Create a Customer Concentration List

A significant reliance on one or a few customers will directly impact your business's sellability. A high level of customer concentration is risky for a potential buyer who will request a customer concentration list as part of their due diligence process. A wise approach to strategically building a business that is indeed sellable and to being prepared for a future sale transaction is to create and manage a customer list as part of your ongoing business management process.

The following is a guide to help you create a customer concentration list that you could use to manage your business and present to potential buyers. This list is an excellent way to show the distribution and reliability of your revenue sources.

1. Listing Your Top Customers: This is a pivotal step. Identify the top customers who significantly contribute to your revenue, such as those who make up 5% or more of your total revenue. You may use a different threshold based on your business's size, but the key is to identify those who are the backbone of your business.

2. Revenue Contribution: Indicate each customer's percentage contribution to your revenue. This will give potential buyers a sense of your business's dependency on specific clients.

3. Contract Details: If applicable, mention if there are long-term contracts in place. Include contract duration, renewal terms, and any exclusivity arrangements. This helps buyers understand the stability of these revenue streams.

4. Customer Industry and Type: Indicate the type of industry each customer belongs to, which can show diversity across sectors and mitigate risks associated with industry-specific downturns.

5. Historical Relationship: Include the years you’ve worked with each customer. Long-term relationships indicate stability and customer satisfaction.

6. Growth Potential and Upselling: Highlight any growth potential with each customer, like opportunities for cross-selling or upselling, which can be valuable to the buyer.

7. Transparent About Risks. For instance, if you have customers who are not bound by contracts or who have been responsible for high revenue volatility, it's best to disclose this. Buyers will appreciate the honesty and transparency.

By providing this list, you're giving potential buyers a clear understanding of your customer base's reliability and concentration risk. This is crucial for them to evaluate your business's stability and growth potential. Also, if you include this level of customer analysis as an ongoing management process, you will be better prepared to tell and sell your business story when a transaction opportunity presents itself.

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.

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.

Trust the Process of System Documentation

In business, one key aspect often separates successful ventures from those that struggle to thrive: systems documentation. It's the roadmap, the blueprint outlining how a business operates, from its day-to-day processes to long-term strategies. In a recent ExitReadiness® PODCAST episode with guest Jason Henderberg, we discussed how meticulous system documentation can significantly enhance a business's value, ultimately paving the way for a higher sales multiple.

With over 30 years of experience, Jason has witnessed firsthand the transformative power of systematizing business operations. His advice? "Trust the process."

During our conversation, he emphasized the importance of documenting systems comprehensively and likened it to crafting a playbook encapsulating every facet of your business, from customer interactions to backend processes. This documentation serves as a tangible asset, offering prospective buyers a transparent view of how the company functions efficiently and profitably.

But why does this matter? It's all about perception and value. Businesses with well-documented systems exude reliability and scalability, qualities that are immensely appealing to potential investors or buyers. When every operation is meticulously outlined, it instills confidence in a prospective buyer and mitigates risk, two factors that can significantly impact the valuation of a business.

Moreover, Jason highlighted the operational efficiencies that stem from system documentation. By streamlining processes and clearly defining roles and responsibilities, businesses can operate more smoothly, increasing productivity and profitability. This, in turn, enhances the industry's attractiveness to potential buyers who seek revenue streams and sustainable and scalable operations. He also pointed out that system documentation is not a one-time task but an ongoing endeavor. As businesses evolve, so too must their systems. Regular updates and refinements ensure that the playbook remains relevant and reflective of the current state of the company. It's a continuous improvement journey that pays dividends in the long run.

But how does one go about documenting systems effectively? It starts with a systematic approach. Strategically identify critical processes within your business and break them down into manageable steps. Document each step meticulously, leaving no room for ambiguity. Visual aids such as screen recordings or diagrams enhance clarity and comprehension. He also emphasized the importance of involving key stakeholders in the documentation process. Who better to provide insights into day-to-day operations than the individuals directly involved? By soliciting employee input at all levels, businesses can ensure that their systems documentation accurately reflects reality while fostering a sense of ownership and employee engagement.

In essence, Jason advises to "Trust the process of system documentation." It's not just a mundane task; it's an investment in the future value of your business. The sooner you start developing a company-wide culture of following best practices, the sooner you will have a safety net in case you need to sell your business during an emergency. So, roll up your sleeves and get to work following his proven methods. The value of your business depends on it.

