The Bridge - Fall 2023

Alicia Chandler President, Oak Street Funding

Rick Dennen Founder & CEO, Oak Street Funding

In the 20 years since I started Oak Street Funding, I’ve witnessed the power of resilience through many business, political, and economic cycles. We’ve remained steadfast in our pursuit of sustainable growth and committed to being a stable partner for our clients. Growth is still possible even as many business owners experience the impacts of talent shortages, rising interest rates, inflation, or a looming recession.

In today’s fast-paced business environment, there are many exciting and challenging developments that can either threaten or propel businesses forward. The positive and profound impact businesses can have on employees, clients, and communities serves as a powerful motivator for business leaders to help overcome disruptions and focus on innovative solutions that drive growth.

In this issue of The Bridge , we explore several key topics that can help RIA businesses become more resilient and thrive during potential leadership and market changes, such as:

• Best Practices for Succession Planning (page 6)

• Considerations for Acquisition (page 8)

• Talent Shortages (page 10)

At Oak Street Funding, we often help our clients with capital for transitions such as succession and partner buy-in. Recently, we navigated our own transition as I took a new leadership role within our parent company, First Financial Bank, and Alicia Chandler assumed the role of president. On page 4, you’ll find an intervi ew with Alicia and me that includes leadership tips on navigating transitions. We are excited about the opportunities ahead and the future of our business as we continue to grow and help more clients.

I hope you find this issue of The Bridge magazine helpful as you seek innovative ways to prudently grow your business.

Rick Dennen Founder & CEO

LETTER FROM THE CEO

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5 BEST PRACTICES FOR CREATING A SUCCESSFUL SUCCESSION PLAN

8 - 9

ACQUISITION GROWTH: FACTORS TO CONSIDER

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5 TIPS FOR SOLVING THE TALENT GAP

Leadership Transition Discussion with

Rick Dennen and Alicia Chandler

In 2003, Rick founded Oak Street Funding because he saw a need for cash-flow based lending. The company has experienced exponential growth and was acquired by First Financial Bank in 2015. In 2021, Rick assumed additional responsibilities at First Financial Bank, which created an opportunity for someone to fill the role of president at Oak Street Funding. Alicia Chandler was promoted from Chief Legal Counsel to president in July of 2022. This transition allows Rick to focus on the strategic outlook of Oak Street Funding while Alicia focuses on day-today operations. In this Q&A format, they shared key insights on how they successfully transitioned to their new leadership roles:

How do you build an effective team?

Alicia: I believe the key to building an effective team is selecting people that fill in the knowledge gaps. I don’t know everything, so I want a team that can help me in the areas I don’t understand.

Rick: The key to an effective team is trust. SEAL Team 6 evaluates potential candidates based on a 2-axis matrix where the y-axis measures performance and the x-axis measures trust. The more trustworthy candidates are chosen over less trustworthy candidates even if they score higher in performance. Having a team you can trust helps the organization move forward together and eliminates territorial issues.

How do you retain employees and encourage their personal growth?

Alicia: To retain employees and encourage their personal growth, we develop strong personal and professional relationships with them. We identify people’s strengths and capitalize on those while coaching them on weak areas. This helps us as a team to work together better and motivates employees.

Rick: We allow employees ample opportunities to pursue their personal and professional development.

We typically train and hire for leadership positions internally. This motivates younger employees to stay and work to reach the next level. So, we provide lots of training for leadership positions to those interested.

How do you navigate shifts in leadership?

Rick: When considering a succession or transition, you have to want the next leader to be successful. That means taking the time to prepare them for the role and investing in them. Challenge the idea that you are the only person that can run the company and instead let the next leader come into the role with their own style and ideas.

Alicia: I’m not a micromanager. I expect people to do their jobs well and if they aren’t, I will meet with them to figure out where the disconnect is. Being curious about people and what is going on in their lives is key to overcoming bumps in the road during leadership shifts.

What process did you follow when planning and executing transition?

Rick: Transparency has always been paramount at Oak Street Funding. You lose credibility if you aren’t transparent, so we’ve always been open with employees each time there has been a transition. As Alicia took on the role, I took gradual steps away from making all the decisions and let her lead in her own style.

Alicia: When I became president, I had many open and honest conversations with the management team. They were used to reporting to Rick for the last 20 years, so I wanted to be clear about my management style and how I might differ from what they were used to. These meetings helped set expectations and built us stronger as a team.

What goals should business owners set in pursuit of growth?

Rick: The first step is to align goals with the objectives of the company. Secondly, do the goals align with the mission and values of the organization? This alignment is key to ensure the goals meet the expectations of stakeholders and employees.

