I am always on the lookout for solid business improvement lessons that pop up in our everyday lives—little reminders or sticky notes that are all around us, begging for a bit of attention. Today while I was listening to a highly regarded business podcast, I think I startled some people around me because I laughed out loud at something I heard. The host was going about his usual routine asking the guest questions, trying to get the conversation moving, when the guest turned the tables on the host and asked him a simple but meaningful question. It was very in line with the topic of this particular podcast and was basically drawing the host into the conversation as an example of a technique used by the guest. But the host was either unable or unwilling to answer honestly, and I was jolted and bemused by the hosts stammering, stuttering, clumsy moment. To his credit he left this in rather than editing it out, but it was still a very funny and enlightening moment.
This got me thinking of how some clients or colleagues (and yes–in the interest of full disclosure–even myself!) can also be completely stumped at times when asked very simple and direct questions. These are never questions about company strategy, or market strengths and weaknesses, or financial data, or competitive insights. Every good business owner or executive knows these things and can reflexively answer any question along these lines flawlessly. But if a business owner, especially those owning/operating small-to-mid-sized companies, is asked the more personal and direct question “What do you want out of this? What is your end game?” they very often are stumped. They stammer or start spouting general platitudes or fall back to stating something from their business plan or operational roadmap. It’s rare that I hear “sell the company for $50MM, spin ½ the profits of the sale into creating a foundation that addresses food insecurity where I will be an active part-time director, and build retirement home in Mexico” or “spend the next 5 years getting my 3 daughters fully ready to take over the business, sell it to them so that they have full control, and pursue my wife’s passion for pottery.”
Not everyone thinks this way, and both of the examples I used may sound horrible to you. But to have some very clear idea of what you personally want to have happen with your business is critical in driving the right short-term decisions and in creating the right enterprise value to meet your needs. Remember I’m not talking business goals, but rather personal goals that drive your business goal setting and decision making. Do you want to retire completely to spend time travelling and to be with family? Or do you want to stay involved with your current company in a part-time or advisory/board type role? Or maybe after selling this company do you want to put your personal and financial capital back to work in another start-up venture? The answers to these questions will be critical in assessing how to structure your current business to maximize its value to achieve the outcome you desire.
A simple example that might clarify my point is the difference in setting up the business as a family legacy that will continue as is versus a desire to sell to a strategic buyer or Private Equity firm. If you have children or other family members who will want to take over the business and continue operating, then insuring the proper financial structure from a tax standpoint and the robust training/development of the legacy family members is critical. How the company might be viewed or valued by outside parties is unimportant. But insuring the financial future of the existing company and yourself, along with doing everything possible to put the legacy family members in a position to succeed, should be your focus.
However, if you’re planning to sell the company outright you will have to focus on management talent/structure, IT/ERP system functionality, financial reporting capabilities and clarity, margin, identifiable future growth strategies, etc. Any outside financial or strategic buyer will dig in on those metrics, and if you haven’t spent 1-3 years preparing and shoring up those aspects of your company, then these potential buyers may either back off completely or reduce their purchase price offer substantially. And regardless of whether you’re looking to spin the sale proceeds into retirement income or a future new company, maximizing enterprise value is all important for you.
None of this planning can be done quickly, and you have to get moving many years prior to any change-over. And the first piece of the puzzle has to be your own clear understanding of what it is you want to have happen—what’s the best future state option for you. Your answer to the simple question of what you want out of the company, or what is your end game, needs to be answered as quickly and clearly as any question regarding your biggest customer, or your best-selling product. Don’t be stumped and stammer like the podcast host. This is not being selfish, but rather bringing clarity and focus to your legacy planning. Get started today and give yourself and the organization the clarity needed to forge the best long-term outcome.
Photo: J. Carbine