Fidelity Investments, Kaizen, and Business Value Acceleration

Fidelity Investments is an international brand and one of the most valuable privately held businesses in the world. 

Founded in 1946, Fidelity Investments celebrated 75 years of business in 2021.  Through their 52,000-plus associates and global presence, they serve 40 million individual investors, manage employee benefit programs for nearly 23,000 businesses, and support more than 3,600 advisory firms with investment and technology solutions.  Since its inception, Fidelity has experienced consistent and impressive growth.

I was privileged to work at Fidelity in the 90s and early 2000s, and it was there where I first became familiar with the term “Kaizen”.  Kaizen is a Japanese concept of incremental and continual improvement in the management of an organization and was a Fidelity core value consistently communicated by then Chairman Edward C. Johnson III.

“Throughout Fidelity’s long history of growth, our dual commitments to our customers and to innovation have served us well,” Johnson III said in the memo. “By investing in technology and using the Kaizen method of continuous improvement, we have built a strong brand, industry-leading positions, and multiple profitable businesses.”  - Quote from CNBC publication*.

Innovation and continual improvement historically have been well anchored throughout the ever-growing Fidelity complex by senior and middle management, guiding business initiatives, operations, training, etc. In his book, Rethinking Competitive Advantage, author and consultant Ram Charan provides an example. During a Sunday afternoon conversation with Mr. Charan in 2014, Kathy Murphy, then President of Fidelity’s Personal Investment unit, was “spurred with a sense of urgency to make the kind of radical changes very few legacy companies attempt, let alone succeed at.” Charan goes on to describe how (after she “mustered the courage”) Murphy proceeded in digitally transforming the organizational structure and culture so that Fidelity PI now runs as if it were always a digital company. This is the kind of continual and incremental improvement that has characterized Fidelity throughout its history resulting in huge value for all stakeholders (family/owners, shareholders, customers, employees, etc., etc., etc.).

Do you want to accelerate the value of your small business?  Adopt Kaizen.

In our work with small business owners, we have observed that those who have a core value of incremental and continual improvement (Kaizen), are the most successful in growing and exiting their businesses.  They have better financial performance, management, systems, and prospects for growth and hence more valuable businesses. And, those owners who have a valuable sellable business, also enjoy more options for their eventual exit. So, if you want to enjoy life in the business, and exit on your own terms and conditions, be like Fidelity Investments and adopt Kaizen.

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.

* PUBLISHED MON, NOV 21 20164:35 PM ESTUPDATED MON, NOV 21 20167:23 PM EST

A Hazy Crystal Ball is Better than a Rear View Mirror

Several years ago, I did a cross-country trip with my family.  We laid out a rough plan of what we wanted to see, how long it’d take to get from Point A to B to C, and most importantly, what we wanted to eat!

When we hit the road, I did not drive looking primarily in the rear-view mirror, with an occasional glance at the gas gauge and the road signs, but looked ahead and tweaked the plan.   Yet, that is often how business owners run their businesses;   this year’s plan can often be “let’s do what we did last year – just more of it.”  We look at whether we have cash in the bank and check our financial statements from last month and compare how we are doing against last year.

But we need to run our businesses with an eye on the future.  No one has a crystal ball that provides perfect clarity on the future.  A million factors and forces affect our business and most of them are not within our control.  Forecasting and planning, by definition, require looking ahead a taking our best (hopefully educated) guess on what the future holds.  I want to convince you that a rough, hazy plan is better than no plan!

You may not know where to start, so, here are some practical pointers:

MAKE THE PLAN – every forecast needs to answer the following questions:

1.     Where am I?  Assess your revenue, profitability, operations, market position and see how you are doing.  What is working well and what isn’t?

2.     Where do I want to be in the future?  Lookout 3 to 5 years and write down goals.  How much revenue growth, how much Net income Growth, what improvements are necessary for the business? 

3.     HOW do I get there?  This is most critical.  Identify actions/investments you could take/make to attain your goals.  These might include:

a.     Establishing new markets

b.     Creating new products

c.     Adding key staff

d.     Improving processes

4.     What is most important?  Prioritize your “improvements” and plan them over 3 to 5 years.  Tackle 2 or 3 goals per year.

5.     The end result should be:

a.     How much will my revenue grow in the next few years?

b.     How much will my bottom line growth in the next few years?

c.     Who do I need to hire/ get on the bus?

d.     What improvement do I need to make?

e.     How much will this cost?

WORK THE PLAN – once the plan is created, establish a consistent, routine review and adjust as needed.  This includes:

1.     Monthly review of financial performance against the plan – including, Revenue, Cost of Goods, Overhead, Net income, and other key metrics as appropriate.  This obviously implies a monthly budget.

2.     Monthly (or more frequent) review of strategic projects.  Routinely assess whether you are making progress on your major goals; are you Ahead, Ontrack, Behind, Dead-in-the-Water.

3.     Adjust course – if you are not “on Plan”, why?  What are the causes of the “variance” and what do you need to do to get back on track? 

