A Growth Plan Helps To Maximize Your Business Sale Price

Every sale of a business requires negotiation.  The buyer is purchasing the future potential of the company and is aware that they can only learn so much in a due diligence process.  The seller’s strong management team, documented procedures, and portfolio of recurring revenue clients, and other value drivers will move a buyer forward. And, if a seller wants to further strengthen their story at the negotiation table they will be prepared with a documented strategic plan for future growth.

What’s in a Growth Plan?

An effective growth plan is far more than numbers on a spreadsheet.  It addresses these key questions:

• What will our revenues be in the next three to five years?

• Who will our clients be, and what new markets will we pursue?

• What services will we continue to sell, discontinue?  What new services will we offer?

• What is the profitability of those products?

• What resources are required to accomplish our goals?

• Who will be responsible for each element of the plan?

The Effect of a Proven Growth Plan…

Demonstrating that the management team not only exists but can perform.

• The position of the company in the market is clearly understood.

• The projected cash flows are credible.

• Enables a higher starting point for negotiation.

This last benefit is perhaps most significant.  As we all know, the value of a company is a function of Cash Flow/EBITDA,  and this is the starting point for negotiation. 

Now consider two companies…

Both Company A and Company B have a $ 2M EBITDA and a multiplier of 5x.  The value = $10M.

Both companies say they plan to grow to $4M EBITDA in the next 5 years.  However, Company A has no track record, but Company B has demonstrated growth plans.  And they have defined this growth plan as thoroughly as they have in past years. 

While Company A has little basis to start over $10M ($2Mx5), Company B may have a credible basis to start negotiations at $20M valuation ($4Mx5). In a competitive market, developing and executing on growth planning will position your company to maximize its value at sale.   

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

A Month on the Beach - A Key Measure of Business Value

Can you leave your business for a month, sit on the beach and leave your phone in the beach bag?  If so, you have attained what few business owners do – a business that can run without you!  Aside from sound cash flow, the creation of a management team is the most significant driver of business value.  When the time comes for you to leave for good, a buyer wants your team, not you!  If you can’t yet take that month, here are a few simple thoughts:

 What is a management team?  This will vary dependent on business size – but it is simply a key group of leaders who can run the day-to-day operations without your oversight.  While they may seek your INPUT, they can sell, and deliver service on their own.  They hold your values, pursue excellence and treat the company as if they owned it!

 The need to delegate.   This is the tough part – you must give responsibility to others.  Every business has four basic functional roles – Executive, Sales, Finance/Admin, and Operations.  Often owners fill each of these roles and thus are critical to everything.  If you can successfully delegate these roles (except perhaps the executive function) to others, you will create a team. 

 Who do you add to the team?   Chik-Fil-A has succeeded by carefully choosing leaders who possess three “C’s”  - character, competency, and chemistry. 

Character – this is the most crucial.  The manager must hold their values and live them out in their daily work. 

Competency  - this is less about specific skills and more about the ability and desire to learn. Environments change and learners adapt.  This trait should also have a dash of “fire in the belly” – the drive to build something.

Chemistry – do they play well with others?  Team members must be team players – readily partnering with others to build a company, and able to lead.

 Look for employees who possess these traits, empower them, and test them.  Slowly give them responsibility and look for the ones that you can’t hold back.  Help them succeed, give routine feedback and get out of their way. 

 How do I build a team?  The first ingredient is time – don’t rush – build slowly and intentionally. It is an ongoing, iterative process.  Here’s where to start:

         Step 1 – make a list of roles you fill / what you do.

         Step 2 – identify what ONLY YOU can do and what you are best at – these may be different.  Identify what you can most easily delegate or are not good at; transfer these responsibilities first. 

         Step 3 – find the right people/teammates – this can include current employees, new hires or reliable vendors.

         Step 4 – prioritize and make a plan to transfer the responsibilities over time.  Seek to remove yourself from all but the Executive function. 

         Step 5 –develop a potential successor – this final step is not for everyone – however it can enable you to sell the business to an insider, or remain as a passive owner.

         Step 6 – invest in the team, measure progress and adjust course as needed.

 Giving up control is difficult but a necessary part of business maturity.  Even if you never get to the “month on the beach”, taking these steps over time will increase value of the company, provide motivation for your staff and give you more options in the future.  It’ll enable you to work ON your business and not just IN your business.

 So, make a plan, start the transition and contact your travel agent!

Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

The Pursuit of Better

Exit Planning, by definition, has an end-game in mind.  This implies defining the goals, planning the strategy to reach them, and executing the plan.   I am a huge fan of the annual strategic planning and budgeting process – they are foundational.   However, many businesses have great plans on paper and yet fail to finish well.   Why? 

