Topics and Events

Four (4) Signs That You May be Ready to Plan for Your Business Transition, Part 1

Successful business owners are unique in their abilities to manage many aspects of their companies, all towards a successful, profitable outcome.  In the day-to-day battles and pursuits to advance your company, it is unlikely that you stop to think about its future transition.  Despite the fact that you may not be ‘pro-actively’ thinking about the future ownership of your business and how you will participate in the transition of the company to the next owners, here are a few signs that may indicate that you are getting closer to planning for your future departure and succession to a new owner. 1)  My Company is Doing Well Again but I Don’t Want to Go Through Another Recession Business owners who have survived the last recession of 2008 should be applauded.  Tough decisions were made to stay in business as the financial and economic world around us seemed to collapse overnight.  Now that the worst seems more behind us than in front of us, you may be thinking about how much you almost lost and how risky your actual financial position really is.  To that end, you might be thinking about the fact that economies run in cycles and another recession will come, we just don’t know when.  And, if you’d rather not have the majority of your wealth tied to an illiquid business when that happens, so that you once again are forced to work very hard to protect what you have built, then that is likely a sign that you are ready to begin thinking about sharing or shifting those future risks with and to another owner of your...

Theoretical Dollars versus Actual Dollars in Your Exit

Millions of baby boomer owners are marching into retirement age with the majority of their net worth trapped in their illiquid businesses.  These owners need to turn their illiquid business into cash or find another way for that asset to continue to provide income to them if they are to reach their financial goals.  If you fit this description, then it is likely that one of the most important steps that you will take is to determine how and when you will be able to draw that cash out of the business.  Therefore, knowing the value of your business is a likely place to begin your ‘exit planning’ process.  And, while a professional appraiser has the ability to approximate the value of your business today, this newsletter is written to focus you on the critical differences between a valuation that represents ‘theoretical’ dollars in your exit versus a buyer who represents ‘actual’ dollars in your exit. Why the Valuation is Important In short, an alarming number of owners do not know the value of their enterprise.  Many owners overestimate what it is worth while a good number are also surprised on the upside to see that it holds a ‘value’ that exceeds their expectation.  The valuation that you receive for your business is a very important factor in your overall planning.  This number allows you to see the Value Gap, the amount between what you need to live on and what you have in business value (before fees and taxes) to see if you are ‘in the ballpark’ of affording to fund your exit. Theoretic versus Actual Dollars The value...

Financing Your Exit Transaction

Business owners who are looking to turn their illiquid business into cash will often ask, where will the money come from to fund my buyout?  This question applies to both internal transfers to managers, employees and family members as well as to external transfers to outside buyers.  The owner who is well informed as to the details of the pending exit transaction is well prepared to have meaningful and intelligent conversations about where the cash will come from to fund their exit.  After all, as the old saying goes, if you want the answer to a lot of your questions, ‘just follow the money’.  So, let’s take a look at the types of capital available and what type of buyer would attract, have and / or deploy that capital to buy your business in the future. General Comments Regarding Capital Flows It is important to know and remember that capital flows in and out of markets in a manner akin to how tides flow in and out.  At times capital is in abundance because lenders and other financing sources are optimistic and want to ‘put money on the street’.  At other times certain lenders retreat from the markets and withdraw from participating, even making ‘calls’ on the outstanding capital that they have extended.  The most recent recession was a classic example of financing sources retreating from markets during a time of turmoil and uncertainty, withdrawing or otherwise restricting credit facilities with owners and / or calling in their outstanding loans and / or withdrawing from financing buyouts all-together. Now, not all capital behaves in this manner, as this newsletter...

Who is a Part of Your Exit Planning Conversations?

Business owners who are thinking about an exit plan – struggle on many levels with advancing forward.  At its core, exit planning is about making a significant change in one’s business and life.  Therefore, the very personal aspect of this planning cannot be ignored.  However, there is also a ‘company’ perspective to exit planning.  This involves how your business will run without you one day.  Do you have the people in place for the business to run without you?  Are you engaging those people in a conversation about the future of the company, with or without you?  Or are you, like many owners, thinking that you’ll construct your exit plan without the input of the people closest to you?  This newsletter is written to help you have a better and stronger exit planning conversation with the people that you need supporting you with making this large financial and emotional change. The Personal Nature of this Planning Every exit planning conversation will have confidential topics that the owner wants to share, at least initially, with only a few people.  You can have these conversations with your most trusted advisor(s) and a select group of others, perhaps including your spouse.  Your wealth, how much there is, where it will end up, who you want it to impact, and your own feelings of importance surrounding your role in your business are all very personal and not likely topics of  conversation to have with managers and ‘outside’ advisors.  Therefore, a select group of personal advisors can assist you in getting clarity on these issues. However, it is recommended that you seek out an individual...

The Many Roles of an Exiting Owner – Including How You Can Take Your ‘Exit Compensation’

Business owners do many jobs at their companies.  From chief cook to bottle washer, the privately-held business owner understands that the buck stops with them.  Now, despite the number of jobs that you perform at your company, those responsibilities technically fall under your role as an ‘employee’ of the business.  Beyond being an employee, most owners also own and control a substantial part (if not all) of the equity in their businesses.  And, technically, these business owners also serve as Chairman of the Board of Directors for their companies.  It is these various roles that we want to review in this newsletter to assist you with considering what role you are playing when you are looking to exit your business. Private versus Public ‘Roles’ In a publicly-traded company the managers, board members and shareholders are all [mostly] different people.  In the ordinary course of event, it is the shareholders who own the business.  These shareholders vote for a ‘slate’ of directors that are hired on behalf of the shareholders to run and oversee the business.  It is this board of directors who hire and oversee the managers for the enterprise.  Finally, the managers conduct their activities in a fiduciary capacity to ‘increase shareholder value’, reporting to the board and sharing profits, when they occur with the shareholders.  A good job by the managers this means higher earnings and a growing value for the company.  Stock prices rise, shareholders make money, directors get re-elected and the managers get to keep their job. The value that the managers create ultimately belongs to the shareholders. Technically, corporate governance of privately-held businesses is...

Are You Ready (Emotionally) to Exit Your Business?

As a business owner who is thinking about an exit from your business, you face a unique set of challenges.  These ‘exit planning challenges’ are so unique that statistically only a small percentage of business owners make a successful transition from their privately-held business into retirement.  One of the primary reasons for this high failure rate is the personal nature of a business exit.  And, unlike a ‘retirement’ from a standard position within a large business, the exit from your businesses is, generally speaking, far more significant.  This newsletter addresses these personal changes and asks if you are ‘emotionally’ ready to exit your business. The Meaning Behind Owning a Business Creating and growing a privately-held business is far more than a job; in fact, that business is often a large part of an owner’s identity.  There are both personal and practical factors driving this strong tie to the business, including: Being the ‘boss’ Having control over one’s destiny Achieving personal goals through the business creation process Enjoyment of influencing and empowering others Personal wealth creation (the business pays a lot of personal expenses) Personal guarantees tied to business loans Personal promises and contracts made with co-owners and partners Recognition as a ‘a successful owner’ in one’s community As a privately-held business owner, you are intimately tied to your business at both a personal and professional level.  Because of these various ties to your business, owners experience varying results when it comes time for an exit.  Many owners will start the exit planning process only to discover that they do not have the proper structure in place to create or...

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