4.     Modify the plan as needed – the “crystal ball” is hazy and there is no perfect plan.  As you adjust you will learn your capacity for change, as well as identify ways to improve that capacity.

Start Now and Keep It Simple – In planning our road trip, we identified key sights to see along the way, and saw most of them. We paced ourselves and enjoyed the trip.   You may not know how to forecast, but you DO know your business!  Trust your experience and make a “road trip” plan to identify the following, at a minimum:

·       Revenue goals for next 5 years

·       Net Income goals for the next 5 years

·       New Critical Hires & the cost

·       Major projects & the cost

When you shift your gaze out, you are more able to see the business as an asset, rather than a job.  The team knows where you are going and will often get on board to help stay on track.  Looking ahead allows you to see the potholes in the road before you hit them.   Hopefully, you will start to enjoy the business more.  Proven ability to grow is a key value driver when selling a company – but, it may actually help you build the company you want to KEEP!

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.

Will Deciding on Exit Strategy be Easy or Difficult?

For most small business owners, deciding as to how they exit will be easy, because they will have few options.

The majority of small business owners, based on research, will choose between selling assets to a third-party buyer or simply shutting down when they’re done being a business owner. To realize the maximum number of options for exit, an owner needs to invest both time and money, and few do this systematically and strategically over time with the end in view. The result is fewer options for exit and a forced “easy exit decision”.

Those of you who do plan, build a business that is transferable, and hence have more exit options, might be (in a good way!) further challenged when making the final decision as to what exit path to execute.

Betty founded her business over twenty years ago, and was strategic in her approach to building a transferable business and planning for her eventual exit — she continually had the end in view when planning for business growth today. From the beginning, Betty’s plan was to eventually sell to a third-party buyer and that is absolutely a current possibility as she’s recently been approached by a few potential buyers. Betty would now like to leave completely in the next 2-3 years, so a sale with an earnout could be the answer.

However, Betty now has other interests and goals, in addition to her financial goals — she has two children in the business that have shown interest and promise in being future owners — Betty would very much like to see the values and culture of the business sustained in the future — and finally, she’d like to ensure the future of key employees who have helped her grow the business through the years. These “values-based” goals more align with either an ESOP (Employee Stock Ownership Plan), sale to a key employee group, or transfer to the children.

The good news for Betty has many options for exit, so she can give legitimate and serious consideration to all of her values-based and legacy goals.

More challenging for sure, but good challenges as Betty has the flexibility to accomplish all of her goals in choosing the best-aligned exit strategy. She is not limited as to her options — Betty is positioned to do a third-party sale, sale to insiders, an ESOP, a transfer to children, or a combination.

Betty is again enjoying the benefit of having an experienced and trained Exit Planner assist in thinking through all the pertinent issues.

In Betty’s case, there is an understanding that having a “tough exit decision”, is actually a good thing because it’s due to her various exit options and goals. Betty’s Exit Planner helped to get her to this point and is again adding value in designing and implementing the final decision. She is grateful for the exit options available to her and the flexibility for personal goal attainment which are the good fruits of wisely investing in a strategic exit plan from the inception of her business.

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.

Do You Suffer From Decision Addiction?

The typical business owner lives on dopamine.  According to WebMD:

Dopamine is a type of neurotransmitter. Your body makes it, and your nervous system uses it to send messages between nerve cells. That's why it's sometimes called a chemical messenger. Dopamine plays a role in how we feel pleasure. It's a big part of our uniquely human ability to think and plan.

Feeling the Rush

That’s what business owners do; think and plan. Their lives are a chain of thought processes that go “What if I do this? How will it affect the business? Then what would I do next? What would be the effect of that?”

An owner’s brain is trained to generate dopamine. That “What if? What if? What if?” chain is actually pleasurable. It’s the same neurotransmitter that is triggered by nicotine and alcohol, and the craving for that dopamine rush is the driving force of addiction.

That is why so many owners complain that their employees can’t make decisions and can’t think critically. They understand consciously that their businesses would run better if they groomed decision-makers, but unconsciously they are addicted to making decisions.

Every time an employee asks, “What should I do about this, boss?” there is a little rush. It’s like an old cartoon. The good angel is sitting on one shoulder saying “Make them go through the thought process themselves.” The little horned devil is on the other shoulder saying “Go ahead. Tell him just this once. It’s faster, and it feels good.”

Answer given. Another challenge surmounted. Pop! The little rush.

When the Rush Gets in the Way

Advisors are frequently frustrated by a client’s reluctance to implement their advice. They spend time and effort developing a course of action, and more time and effort explaining it to the client. The business owner client listens, agrees, and then does…nothing.

“I’m too busy running the business,” is a frequent excuse. What is really happening is that the owner is too busy feeding his or her dopamine rush. Owners are more likely to take action on their own decisions. Implementing someone else’s idea is antithetical to why they became entrepreneurs in the first place.

It feels good to be needed; to be the one who knows. Unfortunately, the more you run your business based on owner centricity™ the harder it is to sell, and the less it is worth. Like any addiction, it's a tough habit to break

Breaking Decision Addiction

This is where I should offer a twelve-step program for breaking yourself of decision addiction. That's pushing the analogy just a bit too far. I can. however, offer one tip that can get you started on the road to a more valuable company and more peace of mind for you.

