When Your Exit Needs an Exit: Navigating Financing Contingencies in M&A Deals

When Your Exit Needs an Exit: Navigating Financing Contingencies in M&A Deals

Embarking on the journey to sell your business is a monumental decision, especially for small to lower-middle market business owners. It’s not just a transaction; it’s a pivotal moment that can shape the future of what you’ve built. However, amidst the excitement and potential for growth, there lurks a critical challenge that could derail your plans: counterparty risk, particularly the risk stemming from financing contingencies.

Understanding and addressing this risk early on, specifically at the Letter of Intent (LOI) stage, is crucial. This stage is your best opportunity to gauge the likelihood of a successful transaction before becoming too invested. For businesses in the small to lower-middle market sector—those with total sales under $150 million—engaging in a sale process is not only a significant financial commitment, involving advisors such as attorneys, financial analysts, and accountants, but also a substantial investment of your time.

Counterparty risk in M&A transactions can arise from various sources, but one of the most common and challenging to navigate is the buyer’s inability to secure adequate financing. This issue can affect deals across all market segments and involves both financial buyers (like private equity firms) and strategic buyers (larger companies within your industry).

At the LOI stage, it’s essential to critically assess the risk associated with the buyer’s ability to obtain appropriate financing for your transaction. Some LOIs will explicitly state that the deal’s closing is contingent upon the buyer obtaining suitable financing. However, even without a specific financing contingency, a buyer’s limited access to necessary funds—whether through equity or debt—poses a significant risk to closing the deal.

This financing risk can manifest in various ways:

    • The buyer may have access to financing, but it comes with stringent conditions;
    • The buyer’s ability to deploy cash to purchase your business may be subject to loan covenants restricting investments made to purchase other businesses (like yours) under the buyer’s existing credit arrangements, or otherwise require the approval of the buyer’s existing lenders ; or
    • Alternatively, the buyer could be attempting to raise capital to fund the equity portion of the purchase alongside negotiating the deal.

For business owners, understanding these risks and the potential impact on your transaction is vital. In navigating these waters, the key is to engage in thorough due diligence and direct communication with potential buyers about their financing plans and capabilities. At the LOI stage, it is customary to conduct interviews with key buyer personnel, and appropriate to ask direct questions about the ability of the buyer to purchase and then operate your business. If a buyer cannot commit to make a purchase of your business from available cash, you should ask the buyer to provide you with copies of any written equity or debt term sheets from outside parties in order to assure yourself of the buyer’s ability to rely upon outside financing. You should review those term sheets alongside your financial advisors and attorneys to understand what conditions attend the release of funds for the purchase of your business. Additionally, you should also ask your potential buyer whether they have existing credit arrangements and what conditions those arrangements might impose upon your transaction. In situations where you have the good fortune of evaluating LOIs from different counterparties at the same time, you should obviously preference favorable offers that also present the greatest certainty that the buyer can accomplish a closing of your transaction. This proactive approach can help mitigate risks and ensure that you’re entering into a transaction with a clear understanding of the potential hurdles, saving you time and protecting the investment you’ve made in pursuing the sale.

You might determine that there is still substantial uncertainty about your buyer’s ability to close. For example, if your buyer will be reliant upon an equity capital raise to partially fund your purchase price, it may be reasonable to conclude that the closing could be delayed, or cancelled, if their capital raising efforts are unsuccessful. In such events, you should discuss your options with your advisors to determine the customary protective measures you can take, or agree upon with your buyer, in the event the buyer is unable to close. For example, in smaller transactions (where the purchase price is $5mm or less) requiring a deposit of some portion of the purchase price for the seller’s security is not uncommon and even recently I have seen deposits used in much larger transactions (>$50mm purchase price). Some private equity sponsors are agreeable contribute up to 100% of the purchase price in equity (called a “full equity backstop”) if they are unable to obtain sufficient debt financing to fund a purchase. Although they are uncommon in middle-market transactions, reverse termination fees (where a buyer pays the seller a fee if it cannot close a transaction within some period) and arrangements to pay seller costs where a buyer is unable to close a transaction are other options that should be considered.

In conclusion, while the prospect of selling your business is an exciting one, it’s accompanied by significant risks that need careful consideration. By focusing on counterparty risk at the LOI stage, especially related to financing contingencies, you can better navigate the complexities of M&A transactions, ensuring a smoother journey towards a successful sale. We at Troutman would be delighted to help you evaluate both the counterparty risk related to your buyer and all available strategies to mitigate that risk.

