Leaving a business, particularly one you founded, can feel like navigating uncharted waters. How do you ensure your legacy continues without crumbling the day you step away? How can you leave confidently, trusting your team to carry the torch?
Tim Staton introduces this dilemma by posing a critical question: “What if you could exit your business without it falling apart, or without regretting who you left in charge of it?” This question points to the complex intersection of finance, human behavior, and legacy—a space where Byron McFarland, a seasoned speaker and advisor, operates. Tim Staton notes that Byron has guided business owners through difficult decisions, including selling their companies, rewarding staff, and managing partnerships, touching nearly $3 billion in business value. He works with founders who want more than just an exit; they want “confidence that their people, their culture, and their life’s work will continue to thrive long after they step away.”
For Tim Staton, the podcast’s purpose, “Tim Stating the Obvious,” is simple: “You are entitled to great leadership everywhere you go.” The show aims to translate leadership principles into “everyday relatable and usable advice.”
Byron McFarland, a trout enthusiast who finds peace “knee-deep in moving water,” details the impetus behind his book. He recounts a meeting where a business owner sought to sell their company to their management team. The attorney’s blunt question, “Well, do they have any money?”, halted the conversation. This moment ignited Byron McFarland’s mission: to identify alternatives to “no, they don’t have any money.” His alternative? “Yes, let’s create the money.” This involves structuring transactions, securing bank financing through thoughtful planning, and ultimately ensuring both the owner’s financial security and the buyer’s control.
When reflecting on the most overlooked solution to this problem, Byron McFarland identifies “preparation.” This includes preparing buyers for bank interviews and the rigorous due diligence process. Banks, he argues, “are not in the business of making risky loans.” They seek certainty, evaluating a buyer’s capability to manage complexity, handle stress, and repay loans. Business owners often assume their people can walk into a bank and get a loan, which is typically not the case unless the business is small enough for a Small Business Administration (SBA) guaranteed loan.
This situation Tim Staton describes as the “barbell problem”: small businesses can get SBA loans, large corporations access substantial financing, but what about the “folks in the middle?” Byron McFarland suggests that for these businesses, the focus must be on harnessing the leadership team’s energy for personal development. If the owner commits to a plan where the leadership team becomes successors, “that is the place of most potential.” From there, “it’s all about creating the money,” usually by growing the business’s value. In the small to medium-sized business sector, the entire effort revolves around “compelling a lender to see the successors as being capable.” In essence, “we’re selling capability.”
When business owners start, they aim for success. But how often do they fail in succession planning and in thinking about the right exit strategy? Byron McFarland observes that “most business owners aren’t aware that they have options.” They often look to peers for guidance. When advising on company disposition, the goal is to find the avenue that aligns with the owner’s desired timetable and value realization.
Typically, owners have three options:
These options, Tim Staton notes, “kind of sound very complicated.” This leads to the concept of the “bankable buyer.” Byron McFarland defines a bankable buyer as an employee exhibiting an “ownership mindset.” This mindset includes:
If these qualities exist, Byron McFarland explains, he can groom them to become owners by educating them on finance, risk, human resources, talent acquisition, and stress management. The process involves securing bank funding for each purchase, demonstrating that “a bankable buyer is someone who’s already acting like an owner and now is looking for guidance as to how to become the owner.”
To clarify further, Byron McFarland outlines what a bankable buyer is not. A high-performing individual who delivers results but “is unable to get along well with others because they’re demanding or commanding or abrupt or condescending” is not a bankable buyer. The common mistake owners make is prioritizing performance over interpersonal skills. Interpersonal conflict, especially under the duress of debt, can lead to inappropriate behavior and scare people away. He stresses the need for “emotionally intelligent” individuals who can deal with stress healthily. He recounts a story of a manager who, during a bank interview, calmly explained how he navigated the 2007-2009 real estate crisis, securing the loan due to his emotional intelligence. “Emotional intelligence to me is a precursor, a prerequisite to becoming a bankable buyer,” Byron McFarland concludes.
Conversely, a lack of bankability often stems from an “unwillingness to accept the risks and responsibility that come with ownership.” When key employees are presented with ownership, they face financial and personal risks, such as personal guarantees, pledging homes, and liquid assets. The “rubber meets the road” when individuals or their spouses are unwilling to accept such risks. Tim Staton asks how often people realize that ownership might not be for them. Byron McFarland responds, “Actually, quite often,” and views this as a positive outcome because it sets clear expectations. Many projects involve multiple potential buyers, and some opt out due to their “intolerance for the risk of ownership.”
When should a founder start developing their leadership team and gaining buy-in for potential successors? “As soon as possible,” Byron McFarland advises, echoing what Tim Staton calls a common response from other experts. While starting a business with an exit in mind might seem extreme, some thoughtful individuals do. However, most clients are “procrastinators.” With millions of Baby Boomer-owned businesses, many owners in their seventies—often founders—struggle to envision life after selling. Byron McFarland suggests that “best practice would be to give yourself time to think about what you would do after your… company.” Once an owner can visualize their post-business life, they “start to engage in the process.” He states that with “three years at least before you want to start transitioning out,” he can design a plan. With seven years, he guarantees “full value.”
