Business Innovators Radio - Interview with Linda Jensen, Principal and Owner of Heart Financial Group Discussing the 5 D’s of Exit Planning

Episode Date: March 28, 2024

Linda has been self-employed for her entire life. A successful financial advisor since 1994, she has enjoyed all aspects of entrepreneurship, especially problem-solving, sizing up dilemmas, and working through complexities with creative solutions. She is a lifelong learner. In addition, she has a passion for establishing a good rapport with business owners and clients helping them access a wide range of resources. “Business owners are in a lonely place,” says Linda. “I want to develop a relationship with the business owner, offer counseling and serve as a referral service.” Linda began her career in 1994 with Prudential Preferred Financial Services; for three years Linda was an agency leader in Tacoma, Washington.Since starting her own firm in 1997, Linda has enjoyed working with individuals and business owners helping them achieve their financial dreams and goals. She is an expert in all aspects of retirement planning.Linda has lectured widely on financial topics to both the general public and business professionals. She is passionate about helping business owners leverage corporate cash to create benefits for the owner(s), and key employee(s) and to identify estate-planning solutions.Linda calls the Pacific Northwest home. She married her college sweetheart. She and her husband Brad have two children and five grandchildren. Linda loves learning, reading, hiking, sewing, and cooking.Learn More:https://www.heartfinancialgroup.com/https://www.LowerYourTaxesToday.comInvestment advisory services are offered through WealthWatch Advisors, an SEC registered investment advisor. Wealth Watch Advisors and Heart Financial Group are independent of one another. Please note that the registration with the SEC does not guarantee the success of investment advice.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-linda-jensen-principal-and-owner-of-heart-financial-group-discussing-the-5-ds-of-exit-planning

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with this Linda Jensen, who's principal and owner of Hart Financial Group, and we'll be talking about the five Ds of exit planning. Linda, welcome back to the program. Yeah, thank you, Mike. Hey, so I'm curious now we've been talking about in this series exit planning.

Give us what the 5Ds actually are, and then let's start diving into each one. Yeah, and Mike, you know, planning for the 5Ds is really important because it's just a critical aspect for the business. And most business owners, gosh, they're so busy taking care of business that this is the last thing that they're going to think about. But I think they're highly critical. So the first one is distress of that business. The second is disagreement. The third is disability. The fourth is divorce.

And the fifth is death. So when you say distress of the business, what does that look like? Well, I'll give you an example. Let's say you have one main supplier for your business. and that supplier all of a sudden has a problem. Maybe they have a legal problem or some problem with the government. And next thing you know, they're out of commission. That's a huge problem because you're working with this one main supplier.

And now they're out of business and you're out of business, right? So that's an example on a distress. Or let's say you've got a 401k and your employees decide to do a class action lawsuit. that's another example or maybe there's you've got the business has gotten sued or there's a data breach or there's some business interruption let's say there's a tornado and now you can't get to your business because of all the damage between where you are or your employees are and trying to get to the facilities that's a really good point and as you were describing that it made me wonder this from a business owner perspective, how long do you let a distress go while you're noticing it before you start going, something needs to be done?

Meaning this, you know, the supply chain, the vendor thing you were mentioning, you might notice that and go, I wonder if that's just a one off. And then the next quarter happens. It's like, yeah, that's kind of getting concerning. Then the next quarter is like, oh, now it's affecting us. At what point do you notice it and then go, okay, that's enough is enough? Well, I think a lot of businesses don't because they're so busy running their business and making pay home. And, you know, another example could be that, you know, you're just not thinking that Amazon is your main customer. And if there's a problem with Amazon, you might be out of business, right?

And so that's why it's really important, I think, for the business to think about working with somebody who's really an expert in the exit planning process. And by the way, I think exit planning is a team sport. and that's that's what we do with our clients is we and I think for a lot of businesses they're not really going to understand what those risks are and so we need to come alongside of them and to help educate them and then what they need part of that process by the way Mike is to make sure that they have the right insurance policies in place you know by the way like for for business interruption because that could be business interruption could be a variety of aspects, right?