A Scientific Approach to Planning Your Business Exit

In his latest book, “Think Again, The Power of Knowing What You Don’t Know”, New York Times bestselling author Adam Grant makes a compelling case for “the critical art of rethinking: learning to question your opinions and open other people’s minds, which can position you for excellence at work and wisdom in life.”

In Part One: Individual Rethinking, the author explains how we often assume roles of Preacher, Prosecutor, or Politician, rather than that of Scientist in a key decision-making process, and how that is often detrimental. Grant describes the following cycles while recommending the RETHINKING CYCLE as a scientific approach:

THE OVERCONFIDENCE CYCLE: Pride > Conviction > Confirmation & Desirability Biases > Validation

THE RETHINKING CYCLE: Humility > Doubt > Curiosity > Discovery

We have found that owners planning for exit, who adopt a scientific, or “rethinking cycle” approach are much more likely to experience a successful transition out of their business. They indeed humbly realize and proclaim that “they don’t know what they don’t know”, and engage help in discovering what they should do and how they should do it. They understand what’s at stake and have been intentional in questioning or doubting their convictions and biases and with humility and curiosity seeking knowledge and wisdom from others who can challenge their current thinking. As a result, the chances for a successful exit, and the owner’s peace of mind, are greatly increased. The opposite almost always proves true on some level for an owner who moves forward adopting “the overconfidence cycle”.

One of Grant’s recommended “Actions for Impact” is to “Build a challenge network, not just a support network.” For an owner planning their exit, this could include business owner peers who have already walked the exit walk, as well as an expert advisor team (those who have knowledge that the owner doesn’t) who could serve in challenging the owner’s assumptions, convictions, biases, while providing needed knowledge and insight.

In planning for the most significant event in your life as a business owner, your inevitable exit from the business, you would be well-served in reading Mr. Grant’s book and adopting his proposed RETHINKING CYCLE. Please consider contacting us about playing a role on your “Challenge Network”.

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.

Cash Flow Projection and a Successful Exit

A small business owner named Simon understands how the cash flow of the business drives his current income, and as well how it would eventually impact the valuation and sale price. However, Simon lacked awareness of elements of potential exit routes that demand cash flow. For example:

• When considering an ESOP, his business met all the basic parameters EXCEPT having the adequate cash flow to service the debt needed to fund the ESOP.

• When running a “sanity check” as to whether key employees could finance an insider purchase with a bank loan, the bank would only finance a small amount…due to projected cash flow.

• In considering a third-party sale, and as a result of Simon’s exit planner’s financial gap analysis, there was a need to invest in updated systems, new hires (next-level management), and incentive plans for key employees in order to increase the value of the business…cash flow was needed to make it happen.

Simon has said that “he’s ready to exit”, but after analyzing his business’ readiness for an exit, and projecting future cash flow, Simon will not be able to exit the way he wants to for at least five years — there’s just too much to get done to realize the value he needs. So, the moral of the story is to have a ten-year cash flow projection and keep it current for planning both growth and your eventual exit. The stronger the cash flow and its management, the greater chance of building a transferable business and having multiple options for exit.

And, begin planning today…it will take longer than you think.

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.

Are You Selling Pet Rocks or Pain Killers?

In 1975, Gary Dahl created the perfect pet - the Pet Rock.  In six short months, he sold 1 million Pet Rocks, then the fad died.  You see, the Pet Rock did not really solve a customer’s problem – it was just a cute idea.  On the other hand, the over-the-counter pain killer market exceeds $ 50 billion annually.  The point is people will pay to remove or alleviate pain from their lives, while “Pet Rock” sales fade away. 

As business owners, we want to serve clients well, generate incomes for ourselves and our employees and hopefully build a company that has real value when we decide to leave.

In the first chapter of his book, The Boutique, author Greg Alexander encourages owners seeking to grow their business, that the very first thing they need to do is define the problem they solve for clients – and how do you address their pain?  If you can deliver the right “painkiller” to the right “patient” you will be on the right path.  Here are a few simple steps to help you focus on Greg’s advice and ensure you can continue to provide meaningful services in an ever-changing market:

1.     Define What You Sell – You started your business with a service or product that someone was willing to pay you for.  Most growing businesses’ initial service offering evolves into a few (or perhaps many) services.  This mixed bag of services gets categorized on company financial statements as a single line of Revenue – “sales” or “services”.  You need to clearly define what you sell.  Examine the “types” of services you offer and define what is different about each – ie – what types of pain killers do you offer?

 2.     Does The Product Solve The Problem? Every product or service should solve a client’s problem.  Do your clients and potential clients agree that they actually have the problem you are seeking to solve, and do they feel that problem is big enough to take action?  Get clear on who has the problem your services solve.