Regarding value, Tim Staton questions how often owners overestimate their company’s worth, given the emotional investment. Byron McFarland explains that lifestyle often skews perception. Owners may hide “a lot of value… in the lifestyle” by paying for expenses with pre-tax dollars. Unpacking this pre-tax lifestyle against “normal after-tax living” often reveals a need for “a lot more value out of my business than I thought.” This realization often spurs action and impacts timing.
Many owners do not “understand how their business is valued.” They hear figures like “four times EBITDA,” but the justification for such multiples is unclear. This creates an opportunity for planning. Byron McFarland proudly states that his projects can move business value from “three or four times EBITDA to four, five, six, or even seven times EBITDA,” calling this a “favorable surprise.”
Tim Staton asks where the “four times EBITDA” figure comes from. Byron McFarland attributes this to financing sources. A bank loan for a company purchase typically limits the amount to “two and a half, maybe two and three quarters times EBITDA.” This leaves a significant gap for buyers to cover. A typical SBA loan structure—10% buyer cash, 80% bank funding, 10% seller note—often limits the value to “probably four times EBITDA on the high side.” This explains why “you hear four a lot.” Private equity or strategic buyers, however, pay “six, seven, eight times earnings” because they bring “a lot of their own money” to the transaction, often 50% of the purchase price, borrowing less from banks and asking the seller to hold a smaller percentage. A service business entirely reliant on the owner, with no processes or systems, may not even fetch “two times earnings” because buyers evaluate the “transferability of that business’s earning potential.”
Why would a “strategic competitor” buy another company? Byron McFarland explains it as an “expansion play,” aiming to gain market share, labor force, expertise, or intellectual property without building from scratch.
Crucially, Tim Staton asks about the impact on employees when a business is sold, especially to a strategic competitor who might only want “very specific things.” Byron McFarland calls this “the ultimate question.” He routinely asks clients, “So what happens the day after you close?” He encourages owners to share their vision with their leadership team before the transaction, ensuring them that their future is secure with “financial rewards… tied to the business sale.” This makes people feel safer and more likely to stay. He shares an anecdote where an owner, after six months of due diligence, informed his team he was selling to private equity. Two key service providers immediately left, causing the buyer to reduce the purchase price by 25%. This illustrates that “people have a lot more leverage in these transactions than they think.” Owners with key people driving results should have a plan to reward them for staying through the transition, minimizing “defection risks.” Without such a plan, the purchase price may drop, or payment terms may become contingent on retaining the team.
Tim Staton then questions whether owners truly understand who their key people are. Byron McFarland identifies this as an “owner-centric issue” where “ego gets in the way.” Owners often believe they are the sole heroes holding the business together. This perception, however, “works against them in negotiations.” If buyers sense the business relies on the owner, they will “either push price down or stretch terms out.” To maximize value, owners should make their key people the “heroes,” letting them be “front and center in the process of revealing information to the buyer.” When sellers do this, the “buyer feels safe,” and “safe reduces risk and low risk increases price.” It is in the owner’s best interest to identify, involve, reward, and provide reasons for key people to stay.
Tim Staton transitions to the emotional aspect of exiting, asking how hard it is for owners to walk away from their life’s investment. Byron McFarland confirms, “It tends to be very hard, especially for founders.” He recalls a stoic client who broke down in tears when introducing new buyers to his 25-year-old business. This suggests it is an “extremely emotional experience.” Many transactions fail due to this emotion, as owners struggle with the question, “I don’t know who I am without this role.” This Byron McFarland calls a “red zone fumble,” where owners, despite being close to selling, haven’t considered their identity post-sale. They will then “come up with a legitimate reason not to sell.” Tim Staton finds this fascinating—that despite financial and structural reasons, emotional attachment can derail a sale. Byron McFarland affirms this is more common than not, though never explicitly stated by the owner, who will offer an excuse.
Tim Staton asks if there was anything left unsaid. Byron McFarland poses a question: “What’s the biggest financial mistake owners make?” His answer: “they don’t ask their people what they want.” He finds owners “very reluctant to demonstrate any curiosity into the wants, desires, passions for the people that are working closest to them.” He believes that asking courageous questions like, “What is it that you want in your relationship from this company? What can this company help you and your family achieve that if I knew it, I could really get behind and increase the likelihood of it happening?” can significantly “move the needle.” This fosters “psychological reciprocity,” where demonstrating care encourages the team to support the owner’s goals, ultimately building buy-in. “Demonstrate concern for the care and well-being of your team,” he advises. “Understand what it is they want.”
Tim Staton concludes by emphasizing that “people are the heart and soul of your organization, of your business, of what you do. Everything else will fall into place.” He encourages listeners to revisit Byron McFarland’s final advice, highlighting its incredible importance for anyone considering starting, selling, or buying a business.
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