And so part of the process is to educate them and help them implement strategies to help mitigate any distress that could happen. Yeah, thinking ahead going, ooh, what if this distress propped up, we need to deal with it? Here's what we're going to be doing. So let's start the process. You mentioned, you know, like the vendors and things like that. What are some of the other common pressure points of distress that that would come up,

that business owners need to be aware of. Well, you know, like, let's say there was some kind of a data breach for their clients. The next thing you know, they've lost the confidence of their customers, right? And then they're just flooding out. And so this is where insurance can really help. You know, I'll give you another example. Let's say you're in flood panes, like in Louisiana or in Florida or on the coast. Lots of times you need to have separate flood insurance.

So you not only have like a policy that covers the normal risk, but then you have to have a separate policy, let's say for wind or a separate policy for flood. And sometimes the owner isn't really thinking about all these different aspects that could affect them. You know, when you mentioned data breach, that made me think of lawsuits because a data breach could lead to a lawsuit, but also there could probably be a lot of distress points that a lawsuit causes. You know, you think about whatever. So what are some of the things that would go into place to prevent that? Well, sometimes you can't ever prevent the lawsuit, but you can have your team of attorneys that are already there. So is lawsuit?

Right. So you have liability. Oh, yeah. And then another common thing is disagreement with partners, right? So you have different partners. And then, you know, and so communication is highly important with partners to try to get resolution. And so, you know, things can come up, making sure you have a buy-sell agreement. Some partners don't even think to have a buy-sell agreement.

Or if they do have a buy-sell agreement, they don't fund it. And so that buy-sell agreement is not going to work unless it's funded, for example. I think that when you hear the word disagreement, you're like, Yeah, yeah, yeah, yeah, that could be trivial. But that disagreement could quickly with partners escalate to be something pretty substantial. And if it gets to be substantial, like what you just said is like, okay, what would the exit strategy be from maybe not exiting the business, but exiting a partner? And then having those things in place would be critical. Absolutely.

And so, you know, part of that process when we work with clients is to make sure that they have very, very, clearly defined roles, you know, for all the employees, good descriptions of the employees, that the responsibilities are really understood and that they've got some process in place for any disagreements that can happen. You know, it's really best, especially for partners, that they talk about all this stuff in the beginning, right, when everything is really friendly and they're on their honeymoon phase, right? Because eventually, partners can disagree maybe in the direction that they want the business to go or, you know, maybe the marketing that they want to do, or maybe even employees that they want to hire. You know, there's so many

things that can come up. And so if you can sort of have that something in place in the beginning to try to mitigate those disagreements, that's actually a really good plan. You know, it kind makes me think of when you're describing some of these disagreement points, the domino effect, meaning if you kind of, you know, sweep a disagreement under the rug with partners, it could really explode. But there's other things that I would wonder, like disagreements with clients, disagreements with vendors, disagreements with strategic alliances. Now all of a sudden, the domino effect is affecting revenue. It's affecting your cost basis, your expenses. And so now that's all tying into what we've talked about before, evaluation, which then impacts your exit.

So talk a little bit about that domino effect with things other than like the obvious. Oh, yeah, your partners. But there's some other aspects that having that disagreement would really have that negative domino effect. Oh, yeah, there's lots of ways that that domino effect could come into play, Michael. You know, yeah, there's just, there's so many aspects to, then so many different things and disagreements. Let's say that your main vendor, all of a sudden, they had a legal problem. And all of a sudden, your cost to do business goes up 10%. It's going to happen there.

You know, are you going to have to cut your profit margin now all of a sudden could be cut? You're going to have to increase your prices. Maybe you're going to lose customers over that. Maybe the owners are going to have to take less profit out of the business. You're right. There could be a tremendous domino effect. all based on disagreement. And we don't need to get into this, but I would venture to say that the word pride ties into that because if someone is digging their heels in, you know, well, I'm right and you're not. So there's all of that. So disagreement is a huge thing.

