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.

Survive and Advance

In 1983, the NC State Wolfpack, coached by Jim Valvano, “survived and advanced” during March Madness by winning nine must-win games in a row (seven of which they were losing in the final minute) and having one of the most exciting runs to victory any team has ever experienced. On their unlikely journey, they had to beat Michael Jordan and three-time National Player of the Year Ralph Sampson. And then, this team that barely made it into the tournament now had to go up against “Phi Slama Jama”….the No. 1 team in the nation…Houston. A team loaded with talent including NBA Top 50 all-time players Hakeem Olajuwon and Clyde Drexler. Throughout this journey, their leader “Coach Jimmy V” consistently and passionately stated his mantra, “Survive and Advance!”. They indeed did survive and advance, as NC State, one of the biggest underdogs ever, went onto win the game that is considered by many to be the best college basketball game in history.

As a business owner in the midst of the Covid-19 crisis, you need to lead in both surviving and advancing. The normal course of life for you as an owner includes the ongoing challenges of increasing sales and growth of revenue and profitability, staffing decisions, cash flow and debt management, risk management, just to name a few. In the midst of this crisis, these routine challenges become even more intensified and worrisome as you do all you can to simply “survive”. And, the key to your survival will be a vigilant approach to cash flow and debt management. To assist you with staying on top of that crucial survival task we have created a Cash Flow Management Spreadsheet that you can access for free on our homepage along with a video tutorial.

This crisis will end at some point (hopefully soon), and life as your business has known it may need to change its mission, purpose, products, and product delivery. Some businesses simply will not be able to do “business as usual” going forward as the behaviors, desires, and needs of your customers may have changed as a result of the crisis. The owners who understand that possibility and begin to plan now will have the best chance of surviving, and also “advancing” and thriving in the future.

Any thought of “strategic planning” for the future currently can result in even more sleepless nights —“If we don’t do everything to survive today, there may not be a tomorrow!!!”. And certainly, there is truth in that. For some businesses, simply surviving will be enough when competitors are not able to make it through. However, a visionary leader will not leave that possibility to “chance” and will take the initiative to plan now and be more in control of future outcomes. There is a need for a “Level 5” (Jim Collins - Good to Great) leadership that can lead through the daily burdens while simultaneously planning for the future and the overall good of the organization. You would be wise to act now in adjusting, where needed, your strategy for the future.

This “strategy renovation” does not need to be a long and complex process. Following are areas that you could address with a measured investment of time while continuing to stay on top of crisis management:

• Forecast Future Products. Same? Add? Remove?

• Team. Who will be the key people needed to survive and thrive in the future?

• Markets. What customer segments will we market to in the future? Same? Different?

• Competitors. Who will be our competitors? Same? Different?

• SWOT Analysis. Strengths, Weaknesses, Opportunities, Threats.

• Goals. What should be our 3 big strategic goals coming out of the crisis?

• Financial Forecast. What do we project for sales, expenses, and profit over the next few years?

As Jimmy V and his squad survived, they also advanced. If you need any assistance in renovating your strategy for either survival or future advancement, please contact us at either 301-859-0860 or email@ennislp.com. We want to help you survive and advance.

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.