I just finished reading a book entitled “Better” by a surgeon named Atul Gawande.   In a profession where lives literally depend on how well one does one’s job, he has a passion for the pursuit of improvement in every area of medicine.  He shares numerous examples of how doctors in less developed parts of the world have actually developed far more successful processes than wealthier countries.  The major message is – they pursue delivering a “better” service to their clients.

An underlying theme is that improvement comes through a long-term commitment to improvement – in the big and small things.  And there are two sides to this:

1. Don’t settle for “good enough” – always seek to serve your customers better – with a better, cheaper, more effective product or service.

2. Persevere in overcoming obstacles – take the long view to solve the problems that face you.

Obviously, this is a team effort and he makes five simple recommendations that can help build a culture of “better”: (I have listed his recommendations and “translated” them to “business speak”).

1.   Ask unscripted questions -    Ask fresh, unplanned questions - what don’t you know about your customers?  Take the time, not just to do surveys, but think out of the box; explore getting to know your customers better so that you can serve them better.  Have real people connect with real people and ask honest questions. “Listen” to what you hear.”

2. Don’t complain.   Don’t complain about the challenges – every business has challenges that need to be overcome. At times they may seem just “too hard”, however focusing on the problem can be an excuse to not try to overcome it.  Persevere in solving the problem. 

3.  Count something -  Every business has an income statement and balance sheet, however, what really drives your business?  Think outside of the box to measure the performance of the business, so that every area can be measured (often called KPIs).  Quantifying “good” can help you move to “better”.  Then, when your numbers don’t look like they should, ask why to assess and adjust. 

4.   Write something   -  In a book called “Poke the Box” Seth Godin suggests things change when people take the initiative to start something.  Write down ideas, communicate them and act on them - encourage others to do the same.  

5.   Change -   Change hasn’t happened until change happens.  identifying problems, writing about it, and talking about it accomplishes nothing unless things are put into action.  This requires a willingness to change “the way we have always done it”.  Many successes come through failed attempts at change and learning from those mistakes.  

So, start today.  Pick one area where you can improve and pursue making it better.  Then repeat.

 Invest 12-15 minutes in the FREE ExitMap® Assessment and get a 12-page report scoring you in four key exit planning areas: Finance, Planning, Revenue/Profit, and Operations.

Exit Planning 101: WEBINAR SERIES ANNOUNCEMENT

Understanding the What, Why, and How of Getting Starting on Building a Successful and Comprehensive Exit Plan

•  Have you been considering an exit?

•  Tired, overworked, not doing what you are best at?

•  Are you trying to determine what “number” it will take to get to a successful exit?

Join our holistic & comprehensive exit management team as we help you understand and begin to take action on building a strategy for the future. Often business owners are overly focused on exit planning as the number that they will get for their business. It’s also often true that the “number” isn’t realistic, won’t support their needs in retirement, and doesn’t take into the costs of selling the business (taxes, advisors, etc…). Then there is the plan for the future, post-sale…what will you do? The reality is that a successful exit strategy involves a multi-year process, and looks at all aspects of your business and personal resources. Exit planning also involves preparing the business and your team for the transition which requires time, patience, and the “right people on the bus”. So where to start?

We invite you to join our multi-part webinar series, including a summer reading/learning session while you’re off taking a vacation this summer (and if you are saying “what vacation?” you REALLY need to join us!). Even if you can’t make every session or are more focused on a particular aspect, please sign up so that we can include you in our community to share resources and ideas.

To become part of this Exit Planning Mastermind Group, please RSVP to Carolk@OmegaWealthManagement.com

We look forward to connecting with you to build a real exit plan for the future!

MEET YOUR EXPERTS:

Lisa A. K. Kirchenbauer, CFP®, RLP®, CeFT®

Lisa is the Founder & President of Omega Wealth Management, LLC in Arlington, Virginia. Omega specializes in helping their clients integrate their values, vision, and wealth for a life without regrets. Specializing in working with successful entrepreneurial and executive families, as well as women in significant transition, Omega brings a holistic, and comprehensive 360° approach to helping their select group of client families coordinate and strategically manage their wealth across everything from tax planning to investment management and legacy planning. Omega utilizes a unique business model to especially support business owners who may have much of their wealth tied up in their business but still need all the wealth planning advice other clients need.

Corby Megorden, CEPA, CCEA, FMVA, CBCA

Corby is a Principal of ENNIS Legacy Partners, an Exit Planning Firm that specializes in supporting the owners of small- to mid-sized businesses plan their exits. He focuses on the Value Creation aspects of the Exit Planning process, helping owners maximize the quality and value of their businesses prior to sale.

