Benefits of Planning PRE-Exit

"Exit planning" is an apt description for our services about 75% of the time.  The rest of the time it actually confuses more that it enlightens.  For those owners who really don't feel comfortable with the language of "planning their exit," we must frame the discussion differently. 

For those owners, whose  planned exit from the company is near enough that they need to prepare, but far enough away (in their minds) that they are still uncomfortable talking about it in those terms, we discuss strategic planning that provides current benefits in three key areas:

·         value enhancement

·         profit improvement

·         planning for the "hit by a truck" scenario"

For purposes of our discussion we usually talk about "small middle market companies"-- those between $5 million and $100 million in revenue. 

These business owners often run the business in the way that is most comfortable to them--they want the business to provide them a nice lifestyle. They don't think about "value" until they are ready to sell--in most cases, just a few days or months before.

Even though an owner might not be ready to talk about his or her exit, we like to have them go through the exercise of looking at the business through the eyes of a buyer.  If they do this with us they will quickly find the near term result will be increased profits  and less stress and the long term result will be increased value.

Here are some examples of items a buyer will value that will improve a business owner's life today:

·         A written growth plan--clearly define and address questions such as: What additional markets will we pursue? What segments of the current market offer the most growth potential? What additional products can we deliver to the same customers? Where are our best margins and how can we deliver more in that product area?

·         A diversified customer base-customer concentration represents risk. To a buyer, risk means discounting the price they will offer you.  To you risk means stress.  It means waking up at 2am worried that you're going to lose that account that represents 50% of your business and everything you've worked for all your life is going to crumble.

·         A strong management team-too often too much of the company's management responsibilities are concentrated in the owner.  Diversifying management responsibility will make the company run more smoothly, will free up the owner to lead rather than manage and will drive more profit.

·         Contract revenue-look to formalize recurring revenue streams with contracts wherever possible.  These customer relationships are more valuable to a buyer and are more secure to you in the intervening years.

What we have branded as "exit planning" in many ways is a profit and value enhancement proposition that will help a business owner at any stage, but is particularly useful in the late stages of his or her business life cycle.   Ironically, many owners we have talked to who are uncomfortable talking about their planned exit, are surprisingly logical about discussing an unplanned exit or what they have dubbed the "hit by a truck" scenario.  We will continue this discussion in our next newsletter.