Many business owner are looking to add value to their company but wonder how to reach their goal. Chris Snider, CEO of the The Exit Planning Institute™ (EPI) and author of “Walking to Destiny,” challenges you to become the next “value creator” of your industry. How you may ask? The Exit Planning Institute, in collaboration with the University of San Francisco’s Gellert Family Business Resource Center and council of local business leaders, hosted the 2017 Bay Area Owners Forum from July 27 – Aug. 3. The forum attracted nearly 100 middle-market business owners from the Bay Area.
Snider kicked off the forum with a discussion surrounding the eleven actions owners must take to become what Snider called “value creators,” and challenged each owner to come up with one action during the day that would make a significant difference in their life and the life of their business.
Snider asked all the owners to change their paradigm of exit planning. “Exit planning is nothing more than good business strategy,” Snider said to RPRNmag newsmagazine during an interview. “it is a strategic business tool that helps you drive more sales and income today, while positioning you and your business for a successful exit somewhere down the road, while guiding you into the best act of your life,” he continued.
The foundation of the forum’s education platform is the Value Acceleration Methodology which was created by the Exit Planning Institute to provide owners with a tool to help them identify, protect, build, harvest and manage intangible, as well as tangible, value.
One of the problems business owners have is that they are not receiving any regular feedback on the value of 80 percent of their business value, which are intangible assets. “80 percent of your net-worth is locked in your business and 80 percent of that is intangible assets. You may not even be looking at it on a regular basis – how can you manage it that way? Accounting systems don’t give you any feedback on that,” continued Snider.
As a guide, Snider suggested the owners start the investment in value creation by earmarking one percent of the value of their business to invest in value acceleration projects. “We can all find one percent – that’s a good place to start,” said Snider.
The business owners asked Snider several questions but following are the most commonly asked.
What are the main reasons so many businesses fail to sell?
Snider explained that the number one reason many businesses fail to sell is, “owners tend to get cold feet when the moment approaches to sign over the business; even when the price is spectacular. As the moment of transfer gets closer, business owners often feel overwhelmed,” he said. If business owners have not prepared and are not excited about what comes after the sale, the emotion of separating themselves from their business is overwhelming.
How long does Value Acceleration take?
Snider described a situation he was involved in personally where he and his partners grew a business at a compound annual growth rate (CAGR) of nearly 40 percent over five years. After nearly five years, the business was five times the size it was when they originally bought it. Snider continued to explain, “our thinking began to shift. We still wanted to continue to grow, but we started thinking more and more about exiting. We knew the business was attractive, but over the next two years, we dedicated time getting ourselves personally ready and the business ready. Overall, the process took about eight years.”
What should you do if you only have one – three years to prepare for exit?
Snider reminded everyone about the concept of the Value Maturity Index discussed in his book, “Walking to Destiny.” “First you need to identify what you have – this is the first step, regardless of timing. You cannot protect and build what you don’t know you have,” Snider said. “Once you know what you have and identified its potential, the next step is to protect it by implementing risk mitigating actions.” Snider explained risk mitigating actions are the easiest, fastest and usually the least expensive actions you can take to add value while positioning the business to sell or transfer. “If you do nothing else, mitigating risk will add value and often positon the business to be saleable or transferrable to family, employees or management,” he continued.
The forum also included three breakout panels, which discussed the five stages of the Value Maturity Index. After a visit by Dr. Elizabeth Davis, Dean of the School of Management, the forum ended with a panel of four Gellert Family Business award winning owners who have participated in at least one exit event sharing their lessons learned with the other owners in the room. One interesting thing was not all of these owners were successful. One owner said that she had reservations about sitting on the panel. “I had a five-year plan but it blew up on me. Why would you ask me to participate?,” she said in a pre-forum conversation with the panel facilitator, Sean Hutchinson, CEO of Strategic Value Advisors. “Sean told me to just tell truth because we can all learn from failures as well as success,” she elaborated.
Another owner explained that his five-year plan worked like a charm. He said having a five-year horizon not only gave him time to pull out his entire selling price over that time period, it gave him time to equip his managers to be business owners and build confidence with the company’s bankers, who were financing the buy-out and would have to get comfortable backing the new owners.
A third owner, who assumed the business from her father, explained that he had been grooming her since she was a small girl. “Dad was like a dining room professor to me,” she expressed. She was interested in the real estate but not interested in running the operations of the business, so she and her father separated the real estate from the six different business operating locations. Her father helped several of his key employees buy the six locations, while she assumed ownership of the real estate.
As business owners begin to plan for their next step in life, timing is everything. A few takeaways to remember as you exit your business include:
- Starting the planning early gave them adequate time to do it right
- Using outside experts provided options, clarity and additional valuable points of view
- In addition to written business plans, they all had written personal and financial plans as well (Three Legs of the Stool)
To learn more about the Exit Planning Institute and upcoming Owners Forums, please visit: http://www.exit-planning-institute.org/.
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