Offer an enticing incentive for anyone making a decision for you. It should be instant, and worth a little effort. One possibility is to keep a stock of ten or twenty dollar bills in your desk. Anyone who comes to you with an issue and a proposed answer gets a bill.

The answer had to be sensible and practical. You could require it to be SMART (Specific, Measurable, Attainable, Resourced and Timely,) or you could set your own standards. You will, of course, have to retain the final say over what qualifies. No one should earn a ten spot for deciding whether to make the background on a flyer blue or yellow.

An answer doesn't have to be the answer, but if it is unworkable, at least you have the opportunity to communicate your thought process, and at least the employee tried. He or she should still get the incentive for an honest effort.

Try it. You may be surprised at how much better it feels than that little bit of decision addiction.

This is an excerpt from John Dini’s upcoming book The Exit Planning Coach's Handbook, coming this fall.

Expensive Sentences When Planning Your Business Exit

Following is a post that we’ve published in the past that we believe is good to be reminded of annually.

Following are just a few examples of “Expensive Sentences” mentioned by my friend Jack Quarles in his book, Expensive Sentences, Debunking the Common Myths that Derail Decisions and Sabotage Success.

“It’s too late to turn back now.” 

“We’re too swamped for that now.” 

“We can probably do that ourselves.” 

“It’s too crazy busy around here to make changes.” 

Jack explains how conversations and discussions containing expensive sentences most often lead to decisions that negatively impact the future of businesses, families, individuals, and nations.  And, how the faulty logic and false constraints of expensive sentences can lead to derailed and expensive decisions.  He describes how conventional wisdom such as “You get what you pay for” or “We can’t change horses in mid-stream” can be a costly and destructive trap.  Jack paints a picture as to how we can over time drift away from a disciplined analysis of a decision, and instead be drawn by a “particular idea as if pulled by gravity.” 

When it comes to Exit Planning, or designing and implementing a plan to successfully and responsibly exit from a business, there is a seemingly endless list of expensive sentences….

“I’m not ready to exit yet…I will begin planning when I’m ready “ 

“I have a pretty good idea of how much I’d pay in taxes”

“I am confident my key employee would be a good owner”

“I am confident I can sell my business for enough to live on for the rest of my life” 

“Yeah…I think we arranged it so that my spouse will get the business if I die” 

“I’m not worried about my employees leaving if I die or sell the business…I have been good to them and they’re very loyal”

“One of my friends, who is in the same business, sold for $$$$...I’m sure I will be able to sell mine for at least that much…I don’t need an outside valuation”

“I don’t need a personal financial needs analysis.  I have a good idea of how much $$$$ we would need”

“I am confident I can sell my business when I want or need to”

It’s expensive sentences like these that result from common owner misperceptions and can result in bad and expensive exits.  The author of EXIT PLANNING; THE DEFINITIVE GUIDE, and Founder of the Business Enterprise Institute, John Brown, says the following: “…your misperceptions create complacency and inaction when you should be pedaling as fast as you can.” We would agree with John Brown and would add that complacency and inaction are always expensive and at times destructive when it comes to a business exit.

Business Owner Exit Planning employs a process of assessment and analysis that will reveal expensive sentences and owner assumptions (that are then tested) helping you to instead leave on your own terms and conditions and realize a successful exit. Start planning today.

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.

Low Employee Engagement or High Turnover and Building Business Value

There may not be a greater management challenge in building the value of your business than engaging and retaining your employees. 

It is not unusual to hear business owners, with frustration, express as one of their greatest ongoing concerns the engagement and retention of their employees.  And it’s costly if you don’t do it right. A few years ago, The Society for Human Resource Management (SHRM) reported that on average it costs a company 6-9 months of an employee’s salary to replace the employee.  For example, for an employee earning $60,000 per year, the costs of recruiting, training, etc. would be in the range of $30,000 - $45,000.  These figures are probably higher today.

Business owners typically understand from experience that low employee engagement and high turnover are financially expensive, but sometimes they’re not aware of how costly these challenges can be to the business culture they have worked so hard to establish (which is also financially expensive).  We’ve all heard the Peter Drucker quote, “Culture eats strategy for breakfast”, implying that the culture of your company always determines success regardless of the impact of your business strategy.  So, culture is clearly very important for building and protecting business value, and a key driver of a strong culture is employee engagement and retention. 

Low employee engagement and high turnover are costly on all fronts.  What can a business owner do about it?

Our firm does not currently have a practice area or special expertise in employee engagement and retention, but we have observed some common practices among business owners who have a track record of success in it. 

• Clearly established vision, mission, and values that are continually communicated and modeled by leadership/management, which serves to facilitate a strong corporate culture.

• Clearly defined growth and succession plan that involves the retention of key employees.

• Clearly defined and communicated employee incentive (rewards, retention) plans that are aligned with corporate goals for growth.

