Would Your Business Need To Continue Without You?

“It’s time to get the boat in the water!” is what Joyce has heard Jim say around this time for about 30 years now. Jim & Joyce and their five kids have many wonderful memories boating and fishing on the lake through the years. Now that the kids are all older, and there is a growing number of “grand-babies”, Jim and Joyce have been checking out larger homes on the lake with a vision of many more years of even bigger family gatherings.

Jim loves everything about the times at the lake, and is much looking forward to when he will have freedom from the business to “make it up there more often.” He’s says that “my goal is to pull back in five years so that I can spend more time with Joyce and the family” (Note: but he really hasn’t put a plan in place to ensure that happens). During the summer, Joyce is there most of the time, with the kids and their kids coming and going, but Jim is still greatly needed at the business and only makes it up occasionally.

As a successful business owner, Jim has been able to provide numerous lifestyle privileges for his family that they’ve all come to appreciate and expect. His income from the business has grown through the years to become more than enough to accommodate the way of life the family has become accustomed to. If Jim has any regret, it’s that he’s placed “most of his eggs in one basket.” In other words, most of his net worth is tied up in his business. And, more and more, in his solitary moments, he can feel concerned and anxious about what would happen if he could no longer work in the business. It would be unimaginable at this point for Jim and Joyce (and their kids) not to have these long summers at the lake as well as all the other life luxuries they’ve come to know and love.

Jim lacks freedom because his business cannot run without him. Too many customers still want to deal directly with him, he still needs to make too many of the day-to-day decisions, and if Jim’s not there “the place simply doesn’t run well.” Jim has at least two significant strategic planning issues he’s yet to address (he actually does more planning around getting the lake house open and the boat in the water):

1. If he’s going to “pull back in five years”, things need to change starting with his role. He needs to assess his current list of responsibilities and then who to delegate to. He may need to further develop current members of the “management team”, or he may need to get new next level managers on the bus. The goal is that the business becomes less dependent on Jim.

2. And with even more urgency, Jim needs to review his plan for the unexpected…his plan for business continuity…considering questions such as these with the appropriate advisors:

   • How much $$$ would Joyce need to continue our current lifestyle (with kids and grandkids) if I were to die or become incapacitated unexpectedly?

   • Where would these $$$ come from? Would the business be sellable? If so, for how much considering I’m no longer working in it? Would it be enough (net of taxes) to produce our same standard of living for Joyce? If not, how do I fill the gap…insurance?

   • What would Joyce want to do with the business? She doesn’t want to own the business without me, and none of the kids want to work in the business…what would happen and how would it happen?

   • What would keep employees on board if I’m not there? They will need to think of their futures, and if I’m not there will they see any kind of future for my business? Would the business need additional cash to incent them to stay and to operate effectively until a sale can happen?

These are among the many questions Jim needs to be considering in planning for his financial, values-based, and legacy goals as a business owner. After completing the needed analysis, Jim learned that his business “would need to continue without him” in order for Joyce and his family to be provided for in the ways he desired. But now, he’s got a plan in place to work toward the business growing less dependent on him, while at the same time being assured that in the short-term, if the unexpected happens, Joyce would still realize their life and family goals without the business having to continue.

What about you? Have you adequately addressed the all-important question of “Would your business need to continue without you?” To help you get started, please contact us for a FREE copy of our ExitReadiness® Business Continuity Instructions.

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.

Creating Business Value Through Your Key Employees

A key driver of the value of your business will be how much the business does or does not run through you the owner. The more essential you are to the business, the less value you can expect when you leave. It is actually your key employees and their involvement in the business that creates value. It is not an exaggeration to state that the future value of your business, and the level of success you realize when exiting, is largely linked to your key employees.

Let’s define which of your employees would qualify as a “key employee”. Employees that are key to your business success take initiative in their work, they want to see the business grow and prosper, they embrace challenges, are exceptionally skilled and knowledgable, and demonstrate intentionality toward personal and professional growth. Because they are on your team your business is thriving, and if they weren’t “on the bus” your business would suffer significantly. You would realize great pain if they were to leave, and key employees can be easy to identify as they typically act like owners of the business.

When you consider what will be critical for building the value of your business, a key value driver is hiring, motivating and retaining your key employees. Following are common elements of impactful plans for incenting key employees to build and remain with the business:

• Provide financial awards that are meaningful and attractive.

• The plan is specific as to the expected performance of the key employee.

• The plan is structured to build the value of the business and align with the growth and exit goals of the owner.

• Plan rewards are vested-payments tied to the tenure of the employee facilitating retention of the employee. Often referred to as “Golden-Handcuffs”.

• The plan must be in writing and clearly communicated to the employee.

Then, there is the decision as to whether to install a plan that is cash-based or equity-based, or a combination of both. Too often owners, due to their generous nature, offer an equity-based plan without thinking through the potential ramifications. For example:

• Provisions for buying the stock back from the key employee if things don’t work out as expected or hoped for.

• A method for valuing the equity interest/shares in the case of a repurchase.

• Offering stock to an employee when a cash bonus would have been sufficient.

• Not having an understanding of the substantial rights a minority shareholder has in the business.

• Awarding equity to an employee, who at yesterday’s size of the business, was considered key, but now at today’s level (i.e., three times the size) they are more of a detriment to growth than a key employee.

So, there is much to think through when it comes to effectively implementing employee incentive plans. And, you would be wise to get expert advice prior to moving forward as you will want to make well-informed and confident decisions pertaining to timing, structure, tax planning, and the type or types of plans to install. To obtain an initial idea as to whether you should consider a cash or equity-based plan, the professionals at VisionLink have created a decision-tree tool that is quite helpful.

Hiring, motivating and retaining key employees is just one of the many key planning areas for building sellable business value and a successful exit. Contact us today to learn more about how we can help you in designing and implementing your comprehensive exit plan. You can get started today with our FREE Exit Readiness Assessment.