How to Know the Right Time to Recap or Sell Your Business: An Investor’s Perspective

How to Know the Right Time to Recap or Sell Your Business: An Investor’s Perspective

Imagine you’re in a game where your character has a treasure of immense value, attained through years of sacrifice, risk taking and toil.  The objective of the game is simple – find a buyer for the item and transact at a mutually acceptable price.  Easy, right?  Well, there’s a twist[1]:

    • The buyer’s identity and location are a mystery
    • You can only transact once (i.e. no do-overs)
    • The item’s value fluctuates, and
    • A poorly-timed trade may sentence you to a lifetime of regret and self-loathing

Yikes.  Who would want to play that game?  Well, this mirrors the journey that founders embark upon when contemplating either a recapitalization of their business with a private equity firm partner (a ‘recap’) or the full sale of their business  (an ‘exit’).  Not to worry, there are people and insights that can help across all of the anxiety-laden dimensions of planning a recap or exit.  While the ultimate decision is yours, you are not alone.

Indicators That It’s Time

This piece will focus on timing and is informed by my nearly 20 years of experience as an investor in and seller of businesses.  Interestingly, across the matrix of decisions that a business owner has to make, timing of a recap / exit is one of the more straightforward exercises.  The trick is knowing what indicators to look for.  So, without further ado, here are some signs that the timing might be right:

    1. A comparable business in your industry achieved an appealing valuation. If you see another founder deciding to engage in a recap or exit transaction, it may merit introspection on your own transaction timing.  What’s good about another founder “going first” is that the multiple they sold for will eventually become known in the circles that care about these things[2].  We suggest reaching out to the investment banker(s) that worked on the transaction to learn about what attributes of the other business buyers focused on the most (i.e. the “value drivers”).  If you would like an introduction to one or more investment bankers who have strong qualifications and successful transaction experience working with owners of B2B professional services firms, please email me, and I’ll connect you
    1. Proceeds from a transaction will allow you to “hit your number”.  Admit it, you have a magic number in mind (after tax) that you would like to achieve from all of your efforts to develop your business.  This number is typically informed by various objectives for life in retirement such as estate planning goals,  philanthropy, or simply enjoying the well-earned fruits of your labors.  The reason for defining this number before you consider a transaction is to prevent clouded judgment during negotiations.  Therefore, if a transaction is likely to meet or exceed your target, then the timing could be right.  Remember the adage, “Pigs get fat, hogs get slaughtered.”   As importantly, when considering a recap vs. an exit transaction, keep in mind that the recap will provide you with two opportunities to monetize the value created by your team’s efforts while the exit transaction is a one-shot payout.  So the total proceeds and likelihood of reaching your target amount may be substantially greater in the recap scenario.  I’ll share more on this very important topic of recap vs. exit transaction in an upcoming blog post.  
    1. You’ve experienced multi-year growth in revenue and profits. In the words of Bruce Lee, “Long-term consistency trumps short-term intensity.”  This certainly applies to how investors will assess the quality, sustainability, and growth potential of your revenues and profitability.  For instance, if you have an abnormally great year with outsized profitability, you might conclude that you should exit to capitalize on your inflated earnings.  However, if your surge in EBITDA is attributed to one-time revenue wins or other unsustainable factors, a buyer is not likely to give you anywhere near full credit for it. Further, if your financials have been volatile such that there are a lot of ups and downs one year to the next, you’re not going to garner the same multiple as a business that elicits more confidence in the predictability of future financial metrics.  Consistent growth creates a reassuring storyline that will attract more interest.
    1. Value remains for a new investor. Sometimes looming headwinds can drive an owner’s decision to exit.  Conceptually, getting out before these challenges arrive makes sense, but it’s likely that investors are already, or will be, attuned to those same issues, and it may then be too late to drive an optimal outcome from a sale.  Would you purchase an orange with all of the juice squeezed out of it?  Clearly not.  At a minimum, investors are going to need to know that the prospects for growth will remain strong for the next 5-10 years.  Otherwise, they may encounter challenges when they ultimately seek an exit.  Think of it this way, reflect on whether you would want to invest in your business today.
    1. Bringing on a partner could help address the strategic needs of the business. For first-time founders of growing businesses, it’s a truism that their company is the largest entity they’ve ever managed.  For a time, managing growth can be fun and present an array of “high class problems” whose solutions can be fulfilling to solve.  However, growth can transform manageable hills into formidable mountains whose successful summit requires the support of someone that has climbed them before.  A good partner, like a sherpa on Everest, will see the opportunity that these mountains present and be able to help you develop a path forward.  Common strategic challenges that get a founder thinking about bringing on a financial partner include (i) their industry’s transformational change, (ii) investing in and building a formal and scalable sales and marketing system / organization, (iii) a sizable add-on acquisition, or (iv) professionalizing / incentivizing a management team.  

