Even during this uncertain time, business owners are exiting their companies. The question is: are they doing it on their terms? Frankly, most owners only transition out of their business once in their lifetime. Doing it right means it’s a win-win for the current owner, the new owner and the employees. Anything less is a disservice to the years spent building a successful business.
In our last article, we looked at the importance of building transferrable value to secure and maintain your business’ value, all in the interest of your ultimate transition out of the business.
If you’re ready to transition, you may be asking, “What’s next?”
Financials speak volumes
We can’t overstate the importance of financial metrics like gross sales, EBITDA and cost reduction ratios to measure changes in company performance. Use industry accepted accounting standards and produce annual financial statements.
Buyers and internal successors may also want to see your prior financials from the 2008-2010 recession in lieu of your new financial metrics and current financial data to determine what’s different (and better) this time.
Strong financial practices coupled with good cash flow will help achieve the necessary leverage to negotiate future debt consolidation or borrowing opportunities with lenders, making your company more desirable to buyers or capable of being transitioned to internal successors.
A history of demonstrating resolve and commitment to your business, and the needs of your customers, is one of the best indicators of transferability. These long-term strategic relationships are what determines the value of your goodwill when it is time to sell or transition.
And don’t forget the importance of customer diversification and protecting your customer relationships by being “collaboratively” efficient and cost-effective.
All about the people
Your key employees should be included in “higher level” or “strategic” related decisions which need to be made.
Conduct regular weekly or bi-weekly “advisory meetings” with the owner(s) and key employees to evaluate and decide on key strategic and operational matters. This shows potential buyers that the team is committed to your business and its future success.
Incentives to engage key employees
Have a mix of “cash based” incentives that will motivate your key employees to grow the value of the business, thinking and acting as entrepreneurs while helping retain them after your final sale or transition.
Each mix of incentive plan options needs to be “performance based.” Eligible key employees must then achieve certain criteria to become eligible, and to increase the value of the business.
Be sure to include “forfeiture provisions” which cause all earned benefits to be forfeited in the event they intentionally violate the terms of their employment or are terminated for reasons of “just cause.” The idea is to incentivize them to work with you, not “against you” by trying to leave and compete.
It’s critical to have a “Business Continuity Plan” in place. Besides providing organizational structure, Continuity Plans provide buyers, and your internal successors, with the confidence that the business will continue and grow without you. It means the company is a “self-sustaining” business, which is attractive to buyers and needed for your internal successors.
Assuring all of these things are in place will likely allow you to exit your business on your terms.
John Carter is the founder of Absolute Succession. He is focused on helping business owners achieve their transition goals so they can leave the business when they want, to whom they want, for the amount they want – enabling them to achieve their desired lifestyle. Contact him at [email protected].