 3.     What You Do Best – Now identify what you do best (or could do best).  Identify the service offering that will be most sellable, easiest to scale, and most profitable.  This requires examining your current/past work and answering the following questions:

a.     Is my service delivery efficient?  Can I make it more so?

b.     Does my market have significant growth potential?

c.     What is my most profitable product?  What is in greatest demand?

d.     Am I selling to the right clients?

e.     Do I have the right marketing and sales force to make it happen?

 4.     Commit to Action – After answering the above questions, you should identify specific steps to move in the direction needed.  You will need to invest time and funds to make the changes needed.  This may include:

a.     Adding staff – particularly sales and marketing

b.     Narrowing or re-focusing  your target clients

c.     Investment in systems to optimize your product delivery

d.     Delegating the least important parts of your role so you can focus on the most important things.

e.     Re-aligning your accounting to track sales and profit by product

f.      Get the professional support you need to make the change.

Change is hard, and any change like this will take time.  But, make a plan, define where you think you need change and then act.  Do “90-day sprints”, assess your progress and your assumptions and adjust course as needed.  At a minimum, annually repeat the above exercise.  Over time, you’ll experience the satisfaction of helping your clients alleviate some of the “pain” in their lives while building a company more scalable and valuable.

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.

Contact us for an exploratory conversation if you need help in designing or implementing your plan for a successful exit.

"Five Years...That's When I'm Planning to Leave..."

We refer to it in the exit planning trade as the "perpetual five-year exit plan".  When asking a business owner when they plan to exit their business, the following is a fairly common response:  "Not sure but probably about five years from now..."  And it’s not unusual to get the same response year after year from the same owner.  There can be numerous and varied reasons for the response, but a lack of planning is often primary. 

The problem is that if you don't begin planning now, you and your business may not be ready for you to exit in five years, and it could end up being necessary for you to plan and wait for another five years in order to attain your goals.

In our effort to help you avoid the perpetual five-year plan, the following is our "2021 Exit Planning To-Do List" we posted at the end of last year to help you get started. 

DECIDE WHERE YOU WANT TO GO.  Establish Clear Goals and Objectives for Exit and Your Life After Exit.

• When do you want to leave the business? Whom do you wish to transfer/sell the business to?

• What are your values-based and legacy exit goals?

• What is your post-exit "life plan"? Business owners can often regret leaving when lacking a plan for life that replaces the sense of purpose and meaning they experienced in building their business.

• Update your Personal Financial Plan. Find out how much $$$$ you will need post-exit to do all you want to do. Is there a gap?

ASSESS WHERE YOU ARE.  Without Accurate Data All Planning Becomes Meaningless.

• Get an accurate Business Valuation. If the business is your largest asset shouldn't you know what it really is worth to potential buyers?

• Assess your business Value-Drivers and areas of Risk.

• Review your Business Continuity Plan for life transitions and unexpected death or disability. Co-Owners would include a review of their Buy-Sell Agreement to ensure alignment with current goals of all owners.

• Review Estate Plan to ensure alignment with exit goals.

DESIGN AND IMPLEMENT A PLAN.  Build Transferable Value and Enjoy a Future Exit On Your Own Terms and Conditions.

• Which Exit Route will best accomplish your goals? Sale to Third-Party | Sale to Insiders | Transfer to Family Members | Sale to ESOP | Absentee Owner.

• Focus on growth and profitability today. At the core of tomorrow's successful exit plan is today's profitability and plan for growth.

• Strengthen business value drivers.

• Update strategic financial plan for the business.

• Do you have the right Team of Experienced Advisors for plan design and implementation?

• Who will Manage the Exit Planning Project?

Following are some easy next steps:

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.

Contact us for an exploratory conversation if you need help in designing or implementing your plan for a successful exit.

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.

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.

2022 Exit Planning Checklist

Like any strategic plan, it can be difficult to know how and where to begin strategically planning for your exit.  To help you along, the following is a baseline "2022 Exit Action List" meant to serve you in planning for that most significant event as a business owner...your future exit. 

DECIDE WHERE YOU WANT TO GO.  Establish Clear Goals and Objectives for Exit and Your Life After Exit.

• When do you want to leave the business? Whom do you wish to transfer/sell the business to?

• What are your values-based and legacy exit goals?

• What is your post-exit "life-plan"? Business owners can often regret leaving when lacking a plan for life that replaces the sense of purpose and meaning they experienced in building their business.