The next point you had mentioned was disability. What does that look like? Yeah. And, you know, disability is something we don't think about, do we? You know, all of a sudden somebody, you know, they have a terrible car accident. They're out of commission. They've got a health issue come up. Maybe it's their spouse.

Maybe it's a child. And so, you know, part of your buy-sell agreements that include disability insurance, right? And you should also make sure that you have an up-to-date power of attorney. I'll tell you what, Michael, power of attorney is so important. And there's two different aspects. There's medical and financial. The medical is not emergent, but I'm sorry, the medical is really the emergent part. Financial, not so much for somebody to write checks.

but power of attorney is really important to have in place. And what if an owner all of a sudden has a degenerative disability? And how is that going to affect the business? What if this person can't work in the business? What about the role that they're playing? What about their responsibilities? Are you going to have to hire somebody? How are you going to find somebody that has the same skill set?

How is that going to affect the employees, the operation, the profitability? disability. Disability could be just an enormous disruption to a business. And I think that too many times, you know, couples or people that are thinking about retirement, you know, you think about disability or, you know, long-term care kind of things. Like, yeah, yeah, yeah, that probably won't happen. Well, statistically, it really could. But then it adds in a massive layer extra when we're talking about disability as it relates to business. Because of all of the factors that brings in, it's not just you and your family,

it's you, your family, and your business family. You know, like the partners are not going to be impacted because you can't pull your weight. So what do we do? And we got to hire someone. So then now we got to bring someone in

to take care of what you were doing because you can't do it. And now that increases our cost and all of that. So again, another huge domino effect there that's impacting. Yeah. And the disability insurance then make sure that that partner gets a paycheck, right?

Yeah. And so at least you've got some of the trust covered for that partner because then you're definitely having to hire somebody else that hopefully has that same skill set that can just come in, right, and to be able to cover those responsibilities. Huge, huge, huge, huge. So another one of those relationship aspects, distress points, like we talked about with disagreement, rolls into our next D, which is divorce. Yeah. And boy, you know, divorce is just awful, isn't it? I call divorce one of those gifts that keep on giving, right? So, and that's especially tough, Mike, if the couple is involved in the business, right, where they're working together. And boy, that's just another added dimension, isn't it? You know, and some people actually grow to hate each other. They don't want to work together anymore. And then how on earth, what do you do? do with that business when that happens. Well, and if you don't address it, like we've talked about before, like how long do you let this go if, well, in that scenario like you're mentioning, here comes the domino effect of,

oh, it's going to affect morale, because maybe one of the parties are now talking at the water cooler and now it's affecting morale. It's affecting production. It's affecting quality. Boy, huge aspect on the professional side. And yeah, when you go home, you know, one of the. the partners who's getting the divorce is impacted. So it really ties things together. But what does it look like when the divorcing parties are part of the business together and like the ownership

partners? Well, that's really tough, isn't it? And then, you know, most business owners, you know, people just go into business and they don't really think about that as a possibility. Do we? Nobody gets married and plans to get divorced. But this is an area, if you are in business, that you should really have kind of like a prenuptial or postnuptial agreement on how those assets are even going to be divided or what you would consider doing and actually put some thinking into that if God forbid that happened. You know, and do this before you're emotional. Do it before lawyers get involved, right?

And I know that's a tough conversation to have, but it might be a really good basis for something that could happen, hopefully wouldn't. But it's always a possibility, Mike. I mean, the divorce rate in this country is more than 50%. Wow. And if a couple were going through that and they were part of the business, wouldn't that also cause potential stress on the business, meaning maybe this partner that's getting divorced,

the other party needs X number of dollars. Well, they've got to now start dipping into the business, their side of the business ownership to access that. And then now that could affect the other partners that aren't even part of the divorce. Yeah, there's that. And then there's also the aspect of what if that, what if that spouse decides they don't want to be part of the business anymore. And they performed really important roles in that business.

