Give Yourself The Gift Of Time Before Selling Your Business

“Get your ducks in a row—NOW.” – Janice Miller, Managing Partner at Miller Haga Law Group, LLP, and author of Coopertition®. 

In this episode, Janice offers her legal expertise on the world of exit planning and the common issues she sees owners deal with when going through an exit, specifically in today’s post-COVID environment. 

Janice discusses how to best prepare for an upcoming exit, including the importance of knowing what you want to accomplish from the sale and assembling a team of professionals to help you achieve those goals early on. 

She shares the significance of having a buy-sell agreement in place, comparing it to a pre-nuptial agreement in a marriage. She shares with us why she believes everyone should have one, detailing how they can strengthen a business relationship and set clear expectations and parameters for leaving a partnership.

Janice talks about the why behind her book, Coopertition®, including how it is the concept that “competitors can work cooperatively together to benefit all: benefit their clients, benefit themselves, benefit their competitors.” She says she lives and breathes this concept, which inspired her to trademark the phrase and write the book.

Lastly, she shares two action items for owners:

1.      Give yourself the gift of time, and don’t expect to do a transaction now if you have not spent time getting everything in a row first.

2.      Be true to yourself and have clear goals that you want to accomplish from the transaction. Don’t stray from these goals unless necessary. 

Disclosure: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your attorney, finance professional or accountant before implementing any transactions and/or strategies concerning your finances.

Transcript

Joe: Welcome to the Ripcord Moment. I'm your host, Joe Seetoo. Today I'm joined by Janice Miller. She's the managing partner of Miller Haga Law Group, a preeminent law firm here in Southern California. Janice, I'm looking forward to having a conversation here with you today. 

Janice: Thanks, Joe. Thanks for having me. Looking forward to be here. Absolutely. So, you know, you've got an extensive background in law.

Joe: You were previously the I think the vice president of business affairs at Universal Studios for a number of years doing everything from negotiating licensing agreements, litigation management, real estate transactions, retail. So you bring a sort of varied and wide range of experience to your clients. Clients who are in the private sector and Fortune 100 companies, I should say.

Joe: We're going to talk a little bit today about what owners should be thinking about related to a potential succession event on the legal matters. And I also want to jump in and talk a little bit about your book, Coopertition that you recently authored and what sort of inspired you on that front. But let's tackle the legal issues first.

Joe: You know, we've been in a very difficult business environment for some time, but specifically with COVID here in the last few years and as owners really contemplate some sort of succession event, what sort of advice would you give them? And what are you seeing today that you're dealing with your other clients? 

Janice: Well, again, thanks, Joe, for having me here today.

Janice: It's a pleasure to assist your audience with some of these key legal issues. I think first and foremost, all owners or people contemplating some sort of triggering event or exit strategy need to figure out the key is what they want and what they want, not only in when, but how and through what means. I'm a journalist as a background, so I always go with who, why, where, when, and how. So figure out what you want and then we can telegraph how to get you there. For example, if an owner knows that in a couple of years they want to exit, they need to get their ducks in a row now, today, it's never too soon to bring in counsel, never too soon to bring in an accountant, never too soon to bring in a business broker who they can set up the structure once you have that question to answer. For example, I know that three years from now I want to exit. I want to have X amount of dollars as my target. My business has gotten Y, EBITDA, I know what the multiples should be. I should start working on that now so that I can project out and have those professionals assist me in achieving my goal. And so obviously, you know, we talk about assembling a team. 

Joe: You and I do a lot of work in the exit planning arena. What are some of the critical things that often times get overlooked, specifically from a legal standpoint? Do you think owners could sort of preempt or do ahead of time to make the due diligence process easier or to just avoid having the deal not go the way they potentially want it to?

Janice: Great question. When I'm doing a transaction, one thing that you can sort of analogize on a grand scheme, but you're selling your house, you have to get all your ducks in a row. The same thing is when you sell your residential house, and I know that you guys just moved. You'll appreciate that you got to clean up stuff. You have to get rid of excess. You have to pack what you want and keep out what you want to use while you're working through the transaction. How does that relate to business? Get all your corporate governance done, if you know that you're going to exit and you don't have corporate minutes or if you're an LLC, if you don't have buy-sell agreements with your key stakeholders, members, etc., put all that in place now, so that it will be an easier transition. If there are excess things that are out there from a financial perspective, you might have a company that's weighing you down, sell that company off now, knowing that you have that runway in order to get ready for the ultimate sale. Those are some of the keys right off the top of my head that I would think on, Joe.

Joe: And I would imagine also too like you're saying, with the key employees, perhaps confidentiality agreements, reviewing the contracts with your key suppliers and vendors, things of that nature to make sure your buttoned up again from a legal perspective. 

