"I'm Ready to Sell and Exit!" Really???

"I'm ready to sell and exit!" — a small business owner can arrive at that point in their thinking and emotions quickly and for many good reasons. Common reasons include retirement, health issues, a desire to do something else (e.g., travel with a spouse), or simply being burned out and tired of owning a business.

So, the business owner reaches out to a Business Broker to sell their business, but they may face some harsh realities. Even though they are "ready to sell," the Business Broker informs them that their business isn't ready to be sold as is, at least not for the $$$$ they need to get out of it. They learn that even though they have realized an excellent standard of living by doing "what seemed good" along the way, they've created a "lifestyle business" rather than building a business that would be of value to a viable buyer. It could take the Business Broker years to get interested buyers and close a sale that doesn't come close to seller expectations, wants, or needs.

Following are a few common characteristics of a lifestyle business that are not attractive to a viable buyer:

1. Dependence on the Owner:

   • The business relies heavily on the owner's skills, knowledge, and relationships, making it challenging to transfer smoothly to a new owner.

   • The owner is often involved in day-to-day operations, which can create a risk if the owner leaves.

2. Lack of Scalability:

   • The business may have limited growth potential and is designed to support the owner's lifestyle rather than expansion.

   • It may not have systems or processes to scale up operations quickly.

3. Limited Market Presence:

   • The business may serve a niche market with limited customer base, which can be unattractive to buyers looking for broader market appeal.

   • Often, it lacks strong brand recognition or market penetration.

4. Financial Stability:

   • Revenue and profits might need to be more consistent, often fluctuating based on the owner's efforts and involvement.

   • Limited reinvestment into the business for growth may lead to outdated equipment or technology.

5. Employee Structure:

   • The business might have a small team with limited delegation of responsibilities, which could lead to potential operational challenges during the transition.

   • Employees may have loyalty primarily to the owner rather than the business itself.

6. Documentation and Processes:

   • Poor documentation of business processes, customer lists, and operational procedures makes it difficult for a new owner to understand and run the business.

   • Often needs formalized business plans or strategic direction.

7. Customer Base:

   • Customer relationships may be informal and personal, heavily tied to the owner.

   • Often, a small, local customer base with limited long-term contracts or recurring revenue streams.

8. Financial Records:

   • Financial records may need to be better maintained or in a standard format, complicating due diligence for potential buyers.

   • Often needs audited financial statements or comprehensive financial reports.

9. Strategic Planning:

   • Business decisions may be based on the owner's preferences rather than market opportunities or strategic growth plans.

   • Often, it needs a long-term vision or strategic roadmap for future growth.

The story's moral is this: if you intend to HAVE AND EXIT WITH A LIFESTYLE BUSINESS, the characteristics above can be acceptable, especially if you've met your financial goals outside the business. That can be an effective exit plan if it is indeed planned. But you shouldn't expect to say, "I'm ready to exit!" and simultaneously wish to be in a position to sell your business as a business intentionally built to sell for value. A company built to sell takes years and should begin when it's launched.

If you’re in a situation where you have a lifestyle business, but need to have a business built to sell in order to exit successfully, we can help if you’re willing to invest time and finances in making it happen. Contact us at email@ennislp.com for an exploratory conversation.

You can also get a FREE Exit Assessment HERE.

The Pursuit of Better

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

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

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

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

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

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

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

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

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

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

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

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

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

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.