•  Employee expectations are clearly defined and communicated.

•  Employees are held accountable and receive regular feedback on their performance.

• There is an employee selection and onboarding process in place that is well-defined, disciplined, and values-based.

For most small business owners, employees represent their greatest asset as well as their largest expense.  And hence, it is imperative that employee engagement and retention should be a high priority in managing toward a sellable business with maximum value.  It should be so valued by the business owner and management that it is seen as a significant aspect of the business culture by the employees. 

So, if you are in need of assistance in this area, it is well worth the investment of time and finances to get professional help as soon as possible.  The right advice can save you both money and time.

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.

Build To Keep As An Exit Route

Helping business owners clarify and establish their post-exit bucket list, financial, values-based and legacy goals, and choosing an exit route that provides them with the greatest opportunity to realize their goals, is what we most enjoy about the work we do. 

Establishing clear goals is essential and foundational for a successful exit plan.  For example, if an owner's passions now fall mostly outside of the business, selling to a third-party or an ESOP might afford them the most time and money, sooner rather than later, to pursue those non-business related interests.  Or, perhaps a sale-to-insiders or children could make the most sense if an owner has strong desires to transfer the business to those who helped build it, or to keep the business in the family. 

But what about "keeping the business"?  Is keeping the business a legit exit strategy?  And, could keeping the business best help me realize all my goals and objectives? 

First, keeping the business is indeed an exit strategy in that you would simply own the business until it was transferred, or shut down, upon your exit at death.  Too often this an exit route by default, due to a lack of strategic planning, not resulting in the true desires of the business owner being fulfilled.  However, with the right planning, keeping the business and transferring it at death, may certainly be the strategy that will prove most impactful in goal attainment. 

We have found that an owner who builds their business to keep it with the flexibility to accomplish all of their non-business goals and objectives, can end up having the greatest number of options for their eventual exit.  Let me explain.  If an owner builds in a way that allows them to realize their goal of traveling the world most of the year, and the business continues to prosper and grow while they're away, they have built a business others will want to own.  This owner would have the ability to attract third-party buyers and possibly have them bid for their business in a controlled-auction (depending on the size of the business).  However, this same owner may have an exit goal of transfer to key employees who have been instrumental in its growth.  Because the key employees currently run the business and it's very profitable, the owner is able to seriously consider the sale-to-insiders option, or perhaps an ESOP.  Or...now that this owner much enjoys owning their business (that has been "built to keep") and all of their goals are best attained by keeping it, their exit strategy might become keeping the business and transferring it at death.  This owner has more options because they have built a business that others want to own, but that they don't have to sell in order to accomplish their personal and financial goals.  They built it so they could keep it (if desired) and still pursue all of their non-business goals and dreams.

If you "build to keep" in a way that affords you the time and money to accomplish your non-business goals and objectives, you can increase your options for a successful exit.

Contact us through ennislp.com if you need help in clarifying your goals and objectives or building to keep.

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.

Key Employees and Building and Protecting Business Value

You may have people working in key roles who are instrumental in growing and building the value of your business. These key people can be identified as having the following characteristics:

• makes a substantial business contribution

• possesses critical information or knowledge or

• maintains and nourishes key contacts and relationships

In helping clients plan to build a business that’s sellable, and then eventually exit on their own terms and conditions, we emphasize that “key people are a key value driver “ in realizing success in both of those strategic goals. And, we find it helpful for owners to have two categories in mind when considering key employees:

1. Building business value

2. Protecting business value

Key people help owners build value and exit successfully as their roles serve in removing the owner(s) from the day-to-day management of the business, and by accomplishing objectives and key results for growing the business, that are aligned with the exit goals of the owner(s). An important planning focus for the owner(s) in building value, as it pertains to key employees, would include alignment of the employee’s performance goals with the exit goals of the owner(s), and a well-defined key employee incentive plan that provides impactful awards for goal attainment and retention.

Owners need to be aware, that there is also inherent risk related to key employees. Risks involving departure and competition, solicitation of customers and/or employees, and disclosure of confidential information. There is also the risk of losing a key employee due to unexpected death or disability. It can be costly to recruit, train, and compensate for a replacement in such a situation, as well as makeup for any loss in corporate earnings. Important planning areas in protecting business value, as it pertains to key employees, would include: Well-written and regularly reviewed employee documents (i.e., Employment Agreement; (listen to ExitReadiness® PODCAST Episode 43 w/attorney Marc Engel) and adequate life insurance coverage on the key employee (listen to ExitReadiness® PODCAST 54 w/Bill Betz of Betz Financial Advisory).

Check out our virtual exit planning resources and solutions at exitreadiness.com

Customers Want to Be Treated as Individuals

I recently participated in an ExitReadiness® Podcast episode hosted by Pat Ennis and Walter Deyhle and our topic was “When You Start Making a Big Decision, First Talk with The People Involved.”  The high-level summary of the conversation is when you must make a major decision regarding your products and services, talk first with the people who will be impacted by your decision.  Otherwise, if the decision goes against what the stakeholders consider to be in their best interest, the outcome will fail to achieve your objective.

