandez: Sure.
Denise Logan: You know, we often think that it’s only owners who are of a particular age who will struggle with letting go of their business, but letting go of a business, no matter whether it’s early in your career or later in your career, those same obstacles start to surface. So, this particular owner was in his middle thirties, and he was selling his business. It was a software company on the West Coast. He was set to net sixteen million dollars on the other side of the sale. One day he realized: Who am I going to hang out with during the day? All my buddies have jobs. So he was out one night with a friend and he said that to his buddy, “Who am I going to hang out with?” To which his friend responded, “Boo-hoo, dude, I wish I had your sad little sixteen-million dollar problem!”
George Fernandez: (Chuckles.) Yeah.
Denise Logan: Although that’s a really normal answer to receive for this fellow, the problem didn’t go away. It just went underground and started getting acted out in this deal. The more that was happening, the more the advisors who were involved in that transaction were talking to him about the money he was going to receive. When in reality, he was grieving the loss of many things that work had provided for him.
The owners that successfully exit and have the best post-closing life, that new chapter, are those who have really thought about what work provides and how those needs are going to get met, because the needs don’t just go away just because you get a big sack of cash.
George Fernandez: Yeah, all really great points. It reminds me when we go through traditional wealth planning engagement when we’re not dealing with a business sale. There are really two fundamental questions that we try to address when we have those conversations with clients: what’s the importance of money in their lives, because that’s clearly an important piece when you talk about financial planning, but we also have a second question what’s most important in your life. It’s the convergence of those two questions where real financial planning really sits because the motives and the emotions that you have that are happening behind the scenes, drive your decisions. If things aren’t going well on that side, it will impact how you feel about the transaction, investment, or whatever it is that the financial part of your life has taken care of. It’s all really great points.
Thinking about that process, then, how do we make that process easier for business owners, if that is such a big challenge? How do we make it easier?
Denise Logan: The first part is recognizing that for an owner, this is a transition, it’s not a transaction.
George Fernandez: Got it.
Denise Logan: The lawyer and the banker and the wealth manager and the CPA and maybe even for the buyer, this is a transaction. So, being prepared will help our owners to think in advance: what are the likely emotional obstacles that might come up?
An example is the very first time we poke at financials in the deal, the seller is likely to be filled with shame. Whenever I tell an owner that, they’ll say, “I have nothing to be ashamed of”, and I say, “I know, of course you don’t”. But that moment, when an owner who is used to being the one who knows all the answers, who knows everything about what’s going on in the business, the thought that someone else will be touching those financials, someone might find something they didn’t know about, can trigger a natural emotional reaction for us called shame.
There’s a part of our brain called the amygdala, the fear sensor in our brain, and it is a helpful part of our brain. It’s always looking for danger in the world. The unfortunate thing is it can’t distinguish between real danger and imaginary danger, so sometimes in a situation like that, the amygdala will sense danger: “Omigosh, what if I look dumb?” We’re each wired to handle fear differently, so being able to prepare an owner in advance of many of the emotional parts of what they will face in letting go of their business will help them to navigate it more easily. That’s because a natural reaction when we feel fear or shame is to pull away. So we often see owners do this, we call it approaching a void: “I can come, I want to sell my business”. Then partway through the transaction, they realize the transition is happening, and they get scared and pull back. When an owner pulls away, the likelihood of them returning to the process and having a good result is less. That’s why preparing them in advance for what they’re likely to feel, not just how the transaction will go, but what are the transitional moments. I’m happy to share another story if you’d like.
George Fernandez: Sure, that would be great, if you could give a good example.
Denise Logan: This particular deal was an $85 million dollar sale. Eight weeks before the closing, the owner suddenly announced that he would not take a penny less than nine times that amount. Never mind that he had already signed a letter of intent at 6.2 times. The investment banker called me and said, “I think my seller went crazy”. I said, “Yeah, it sounds like it. Let’s figure out what’s scaring your fellow and what hiding hole he has gone in and see if we can coax him to come back out.” What had happened is the owner’s original plan was to sell the business, buy a sailboat, and sail around the globe. Now, you can get a pretty big boat for $85 million dollars.
George Fernandez: I would think so.
Denise Logan: But two weeks before he asked for this unicorn, his wife said to him, “I’m not doing that. I do not want to be stuck on a boat with you far away from my grandkids. No way.” And can we agree, George, he is not coming back to the deal team to tell them that the deal is off because his wife won’t let him do what he wants to do?
George Fernandez: Yeah. That’s probably not going to happen.
Denise Logan: This was the very first time that the wife had ever said she didn’t want to sail. What so often happens is that owners will talk to us about their dreams and their plans for their future: golf, travel? That is not a real plan. So, when I got involved in this process, I sorted out what was happening between husband and wife. It really wasn’t about the money. That’s where he came back to the deal team and said he wanted more money.
