In a song dedicated to his son, John Lennon once wrote “Life is what happens to you while you’re busy making other plans.” Though his “message” can 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 has been known and familiar. “Succession” also implies some paths that rely on things not within your control. Fundamentally, the “next steps” come down to readiness-for 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? I submit that 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. Our firm has had the opportunity to work with and represent 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 actually approached us several years earlier and our “brutal honesty” suggested that they had some work to do-which they did, addressing issues related to customer concentration, management team depth, systems that captured their processes and leveraged 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, we were able to find buyers for both businesses. But the valuation that buyers placed on these businesses were markedly different-the EBITDA multiple of business 2 was 60% of business 1…mainly because prospective buyers saw a different risk profile.
Adopting a “readiness mindset”…getting started. The second of Steven Covey’s The 7 Habits of Highly Effective People is “Begin with the End in Mind.” Your objectives…your priorities…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’s 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’ direction?
- What are your strengths, weaknesses, opportunities and threats?
Adopting a readiness mindset can help you to think differently about the process in a number of 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 built; and 3) it’s a combination of things- some of which are within your control and others that aren’t. As it’s frequently being practiced and presented to business owners today, exit and succession planning is seen as a monumental and time consuming task that takes away from running the business rather than as a value-adding process that improves the business.
According to the Chinese philosopher – Lao Tzu, “The journey of a thousand miles begins with one step.” Likewise, the process of preparing for the aforementioned “inevitable” requires a starting point. Are you and your business ready?
Posted by Jim Gerberman.