While these signs can guide your decision, the ultimate choice is personal and nuanced, and I wish you well in making it with the full support of your trusted advisors.  Get in touch any time if you ever want to talk through where you are in your journey.

About RLH Equity Partners

RLH is a private equity firm with over 40 years of experience investing in rapidly growing, founder-owned, knowledge-based B2B services firms.  Our value creation strategy is defined by a heightened focus on culture, continuity of founder leadership, an emphasis on organic growth, and a conservative approach to the use of debt.  In our long history, we’ve invested in and divested dozens of businesses and made many decisions about the optimal time to sell the companies in which we are investors.

[1] There are certainly exceptions to all of these items, so simply accept them here for the sake of example.

[2] Two other advantages of allowing a peer company to go first are (i) the number of viable targets for the interested investor/buyer universe has been reduced by one which improves the scarcity value of the remaining peers and (ii) the prospective investors/buyers who finished second, third, and fourth in the process to acquire the peer company probably still want to acquire a business similar to yours and are logical targets for your transaction process.

Determining the Right (and Wrong) Revenue for Your Firm

Determining the Right (and Wrong) Revenue for Your Firm

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If you have a single source of revenue, then you have a single point of failure. So a balanced revenue mix is essential for your business. But what does that look like for your firm?

In this video, we explore the impact a balanced revenue mix can have on the price of a firm, 3 types of revenue, and how to adjust depending on what stage you’re in.

In this video, you’ll learn about:

    • 3 types of revenue
    • Types of margins depending on the revenue type
    • The benefits of a balanced revenue mix
    • How to prepare for different types of revenue as you progress through your business journey

3 Metrics You Must Master If You Want to Sell Your Firm

3 Metrics You Must Master If You Want to Sell Your Firm

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So you want to sell your firm one day? Then there 3 metrics you have to pay close attention to. And when it comes time to sell, you can expect these metrics to come up.

This video explores each of the metrics and provides benchmarks to aim for before selling your firm.

In this video, you’ll learn:

    • 3 metrics you must master before you sell your firm
    • How to calculate for those metrics
    • Benchmarks to aim for based on these metrics

Merging vs. Selling: 10 Roadblocks Founders Face when Exiting

Merging vs. Selling: 10 Roadblocks Founders Face when Exiting

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Are you on the brink of a successful exit but can’t get over the hump? Merging with another firm may be your best exit strategy.

This video dissects 10 roadblocks founders face when exiting and demonstrates how merging with another business could help alleviate some of those challenges.

In this video, you’ll learn:
– 10 roadblocks founders face when exiting
– How merging with another business can help you achieve a successful exit
– How to analyze the best options for your firm

Tax Implications for Boutique Professional Service Firms During Acquisitions

Tax Implications for Boutique Professional Service Firms During Acquisitions

Acquiring or merging with other businesses is a strategic decision that requires careful financial and tax planning. For boutique professional service firms, the tax implications can be particularly nuanced given the nature of the assets and client relationships involved. In this article, we will delve into the tax treatment for three forms of acquisition often used in the professional services industry: asset purchase, equity acquisition, and mergers.

    1. Asset Purchase

Definition: In an asset purchase, the buyer acquires specific assets and potentially some liabilities of the selling business rather than its stock or business entity.

Tax Implications: In an asset purchase, the buyer gets a step-up in the tax basis of the acquired assets to their fair market value. This often results in higher future depreciation and amortization deductions for the buyer. Sellers, on the other hand, pay tax on the difference between the selling price of the assets and their tax basis, which could lead to capital gains or ordinary income, depending on the nature of the asset.