Janice: Hands down. That's a great point. The last thing that you would want is part of the transaction. Let's take a lease. You own a piece of property or you're leasing a big piece of property. And let's say that there's a change of control provision in there that requires the landlord's consent. You don't want to necessarily know that when you're trying to sell your property, you want to review all typical due diligence items ahead of time so that you can ensure that you're not going to have any issues. Key supplier contracts, as you mentioned. Again, you want to make sure that if you're working with an Amazon or a big company that you're allowed to transfer or assign your interest to that new potential company without getting their approval. That would be horrible if you're ready to go and you're tied to a contract and would either have to buy out that contract or breach that contract and hope that you don't get sued.

Joe: And let's go down that road here because this is something that I would imagine not many owners are as well versed in and candidly, even myself. So I'm learning here, if you have, let's say, a contract with someone like an Amazon and for example, it's not transferable or it's murky, how do you begin to broach the subject of negotiating that? Like what would you advise your client to do? How do you go through that process? 

Janice: Sure. Again, really good question. The first thing I would do is, is speak with a business broker, advisor, somebody that can help you put together your own internal due diligence, and then you have your key material contracts. And I would review and analyze all those key material contracts relative to term, cost escalation relative to how I could potentially get out of this contract. Is there an early termination fee, how I would do that? And then when going to market or trying to exit, that's something that you can bring to the attention of your suitor ahead of time. And you can work through that. Now, again, you're giving yourself runway. So hopefully within this runway period, you can either negotiate an out, a termination fee, or advise through transparency, your suitor what the terms of those contracts are.

Joe: So on that last point, it sounds like you're saying, you know, being transparent and bringing it to them rather than the suitor sort of uncovering it in due diligence and them being the ones to bring it to the table. What would probably be better if the seller is the one bringing it to the table and being transparent?

Janice: 100%. You never want them saying, oh, by the way. Yeah, right. Never. It doesn't bode well for an easy transaction. 

Joe: No, it doesn't build trust, right? 

Janice: Correct.

Joe: Let's talk a little bit about buy sell agreements, because those are you know, I was actually just having a conversation with a client earlier in the week and they two honors, two principles, and they don't have one. Why is it that it is as sort of it's common knowledge you should have one, right? 

Janice: Correct.

Joe: But so oftentimes owners don't. Right. Why is that the case?

Janice: I want to say two things. One, that the skepticism or the skeptic in me would say cost at the beginning of a relationship. The second one would say, it's like a marriage. You're beginning a relationship and things are phenomenal. You're starting a business with somebody. And I look at buy sell agreements as prenuptial agreements. Everyone should have one. It strengthens the relationship. It strengthens marriage. It sets forth the roadmap of what's going to happen later when things aren't good. So buy sell agreements, for the listeners, are documents which set forth how shareholder, or member, could potentially exit the relationship and at that exit, what do you have to do? Does it have to go to other members of the company first? How much is it going to cost? Under what specific circumstances can you buy, sell or get out of your current relationship or agreement? So there are a myriad of things we like to say buy/sells have 4 key triggering events, but there are plenty others: death, divorce, disability and dissolution. Those are the those are some of the key triggering elements. But there are plenty of other reasons to get out of relationship or reasons to think about when starting a relationship, a business relationship. 

Joe: And then what about one more question here on this topic. The notion that, well, look, I'm likely going to sell in the next 12 months or soon, so I don't need to you know, I don't need one. How would you sort of advise a client on that? 

Janice: So I love to tell stories. So I'm going to tell a story, so story applies to buy/sells as well. Story goes that somebody comes to us and says, Hey, we want to form a company, and there are a couple of folks we want to do this and that. And we went to Legal Zoom before we came to you, and we can do Legal Zoom for, I don't know, whatever Legal Zoom cost. That's great. And then they say, how much do you cost? And I say, more than Legal Zoom. And they say, well, why shouldn't we go to Legal Zoom? And I said, because we have the experience that can help you navigate through the roadmaps and field the mines that are out there relative to starting your business. Similarly with the buy/sell, you need to you need to take that extra money. You need to be thoughtful about what you're doing for the people that you're in business with now so that when a triggering or an exit happens it's transparent because that's when the emotions are high. Again, like a prenuptial agreement, you have to look at these things. Emotions are high at the beginning because everyone's elated and the honeymoon period and everything's great. And then, you know, 20, 30 years, hopefully you're down the road with somebody in a business and it's time to leave. We just we just had doctors that were on a handshake, put together an agreement 20 plus years ago, and one of them wants to retire. And now after 20 years of a successful partnership, they are having absolute horror pains, not growing pains, but horror pains, trying to exit this relationship. 

