“We’re ready to sell. You know, we’ve kind of done all we can and we’re tired. It’s time for some new blood. So my partner and I want $5 million out of the business. So what are our chances?”

We listened to Trevor a proud and accomplished silver haired 59 year old , the owner of a 15 million dollar industrial company and wondered whether he and his 58 year old partner, Paul realized what getting that exit buyout would require on their part.

“There is only one way you are going to find a buyer willing to invest that much in your business. It’s called Valuation Planning and it may take 2-3 years to complete before you’re ready to sell.” I looked over
at my consulting partners as we watched Paul and Trevor’s faces fall. We had seen this reaction many times before.

There is nothing more painful than seeing successful business owners suddenly realize their retirement dreams might remain only a fantasy.

With every phase of life, the baby boomers have had a profound influence on the movement of money across most aspects of our economy. But in their next phase of development will their luck with creating wealth run
out?

The numbers suggesting this is indeed possible are staggering.

By 2011, the first of 70 million boomers are going to turn 65 years old. There are more than 26 million businesses in North America, and 50 percent are owned by boomers, according to the Small Business Administration. And 7 out of 10 of these owners will want to sell their business over the next 10 years, according to the Association for Mergers and Acquisitions Advisors.

That represents $10 trillion in retirement value and 75 percent of that $10 trillion may not be realized according to Richard Jackim in his book “The Ten Trillion Opportunity – Designing Successful Exit Strategies for Middle Market Business Owners”.

Industry Canada and the US Small Business Administration are very concerned that boomer business owners are not paying attention to these statistics and secondly do not have a good understanding of what it takes to sell a business. They have alerted city economic development groups across the country like the City of Nanaimo, BC and the city of Chicago, IL who are now trying to come up with ways to alert owners and help them to get ready.

They are planning for the future to ensure their communities stay economically buoyant according to Jason Boyce in an article entitled “Get Ready for the Big One: Succession Facilitation & the Coming Demographic Wave of Change” published in Making Waves Magazine.

Spirit West Management advises owners what must be done to 
set their house in order.

“It’s much more than succession planning,”
says Lorraine Rieger McGregor, CEO and partner in Spirit West
Management. “It involves reorganizing the company so that an investor
sees the value. That sounds easy but really what is involved is to stand
 in the shoes of a buyer and ask yourself, would I buy this company? Can
I easily see that it will continue to grow if the owner leaves so that I
will benefit as the investor? Succession planning is all about how you
will retire. Valuation planning is all about how the business will be a
continued success after the owners leave, which is all important to buyers.”

Rieger McGregor of Spirit West offers these five tips for business
owners who are starting to think about finding a buyer in the coming
years. First Tip? Start NOW.

1. Change Your Mind Set
Let go of your business now, emotionally. It’s not a reflection of who
you are; it is an asset that has investment value. The more you can view
your business from the eyes of an investor, the easier it will be to
make the transition to improving it so it will be attractive to
investors. This is not to say stop being passionate about your business,
it says let it stand on its own two feet.

2. Think Like a Buyer
If you were to buy this company tomorrow, what clues would tell you that
it would continue to be a successful company? What would you look for to
tell you that if you didn’t know anything about the company? Buyers want
to see past evidence of growth: The plans, the result and the effect on
profits. They want to know the industries your company sells to are hale
and hearty especially in this challenging economy. Are your customers
loyal, buying more regularly and getting your best solutions? Do you
have a sales pipeline leading to increased revenue? What tools do you
use for decision making? All of these things show a buyer you run a
tight ship.

3. Transfer Knowledge and Power
Who will run the company if you’re not there? Can you disappear for six
weeks right now and be sure the company will still be humming when you
return? If not, you’ve got work to do. You may need a management team or
a CEO. You may need to start training and trusting your own people a lot
more than you do now. When you walk into your operation is the
atmosphere tighter than a drum or congenial, tense or excited? How come?

4. Clean Up the Files
For the next three years you’ve got to show increasing profit margins in
a consistent, steady uphill line. That means you will have to clean out
the personal items in your expense account, know where you are missing
the mark and losing money and fix the problem and then set goals and
targets that your team is accountable for. Then look at your agreements
and contracts and get them reviewed by a lawyer. Do your supply
agreements restrict geographic territory or activities? Do you have the
best suppliers on your team? Are your shareholder and management
agreements tight or misunderstood? Get the right kind of help to sort
these problems out.

5. Focus on Growth
When was the last time you expanded your market place, launched a new
product or rethought your solution set to better meet customer needs? Is
it easy for customers to switch from your product to some other company’s?
If so, you better find out why. Get to know your target market. Are
you solving their problems in the right way? There is opportunity for a
profit in every hassle you uncover in their business.

Buyers want to see a healthy pipeline of orders and opportunities for
the future. “This is not meant to tell owners what they’ve built isn’t
good enough.” Says Rieger McGregor. “It’s to let owners know that there
will be a huge number of businesses all wanting to sell in the coming
years. Investors will have their choice of plum opportunities and will
reject the rest. They will pick the investments where their risks of
failure have been reduced. Owners need to know how to make that sense of
certainty obvious and reliable.”