Alicia: Define how you want to grow, then set your goals in stages to reach that level of desired growth. If you want to grow by increasing revenue, focus your goals on originations. Or, if you want to increase your employee count, align your goals with that strategy.

How do you motivate and ensure organizationwide alignment on growth strategies?

Alicia: We have regular strategic meetings with the entire management team. Open communication is key in these meetings to ensure buy-in from everyone. Any ideas are open for discussion because we don’t want to stifle an idea that could be key to our growth.

Rick: We begin with a SWOT analysis to determine the areas that we need to focus on. Then, we create a strategic plan to address those areas. The plan includes accountability measures and is tracked throughout the year to maintain alignment. This process aligns the management team and has proven very effective for Oak Street Funding.

5 Best Practices for Creating a Successful Succession Plan

Despite the fact that many advisors are at or nearing retirement age, only one-third of advisors say they have a succession plan in place. Why? Many advisors are concerned the next generation of advisors cannot afford the cost of a buyout given high valuations. Additionally, uncertainty around the upcoming presidential election have some advisors pausing their succession plans. However, avoiding succession planning can limit your available options. So, what can you do to create a successful succession plan? These five tips will provide a quick overview of the process.

1. Start your succession plan yesterday

Many owners wait too long to begin succession planningand the result can be devastating. The sooner you start the succession process, the more options you will have. Ideally, you should begin the planning process by thinking in terms of years, rather than months or weeks. A longer planning timeline will allow you to make adjustments to increase the value of the business, while also reducing anxiety among clients and staff.

2. Take time to identify everyone’s goals

The most successful succession plans address the goals of every stakeholder. As the owner, your primary goal is most likely receiving the greatest value for the company you’ve worked so hard to build. However, paying attention

to how your succession will impact others will help you craft a better plan. For example, look at your company through a perspective owner’s eyes. What steps can you take to make the company more appealing to them?

If your plan calls for internal succession, there are options to help the next generation afford the cost of the purchase. Due to high valuations, many internal succesion plans now include a financing plan where the new owner purchases as little as 20% of the firm per year over the course of five years. This expanded purchase timeline also gives you more time to train your successor.

3. Mind the gap ... in your business plan, that is

If you’ve written a succession plan, but haven’t taken the time to review it recently, now is the time. Perhaps your team has grown so much since writing the original plan that you’ve added another tier of management. Or you wrote the plan intending Vice President “Schooler” to take over, but you didn’t know he was going to leave the firm.

You should frequently, at least once a year, look over everything in the plan through the lens of how your firm is functioning today while also considering potential changes, including compliance regulations. Have all the necessary consents and approvals from clients and regulators been compiled and maintained? Avoid gaps in paperwork by scheduling regular review of the plan

4. Do you really know what it’s worth?

You may think you know what your company is worth, or you might assume some standard multiplier like “X times revenue” will provide an accurate value. To make sure you arrive upon an accurate value, turn to an outside expert with experience in developing valuations. Professional appraisers generally use some combination of approaches that focus on market multiples of revenue, assets under management, and cash flow. Of the three methods, discounted cash flow (DCF) may be the most common. DCF is based on projections of future cash flows that are discounted to reflect the impacts of inflation using the company’s weighted average cost of capital. Discounted cash flow is a more detailed approach that requires more preparation, but any extra work typically results in more accurate valuations. An accurate value is essential to ensure you receive what you should, especially if you’re expecting the proceeds to fund your retirement..

5. Set achievable benchmarks

For succession plans to be successful, they must be

S.M.A.R.T. (specific, measurable, achievable, relevant, and time-bound). S.M.A.R.T plans call for specific steps involving other people, and for those steps to happen within a pre-determined timeframe. If they don’t happen, the plan will fail.

That’s why your succession plan must include a way to monitor your progress. To do that, you have to be able to define what progress looks like and how you measure it. You need clear criteria that won’t change. Knowing you are reaching the goals necessary for your future succession will give you and your employees greater peace of mind about the transition.

Conclusion

Whether you are planning for internal or external succession, remember to;

1. Plan early,

2. Consider the goals of your stakeholders,

3. Mind potential gaps,

4. Know your firm’s worth, and

5. Set S.M.A.R.T. goals.

“What you really need to think about deeper is the emotional side of it. The person you ultimately choose to succeed, to perpetuate the business, needs to be prepared mentally too, as the firm’s success will now fall on their shoulders.”

Rick Dennen | Founder & CEO, Oak Street Funding

Acquisition Growth: Factors to Consider

Changing technology, talent shortages, high interest rates, and a potential recession have many firm owners questioning if they should pursue acquisition. However, acquisition can solve for several of these concerns and help RIA owners ride the waves of turbulence.