• Update your Personal Financial Plan. Find out how much $$$$ you will need post-exit to do all you want to do. Is there a gap?

ASSESS WHERE YOU ARE.  Without Accurate Data All Planning Becomes Meaningless.

• Get an accurate Estimate of Business Value. If the business is your largest asset, shouldn't you know what it really is worth to potential buyers?

• Assess your business Value-Drivers and areas of Risk.

• Review your Business Continuity Plan for life transitions and unexpected death or disability to include written instructions. Co-Owners should include a review of their Buy-Sell Agreement to ensure alignment with the current goals of all owners.

• Review your Estate Plan to ensure alignment with exit goals.

DESIGN AND IMPLEMENT A PLAN.  Build Transferable Value and Enjoy a Future Exit on Your Own Terms and Conditions.

• Which Exit Route will best accomplish your goals? Sale to Third-Party | Sale to Insiders | Transfer to Family Members | Sale to ESOP | Absentee Owner.

• Focus on growth and profitability today. At the core of tomorrow's successful exit plan is today's profitability and plan for growth.

• Strengthen business value drivers. An owner with a sellable business will have more freedom in life and options for exit.

• Update a strategic financial plan for business growth.

• Do you have the right Team of Experienced Advisors in place for your plan design and implementation?

• Who will Manage the Exit Planning Project? You, a current Advisor, or an experienced Exit Planner?

The most important thing you could do in 2022 would be to GET STARTED AND GET HELP if you have yet to do so.  If you wait until “you're ready to exit” to begin planning, you won't be ready, and neither will your business.  Keep in mind, that "You don't know what you don't know" and like in all other areas of life, that could end up being disastrous. 

There is much at stake during this most significant event in your life as a business owner.  Take steps in 2022 to be as successful in planning your eventual exit as you have been in running your business. 

Following are some easy Next Steps:

Contact Us Today for a No-Obligation Exit Planning Exploratory Meeting. 

Take the Free ExitMap Readiness Assessment and get Online Learning and Resources at exitreadiness.com.

A Common Cold That's Double-Pneumonia

In a conversation with a friend who was asking about our business, I shared with him that business owners "don't know what they don't know" when it comes to planning a successful exit and how ignorance can result in either procrastination or no action at all until it's too late.  I went on to describe some of the severe financial and relational consequences due to inaction.

My friend's response was "That sounds like my brother who thought he had a cold but was diagnosed with double-pneumonia."  He went on to explain how family and friends were encouraging his brother to get to the doctor for a diagnosis but his brother "knew better" and continued to resist their strong exhortations.  He resisted until a few men that he worked with eventually took him to the hospital where he learned that he had double-pneumonia...which could have killed him.  He was in a coma for a month and ended up having to be in the hospital for almost two months.  Due to his lengthy stay in a hospital bed, he needed physical therapy to learn how to walk again. 

This gentleman was confident in his own diagnosis while what he did not know, that he had double-pneumonia, could have killed him.  With an early diagnosis, he could have avoided a near-death experience, a lengthy stay in the hospital, and weeks of physical therapy learning to walk again.

Business owners often "don't know what they don't know" as it pertains to planning their inevitable and eventual exit.  Professional Advisors often hear from owners, "I'm not ready to begin planning because I'm not ready to exit yet."  The owner may be aware of a "common cold" so to say, and not realize they're walking around with double pneumonia that could be disastrous for themselves, their family, their co-owners, and their employees. 

Don't be that business owner who isn't listening to Professional Advisors who are strongly encouraging you to get "diagnosed" NOW.  Listen to your advisors and act now to get an "exit readiness check-up" and create a plan before it's too late.  You may have double-pneumonia and don't know it. 

Get started today with this Free Exit Readiness Assessment.

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.

2021 Exit Planning Checklist

All business owners will stop being business owners at some point.  So, there is no better time to begin planning for the inevitable than the present.  The earlier you begin planning, the more options you will have for a successful exit.

However, like any strategic plan, it can be difficult to know how and where to begin.  As we wrap up 2020, it's also an ideal time for us to publish a basic "To-Do List" that will serve you in considering that most significant event as a business owner...your future exit. 

DECIDE WHERE YOU WANT TO GO.  Establish Clear Goals and Objectives for Exit and Your Life After Exit.

• When do you want to leave the business? Whom do you wish to transfer/sell the business to?

• What are your values-based and legacy exit goals?

• What is your post-exit "life-plan"? Business owners can often regret leaving when lacking a plan for life that replaces the sense of purpose and meaning they experienced in building their business.