It can take 2-3 years to sort out some of these issues. The time flies 
fast. Owners will be resistant to this effort: There’s a business to run
and there might not be “know how” or time to try and get these ‘value’
improvements done properly and without business disruption.

Valuation
 planning and execution is something owners will need help with. They may
 need a consultant that can help them plan and execute these changes,
their accountant to help them with tax strategies and their account
files, a lawyer to iron out the agreements and contracts and a board of
advisors to keep them accountable.

If owners want to see their retirement plans realized, the time is now. By 2011, there will be a lot more competitors.

And what of Paul and Trevor. They are one year into their reorganization and have found a new passion for their business.

And they aren’t tired anymore.

2. The Company is Oriented to Performance – Your people have the kinds of conversations that lead to process improvements through respectful collaborative idea generation. Incentives are aligned to self-responsibility, authority, accountability  and ability to take risks. You provide support and training for those elements to be accessible to all.

3. You’ve Removed the Rub Points – There is a smooth communication flow from what is promised to the customer all the way from sales through order processing, production, billing, delivery and after sales support. You have a feedback loop to ensure what was expected was delivered. And you have policies that set out boundaries for the negotiables and the non-negotiables. You don’t expect your people to dance to the customer always being right (or wrong). Who to blame isn’t a daily way of life in your company: how to solve the right problem with the right solution is.

4. Your People Understand how the Company Makes Money -Sounds simple but it’s not often done. Everyone should know how their expertise and efforts contribute to the bottom line and where they fit in the financial equation. Even the receptionist and the shipper. Each person has a role to play in the efficient delivery of the promise to the customer.

5. You Focus on and Make Decisions Based on the Right Key Performance Indicators – Forward looking, gross margin driven, utilization rates, cash flow and labour tracking. Your indicators should show you where you have cash leaks in the system, before you have to start bailing. First place to look? Do your estimate gross margins on each product become your actual gross margins. Got a variance? Find out why and fix the systemic problems that cause it. (Hint - most problems are systemic, not personal, not one individual’s fault.)

2. Know what type of Investor or Buyer is Best Suited for Your Company – Want to sell to your employees? Sell to another company in your industry or part of your supply chain? Want the company to continue as a viable going concern after you leave ? All these options require a different game plan to achieve the desired goal. Understand which type of buyer/investor is right for your circumstances and how to best position the company so that this exit event occurs.

3. Put a Growth Strategy in Place Now – Despite our tough economic times, a growth strategy is imperative to being able to realize a future liquidiation event, no matter what type of buyer/investor you are targeting.

4. Recognize the Buyer/Investor is Acquiring the Future – More than ever now, they are not buying past performance, they are buying the future performance of the management team’s ability to deliver on the promise of the growth strategy. So the growth strategy has to be be well under way and producing results by the time you are ready to sell. The management team that implements this strategy are the people that will be staying with the firm after the primary shareholders leave.

5. Recognize Your Role as Owner Has Changed – If you are planning to sell, you need think of yourself now as an investor, not an owner and certainly not a manager. Your knowledge, key relationships and abilities have to be transferred to and found in your management team now, not the day after you leave.  You are not your company.

6. Deliver What You Promise – The number of companies on the market looking for exit strategies will double as boomers retire over the next ten years. Your company will have to stand out from the pack. Your company should have an outstanding solution or product offering and the financial performance in the balance sheet and income statement to prove it out. Your internal systems deliver exactly what is promised to customers in a way that makes it hassle free, unique, of high value and delivers recurring revenue. Check in with your target market. What do they think about your offering? Set up key performance indicators to manage toward the future, rather than viewing only through the rearview mirror.

7. Difficult People? Conflicted Workplace Culture? Growth and Change Will Be Almost Impossible. If you’ve got some rub points that make delivering customer value or financial performance unreliable, now is the time to deal with them , not later. If you’re struggling to change entrenched ways of working, poor performance, lack of alignment between strategy and action, then get help sorting it out. Learn how to take a different approach and get to the heart of the issues that block change, growth and ultimately profitability. There is a much better way which is far less painful.

8. Get the Right Advisors on Board – You will need an accounting group familiar with exit transactions and tax issues, a legal firm able to prepare the foundation for an acquisition so the deal goes through smoothly without skeletons jumping out at inopportune times and investment advisors to help package the company. Know who to get on board, how to find them and strategize when you bring them in.

You may need help with some of these Valuation Planning Steps. Get it sooner rather than later. For a private seminar on any or all of these topics, please contact us.

There are two types of company leaders. You are either:

1. Fearing for what might happen OR
2. Steering to what you want to have happen

If you are in the first group, it is very likely that what you fear will occur WILL HAPPEN. If you want to beat the habit of running your company with fear about the future, click here.