Then you're going to have to replace them too, right? Yeah, you might have to buy them out and replace them. And now that is. And you also have to kind of have the funds to replace them. Yeah. And lost momentum because while we're finding that next person to replace what they were doing and they were so good at it because they've done it for a decade, you lose momentum that then causes potentially work quality to go down. Again, not to harp on the domino effect, but there's so many resulting things that happen with 1D, this divorce. And how that could affect the employees too.

the employees might be loyal to more loyal to one spouse or the other or felt like they really had a better relationship with that one spouse or the other. And so you're right, Mike, there's lots of dominoes. Yeah, you know, I've even seen instances where it's like I was consulting for a company before they sold, sold out where the founder and his wife, the wife was the HR director and she was like the work mom and like, oh, you come tell me your problems and she just loved on everybody. Well, they didn't divorce and everything was great. But in that scenario, what if there would be some friction?

That could have caused a really bad ripple effect because now work mom is not doing well and she's, you know, really struggling. So that's not a good thing. Exactly. Yeah, there's, yeah, I mean, divorce is just one of the worst, I think, really. So let's wrap up with the death. That last D. Yep. That last D is a big one, isn't it?

It is. Yeah, you know, if somebody just drops dead, I mean, you know, we've had cases where somebody's working on their exit plan and instead they just died their office. Let me tell you, that's terrible because then the business immediately, the value of that business immediately plummet's Mike, right? Because for a lot of people, they basically created a job for themselves. They don't have a business that can run with or without them. And so with every one of these aspects, you want to make sure that your business can run with or without you. You want to make sure that you have contingency plans. And so with death, again, if you have partners, you need a good buy-sell agreement, make sure that it's funded.

And if you were to die, God forbid, you want to make sure that your estate plan is in order. You want to make sure that you're going to mitigate any tax consequences. And you want to make sure you have strong structural capital and documented processes to make sure that that, business continues, right? When you're gone. Yeah. Yeah, that's a big piece. You've mentioned this a couple times that I've noticed.

You need to have the buy-sell agreement that's funded. And death exposes that because it's like many things, you just think, if it happens, it happens, but it's probably not going to happen. So I'll do that buy-sell, but you forgot to fund it. Well, then if death happens and you need to execute the buy-sell and it's not funded, now you're scrambling and that causes that ripple effect in a in a negative way as well. Yeah. And then you also have what that owner knew, right, all of their expertise.

After all, this business was their baby, right? And so you have all that expertise also that now is gone. So you have to replace that. So really, businesses need a good, strong succession plan to be able to survive well. And that all ties into that the concept we've been talking about of that exit plan. So having the plan thought about in place and we're talking about these five Ds, an exit plan is not something that you sit down one afternoon and go, I just completed my exit plan in two hours while I ate my lunch and I'm done.

No, because distress and disagreement and disability and divorce and death, all of these things are not things that are one-off events. They are things to be constantly observed, being aware of, and managed. And part of the exit planning process, Mike, is to do 90-day sprints. And so you don't do it one and done. It's an ongoing process. 100%. That's a really good point.

So I guess, Linda, at this point, I think that what I would like to say is, are there are any final thoughts on the 5Ds that you would like to wrap up with? and then how could people learn more and then reach out and connect with you? I think it's just part of having a good plan is to plan for the inevitability of that one or more of these could happen. So think it through, make sure you have a plan,

reach out and find the resources that you need to create them. And the best way to get a hold of me is to call the office and set up time to chat. The phone number is 360-878-8065. Or please check out a website that we've created that has a lot of tax strategies. You see, we're really experts on helping you mitigate tax strategies and expenses

and helping you grow the value of your business. If you can grow the value of that business, you're going to get a higher multiple when you sell, and it's going to increase your profits. And that website is lower your taxes today.com. Well, Linda, as always, you're just such a wealth of knowledge. It's easy to hear and listen and learn. So thank you so much for coming back on today's. been a pleasure. Yeah, thank you so much, Mike. You've been listening to Influential Entrepreneurs

with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www.com.com.