• Update your Personal Financial Plan. Find out how much $$$$ you will need post-exit to do all you want to do. Is there a gap?

ASSESS WHERE YOU ARE.  Without Accurate Data All Planning Becomes Meaningless.

• Get an accurate Business Valuation. If the business is your largest asset shouldn't you know what it really is worth to potential buyers?

• Assess your business Value-Drivers and areas of Risk.

• Review your Business Continuity Plan for life transitions and unexpected death or disability. Co-Owners would include a review of their Buy-Sell Agreement to ensure alignment with the current goals of all owners.

• Review your Estate Plan to ensure alignment with exit goals.

DESIGN AND IMPLEMENT A PLAN.  Build Transferable Value and Enjoy a Future Exit On Your Own Terms and Conditions.

• Which Exit Route will best accomplish your goals? Sale to Third-Party | Sale to Insiders | Transfer to Family Members | Sale to ESOP | Absentee Owner.

• Focus on growth and profitability today. At the core of tomorrow's successful exit plan is today's profitability and plan for growth.

• Strengthen business value drivers. An owner with a sellable business will have more freedom in life and options for exit.

• Update a strategic financial plan for business growth.

• Do you have the right Team of Experienced Advisors in place for your plan design and implementation?

• Who will Manage the Exit Planning Project? You, a current Advisor, or an experienced Exit Planner?

The most important thing you could do in 2021 would be to GET STARTED AND GET HELP if you have yet to do so.  If you wait until you're ready to exit to begin planning, you won't be ready and neither will your business.  Keep in mind, that "You don't know what you don't know" and, like in all other areas of life, that could end up being disastrous. 

There is much at stake during this most significant event in your life as a business owner.  Take steps in 2021 to be as successful in planning your eventual exit as you have been in running your business. 

Following are some Easy Next Steps:

Contact Us Today for a No-Obligation Exit Planning Exploratory Meeting.  Take our Free ExitMap Readiness Assessment and get Online Learning and Resources at exitreadiness.com.

The Most Common Reasons To Grow Through Acquisition

Jim has done all he can to grow his business organically, however, growth in both sales and profit have come to a screeching halt. He remains confident, based on research, in his market, and he has taken countless steps to reduce costs to improve the bottom line. So, with his goals for growth and increasing business value being greater than what he’s currently realizing, Jim is now wondering if external growth through acquisition makes the most sense.

David Braun, in his book Successful Acquisitions, A Proven Plan for Strategic Growth, suggests that Jim, and any owner considering growth through acquisition, should consider the following “ten most common reasons to acquire”.

1. Increase top-line revenue.

2. Expand in a declining market.

3. Reverse slippage in market share.

4. Follow your customers.

5. Leverage technologies.

6. Consolidate.

7. Stabilize financials.

8. Expand your customer base.

9. Add talent.

10. Get defensive.

We highly recommend David’s book for anyone considering acquisition as an external growth strategy, and please contact us if we can be of assistance with your organic growth or decision as to which growth path you should choose.

Invest 15 minutes and take our FREE Exit Readiness Survey HERE. We do not request any confidential information.

301-859-0860 | email@ennislp.com

Using Cybersecurity to Improve Your Company’s Valuation

Thanks to increasing reliance on computers, data, social media, programs, and networks, businesses all over the world are at a greater risk of a cyberattack or data breach. Companies have to fend off malware, DDoS, and phishing attacks at unprecedented levels. Cyberattacks have become so common that the cost of managing cybersecurity risks has become more of an investment than an expense. Consequently, one of the hidden costs of a cyberattack is how it affects the value of your company.

Cybercriminals, like water, find the path of least resistance. Investing in cybersecurity best practices, including a layered security strategy will reduce the risk of an attack. Stepping up your cybersecurity game will, in turn, enhance your market position and add tremendous value to your business. From a valuation perspective, strong cybersecurity means less risk for potential buyers and future investors. Cybersecurity diligence is particularly important for business executives who are looking to sell or are on the verge of selling.

Add Value to Your Company with Better Cybersecurity

Cybersecurity has become a necessity for every business out there, whether they offer products or services. Cybersecurity is rapidly becoming a trend in company valuations. All the factors that go into the value of the company including data operations, assets, customer records, intellectual property, employee information, marketing tactics, etc. are all vulnerable to cyberattacks. Demonstrating cybersecurity strength and integrity contributes to a company’s value.

As you can see, improving your company’s cybersecurity stature will fetch you a better price when it’s time to sell. Here are a few ways to secure your business and improve its value.

