Stephen Covey, author of “The 7 Habits of Highly Effective People,” suggests that one of those habits is to “Begin with the end in mind.” When you started up your business in the first place, did you actually think about how you’d be exiting your business?
My organization has discussed this question with numerous small business owners for more than 30 years and very few were able to give a legitimate, straight answer to that question. Most of the time we receive calls to help the owner figure out a way to exit, and they would be extra happy if it could be as soon as possible for big dollars.
Whether you are in your 20s, 40s or 60s, it is time think positively about the perpetuation, sale or whichever direction you elect to take the business.
Exit strategy and legacy creation does not start at any particular time in an owner’s life or the age of the business. Most of our clients will say they wish they would have started earlier.
This strategy should be part of the business’ natural existence, driven by its purpose as to why the business exists in the first place. The ultimate legacy and value of a business starts at the beginning with determining the purpose of the business and setting it up to be sustained into the future. Some businesses are well past the early stages of existence. Now is the time to narrow in on what the business means to the owner. Is it a job, a business, an asset or just a pain in the backside? Depending on how it is viewed directly contributes to how it will fit into the financial future of the owner and how it will be valued by a prospective buyer.
Strengthening your plan
One of our clients engaged us to help him sell his business. He was in his mid-30s and was not enjoying the business he created. By nature he was a technician and got into the work because he knew how to do it and didn’t want to put money in someone else’s pocket. It’s very typical for a small business to evolve from this basic startup point.
We started to discover the challenges by focusing on keeping the end in mind. We found that due to his less-than-ideal operating skills there were various weak spots in the business that were not being attended to. These caused headaches and eroded profit and consequently asset value. To help him get the best outcome for the sale of the asset, a series of operational improvements were put into action. This was primarily to bring the value up so the transaction would be worth something more than a fire sale. The results over time developed an operation that took the business to new revenue performance and profitability, and he still owns it years later. The business is now a significant asset in his portfolio and when he does sell it, internally or externally (both of which have plans structured), it will continue to generate income for him despite his lack of direct involvement in the business.
When an irrigation or landscape lighting business leader stops and consciously begins the thought process of the transition of a business from his or her care to another person or entity, there are lots of dynamics attached. Ultimately, there is also a tangible physical and emotional experience as well. Much like the separation of a child from the family unit to marriage or geographical distance, we can rationalize it intellectually but the pit in our stomach still exists. These dynamics become very real very quickly. The basic routines of interacting with staff, going into the office, walking around the warehouse and just chatting with colleagues at lunch about what is going on in the business all begin to take on a new shape when you are thinking about its future and your legacy. Yes, your “legacy” about how you will be remembered at the business start taking up real estate in your thoughts. As a result, the business owner sometimes defers on further planning of the transition. This actually weakens the long-term value of the asset.
When setting up for perpetuation, exiting, retirement or any other words associated to this transition of the asset, the owner needs to plan an intentional leadership and asset turnover. Waiting until the owner is ready to retire, step down or, more tragically, be removed by loss of life, is poor planning or avoidance. The owner is typically the icon of the business. Through intentional perpetuation strategy execution, true long-term sustainable value and legacy for the owner and the business are created. This will also help ensure financial stability to support potential seller financing if needed. As these strategies are incorporated into the natural operation of the business, these leadership focus points and improvements are received positively by all in the organization. These planned actions are the steppingstones of crossing the river to a controlled and bountiful asset transition.
While keeping the end in mind, you need to be ruthlessly honest with yourself and answer these questions: If you are not here, who is capable of running the day-to-day business transactions? Do they even know how and what to do? What about sales, profit and process? Are the revenue-attracting parts of your business on solid ground or do they need attention? Are all sales dependent on you? Is the operational part of your business advancing in a way to bolster the value of the asset? Are you struggling with what you should do next and how soon? Is there potential leadership to be groomed for buying the business? What about consolidating with another organization? How large of a business do you wish to operate? Is your business sustainable and scalable? What is your best guess at the value of your business if you were to sell it today? Be very honest with yourself. Grade yourself on your preparedness for your future.
A solid perpetuation strategy takes time, especially if the owner is going to get paid out of the proceeds or profits of the business while someone else is calling the day-to-day shots. If there is weak confidence in that person’s ability to execute with urgency and be a proactive problem-solver to pull it off, then your plan has a large gap in it. Your exit can be quicker when sold to a third party, but then it is a matter of demonstrating profit stability and marketplace value, which goes back to what is the real value of the asset and not the owner’s overimaginative value of the business.
Now is the time to get your perpetuation plan in place for your irrigation or landscape lighting business. Keeping the end in mind does not mean you are leaving tomorrow. It means you are a good business leader and making the appropriate decision to make sure your legacy and business live on into the future.