Joe: Well and the other thing that I don't think a lot of people think about, right, is the experiences you go through as partners right there. There's a lot of ups, there's a lot of downs, there's a lot of things you work through but all that sort of experience over time, there is a cumulative effect in terms of the nature of the relationship you have with those individuals. Right. And so I have to imagine that impacts if it's not memorialized up front, right? People going to different perspectives at the back end of the transaction than they did when they were first going into the relationship. 

Janice: 100%. My husband and I have been married for almost 26 years now. He says to me, I don't know why people keep changing their minds. They tell you to write something and you write it and then they tell you to rewrite it and write it again. And I say, honey, that's what keeps us in business. Right? So that's exactly right. And it's good that they have a preliminary thought process and it's fine if people do change their minds because that happens all of the time, but have something in writing so that when emotions are high and when you're about to exit, whatever this is and whatever it looks like, you know, what you guys agree to beforehand. There can always be tweaks. 

Joe: Well you got to give yourself the flexibility. In terms of you've had a lot of real estate experience coupled with your business expertise, and so for the owners who have not only the business and the operations, their real estate, maybe they own the building. What advice can you offer from a legal standpoint? Again, as an owners contemplating a succession event, how to be thoughtful about the real estate separate from the business or maybe as part of the business? 

Janice: Yeah, similar to what we said before, we're looking at material contracts. You want to look at any leaseholds that you own to ensure that the person coming in has a little more runway. So if you're talking about a lease, whether it's a commercial space or an office space or industrial space, and there's a short window left on that lease, the person that's acquiring you wants to have enough time to get in and not have to renegotiate with the landlord. So when you're contemplating an exit or a change of some flavor, you want to ensure that you've looked at your lease agreements, you want to look at your mortgages, you want to look at whatever guarantees are there, etc. to ensure that the person coming in isn't going to be strapped with only two months or three months in there. You also want to make sure that you have the ability to do what you need to do so as part of that due diligence that we talked about before, Joe, I think one of the keys is you look at all leases, real estate, other financial situation, if there are long term equipment leases or any long term obligations that the company has to ensure that you can get yourself off of guarantees, personal guarantees, you can maybe negotiate upfront a longer lease with an assignment provision or a sublet position and talk to your landlord at the time that you're doing this. You know, let me back step, depending on the situation, you may want to talk to your landlord ahead of time, tell them what's going on or you may not but you definitely want to have the mechanism in place, so that whomever's coming in doesn't have a very short window, makes you unattractive and in some instances would make the deal undoable.

Joe: I wanted to ask a specific question related to expertise, you have attorneys who are really good at, let's say, M&A transactions to someone like yourself who's done business and real estate. Does it require if a client has real estate as part of their business, are they going to need to bring in someone else that, somebody like you has got very specific real estate experience? Will most business transaction attorneys be generally strong enough to be able to handle the real estate component? What are your thoughts there? 

Janice: So one of my favorite answers as a lawyer, come on, you'll know this ahead of time is, it depends. And what it really depends on is the complexity of the real estate if it's an office lease, if it's a commercial lease, I would think that M&A lawyers are knowledgeable enough to do this. If you're talking about a ginormous portfolio of real estate, interest guarantees, international, things that require a lot of outside of the normal M&A sphere, it's always good to bring in experts. I mean, you know, this is a great segway into Coopertition if you want to talk about my book.

Joe: That's going to be my next question.

Janice: All right. Go for it. 

Joe: Well, so now thanks for that for the color there, and I like what you said, it depends. So, yeah, let's pivot the conversation here to your book, Coopertition. And, you know, it's interesting because your journalism background, what spawned it? What inspired you to write this book? Let's start there. 

Janice: Okay. So a couple of years back, you and I are in a couple of different networking groups. And in one of the other networking groups, I went out to lunch. It's called a troika for your listeners with a couple of our colleagues and we were talking about my background at Universal and they said, you really need to write a book and I guffawed and said, Yeah, right, I need to write a book in the middle of the night from two to six in the morning because, you know, we're working, we're doing stuff like this. And they're both authors, by the way. And then COVID happened, and I was thinking about it and thinking about how we were working, you know, full stop. We were actually busier in COVID than some of our other times assisting our clients, landlords, tenants, both in navigating through and our businesses navigating through the beginning stage of COVID, which is at every moment things were changing, but I had a little extra time. And one of the blessings of COVID for me was that my daughter was able to come home from the University of Utah, and we spent eight months together. And in those yeah, in those beginning months, you know, we were relegated to stay home and we weren't really relegated to go out and meet with people. But we did go down the beach. You know, we're blessed to live less than 30 minutes from the beach and went out to the beach a bunch and started structuring the book and putting ideas and thoughts together. And obviously that outline and structure morphed over time two or three times, but eventually got us to the book that was published last year. 

