Topics and Events

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...

Exit Planning is a Lonely Task

A CEO was skiing with family and friends and had just finished a run from the summit. At the bottom of the mountain he ran into friends who were just arriving for the day of skiing.  Wanting to know the conditions of the slopes they asked the CEO, ‘how is it at the top?’ The CEO’s answer: ‘lonely’. This short quip illustrates an important point that all business owners must confront in their strategic and tactical planning, that the job of a CEO is a lonely job. And, as a result of this isolation, it truly can have an impact on the performance of the person in the top role. When you add planning for an exit to this fact, you see that the formula becomes more complex. And, when you further add that a business is often that owner’s largest financial asset and the monetization plan is critical to their retirement, we see that exit planning can truly be a lonely task. In fact, Chief Executive Magazine highlighted a survey from RHR International which revealed that over half of CEOs (54%) felt the job was not what they had originally expected and that half also felt isolated in their role. First-time CEOs are particularly susceptible to this isolation, with nearly 70% saying it negatively affects their performance. The article went on to explain that ‘to some degree isolation is part of the job. A CEO can share only so much with his colleagues before he is open to favoritism or is ill-advised by those who may have their own agendas.’ Favoritism and Being Ill-Advised The job of CEO...

Exit Planning is a Complex Decision and a Complex Transaction ~ How to master both for a successful result

When considering an exit from your privately-held business, there are a number of obstacles that can get in the way of success.  It is easiest to view your business exit in two (2) distinct parts – first, an exit is a very complex decision.  Then, once a decision has been made, the actual exit is a complex transaction.  By understanding the nature of both the decision and the transaction, you are empowered towards a more successful business exit.  Let’s begin with the decision as a process, not an event. A Complex Decision Exiting is a Process, Not an Event Let’s compare your business exit to the sale of a home – which many owners can relate to as the largest financial transaction they have experienced to date.  A sale of a home is more of an event than a process. Many home sales will include a mini process of painting the house and making a few repairs that would obviously increase the value and make the sale easier. Home sellers may have even experienced a bit of ‘seller remorse’ as they move away from the home that held many memories. However, in all likelihood, the seller was moving into a new home that would better suit the needs for the next stage in their life. In any event, the financial and emotional impact on the sale of the home was likely more event-driven than process driven. A business exit is the opposite. A business exit needs to be viewed as a process, and a complex process at that.  The first part of this process is clarifying your goals and...

What ‘Exit Value’ Are You Receiving?

When owners think about an exit from their business, they often will hire an appraiser to give them a ‘value’ for their company.  Also, a well-written exit plan will include certain values for your company that you can use for your overall planning.  This newsletter asks a simple question for owners to consider when having their company appraised, namely, ‘do you know which ‘exit value’ you are receiving?’.  There are a number of different types and standards of value that appraisers use and this newsletter is written to educate owners on what to look for when they request an ‘exit value’ for their privately-held company. Not All Values Are Created Equally, Opinions versus Estimates – Valuations versus Calculations According to the American Institute of Certified Public Accountants (AICPA), there are two types of engagements to estimate value — a valuation engagement and a calculation engagement. The valuation engagement results in a “conclusion of value”, while the calculation engagement results in a “calculated value”.  The key distinctions between the two types of engagements are as follows: A valuation engagement requires more procedures and steps than does the calculation engagement. In a valuation engagement, the appraiser is free to apply the valuation approaches and methods he or she deems appropriate in the circumstances. In a calculation engagement, the appraiser and the client agree on the valuation approaches and methods the appraiser will use as well as the extent of procedures the appraiser will perform in the process of calculating the value of the subject interest. In a valuation engagement, the appraiser must correlate and reconcile the results obtained under the different...

Can I Afford to Exit My Business Today? Five (5) Questions to Begin Planning Your Exit

An exit from a privately-held business is a complex decision.  Each exiting owner will have a unique relationship with their company as well as their community, family, employees, managers, vendors, customers, and others who are tied to that successful business.  However, there are a common set of factors that every owner will need to answer before successfully exiting their business.  Every owner first needs to know whether or not they can afford to exit their business.  This newsletter will provide you with five (5) questions that, answered in order, will assist you in addressing this very question and getting your exit planning started today. The Five (5) Questions that Need to be Answered Here are the five (5) questions that every owner needs to answer to give serious consideration to their business exit: What do I need to get out of this business to meet my personal, financial goals? What is my business worth today? When can I expect to get paid that value? What will be the tax implications – or, put another way – ‘How much will I keep from those payments? Will the ‘net amount’ that I keep provide enough of a stream of income to meet my personal financial goals? Owners who can answer these five (5) questions are well on their way to establishing a strong foundation for the development of a comprehensive plan for their exit from their business.  Let’s take a look at each one of these to provide you with a little more guidance for your planning. 1. What do I need to get out of this business to meet my...

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