In a song dedicated to his son, John Lennon wrote “Life is what happens to you while you’re busy making other plans.” Although his message could be (and has been) interpreted in many ways, he seems to be saying, “Don’t let distractions keep you from what’s important.”
Every business owner has at some point looked into the mirror and asked some version of the question: “What’s next?” It’s a daunting question—particularly in the context of exit or succession planning. Exit implies an end to what is familiar, and succession also suggests paths entailing things outside your control. Fundamentally, the next steps come down to your being prepared to undertake real changes—ones that involve you, your lifestyle, and your business.
What can and should you do now to prepare for the inevitable separation of you and your business? How to get started? A good place to begin is by adopting a “readiness” mindset . . .
The difference in value from being ready and not being ready can be substantial. Let’s consider the experiences of two manufacturing businesses that were similar in their offerings, their served market, and their geographic location . . . and their willingness to sell.
Their transactions closed within 30 days of each other. What differed was their “readiness to sell”. Business 1 had decided several years earlier to seek professional advice to help it prepare. Their advisers provided brutal honesty and suggested that the business owners had some work to do, which they did—addressing issues related to customer concentration, management team depth, and systems that captured the processes and took advantage of their intellectual capital.
Business 2 was dealt a different hand. The owner had unexpectedly developed a serious health issue and was forced to sell . . . without being ready to do so. Fortunately, both businesses were able to find buyers. But the valuation that buyers placed on these businesses were markedly different—the EBITDA multiple of business 2 was 60% of business 1 . . . primarily because prospective buyers perceived a different risk profile.
Adopting a readiness mindset—getting started. The second of Stephen Covey’s The 7 Habits of Highly Effective People is to “Begin with the End in Mind.” This means your objectives, your priorities, and your passion. By focusing on what you as a business owner want to accomplish, effective readiness planning aligns the process with the intended results and simultaneously considers a number of aspects (some of which are listed below):
- What is important to you and why?
- What are your values and priorities?
- What is within your control—and what is not?
- How can you mitigate risk of adverse events and seize opportunities that arise?
- Family and other important relationships
- Hobbies, philanthropy, and causes
- Where are you spending your time? And with whom? Doing what?
- Where is your money being directed? And for what purpose?
- What is your role?
- What do you uniquely do best for and within the business?
- What is the business’s direction?
- What are your strengths, weaknesses, opportunities, and threats?
Adopting a readiness mindset can help you think differently about the process in a number of crucial ways: 1) it’s a now event rather than a future event, 2) it’s a continuum—a journey along which value can be created and 3) it’s a combination of items—some of which are within your control and others that are not. As it’s frequently being practiced by and presented to business owners today, exit and succession planning is often viewed as a monumental and time-consuming task that takes away from running the business rather than as it should be understood—a value-adding process that improves the business.
According to the Chinese philosopher Lao Tzu, “The journey of a thousand miles begins with a single step.” Likewise, the process of preparing for the aforementioned inevitable requires a starting point. Are you and your business ready?
About the author
Jim Gerberman is Managing Director of Corporate Finance Associates (CFA), one of North America's oldest and most prominent investment banking firms serving middle-market companies. Jim is a proven business leader with multiple successes in President/CEO/GM positions with emerging technology companies serving a broad array of industries and markets. Jim can be contacted by email at firstname.lastname@example.org or by phone at 512.351.7078.