 Climate Control

Consider this example.  If I have power over climate control, you can count on the thermostat set at 70 or 71 degrees.  In our home, this results in many discussions, as my wife prefers the temperature at 73 degrees and my daughter at 68 degrees year-round.  Fortunately, we’re able to move ahead with a shared willingness to communicate and make appropriate compromises. 

But what if this were my office environment? If I’m the one person permitted to adjust room temperature, I may lose some key or important employees if they don’t feel their needs are being seriously considered and accommodated as room temperatures are consistently not to their liking.  The same could happen if my business depends on customers entering my place of business and spending a fair amount of time inside, they might just give up on visiting the store. 

In that there is much competition in attracting both key employees and customers, both may end up leaving my business for greener pastures without even sharing with you the reason why. 

Proactive Problem Prevention

Be proactive in preventing this problem with “The Platinum Rule” investing the time to find out how your customers, employees, and all stakeholders want to be treated.  And then create a plan and execute it.  Being considerate about how you treat customers and employees will go a long way in making your business more valuable.

About Sam Klaidman

Sam has consulted with Fortune 500 companies like GE, Pfizer, Corning, and Honeywell as well as many small and midsize businesses in a broad range of industries. Many of his SMB clients are privately held and still controlled by members of the founding family.  Sam and his firm Middlesex Consulting specialize in helping service businesses grow.

Aligning Exit and Life After The Business Goals with Business Growth Goals

Sarah thought she had a great sell strategy in place until it all blew up at the deal table. She was willing to stay on for a year or two and “earn-out” a percentage of the sale price, but she was not willing to play the role of a lender in the self-financing part of the deal, and she absolutely expected an offer of a higher sale price.

In building her business, Sarah was open to the idea of delegating core responsibilities to others but instead remained central to sales and operations. She was also much more focused on reducing her personal income taxes each year rather than improving the financial performance that would be stated on business financials. Sarah’s learning now that those goals didn’t align with maximizing a sale price or sourcing the types of buyers who wouldn’t require self-financing. When she gave any thought to life after the business, she pictured an immediate exit and drinking umbrella drinks on a beach in the Caribbean. But Sarah now knows that she and her business are not positioned to realize her dreams. At least not now when she was hoping to leave. Her goals for building were not aligned with goals for exit and life after the business.

• Life after the business goals can include things like financial security, time with the family, travel, health, and wellness, launching a new enterprise, or retirement on a beach in the Caribbean.

• Exit goals can include maximizing sale value, minimizing taxes, gratitude for employees, family harmony, or a successful transfer to children.

• Business goals can include growth and profitability, freedom, control, high income, building wealth and value, influence, or social impact.

To ensure success in your eventual exit it’s critical to continually examine your goals in each of these categories making sure they are aligned. It’s not unusual for an owner to be very disciplined and systematic in establishing and executing business goals, only to learn when it’s too late that those goals didn’t produce the exit they were hoping for. Whenever you set new goals for the business, ask yourself this question, “How do these goals for business growth align with my goals for exit and life after the business???”

In an effort to help business owners like Sarah be disciplined and systematic in doing this, we created our STRATEGY RENOVATION® Value Advisor engagement.

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

Exit Plan Critical Element: An Accurate Financial Gap Analysis

A critical and foundational element of your successful exit plan will be the calculation of any gap you might have in the value of your current assets (business and personal) and how much money you will need when you leave the business. This is your financial gap analysis.

The reasons for ensuring an accurate Financial Gap Analysis include:  

• Provides you with a starting point and an endpoint needed for achieving your goals.

• Serves as motivation for you to design and implement a plan to "close the gap" and increase the value of the business.

• Where there is not an asset gap, you're afforded opportunities to increase goals, or possibly leave sooner than you were originally planning to.

• An accurate Financial Gap Analysis provides a more realistic view of your situation and how much still needs to happen, or doesn't need to happen, for you to accomplish your goals.

Take these steps to make it happen:

• Clarify your owner-based post-exit goals and objectives.

• Arrange for an accurate and objective Estimate of Business Value.

• Arrange for Financial Needs Analysis, based on your goals and objectives and using current and accurate quantitative data (business and personal resources).

• If there is an asset gap, conduct a thorough assessment of your business value drivers, and create a plan to close the gap.

For example, let's say that your current personal financial plan, which includes all of your future goals, indicates you will need $5,000,000 to do all you want to do after you leave the business.  If the current accurate value of your business is $2,500,000 and the value of all other assets is $1,000,000, then you have an "asset gap" of $1,500,000 ($5 mill - $3.5 mill = $1.5 mill).  

You may be surprised to hear that typically the most challenging, time-consuming, yet rewarding aspect of performing a Financial GAP Analysis is establishing your post-exit goals and objectives. Contact us today for assistance with establishing your goals and performing a financial gap analysis.

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.

Five Warning Signs Your Business Is Too Dependent On You

If you were to draw a picture that visually represents your role in your business, what would it look like? Are you at the top of an organizational chart, or stuck in the middle of your business like a hub in a bicycle wheel? 