For example, many practices acquire other practices for the sole purpose of adding their employees to the rooster. Or, another firm may have mastered a new technology and through acquisition the acquirer will be better able to compete in the changing technological landscape. Even though interest rates are relatively high, the right acquisition opportunity will boost revenue and increase economies of scale, allowing for more buoyancy in turbulent times. Consider these factors as you continue to operate and decide the best growth opportunities for your firm.

Find the right acquisition growth opportunity

If your goal is acquiring another firm or its client base, finding the right opportunity that fits your needs is critical to achieving expected results. Before your search begins, give some thought to what would constitute an ideal acquisition.

„ Would it be a firm in your current market or elsewhere?

„ How large a company do you want to acquire, both in terms of revenue and staffing?

„ Would you like the seller to stay on your payroll as an advisor or consultant?

„ Do you prefer a profitable company that’s generating substantial revenue, or are you willing to pay less for a struggling operation that needs better management and offers synergies to save on overhead expenses?

Seek expertise

Successful firms know how to tap into knowledge and advice from various experts. This is especially important when it comes to acquisitions. Build a team of external experts who are experienced in the acquisitions and keep them involved throughout the entire process. They will provide additional viewpoints and identify issues you may not have considered.

Be sure to do your homework before retaining a professional or signing a contract for services and,

again, consider seeking referrals from colleagues who have used outside advisors in their own acquisitions. Perform due diligence

If there’s a single secret to a successful acquisition, it’s due diligence. While many buyers find the process long and tedious, the more you know about the firm you plan to acquire, the better you’ll be able to integrate it into your own company. Failing to perform adequate due diligence is a key reason many acquisitions fail.

Alicia Chandler President Oak Street Funding

Oak Street Funding

What to Consider When Making an Acquisition

How do they do business?

Who owns the relationships?

How are the numbers?

Are you compatible?

Why are they selling?

Are client relationships healthy?

Can they solicit clients or compete?

“Just because the interest rate has gone up, doesn’t make an acquisition a bad acquisition.”

Alicia Chandler President

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5 Tips for Solving the Talent Gap

Provide clear career paths

In order to motivate and retain employees, it is crucial for firms to recognize and reward their hard work and dedication. This can be achieved by offering clear career paths and opportunities for growth within the organization. Young candidates are particularly interested in understanding their potential career trajectory, so it is essential for firms to provide this information. According to Schwab’s 2022 Benchmarking Study, more than two-thirds of all firms already offer clearly defined career paths and progression opportunities

Invest in training and development

In order to effectively serve clients and advance their careers, young advisors must focus on developing their skills and knowledge. Firms that invest in training programs not only demonstrate their commitment to their employees’ professional growth and retention, but also equip them with the necessary tools to succeed and grow their expertise. For example, there are training programs available for new advisors, covering essential areas such as financial planning, investment management, client service, and business development.

Build an inclusive culture

Ensuring diversity, equity, and inclusion (DEI) is not just a moral obligation, but also a strategic advantage for businesses. DEI fosters a sense of unity, acceptance, and mutual respect within a team, which promotes collaboration and a comfortable environment for generating innovative solutions. To kickstart the implementation of DEI principles, it is crucial to evaluate your current hiring policies and practices, while actively seeking input from both employees and clients on areas where enhancements can be made.

Offer flexibility

Compensation and benefits play a pivotal role in shaping employees’ decisions of either joining or staying with a company. It is crucial to thoroughly research the prevailing market rates and trends for RIA salaries and benefits in your local area, and design packages that are not only fair and attractive but also in sync with your firm’s overarching goals and values. In addition, offering flexible work arrangements like remote work, flexible hours, or compressed workweeks can greatly help your staff strike a healthy work-life balance. Furthermore, it is essential to acknowledge and reward your staff for their accomplishments and contributions.

Provide mentorship

RIAs have the power to entice and retain exceptional talent by cultivating a work environment that thrives on teamwork, collaboration, and respect. Through the implementation of mentorship programs, firms can demonstrate their unwavering commitment to the growth and development of potential employees, showcasing how highly they value their progress. These mentorship initiatives not only foster a strong culture of collaboration and support within the organization but also boost employee engagement and satisfaction by granting them access to invaluable opportunities for professional advancement.

Rick Dennen Founder & CEO, Oak Street Funding

“Human capital is the most important asset you have. Understanding and placing importance on human capital is key for setting culture. We strive to invest in our employees and build relationships that lead to being more passionate about the business.”