Successful Business Owners Have Great Impact

In our work, we are constantly aware of the incredible influence and good that result from the efforts of a successful business owner and their business.  Just a few of the good works include:

• Quality services and products.

• Empowerment of others.

• Creativity and innovation.

• Wealth and value creation.

• Peace, flourishing, and prosperity for communities.

• Charity and philanthropy.

And then there are common characteristics and principles often demonstrated by high-impact business owners in building a successful business:

• Integrity.

• Responsibility.

• Excellence.

• Diligence.

• Service to others.

• Building and leaving a legacy.

Successful business owners who embody such characteristics have a huge impact on many "stakeholders" when they responsibly and diligently build and sustain a successful business.  Impact on their family, employees, customers, suppliers, economy, and community.

As a business owner, will you have as great an impact when you leave the business as you have in building it?  Will your legacy as a business owner, and family legacy, be your desired legacy?  Are you being as responsible and diligent in planning your exit as you have been in building your business?  Will there be flourishing and peace for your many stakeholders as you leave?  

All of the tremendous good produced by you and your business are at stake when (and how) you leave your business.  The more time you have or take to plan for this most significant and impactful event, the greater potential for success and attainment of your goals and desires.  

Design and implement a plan to have a great (or greater) impact when you leave as you have in building the business.  

Contact us today for an exploratory conversation about your impact when exiting.

email@ennislp.com | 301-859-0860

You could also get started with our FREE Exit Readiness Assessment.

Business Valuations and Buy-Sell Agreements

Buy‐Sell agreements, in some situations, can create as many questions, problems, and conflicts as they seek to address.  A primary benefit of having this agreement is to avoid having to make decisions that could lead to disagreements at an inopportune time.  Unanswered questions, outdated agreement language that no longer represents the goals of the owner(s), an agreement that it is not comprehensive, too simplistic or was poorly implemented can render the buy‐sell agreement ineffective and more problematic than helpful.

One of the most important elements of a relevant Buy-Sell Agreement is the issue of assigning value to the business at a “trigger event” (i.e., death, disability, lifetime transfer, divorce, bankruptcy, etc.). Following are some of the questions pertaining to business valuation that business owners should answer with assistance from their Advisor Team in creating their agreement:

• The type of valuation that will be required — Will you choose book value, fair value, fair market value, investment value, historical value, agreed-upon value?

• The method to be used in calculating value — Will you use a formula-based method, a formal valuation conducted by valuation specialist, or a fixed-price?

• The timing of the valuation — Will you value the business on the date of a trigger event, as of the last valuation, each year with a formal valuation, or at some other point?

• The entire business or partial ownership interest — Should the entire business be valued or a partial ownership interest when there are multiple owners? Should discounts (i.e, minority, lack of control, lack of marketability) be applied?

• Valuation perspective — From what perspective will the business be valued…a hypothetical buyer, the majority owner’s perspective, other perspective?

• The method of funding the Buy-Sell Agreement — Owner buy-outs can be funded in various ways including insurance proceeds, debt proceeds, and cash flow of the business. Should the chosen funding method be considered in the business valuation?

Too often Buy-Sell Agreements are written without these questions and others being adequately addressed with the assistance of experienced advisors (valuation specialist, business attorney, CPA, exit planning advisor) and result in poor execution and relational conflict requiring extensive investments of time and finances.

In addition, your Buy-Sell Agreement should be drafted in light of your financial and estate plans which requires a coordination and collaboration of corporate and personal advisors. For example, your financial planning “number” you need for financial security at a trigger event should be coordinated with possible estate planning goals of tax minimization and transfer of your business interest to family members. NOTE: The role of an Exit Planner could be likened to that of a Project Manager or General Contractor, coordinating the planning efforts of experts in the design and implementation of an owner’s plan. And, this might be a plan for Business Continuity which includes the drafting of a Buy-Sell Agreement and/or a Comprehensive Exit Plan.

Contact us today for a comprehensive review of your Buy-Sell Agreement and a copy of our 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.

email@ennislp.com | 301-859-0860

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.

How Long Does It Take to Prepare a Successor?

It’s an important question to answer. The company’s future, the successor’s success, and the ability to make buyout payments depends on it.

When it comes to learning the business and the industry, an owner probably knows best as to how long that will take. Generally, this will take anywhere from 3-15 years. However, learning the mechanics of a business does not necessarily make someone a good leader nor a good owner. (After all, most successors have only been an employee.)

Clearly, some people are more natural at leading than others, but one thing is sure. We're not very good at self-assessment (especially when it comes to leadership). Assuming a successor understands the business, their effectiveness as a leader and as an owner needs to be objectively assessed and their weaknesses improved.

A leadership assessment followed by a program of executive coaching will accomplish this. After 20 years of developing leaders, I can say that the process generally takes about 6-12 months.

But a major challenge can arise. What if that successor turns out not to be competent as a leader and an owner? By way of example, years ago I had a client who kept bringing on potential successors (without my help, by the way...), only to have each of them fail. One after another (three in total), each failed and either left the company or had to be fired. Before they found a suitable successor, almost 4 years had transpired.

The bottom line is that it's better to start the leadership development process sooner than later. Don't hand over the keys to your business before your successor's competence is assessed, their weaknesses addressed, and their leadership and judgment demonstrated.

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Michael Beck is an executive coach, business strategist, author, and president of Eliciting Excellence.  His 20 years as a professional executive coach has helped leaders improve interpersonal skills, sharpen strategic thinking, and enhance judgment.  He has worked domestically and internationally with a wide range of clients from diverse industries including technology, manufacturing, professional services, healthcare, financial services, and not-for-profit.  Michael has held executive positions ranging from CEO to  VP of Business Development and has a background in engineering (BS, MS – University of Pennsylvania) and finance (MBA – Wharton School of Business). Michael is the author of the book “Eliciting Excellence”, has a Black Belt in self-defense,  and is a competitive dart player.