He has decades of executive experience helping organizations identify and successfully navigate the challenges of growth, risk, and change. His expertise covers operations, program management, and financial development and has been tested in a variety of contexts including non-profits, industry, and the military. As the VP of Operations for TeleCommunication Systems, he created corporate financial management, contracting, budgeting, and corporate merger processes, helping guide the company from startup to an $80M publicly traded company. As Administrator of a 4,000-member church, he

developed structures, processes, and procedures to manage finances and operations through periods of rapid growth, economic challenges, and radical organizational change, bringing stability and maintaining the fiscal health of the church. He is a retired Captain with the US Naval Reserves.

Walter H. Deyhle, CPA/ABV/CFF, MAFF, CExP™, CEPA

Walter provides tax preparation and planning, business valuation, forensic analysis, and exit planning consulting to the firm’s clients including individuals, government contractors, international financial holding companies, wholesale distribution companies, retail stores, professional practices, consulting firms, and partnerships owning real property. He and his team are skilled at addressing particularly complex tax issues with clients concerning investments, estate, and gift taxes as well as consulting for mergers, acquisitions, liquidations and reorganizations, divorce settlements and litigation, public offerings, and buy-sell agreements.

A senior tax partner and former director of the firm’s tax division, Mr. Deyhle provides in-house computerized preparation of individual, corporate, partnership, estate and trust, and nonprofit tax filings. He holds the designation of Accredited in Business Valuation (ABV) by the AICPA, as well as the CExP™ designation from the Business Enterprise Institute and the Certified Exit Planning Advisor designation by the Exit Planning Institute.

Exit Planning and Marathon Runners

“Eat well and exercise!”

Just about everyone over 30 has heard this advice from someone interested in our health, usually a doctor.  We all know that we should begin by doing SOMETHING, yet we wind up not really doing anything.  We know deep inside that if we want to live long and prosper, taking a few painful steps will have long-term pay-offs, but all too often those first few steps never happen.

What has this got to do with Exit planning? 

Business owners know they should be taking steps to plan for the future, but all too often they don’t seem to get around to it.  With each passing year comes the thought, “I’ll get to that.” But, like the good intentions for diet and exercise, the longer one waits, the harder it gets.

How Exit Planners Help Businesses Get In Shape

            Exit planners are a bit like personal trainers.  What personal trainers do for fitness, exit planners do for businesses. They take a look at the shape a business is currently in, and develop plans to improve that business until it is in optimal condition, usually so that the business can be transferred or sold in such a way that the owner remains in control of the sale.  A business in less than optimal condition often means that the owner will lose some of control of the sale to the whims of the buyer.

Dream Big

            A middle-aged person who develops a dream to run a marathon soon finds that just reading about marathons is not enough to get in the race. Still, if they never dream the marathon dream the race has no chance of being run at all.

            Business owners who intend to sell also should not hesitate to dream big, even if they do not plan to sell for five or ten years. Big dreams mean big accomplishments.  Every business owner should dream big about two things:

1. The ultimate objectives (financial, personal, family, and/or philanthropic goals) for leaving the business.

2.  The “transferable value,” of that business, which should ensure that the owner does not have to go with the business when it is sold.

Set Small, Achievable Goals

            Like someday wanting to run a marathon, dreams are easy to write down, but need diligent daily work to achieve.  They will not happen on their own. Whether you a baby boomer nearing retirement, in the middle of your career enjoying the excitement, or just at the very start of a venture, taking these simple steps will prepare you for the future:

1.         Get help to develop a “workout plan.” Just as it can be helpful to get a personal trainer involved when you begin to exercise, the same is true for business planning.  It's a complex process that requires specific knowledge in certain areas (legal, financial, estate planning, human resources, etc.) to ensure your business gets in optimum shape.  

2.         Set simple goals - Simple goals when one begins exercising help to prevent accidental injury, and the same is true for exit planning.  Three simple, easily achievable goals are:

a.     Determine how much money you need, or want, for retirement

b.     Decide when you want to leave your business

c.     Identify the person, or persons, to whom you want to transfer the business

3.         Start slowly – you can't rush getting into great physical conditioning, and you can’t rush the business planning process. Set realistic goals and act on them one by one.

4.         Stay steady and consistent - sticking with the plan and taking small, consistent steps will pay off.  Make time in your busy schedule to do the essential steps.  

5.         Measure progress - in order to ensure you're making progress toward your goal you’ve got to measure it. Setting 90-day goals allows manageable progress and the ability to celebrate the small wins.  

As you work hard in the business day-to-day, take the necessary time to prepare for tomorrow - starting your exit planning program now will maximize your quality of life in the future.

Get started today with our FREE Exit Readiness Assessment.