What we did was we created a solution where he would buy the sailboat and sail, and every six weeks, she would take one grandchild, fly to where he was, they would do two weeks on land, building memories with the child, she would fly home, and he would sail on. Boom. The deal was back on track and closed on time at its original price. That’s an example of an owner who almost killed their own deal because of something emotional that makes perfect sense. They were struggling with what we refer to as relational grief. Here’s a couple who had grown apart. We see it in lots of couples where when children first launch, husband and wife look at each other and think, “Who are you? I don’t know if I know you anymore.” For a couple, when they’re selling their business, that’s another moment of relational transition, and if they don’t have common, aligned goals, it’s very easy for the business to become almost like a third child. You want to keep it in the nest, and so exiting owners, when they face that moment, if they haven’t been prepared for it, the deal will fall apart.
George Fernandez: Again, it is very similar to traditional wealth management, when you always want to have the conversation with both spouses. You want to bring out what the individual goals are for each one of the spouses to fully understand directionally where they’re both headed. Hopefully, it’s in alignment, and when it isn’t, at least you’re able to have a conversation and prepare for that.
George Fernandez: Thanks again for downloading this episode of “Your Life Simplified”, which is produced by Mariner Wealth Advisors. Here at Mariner Wealth Advisors, we’re here to serve as your advocate. We help people chart a course to reach their personal and financial goals so that they can have greater peace of mind that may lead to a more fulfilling life. We do this by always putting our clients first, because as fiduciaries, we’re required to provide guidance that’s in the best interests of clients, not the best interests of a company, or shareholders, or anyone else. So, as you listen to this podcast and have questions about maybe your own financial situation or would simply like a second opinion, or even if you have an idea for a future podcast, please go ahead and email us at podcastsatmarinerwealthadvisors.com. If you found the information on this podcast valuable, please go ahead and share with a friend or family member that you think might benefit from this information. Please don’t forget to subscribe to this podcast so you don’t miss an episode. Thanks for listening, and now back to the episode.
So, you know, we talked before about preparing for the sale. You mentioned that just briefly in your conversation or comments just now, but do you think owners forget to prepare themselves for that as well? You were talking about at the end when the sale is taking place, but what could they have done beforehand?
Denise Logan: You know, we celebrate Grand Openings of businesses and there’s a lot of, there’s tons of energy put into celebrating new businesses that arise. Yet every owner will leave their business, voluntarily or involuntarily. The reality is that we will. I’ll often hear owners say, “Well, if I sell my business or if I retire”, and I challenge them that the correct word is “when” not “if”.
I think we do forget to prepare for an exit. One of the ways we can help that is to pay attention to, “If next year, you were going to exit your business, how would you be preparing for that?” Because lots of things cause us to exit our business. It can certainly be an economic transition like we’re facing now. It could be unpredictable life events. It could be that you simply get an offer unexpectedly. One of the things that I see happening is that owners often think they have more time. If we ask an owner, “How many more years will you work?” they will almost always say five more years, no matter how old they are, no matter where they are. So helping to think year by year: “Is this the year that I should be selling my business? If something came up, am I prepared? What will life be like on the other side of this business?”
George Fernandez: That’s a really great point. It is interesting that you mention that five more years, five more years, one more year, whatever that is, that number is unique for each individual. I was just talking with someone yesterday, having this discussion and he was sharing a story about how his business partner, who is in his early sixties, passed away suddenly. It was a heart attack, and there was really no time to prepare for that, obviously. The disruption that it created, for the business and for the family and so forth, when you think about business owners who are in that situation, that’s under somebody else’s terms that you are leaving your business. I’m not saying we should prepare for that–but we should prepare for uncertainty, of course.
How else do we prepare? Are there other strategies that you use to help prepare for that inevitability that is going to take place? What are some other ideas? Are there practice runs that you would take? You mentioned power earlier. That made me think about that, if you’re thinking of power, of control, is there preparation you could do to practice letting go before you actually leave to see how well you’re going to do?
Denise Logan: Taking a sabbatical is an excellent approach. Right now, at a time when we’re stuck at home, that’s an interesting experience because to owners who think, “I’m not gonna retire; I’m not just gonna sit around and do nothing,” I say, “Oh, of course you’re not! Who told you that retirement was going to mean sitting around, doing nothing?” Retirement for us, George, will not at all be like it was for our parents and grandparents. We’re not going to find playing golf and waiting for Wheel of Fortune to come on to be as satisfying in retirement.
George Fernandez: (Chuckles) Yeah.