Risk Assessment

Cybersecurity risk is the likelihood of reputational or financial loss from a cyberattack or a data breach. A cybersecurity risk assessment is essential to a company’s risk management strategy and data protection efforts. Assessing risks and vulnerabilities can help you understand, manage, control, and mitigate cyber threats across your business.

Network Encryption

Data theft, tampering, technical failure, eavesdropping, etc. have all become commonplace in data networks. Securing network transmitted data against cyberattacks and data breaches is imperative for businesses. Only encryption can make sure that your company data is protected while in transit across data networks and links.

Network encryption makes data unreadable by anyone who is not explicitly allowed to access the information. A VPN is one of the most effective encryption tools. It creates a secure tunnel between your devices and the Internet, protecting your data from snooping. A VPN can also be downloaded in simple steps.

Layered Defence Strategy

In today’s dynamic digital environment, having a cybersecurity defense strategy can help businesses strengthen their resilience to cyberthreats. This strategy employs a series of layered defensive mechanisms including antimalware and network security controls such as a firewall to protect your online presence.

An emerging trend in the business world is the use of cybersecurity in company valuation. Organizations must strive to improve their cybersecurity position and increase their value. But with the cyber threat landscape evolving at a faster rate than companies can keep up, this is easier said than done. Risk assessment, network encryption, and adopting a layered cybersecurity strategy are some of the steps business leaders can take to improve digital security and add value to their companies.

Chris Jones is the resident tech expert and managing director of #TurnOnVPN. #TurnOnVPN is an activist group whose mission is to promote free and unimpeded internet for all. We take part in numerous online events to advocate for a safe, secure, and censor-free Internet. Learn more at www.turnonvpn.org/blog/.

Invest 15 minutes and take our FREE Exit Readiness Assessment.

Planning For Exit During A Crisis

Prior to the crisis, there were owners planning to exit their business. There will be owners who plan their exit after the crisis, and owners who are now wondering when and if they will ever be able to leave. The following are accounts of three owners whose businesses have been impacted negatively by CV-19.

Jim has been planning for the last three years to sell his business in five years to a third party and move south. He knows how much money he will need for life after the business and what his financial gap is. His financial gap has grown significantly in the last month as his business would be valued by a buyer for much less if he’s able to sell. Now he’s not sure when his goals of fishing and golfing in Florida will be realized.

Susan, who has been in business for 20 years, has been thinking she’d initiate her plan for leaving next year when she reaches age 60. To this point, she’s done nothing to assess personal or business readiness for exit and has no real objective idea as to what her business is worth. Susan also really doesn’t know what exit route would be best as she has key employees who have expressed interest in eventual ownership, but she’s also thought about selling to a third party.

Until now, exiting her business wasn’t at all on Sarah’s mind. She’s well past the 5-year hurdle with ten years in business and is highly prosperous and profitable. Prior to launch Sarah had a successful corporate career that she finds herself missing more and more each day. It’s a lot different going to sleep each night owning the risk of a business, and with this crisis, she’s not sure how much longer she’s willing to do that. Thoughts of exiting are new to Sarah but frequent.

Each of these business owners has “exit on their mind” while working around the clock to manage and lead through a crisis with a goal of lasting. Following are a few baseline exit planning steps Jim, Susan, and Sarah can take now, in the midst of the chaos. And, at least one of these actions is needed for planning to make it through the crisis.

• Project cash flow for the next 12 months. Strong cash flow is a key ingredient for planning a successful exit. You can access spreadsheets for free at https://ennislp.com/corona-virus-resources. Effective cash flow management will also be critical for making it through to the other side of CV-19.

• Request an updated Financial Needs Analysis from your Financial Advisor calculating how much money you will need post-exit and whether or not you have a financial gap.

  • You will need an objective Estimate of Business Value for the Financial Needs Analysis to be meaningful. We could help with that if needed.

  • You may find that the results of your analysis demands a change in your departure date, your goals, and/or your planned exit route.

• Review your plan for the unexpected events of death or disability or Business Continuity. These times are difficult for you as an owner but would be even more challenging for those left behind if you were suddenly unavailable to work in the business.

• Begin to assess personal and business readiness for your exit. Invest 15 minutes and complete this free exit readiness questionnaire which will score you in areas of Finance, Operations, Planning, and Revenue/Profit. You will NOT be asked to submit any confidential financial information.

Please contact us if we can be of help in any of these steps. You can also access online resources at https://exitreadiness.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.