The Hub & Spoke model is a drive that shows how dependent your business is on you for survival. The Hub & Spoke model can only as strong as the hub. The moment the hub is overwhelmed, the entire system fails. Acquirers generally avoid these types of managed businesses because they understand the dangers of buying a company too dependent on the owner.

Here’s a list of the 5 top warning signs that show your business could be too dependent on you.

1. You are the only signing authority

Most business owners give themselves final authority… all the time. But what happens if you’re away for a couple of days and an important supplier needs to be paid? Consider giving an employee signing authority for an amount you’re comfortable with, and then change the mailing address on your bank statements so they are mailed to your home (not the office). That way, you can review everything coming out of your account and make sure the privilege isn’t being abused. 

2. Your revenue is flat when compared to last year’s 

Flat revenue from one year to the next can be a sign you are a hub in a hub-and-spoke model. Like forcing water through a hose, you have only so much capacity. No matter how efficient you are, every business dependent on its owner reaches capacity at some point. Consider narrowing your product and service line by eliminating technically complex offers that require your personal involvement, and instead focus on selling fewer things to more people. 

3. Your vacations… don’t feel like vacations

If you spend your vacations dispatching orders from your mobile, it’s time to cut the tether. Start by taking one day off and seeing how your company does without you. Build systems for failure points. Work up to a point where you can take a few weeks off without affecting your business. 

4. You know all of your customers by first name 

It’s good to have the pulse of your market, but knowing every single customer by first name can be a sign that you’re relying too heavily on your personal relationships being the glue that holds your business together. Consider replacing yourself as a rain maker by hiring a sales team, and as inefficient as it seems, have a trusted employee shadow you when you meet customers so over time your customers get used to dealing with someone else. 

5. You get cc’d on more than five e-mails a day 

Employees, customers and suppliers constantly cc’ing you on e-mails can be a sign that they are looking for your tacit approval or that you have not made clear when you want to be involved in their work. Start by asking your employees to stop using the cc line in an e-mail; ask them to add you to the “to” line if you really must be made aware of something – and only if they need a specific action from you. 

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.

Build and grow the right way...

Like most successful small business owners, George had invested much of his life and resources in his business over the last twenty plus years and realized personal prosperity and respect within the marketplace.  The business had been profitable, with revenue generally stable and increasing, and George continued to see his personal standard of living increase.  

At the same time, George had an ongoing irritant, and that was his inability to "really take a vacation".  George and his wife Susan were able to "get away" a few times each year, but it was seldom more than a week, and he most always remained tied to the business in some way or another while he was gone.  His phone and computer would still see a lot of action on "vacation".

Five years ago, George was "ready to sell the business and retire".  They now had four grandchildren they wanted to spend time with, they wanted to travel, and simply "enjoy life" while they were still very healthy.  George's transition from being "all in" to "I'm done" happened quite fast, surprising both George and Susan.  Coincidentally, around that time, George was approached by a couple of potential buyers interested in purchasing his company.  George was excited that he would now sell his company and he and Susan would be free to do all they wanted to do.

George experienced what he called "a sad awakening" when the most serious buyer made an offer that was significantly less than what George and Susan needed, along with an "earn-out" requirement.  George would have to remain on as an employee for three more years in order to earn 25% of the proposed sale price.  The potential buyer pointed to areas of risk including "the business still runs too much through you George", a lack of management team incentivized to remain during the transition, an inability to produce requested financials in a timely manner, and an unproven growth strategy as reasons for the low offer.

George had a huge decision to make, take the low offer and adjust downward the plans that he and Susan were looking forward to, or, reject the offer and invest more years in building his business the right way for a successful sale in the future.  Not an easy decision considering a few days ago both he and Susan were envisioning travel and "grandkid time" becoming reality within the next few months.  As George is now an employee working hard to earn the balance of his reduced payout, and Susan is doing much of the grandkid time by herself, he came to understand the hard way that you can never start too soon in building your business the right way for a successful exit.

 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.  

Expensive Sentences When Planning Your Exit

“It’s too late to turn back now.”  “We’re too swamped for that now.”  “We can probably do that ourselves.”  “It’s crazy busy around here.”  These are just a few examples of “expensive sentences” mentioned by my friend Jack Quarles in his book, Expensive Sentences, Debunking the Common Myths that Derail Decisions and Sabotage Success.

Jack explains in his book how conversations and discussions containing Expensive Sentences lead to decisions that impact the future of businesses, families, individuals, and nations.  How the faulty logic and false constraints of expensive sentences can lead to derailed and costly decisions.  He describes how conventional wisdom such as “You get what you pay for” or “We can’t change horses in mid-stream” can be a very costly and destructive trap.  Jack paints a picture as to how we can over time drift away from a disciplined analysis of a decision and instead be drawn by a “particular idea as if pulled by gravity.” 

When it comes to Exit Planning, or designing and implementing a plan to successfully and responsibly exit from a business, there is a seemingly endless supply of “expensive sentences”.

