Covey’s 2nd habit of highly effective people is “Begin with the end in mind.” The ultimate “end” for business owners is their exit strategy. Economists project we’re at the beginning of the greatest transfer of wealth in history. Business leaders are supposed to be handing over the reins to their successors. Parents are expected to pass on their wealth to their descendants.
Parents Will Do What They’ve Always Done
Death catches up with everyone sooner or later. So, in the case of children inheriting from their parents that will follow the path of previous generations; some parents will have their affairs in order, others will not. Some parents will have worked with financial planners and wealth managers to transfer as much of their estate as they legally can and others will leave a mess for their progeny to clean up.
Business Owners Appear Unprepared to Let Go
Business owners who in the past at ages 55-70 would have been working to exit; today, don’t seem ready to pass the torch. The last few years have seen many businesses’ top and bottom lines decline. So, their businesses are not worth as much as they may have once been.
Prior to the downturn these owners were anticipating getting out. They were entertaining day dreams of how much they would get for their business. But they hadn’t started getting their house in order, because it wasn’t time, yet
Now, the recession/depression/downturn has left many of these businesses just hanging on. They’re focused on maintaining cash flow, meeting payroll, keeping the lights on.
Uncertainty Blamed for Inaction
The current political climate is making the situation more difficult. Uncertainty over whether or not new taxes, legislation and regulations will actually be put into effect has created a “wait and see” mindset that continues to impede recovery.
Many leaders find it impossible to make projections they feel secure basing decisions upon due to the political smoke obscuring the next few years. Investors argue that even when demand is discernible; it’s hard to commit to investing money when you don’t feel you can project the return on the investment. When I have probed for clarification; they have explained that using the worst case scenarios as they relate to taxes and healthcare costs project a lesser ROI than they desire. So, they continue to wait, hoping something will change.
Energized or Enervated?
Some owners have been energized by the challenges of the last few years. They’ve thrown themselves back into their businesses and have enjoyed fighting the good fight. Many others however have been exhausted by having to draw on physical, emotional and financial reserves at a time when they had intended coasting into retirement.
Who’s Buying Businesses Anyway?
Many business owners have not gotten their business ready to sell because they don’t think anyone will want to buy it. Where will they find someone who will see unexploited opportunity? Where are they going to find someone who believes they can generate a greater return from your assets than they could starting from scratch?
Why Wouldn’t They Start From Scratch?
Well, you may have existing customer relationships that represent future sales. Your brand may be respected. The workforce you have in place may represent unrealized intellectual property. Plus, basic physics, it’s easier to keep an object in motion than to overcome inertia and start a balling rolling in the first place. In most cases, the new owner will either invest more capital or more energy into the operation than you are currently, further fueling growth.
Some Owners Have Unrealistic Expectations
The flip side of the above scenario is the classic small business owner; who when asked how much he wants for his business responds, “A million dollars.” When asked how he came to this figure he states, “That’s how much I need to retire.”
In both cases, business owners benefit from sitting down with objective professionals and exploring their options. Gathering the facts and evaluating their choices in a disciplined manner will enable them to be ready when the opportunity to sell arises..
Selling a Business Seldom Happens Overnight
Just like selling a house, it takes a lot of work to prepare a business for sale. Houses are staged to sell: excess furniture is removed, fresh coats of paint applied, the lawn is mowed, etc; including having a pie baking in the oven when prospects visit.
Businesses undergo a similar process. Buyers want to see what they’re buying and the neater and cleaner the business looks; the more desirable it is.
Packaging Your Business for Sale
The following suggestions are only the tip of the iceberg. But they’re a good place to start doing something.
1) Financially speaking, talk to your accountant (CPA). The average buyer will want to see your books at a minimum for the last five years. Be prepared to answer questions like:
· Where do you make your money?
· What’s your margin on your different products and services?
· Upon what are your projections of future sales based
· What’s your EBIDTA?
2) Operationally, clean house:
· Go through your physical plants and tidying up the place.
· Take inventory, sell off or dispose of “junk”.
· Codify your processes:
o Who does what?
o Who’s accountable to whom and for what?
o How does your business do what it does?
3) Get your marketing straight.
· Do you have a database of your current and past customers, with up to date contact info?
· Do you have a database of your prospects, with up to date contact info?
· Clarify your brand. It’s your greatest asset and is the strongest indicator of future sales.
4) Now that you’ve done your homework, do a little planning. Take a look around so you can identify opportunities for growth. The disciplines of scenario planning and strategic planning can help you craft a picture of the future that will enhance the desirability of your business.
5) You’re going to have to spend money to sell your business above and beyond the commission you pay your business broker. Finding the right professionals to help you sell your business will enable you to get as much as the market will bear and position you to keep as much of it as is legally possible.
Talk to your current advisers. I mentioned your CPA earlier, get with your lawyer(s) as well. Talk with your Certified Financial Planner (CFP), as well. Have them talk to one another.
Failing to Plan Is Planning to Fail
There have been a lot of reasons lately for taking your eyes off the goal of having an exit strategy. None of them are sufficient to continue avoiding the responsibility of putting your affairs in order. Should you walk out the door and get run over by a bus (as happened to a friend of mine) what will happen to your business? Make the time to protect your life’s work. Seek professional help, so you can maximize the return on all your hard work. Yes, those professionals cost money but it’s money well spent.
I’ll leave you with one last thought. Consider sitting down with a strategic consultant, who specializes in helping people taking a disciplined look at their situation, cutting through the clutter, so they make decisions that they feel comfortable committing to and being accountable.
It’s time to free yourself from your business, reap your reward and allow the next generation to pick up the yoke. So, follow Covey’s 1st Habit of Highly Effective People and “Be Proactive”. Do something; after all that’s how you built your business in the first place.
This blog first appeared at entrepreneuraffluence.com.
><(("> Gayle Turner
Gayle is a ><(("> Team Member at Catch Your Limit, a consulting firm headquartered in Richmond, Virginia. To learn more, visit www.catchyourlimit.com.