Illustrative Example: Imagine a managed service provider, MSP LLC, with assets valued at $1 million but a tax basis of $600,000. If another firm, Tech Ltd., buys these assets for $1.2 million, MSP LLC will pay taxes on the $600,000 gain ($1.2 million – $600,000). Tech Ltd., meanwhile, will now have a new tax basis of $1.2 million for the acquired assets.

    1. Equity Acquisition

Definition: In an equity acquisition, the buyer acquires the stock or the interest of the target firm, thus acquiring all its assets, liabilities, and potential undisclosed issues.

Tax Implications: The buying entity does not get a step-up in the basis of the acquired assets, and the target firm’s tax attributes (like net operating losses) may be limited in their usability. Sellers often prefer this method because the gains are usually treated as capital gains, which are taxed at a lower rate than ordinary income.

Illustrative Example: Consider a software development firm, SoftDev Inc., with a total stock value of $2 million. If another company, Code Masters, decides to buy all the stock for $2.5 million, the shareholders of SoftDev Inc. would pay capital gains tax on the $500,000 gain.

    1. Mergers

Definition: A merger is the fusion of two entities into a single entity. The three types of mergers are:

    • Direct Merger: The target firm merges into the buying firm.
    • Forward Merger: The buying firm merges into a subsidiary of the target firm.
    • Reverse Merger: The target firm merges into a subsidiary of the buying firm.

Tax Implications: Mergers can be structured to be tax-free if specific requirements are met, especially if they are considered a reorganization under the tax code. If not, they can have similar tax implications to an asset or equity sale.

Illustrative Example: A sustainability consulting firm, GreenAdvisors, merges with EcoConsultants in a forward merger. GreenAdvisors becomes a wholly-owned subsidiary of EcoConsultants. If structured correctly under the tax code’s reorganization provisions, this merger could potentially be tax-free. Otherwise, the tax implications for asset or equity sales may apply.

Decision Tool:

To decide the right acquisition structure when selling, consider:

    • Tax Impact: How will each structure affect your tax liabilities? Would you prefer capital gains over ordinary income?
    • Liabilities: Are there potential undisclosed liabilities or issues in the target firm? An asset purchase can help the buyer avoid these.
    • Strategic Fit: How do the companies fit together? A merger might be the right choice if both entities have complementary strengths and client bases.

In conclusion, understanding the tax implications of different acquisition structures is crucial for boutique professional service firms. Consulting with a tax professional before making any decisions is always recommended.

Choosing the Right Attorney When Selling Your Firm: A Guide from Collective 54

Choosing the Right Attorney When Selling Your Firm: A Guide from Collective 54

Selling a boutique professional service firm is a significant endeavor, and having the right attorney by your side can make all the difference in ensuring a smooth and successful transaction. But with so many attorneys and law firms out there, how do you choose the right one? In this article, we will present a top ten list to guide founders in selecting the ideal attorney for selling their firm.

    1. Large Firm vs. Small Firm: Making the Right Choice

One of the first decisions to make is whether to work with a large law firm or a smaller boutique firm. Each option has its advantages. Large firms often offer a wider array of resources, a broader network, and extensive industry expertise. On the other hand, smaller firms tend to offer more personalized attention, direct access to senior attorneys, and a potentially more cost-effective approach. Both large firms and small firms can get the job done. Which do you prefer?

    1. Interviewing Attorneys and Law Firms: Sample Questions

When interviewing potential attorneys, asking the right questions can help you assess their suitability for your needs. Some sample questions to consider:

    • What is your experience in handling mergers and acquisitions?
    • Can you provide examples of deals like mine that you’ve successfully completed?
    • How will you communicate with me throughout the process?
    • What is your approach to managing conflicts of interest?
    • How do you handle disagreements or challenges during negotiations?
    • Can you outline the general timeline for a deal like mine?

A common mistake made by founders of small service firms is hiring their personal attorney to negotiate the sale of their firm. Avoid making this mistake by hiring a separate attorney with the specific experience you need.

    1. Checking References: Ensuring Reliability

Checking references is crucial to gaining insights into an attorney’s track record and reputation. Reach out to references who have worked with the attorney on similar transactions. Ask about their experiences, communication style, and overall satisfaction. Aim to contact at least three references to ensure a well-rounded perspective. Perform reference checks after the initial interview phase.

