'''What You Don't Know Won't Hurt You!"

Have you ever heard the old saying, “What you don’t know won’t hurt you”?  Not sure why, or who it was in my life at the time would say it, but I remember hearing it a lot when I was a kid.  Through the years I’ve found this saying, through personal experience and observation, severely misleading at best.  I wonder if the person who originated the phrase had only “current hurt” in mind.  For example, I might be unaware that my car has no engine oil and that the engine is going to die exactly a week from today – but today, because I don’t know it, it doesn’t hurt.  However, in a week when the car blows up and catches on fire, there is a lot that’s going to hurt.  So, what you don’t know, can absolutely hurt you, and often does…it simply may not be immediate.

If you’re a successful business owner, your business may be your biggest asset, and play a key role in whatever represents success for you in the future (i.e., financial, values-based, or legacy goals).  You may understand there are things you need to know about how ready you are, and how ready your business is for you to leave on your own terms and conditions. But you’ve chosen not to know, as it will surely result in additional work, time, and/or financial investment…and because “what you don’t know, currently isn’t hurting you.”  It may not hurt now, but the hurt that comes later could be devastating when you eventually leave your business if you then learn that your financial, values-based, and legacy goals are not going to be realized. 

Take steps now to expose reality and get the knowledge you need then act on it.  And get help…because you don't know what you don't know.  

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.

How Will Selling (Or Not Selling) Your Business Impact Your Lifestyle In The Future?

Our fictional business owner, Baby Boomer Jane Doe, is like most owners in that her business is her largest asset and will play a central role in achieving future financial security, goals, and dreams.  Jane has been in business approximately 25 years and, as a result of the steady stream of business revenue, she has experienced a very comfortable lifestyle that includes two homes, private education for the children, annual vacations, and plenty of discretionary income.  

But now Jane wants to plan for "what's next" as she now has grandchildren in different states she wants to visit regularly and has lost the passion once enjoyed in owning and running the business.  In conversation, Jane says with a level of exasperation, "I'm just ready to leave the business...I'm done".  Jane doesn't have management or children interested in purchasing the business, no longer wants to be an owner and thinks the best exit route would be a third-party sale.  

After engaging an exit planner to lead the design and implementation of her plan to leave, Jane is alarmed and disappointed to learn that her business is worth quite a bit less than what she had estimated and that a significant increase in her investable assets will be required to do all she wants to do post-exit.  Her financial planner assessed that her "plan for life after the business" would have a price tag of at least $4 million, while her business is really worth $1 million (Note: Jane had estimated a $2 million value), she has current investable assets of $1 million, representing an "asset gap" of $2 million.  And again, Jane wants to leave now!

As Jane's exit planner continued to "expose reality" regarding her business readiness for a successful third-party sale, Jane also had to come to grips with the reality of her business not being as sellable as she had assumed.  The planner pointed to a number of "value drivers" that needed strengthening (i.e., EBITDA, capable management team, plan for growth, etc.) to make her business more attractive to either a strategic or financial buyer. 

So, if Jane chooses to sell now and is able to, all indications are that she would not receive a sufficient amount of net proceeds to facilitate her post-exit life plan.  She will either need to begin now to execute a plan to accelerate the value of her business and sell at a later date or significantly reduce her post-exit goals and lifestyle...neither of which are attractive options.  Jane is not feeling at all good about her limitations and lack of control over her current options.  

It is now clear to Jane that it would have been wise years ago to assess both her personal and business readiness and put a plan in place to accelerate the value of the business.  If the business was more sellable and highly valued she would have more options for when and how she exits.

Have you conducted an accurate financial gap analysis including an objective estimate of business value and personal financial plan?  Do you have a plan in place to systematically maximize the value of your largest asset?  Will selling (or not selling) your business affect your future lifestyle goals?  Will it be sellable as more and more baby boomer business owners put their business on the market in the next decade?

Take control of your plan now so that you exit on your own terms and conditions.  Contact us for assistance with any of these critical planning issues.

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 Business a Passion Project or a Growth Machine?

In their Harvard Business Review article, “Every Business Owner Should Define What Success Should Look Like”, authors Josh Baron and Vlad Barbieri highlight and effectively describe the need for a well-defined “Owner Strategy” for an owner and their business.  The authors provide a short account of Elisa and Mark’s watch business and how they needed to decide whether the business was a “passion project or growth machine” that paints a clear picture of the importance of a thoughtful and well-defined owner strategy.

The article is concise and effective in addressing an essential but often overlooked aspect of business owner planning. Also provided is a simple yet impactful framework for creating an owner strategy for the business that is based on the personal goals of the owner for the business.  A strategy that “generates alignment among owners, board members, executives, and employees, which in turn, improves both performance and satisfaction.” And we would only accentuate their recommendation of clarifying the owner’s personal goals not directly related to the business (i.e., family, estate planning, travel, legacy, etc.). As well, add that determining how the owner eventually would prefer to leave or exit should influence an owner’s decision regarding a strategy of “Growth - Control, Growth - Liquidity, or Liquidity – Control.”

An investment of a few minutes reading the Baron & Barbieri article could have a huge impact on your future business growth and 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.

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.

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 .