Such as:

“I’m not ready to exit yet…I will begin planning when I’m ready to exit “ 

“I am confident our business would be very attractive to a strategic or financial buyer”

“I know what my business is worth…I don’t need a valuation”

“I can sell my business for enough to live on for the rest of my life” 

“Yeah, I think we arranged it so that my spouse will get the business when I die” 

“I’m not worried about my employees leaving if I die…I have been good to them and they’re very loyal”

“One of my friends, who is in the same business, sold for $$$$...I’m sure I will be able to sell mine for at least that much”

“I don’t need a financial needs analysis.  I know about what we would need.”

“I am confident I can sell my business when I want or need to”

Business Owner Exit Planning employs a process requiring analysis that results in a strategy that will allow you to exit successfully and responsibly.  Avoid the costly and destructive trap of expensive exit planning sentences and begin the exit planning process today.

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.

Why Bother Doing It The Hard Way?

Whether you want to sell your business next year or a decade from now, you will have two basic options for an external sale: the financial or the strategic buyer.

The Financial Buyer

The financial buyer is buying the rights to your future profit stream, so the more profitable your business is expected to be, the more your company will be worth to them. Strategies that are key to driving up the value of your business in the eyes of this buyer include de-risking it as much as possible, creating recurring revenue, reducing reliance on one or two big customers, cultivating a team of leaders, etc.

The Strategic Buyer

The alternative is to sell to a strategic buyer. They will care less about your future profit stream and more about what your business is worth in their hands, typically calculating how much more of their product they can sell by owning your business. Strategic buyers are usually big companies, so the value of being able to sell more of their product or service because they own you can be substantial. This often leads strategic buyers to pay more for your business than a financial buyer ever would.

For example, Nick Kellet’s Next Action Technologies created a software application that takes a set of numbers and visually expresses them in a Venn diagram. Next Action Technologies was generating approximately $1.5 million in revenue when they received their first acquisition offer; Kellet’s first valuation was for $1 million, a little less than revenue, which is a pretty typical from a financial buyer.

Kellet knew the business could be worth more to a strategic buyer, so he searched for a company that could profit by embedding his Venn diagram software into their product. Kellet found Business Objects, a business intelligence software company looking to express their data more visually. Business Objects could see how owning Next Action Technologies would enable them to sell a whole lot more of their software, and they went on to acquire Kellet’s business for $8 million, more than five times revenue – an astronomical multiple.

Preparing For Every Eventuality

The question is: why bother making your business attractive to a financial buyer when the strategic buyer typically pays so much more?

The answer is that strategic acquisitions are very rare. Each industry usually only has a handful of strategic acquirers, so your buyer pool is small and subject to a number of variables out of your control; the economy, interest rates, the competitive landscape and a whole raft of other variables can all impact a strategic acquirer’s appetite to buy your business.

Think of it this way: imagine your child is a promising young athlete who’s intent on going pro. You know that becoming a professional athlete is a long shot, fraught with unknown hurdles: injury, the wrong coach, or just not having what it takes to compete at the highest levels. Do you squash her dream? No, but you do make sure she does her homework, so if her dream fades she has her education; you make sure she has a back-up plan.

The same is true of positioning your company for an exit. Sure, you may want to sell your business to a strategic buyer in a spectacular exit, but a financial acquisition is much more likely, and financial buyers are looking for companies that have done their homework – companies that have worked to become reliable cash machines.

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.

Focus On Driving Your Multiple

The value of your business comes down to a single equation: what multiple of your profit is an acquirer willing to pay for your company?

Profit × Multiple = Value

Most owners believe the best way to improve the value of their company is to make more profit – so, they find ways to sell more and more. As experts in their industry, it’s natural that customers want to personally engage with them, which means spending more time on the phones, on the road and face-to-face to increase sales.

With this model, a company can slightly grow, but the owner’s life becomes much more difficult: customers demand more time and service, employees begin to burn out, and soon it feels like there are not enough hours in the day. Revenue flat lines, health can suffer and relationships get strained – all from working too much. Does this feel familiar?

If you’re spending too much time and effort on increasing your profit, you could find yourself diminishing the overall value of your business. The solution? Focus on driving your multiple (the other number in the equation above). Driving your multiple will ultimately help you grow your company value, improve your profit and redeem your freedom.

What Drives Your Multiple:

Differentiated Market Position - Acquirers only buy what they could not easily create, so expect to be paid more if you have close to a monopoly on what you sell and/or are one of the few companies who have been licensed to provide the specific product or service in your market.

Lots of Runway - Most founders think market share is something to strive for, but in the eyes of an acquirer, it can decrease the value of your business because you’ve already sopped up most of the opportunity.

Recurring Revenue - An acquirer is going to want to know how your business will do once you leave – recurring revenue assures them that there will still be a business once the founder hits eject.

Financials - The size and profitability of your company will matter to investors. So will the quality of your bookkeeping.

The You Factor - The most valuable businesses can thrive without their owners. The inverse is also true because the most valuable businesses are masters of independence.

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.

Is Your Brand a Successful Business Growth Tool?