If you are in the second group, it is very likely that what you want to occur WILL HAPPEN. If you want to know how to make sure everyone on your team agrees with you, performs at a level not thought possible before and is working toward your vision, click here.

How are you thinking about your own future?

There are two types of company owners. You are either:

1. Not thinking like an investor and therefore not taking the time to think about how you will extract your retirement money from your company OR
2. Thinking like an investor and steering your company to a well understood and defined exit strategy and have implemented a growth plan to be attractive to investors, financiers, employees and especially customers.

If you are in the first group, it is very likely that a Disease, Divorce or Death will do your thinking for you. That puts your investment at risk of not being realized (meaning no buyer can be found for your company) or that the amount that you actually get for your company is substantially less than what it might have done had you prepared you and your company to move toward a specific exit strategy. (Pick one, there are three-four options.) If this is you, click here for more information that might change your life or at least your perception of what might be possible.

If you are in the second group (thinking like an investor) but didn’t know you also needed a growth strategy, click here. If you are in the second group and are in growth mode and are moving toward a Strategic, Financial, MBO or Harvest transition or transaction, congratulations. According to the US Small Business Administration and the Canadian Federation of Independent Business, you are in the small minority of business owners who will need/want to retire in the next 3-5 years and have a plan to get there. But ask yourself, are you getting the performance you’d hoped for? If not, click here.

In today’s economy, it is very easy to slide into a sense futility about the future. There is evidence to support the belief of a gloomy future for you and your employees everywhere you turn today. From your accountant telling you that you had better ‘cut costs’ to your customers telling you to ‘cut your prices or we’ll have to ‘cut you’. Chilling words for any investor, CEO, business partner or stakeholder.

How you think about this time in your company’s life will determine what happens to it in the future. If you think about what you don’t want to have happen, if you think about what people aren’t doing right, if you dwell upon all the bad things that might happen, if you issue dire warnings and pepper your speech with ‘hard line’ adjectives you will likely get a continued diet of uncertainty, fear and gloom. Is that what you really want?

If it isn’t, then the first place that you need a ‘Stimulus Plan’ is in your own mind. Check in with your inner chatter. Do you like what you hear? Would you be motivated to move mountains for this person if they spoke to you like that day in and day out? Most of us wouldn’t, but we indulge ourselves in fear mongering and criticism or judgement anyway, planting seeds of doubt wherever we go. Then we don’t like how we feel after a daily diet of it so we pretend that dialogue is coming from somewhere else and park the blame for having to feel its affects on other people – employees, managers, assistants, spouses, the dog. Like Newton’s law of movement, our lovely thoughts ripple out of us into our environment and then we are aghast at being awash in all this negativity.

Don’t like this picture? Turn up your ability to listen to your inner chatter and change the conversation. Drop the adjectives (adjectives are embellishments). State what is actually true for you, and your situation (Just the facts Ma’am).

Most company owners we know aren’t sure what to do at this point in the history of their companies. Cut, expand, stall, improve, tune up, turn down, refocus, fire, hire, lecture, cajole, demand, placate, downsize, right size, grow, pare, acquire, divest, drag, wait, hurry.

None of these directions will help unless you know where you are going and why you want to get there. Grow? How? Sell? To whom and at what loss? Retool? Will customers like it? Will it pay off? You are not asking the right questions therefore you won’t get to the answers or plans that make sense, sit right and, most importantly’ that will get buy in from your stakeholders.

How you choose to face your reality is the first step in knowing what you want. Here is an example of a game plan you could steer toward. Each statement starts with what you want to have happen and then a statement about what actually happens. Try writing one for your company and see what you find out.

1. The truth is, we are experiencing (list pains, gains, attitudes of employees, managers, customers and stakeholders). What frustrates me most is…

2. What I/We really want is to grow X% per year and sell to a strategic buyer in 3-5 years. The truth is, we don’t know how to do that. Do we make enough money and sell the right solutions now to be attractive to a strategic buyer?

3. What our customers really need are solutions to the problems they care about in a way that is easy, hassle free and affordable. Their success becomes our success. We actally don’t know if we are selling to the right target market, with the right solutions in the right way that is experienced as hassle free. But we like to think we are.

4. Our internal systems give us the data we need to manage our company day to day. Actually, the truth is, I don’t know what data to pay attention to and I’m very attached to certain reports and probably don’t get other indicators that would tell me how to get better performance.

5. Our people know how to deliver on what the business development/sales/front line people promise. Actually the truth is, this is pretty hit and miss. There is a lot of miscommunication about how to do that and departments that should work together aren’t. They point fingers rather than refine processes.

6. Our culture is one of mutual respect, excitement and self-responsibility. People want to work here. Actually, I don’t want to work here some days. Its frustrating, irritating and feels like I’m dragging a lot of resistant people around all day long.

So take a minute and write up your own version of this list. Then ask yourself if you feel Inspired? Deflated? What do you want to about it? You do have the power to change it.