    1. Understanding Relevant Transaction Experience

An attorney’s transaction experience is a critical factor in your decision-making process. Look for experience in deals similar in size, complexity, and industry. Focus on attorneys who understand the nuances of your industry and can anticipate potential challenges. They should have a proven track record of successfully navigating the intricacies of M&A transactions.

    1. Personality: Finding the Right Fit

Selling your firm is undoubtedly a stressful endeavor. Having an attorney who can ease that stress through effective communication and a compatible personality is essential. You’ll be working closely with your attorney throughout the process, so it’s crucial that you feel comfortable, understood, and confident in their abilities.

    1. Role of Junior Attorneys: Understanding the Team

Law firms operate in teams, and junior attorneys often play integral roles in transactions. Make sure you understand who will be on the team and what their responsibilities will be. While senior attorneys bring experience, junior attorneys may handle day-to-day tasks, research, and document preparation. Ensure there’s a clear line of communication with both senior and junior members.

    1. Cost: Navigating Financial Expectations

Discussing fees and billing practices upfront is essential. Ask for an estimate of the total cost before the project begins. Request a sample bill to understand how charges are structured. Insist on monthly billing to stay informed about ongoing expenses. To manage costs, set a threshold for telephone call charges and ask for detailed explanations for any charges exceeding a specific limit. Consider taking an active role in the drafting process to minimize costs.

    1. Embracing Legal Technology: Improving Efficiency

Legal technology has evolved significantly in recent years. Inquire about the law firm’s use of technology to streamline processes, enhance due diligence, and cut costs. A tech-savvy attorney can leverage tools for document management, contract analysis, and data security, leading to improved outcomes and a more efficient transaction.

    1. Industry Knowledge and Business Acumen

For founders of boutique professional services firms, having an attorney who understands your industry and demonstrates business acumen is vital. Look for an attorney who can act as a thought partner, offering strategic insights beyond legal matters. A deep understanding of your industry landscape can lead to more tailored advice and better decision-making.

    1. Setting Expectations for Timeliness

Clear communication about expectations for turnaround times, response times, and overall project milestones is crucial. Ensure your attorney can provide a realistic timeline for each phase of the transaction. Timeliness is essential for meeting deadlines, managing negotiations, and maintaining transparency throughout the process.

In conclusion, choosing the right attorney when selling your firm requires careful consideration of various factors. Deciding between a large or small firm, conducting thorough interviews, checking references, understanding experience, gauging personality fit, grasping the role of junior attorneys, discussing costs, embracing technology, evaluating industry knowledge, and setting expectations for timeliness are all key elements in making an informed decision. By following this top ten list, you’ll be well-equipped to select an attorney who will guide you through the complexities of selling your firm and ensure a successful transaction.

Preparing to Sell Your Firm and Make a Successful Exit

Preparing to Sell Your Firm and Make a Successful Exit

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Are you preparing to sell your firm but don’t know where to start? These 3 categories of relationships can help you make a successful exit, but they all require different approaches.

Find out how to build relationships with potential acquirers, when to build those relationships depending on the category they’re in, and how to efficiently prepare for when investors start calling.

In this video, you’ll learn:

    • 3 categories of relationships to pay attention to
    • The right questions to ask potential buyers
    • When to pursue a long-term relationship vs a performance-based relationship
    • A strategy to help keep you prepared for when investors call

Waiting too Long to Sell

Waiting too Long to Sell

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There’s a good time to sell your firm, and there’s a bad time. But how do you know when it’s the right time to exit?

Watch this video and discover the environmental factors that play into selling your firm, the value of knowing what’s happening in your niche, and how to prevent a situation where you’re forced to sell.

In this video, you’ll also learn:

    • 5 environmental factors that play into selling your firm
    • Why you need to understand deal activity in your industry
    • How to identify if your firm is sellable
    • The importance of landing your firm in an existing category

Knowing When to Leave: The Founder’s Role in a Professional Service Firm

Knowing When to Leave: The Founder’s Role in a Professional Service Firm

The early launch days of a professional service firm are often characterized by the visionary leadership of its founder. The founder’s dedication, expertise, and passion are instrumental in establishing the firm and shaping its culture. However, there comes a time when the founder must evaluate whether it is appropriate to continue in their current role or hand over management responsibility to a CEO. This decision can be challenging, as it involves considering what is lost when a founder leaves versus what is gained from new leadership.