There is one key question every business should ask when it comes to their branding:  Does your brand enable your prospective clients or customers to see themselves in your experience—in your services or products?  If your prospects see themselves in your experience—they will become part of your experience.  If your brand doesn’t accomplish this both visually and verbally then your brand isn’t doing its job. 

How can businesses ensure that their brand is accomplishing this critical goal?  This is achieved through a value proposition-based brand.  The foundation of an engaging, effective, brand that drives business growth is a company’s value propositions.  They answer the questions: 

• Why choose your company? 

• What sets you apart from the competition? 

• What unique assets do you provide to your clients or customers? 

• What unique assets do you provide to the community (the giving-back component)? 

If the answers to these questions are showcased both visually and verbally through your brand, you can be assured that your prospects will see themselves in your experience and be drawn to become part of your experience.

Engaging, effective branding combined with proven technology, compelling content, engaging design, and a results-driven outreach strategy fuels vibrant and sustainable business growth. 

Liz Johnson, President & Principal Consultant, Mountain View Marketing. If you have questions or would like additional information, please reach out to Liz at liz@mountainviewmarketingllc.com . 

Accelerating the Transferable Value of Your Business

At the heart of an effective and successful plan for a business owner's exit is what we call transferable or sellable value. The transferable value being the value of your business apart from you the owner or what someone is willing to pay for the business without you.  

Following are a few sample questions for gauging the strength of your business transferable value:

"Can I really take a vacation from my business?  If so, for how long?  Would I be on the phone or my computer much of the time I'm away?"

"Do we have the right incentives in place to motivate, reward, and retain key employees even through a transition of the business?"

"Do we have a management team in place to take us to the next level of growth?"

"Are our operating systems strong and could they support future growth?"

"When was the last time we had either a legal or HR audit?"

"Do we have recurring revenue?"

And, because potential buyers are buying future cash flow, right at the top of the list of questions would be, "How strong is our EBITDA or free cash flow, and do we have a plan for growth?".  

The following sample scenario depicts the impact of strong cash flow and revenue growth on business value:

Today: 

Revenue = $ 2,500,000

EBITDA =   $ 250,000 (10%)

Biz Value Multiple of EBITDA = 4 X

Business Value = $ 1,000,000

End of Year 5 with Revenue and EBITDA growing at 10% (8% after inflation)

Revenue = $ 3,673,000

EBITDA = $   367,000 (10%)

Biz Value Multiple of EBITDA =  6X

Business Value = $ 2,200,000

NOTE:  The multiples used are for illustration purposes only.  For a business of this size, multiples are often lower.

So, if your post-business or legacy plans are contingent upon the future sale of your business to a potential buyer, the following are some action steps you should take as soon as possible to know how to increase cash flow and growth:

1. Get an accurate current valuation of your business. Find out what your business is really worth now. Meaningful planning requires accurate data.

2. Get a personal financial needs analysis. Find out how much you will need to do all you want to do post-exit. Not back of the envelope but a legit financial plan that considers taxes, cash flow, goals, etc..

3. Perform a financial GAP Analysis. Subtract what you have (personal assets and business value) from what you will need. If there is a GAP, it will represent the amount your largest asset will need to increase in value, unless you have other assets with greater growth potential.

4. Assess the strength of your value drivers and design a plan to accelerate value and growth.

It takes financial resources and planning to accelerate the value of your business, so the more time you have to budget, plan, and execute the plan the better your chances of a successful exit or transition.

Contact us today for help with accelerating the value of your business and planning your eventual exit. email@ennislp.com | 301-859-0860 | ennislp.com

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 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.

Wealth Management for Small Business Owners

Small business owners are at times neglected by the wealth management community as the business is commonly (not always) the owner’s largest asset rather than a portfolio of stocks, bonds, and mutual funds. You’d be well-advised as a business owner to engage a Financial Advisor who is proactive and experienced in factoring your future plans for the business into your overall plan for managing your wealth.

Impactful wealth management for you as a business owner would include at least these elements of exit planning:

• Clarifying what “exit” means to you. For example, do you want to leave entirely at some point, or gradually over time?

• Clarifying your financial, values-based, legacy goals, and what role the business needs to play in attaining your goals.

• A financial needs and gap analysis with an accurate valuation (not back of the envelope - meaningful planning requires accurate data) of the business. How much $$$$ will you need to do everything you want to do after the business? Is there a financial gap? Will that gap need to be closed by increasing the value of the business?

• Personal risk management including asset protection, insurance planning, tax planning.

• A current estate plan — a business owner cannot do exit planning without doing estate planning.

• A plan to preserve the value of the business (typically a small business owner’s largest asset), and a plan for it to survive during unexpected events of your permanent disability or death.

• An appropriate plan for managing financial assets resulting from the successful sale or transfer of your business.

Exit planning is wealth management for business owners that requires assessing, preserving, and building the value of your largest and most complex asset…your business.

Contact us at email@ennislp.com for assistance in building sellable business value or planning your eventual exit. Please also consider investing 15 minutes in completing our FREE Exit Readiness Assessment. We do not ask for confidential information.