Joe: So this concept of cooperatives, let's talk a little bit about that. I think it's important, especially in exit planning, right, that there's no one advisor that can do all these things. We've talked about the idea of building a team and how you've applied that to your law practice and what this concept really is. I've heard you speak numerous times at various networking events, but for our audience, what is this concept of coopertition?

Janice: Great. I live and breathe this. It's the notion that competitors can work cooperatively together to benefit all: benefit their clients, benefit themselves, benefit their competitors. And it stems from the fact that we're all not everything to everyone, even though we appear to be. And while, you know, you have expertise in financial planning and advising and I have expertise in business transactional law and real estate, if somebody has a very difficult tax question or if somebody has an estate planning question that comes into play as part of a transaction, why not reach out to this create a team, be our clients consigliere? Always a consigliere, and assist and benefit the client by having these knowledgeable people. Phone a friend is another chapter we've heard that before. I don't know everything about business transactional law, there are things that are well above my means, there are things that are spot within my wheelhouse, and we go to our colleagues because in law there might be a conflict. If it's a divorce situation, somebody may want a female or they may want a male. If it's a trust in estates matter, they may want somebody that's got a business background or a tax background. So it all depends on what the needs are. And isn't it amazing and wonderful that we have all of these colleagues that we can bring to the table to support our colleagues. There's a book out there called The Go Giver, and I have a chapter that's called G: Give, Give, Give, and it's based on the same notion, what you throw out there and give out, will come back to you. And if the underlying principle is client first and benefit the client, then you will only benefit as a result of that. You'll get more referrals because your clients are happy, you'll get praise from your colleagues because you're bringing them to assist your clients and it perpetuates itself so that everyone benefits.

Joe: Yeah. And so did you coin this phrase, by the way?

Janice: I did not. I trademarked the phrase from a legal and business perspective. Again, telling a story of the gentleman that developed the Segway who, by the way, died while riding Segway, coined this phrase many years ago when talking about robotics competitions, how high school students should work together to help each other in these competitions. So in my doing my due diligence for the book, came up with that. But it is legal and trademarked. 

Joe: Well, you know, I want to touch on one point to just give you kudos, because every time I'm at a networking event, Janice you get so many thank you's for business that you give out that people really do look at you as a go giver. You truly are. You're a great group leader. So you're living and breathing what your book is about and you're a great example of it. So talk to us a little bit about what your favorite chapter is in the book, Coopertition. 

Janice: Well, there's many. But the one that I want to talk about is Q, and people don't know why we're doing this. The book is based on the alphabet, and each letter of the alphabet represents a chapter. There are a lot of us that are either ADD or ADHD and by no means did I mean to joke about that, but we have these things when we say, "Oh, squirrel!", and we jump to the next thing, me included, me especially. So the book is written in short, pithy, five to six page chapters that are cornerstone by the use of the alphabet. So when I say Q, Queen or King of the Land, is one of my favorite chapters because it basically says, Yeah, we all have obligations, we all have things at home and in our business, but our first obligation should honestly be to ourselves. We only have one mind. We only have one body. If we don't treat ourselves as the king or queen of our land and do that, then we can't help assist anyone else. So that's one of the key takeaways from the book that I love. But there's a bunch of stuff. And the book is written just like you and I are speaking. It's written in a very narrative tone, like we're having a conversation.

Joe: I love that concept, the idea of putting on your oxygen mask before you put on the oxygen mask of those around you. And actually the company we recently read The Four Agreements and first agreement in terms of being impeccable with your word is a lot about sort of taking care of yourself, your own personal agreements before committing to others. Well, Janice, as we sort of wrap it up, we got a few minutes left here. I like to always end these podcasts with two action items, right? I call it The Ripcord Moment, because my belief is for many owners, when they make that jump, when they make that exit, it's like the one piece of equipment that can't sell is their parachute and that ripcord better work. So what are two action items you would impart to our audience members, business owners, who are thinking about some sort of succession event that, you know, in the legal wheelhouse that they should sort of consider doing sooner rather than later?

Janice: Great. Number one, give yourself the benefit of time and don't expect to do a transaction tomorrow without giving your house in a row, so get your ducks in line. Two, be true to yourself and know exactly what the goal of the exit plan is and what you're trying to accomplish for yourself and your family, and stick to that and don't deviate unless needed. You know, obviously be flexible in the transaction, but know what you want and set that for yourself and go after it. 

Joe: Wonderful. Janice, thanks for your time. I really do appreciate this was a great conversation. This is Joe Seetoo signing off from The Ripcord Moment, and we'll see you next time.

Janice: Thank you, Joe.