During the early days, the founder plays a pivotal role in setting the direction, building relationships, and establishing the firm’s reputation. They possess deep industry knowledge and are often the driving force behind the firm’s initial success. The founder’s commitment and personal touch are instrumental in attracting clients, fostering a cohesive team, and navigating the challenges of starting a business.

However, as the firm grows, the demands and complexities increase exponentially. Scaling a professional service firm requires a different set of skills, including operational expertise, strategic vision, and leadership acumen. Recognizing these evolving needs is crucial in determining the right time for the founder to transition to a different role or bring in a CEO.

Several indicators can help assess if the founder should consider a change. One common sign is the adoption of “flavor of the week” strategies that cause employee whiplash. If the firm frequently changes its direction without a clear long-term vision, it can lead to confusion, disengagement, and reduced productivity among employees. Similarly, high turnover in the C-suite, growth stagnation at a certain size, excessive internal politics, and the founder becoming a bottleneck for decision-making are all signs that a founder may have overstayed their role.

When a founder leaves, there are various impacts on the firm. One of the immediate consequences is the morale issues that loyal employees may experience. The founder’s departure can create a sense of uncertainty and loss, especially if they were deeply involved in day-to-day operations. It becomes crucial for the new CEO or leadership team to step in and provide reassurance, transparency, and stability during this transition period.

The departure of a founder also necessitates a period of shakeout in the management team. With new leadership, there may be adjustments in roles and responsibilities, potentially resulting in some executives leaving or being replaced. This phase requires careful communication, clear expectations, and support for the team members who remain.

Maintaining positive relationships with clients is another vital aspect following a founder’s departure. Clients often develop strong ties with the founder, and it is crucial to reassure them that the firm’s values, quality, and commitment to excellence will continue under new leadership. Open and honest communication is key to retaining clients and ensuring a smooth transition.

In some cases, it may be possible for the founder to remain within the firm but in a different role. This arrangement allows the founder to continue contributing their expertise and industry knowledge while relieving them of operational and management responsibilities. However, the likelihood of a founder agreeing to such a new structure depends on individual circumstances, personal aspirations, and the founder’s ability to adapt to a different role within the organization.

Research studies have shed light on the percentage of founders who successfully make it to the exit. According to a reputable source, a study conducted by Harvard Business School found that only around 25% of founders are still at the helm when a professional service firm reaches the exit point. This statistic highlights the common occurrence of founders transitioning out of their leadership roles as firms evolve and grow.

Here is a specific tool designed exclusively for founders of professional service firms to assess if they have stayed at their firm too long. It is a SWOT analysis, which stands for Strengths, Weaknesses, Opportunities, and Threats. It has been adapted to help founders evaluate their position within the firm. Here’s how you can apply it:

    1. Strengths: Assess your personal strengths and skills as a founder. Are your core competencies aligned with the current needs and strategic direction of the firm? Evaluate if your expertise and leadership style are still relevant and effective in the evolving business landscape.
    2. Weaknesses: Reflect on your limitations and areas where you may have become a bottleneck or hindered the firm’s growth. Consider if there are aspects of the business that would benefit from new perspectives or different skill sets. Assess whether your weaknesses are impeding the firm’s progress and if they can be addressed through training, delegation, or restructuring.
    3. Opportunities: Identify opportunities for growth, innovation, and expansion that may require new leadership or different expertise. Consider emerging trends, market shifts, and evolving client needs. Assess if promoting someone to CEO or transitioning to a different role would enable the firm to seize these opportunities more effectively.
    4. Threats: Evaluate potential threats and challenges that could impact the firm’s long-term success. Assess if your continued involvement as the founder poses any risks, such as limited scalability, difficulty in attracting and retaining top talent, or being resistant to change. Consider whether new leadership would mitigate these threats and position the firm for sustained growth.

Additionally, seeking feedback from peers from a mastermind community, such as Collective 54, can provide valuable insights into your role and impact within the firm. Their perspectives can help you gain a more objective understanding of whether you have overstayed your position and if it’s time for a transition.

Remember, self-assessment tools are meant to guide your reflection and decision-making process, but ultimately the choice to stay or leave rests on your personal circumstances, aspirations, and the best interests of the firm.