Denise Logan: For many of us, that’s what we saw. When a parent or grandparent retired, that’s all there was to look forward to. Especially right now, when we’re home, often a business owner will think, “Is this it? Will it just be like this, that I’m stuck at home, looking at my spouse and there’s nowhere for us to go?” The truth is, retirement will be what we decide to make it, having very clear first-month, first six months, first twelve months, and first three years–making those kinds of detailed plans. When I hear owners say, “I’ll travel”, I ask, “To where? Let’s map out the first one year to three years of travel. Where will you go? How will you get there? How long will you stay? What will you do there? How long will you be home between trips?” The more clearly we’re able to make those plans, the more likely we are to keep moving forward toward an exit. The mistake is to think that we will just know when it’s time. We never know when it’s time.
George Fernandez: That’s a great point. So, the last question I have here is dealing with something you already said something about. That is seller’s remorse. Do you find yourself in situations where the deal is done but now, “I don’t want to close” or the deal is done, and “I shouldn’t have signed this in the first place; I’ve got seller’s remorse”. How do you manage that?
Denise Logan: Seller’s remorse is a real risk. It is actually the number one reason that deals don’t close after they’ve been through due diligence. The owner suddenly realizes that the needs that were being met by the business other than the financial ones are not aligned yet to be met. I wrote a book called The Seller’s Journey. This particular book is written as a business fable. It’s the story of an owner one year after he sells his business. He goes on a trek across Glacier National Park with his banker, his lawyer, his wealth manager, and the private equity buyer who bought his firm. And, yes, everyone comes back alive.
George Fernandez: (Laughs.) Okay, all right, so it not a thriller, huh? It sounds like the beginning of a joke, right?
Denise Logan: Right. As they cross the glacier, they relate physical obstacles that they face to the emotional obstacles he faced in letting go of his business. One of the really beautiful parts of the trip they took (and it’s based on a trip I took with a client), having that trip in mind was one of the things that allowed him to keep moving forward. He knew where he was going to go, he knew what he was looking forward to. Often, there is a period of transition after they sell the business where they are still working things out. It might be a burn-out period or a training period. The more we’re able to map out what that journey looks like for an owner, the more likely they are to make it all the way through.
For a business owner, this last chapter of their business is the most vexing time in the life of their business. As advisors, we have the ability to help them navigate this and place them gently on the other shore, where they’re looking forward to the next chapter of their lives instead of regretting what they’ve let go.
George Fernandez: All really great things, for all business owners. I think for all business owners listening, I see the biggest takeaway is that number one, you’re not alone. I think that’s really important. The folks that are working with you, especially if you are working with your wealth advisor alongside you in this process, to understand how this particular transaction (I use that term on purpose, not literally for transition purposes) but the transaction process does have implications for your overall financial health. It is important to ensure that the transaction is going to provide them the transition that they are actually talking about, that you’ve just described, and navigating through that very successfully.
Denise, I really appreciate you giving your time to go through this conversation with me today, especially today, with a lot going on in the economy right now. There’s probably a lot of anxiety out there. As you listen to our financial therapist podcast here a month or so ago, anxiety is normal. It’s just a matter of how we respond to it. You talk a lot about how we respond to all these emotions as they relate to the sale of our business, so I appreciate you going through that with us today.
As we conclude today, I guess what I’d like to do is, as we end all of our conversations. Number one: you’re a business owner. This is going to be your walk at some point in the future as well, but I’d also like to understand: What is the biggest money lesson that you’ve learned in your life?
Denise Logan: I was a business owner and I am now a business owner. In my early life, I built a fairly large law firm in Washington, D.C. When the time came for me to let go, I struggled, a lot, because I had not prepared for how would I navigate that transition. I made a super-ugly, choppy exit from my business, got rid of my house, and bought a motor home. I took off for what I thought would be six months and turned into several years. The motor home was not the bad decision. The difficult financial decision was not having prepared for how and when I would let go of my own business. It absolutely is the reason I do the work I do now, because I realized that I wished there had been someone like me to help me through that. Sometimes we teach what we needed to learn.
George Fernandez: Yes, absolutely, and it’s great that you’re doing this today, I think this is a really great, great service. Thanks, Denise, for being here.
Denise Logan: Nice to be with you, George.
George Fernandez: Thanks again for listening today, and we hope you find the information valuable. One of the things Denise mentioned was that she has a book called The Seller’s Journey. If you’d like a copy of that book, Denise, where can they get a copy?
Denise Logan: You can purchase it on my website, which is deniselogan.com. It’s a fun little read. I think you’ll enjoy it, and the next thing you know, you’ll be planning a trip of your own.
George Fernandez: Yes, it is a great book, great story, and the train ride was a lot of fun. We thank all of you for listening as well. We hope you found the information valuable. As always, we’d love to hear from you, so let us know how we’re doing by giving us feedback. If you have any ideas for future podcasts, be sure to let us know that too by emailing us at podcastsatmarinerwealthadvisors.com. As always, we encourage you to share the podcast with family and friends, especially those business owners that you know. If they haven’t listened yet, send them a note, and don’t forget to subscribe so you don’t miss any future episode of “Your Life Simplified”. We look forward to being with you again soon.