Archive for November, 2008

24
Nov

I Don’t Have Time to Waste Thinking About Selling This Business!!

   Posted by: Marty Koenig    in Uncategorized

“Begin with the end in mind,” says Stephen Covey in his book, “The Seven Habits of Successful Living.” Steven is often quoted but his advice is seldom taken to heart.

Most businesses address the subject of an exit strategy when some event creates an urgency to do so. Health issues, unexpectedly strong competition, death of an owner, divorce, unexpected departure of a key employee and other events often create an urgent need to dispose of the business and prompt a call to a business broker, who sometimes advertises they are also exit strategy consultants. The consulting they do is primarily focused on checklists of what to do after the business has been sold.

Let me emphasize that at this point it is too late.

An exit strategy has a good chance of working when the owner of the company puts him or herself in the mind frame of the person who may buy the organization. What does this person want to see and what do they want to know in order to love this company as much as you do and want to own the company? Also, keep in mind that buyers, or their advisors, are generally financial people who truly believe that the numbers tell all. They will not know all the nuances that you do that create value in your mind.

Generally, the structure of an exit strategy begins with a clear vision of what the owner wants out of the business. For example, I have dealt with an owner who wanted to fund an educational foundation with the proceeds of his sale of the business. Another wanted the business to continue to grow and prosper under the ownership of his children. Some want time off or to live a leisure lifestyle. Whatever the goals, the best strategy is to set up a documented process where you can truly show that the business is under control and can be understood by a buyer. I discuss sales to buyers because, except in the case of a liquidation, the company will be sold, even if it is to one’s own family.

This means that the company should put together a realistic business plan and measure progress against that plan, whether you are financing the company or not. It also involves maintaining books on a GAAP (Generally Accepted Accounting Principals) basis. Many smaller companies maintain their books on a cash basis, using a bookkeeper, or doing them themselves. While the owner can understand what is being done, an outside buyer or independent valuation expert will generally underestimate the value of the company because there will be assets that are not being tracked. Additionally, the results should at least be reviewed every one or two years to provide outside credibility of the results.

Once a company knows where it is going and can document how it is done, it needs to justify the value to an outside purchaser. I worked closely with the owner of a company who had a clear goal in the sale of his business, a track record of realistic budgets, quality financial statements, steady growth and a profitable market niche. He had one thing missing; he had an unacceptably high business risk. 95% of his sales were of one simple product and 85% of his sales were to two companies. Despite my strong recommendation that he greatly diversify his product line and customer base before selling, he chose to market the company without disclosing these conditions. As one can predict, he failed in the sale of the company after due diligence of two potential buyers. He also rejected two feasible alternatives and took a course of action that, to date, has not produced a sale.

If you think you have all the bases covered, you should decide on the best exit alternative. That alternative may change depending on the stage the business is in. If it is in the early stage, a sale to support the owner’s family or partners may be the goal. Later, a sale to an up and coming family member may be the goal or some charitable or outside organization funding may be the objective. In these stages, different strategies may be developed concurrently. In any event, having a good documented plan, quality financial reporting and strong management practices will show value to a potential purchaser, or to a financier of an employee or family member and produce less stress at a critical time for the business and owner’s family.

Make it a great week!

View Comments
1
Nov

SMART Steps for Your Success

   Posted by: Marty Koenig    in General

How successful were you in 2008? Did you achieve your personal and business goals? If you are like the majority of busy people, you didn’t write your goals down. There are many reasons not to write our goals but unfortunately most of them are negative. Does this sound familiar?

o    · If I write down my goals and don’t achieve them, I have a constant reminder of failing.

o    · I like to be flexible, writing goals down puts limits on me.

o    · I don’t have time; I’m busy trying to get things done.

There have been studies done over the years that confirm writing your goals and looking at them regularly greatly increases your success in achieving them. What is interesting is that goal setting works both personally and in business environments. Many years ago I learned about goal setting and have used it religiously to help me move forward both personally and professionally.

Goal Setting

So what is goal setting? Goal setting is a process that helps you get clear on what you want, make an action plan to help you get there, launch into action, and persist until you reach your destination or find a better one.

Texas oil billionaire H.L. Hunt once said that there are only two ingredients necessary for success. The first is that you have to decide exactly what it is that you want. This is where he believed many stumble. They never decide what it is that they really want. They may think they want something from time to time, usually something generic and vague like “being rich” or “a better job,” but it’s just a fleeting thought; they never truly get clear on what these things really mean.

Hunt said that once you’ve decided what it is that you want, the second ingredient is to determine the price you have to pay to get what you want, and then resolve to pay that price by establishing your priorities and getting to work.

Many who get past the first ingredient never apply the second one. They don’t understand that you have to pay the price in full before you can claim your prize.

You can think of goal setting as a process that helps you to decide exactly what it is that you want, and then to systematically pay the price in order to get it. It is a process that helps you focus your time and energy on your targets through careful and deliberate planning.

SMART Goals

Another area where many of us stumble is understanding what a goal is and how to write it effectively. A goal is a well-defined target that gives you clarity, direction, motivation, and focus. It must include all of these criteria!

When identifying my goals, I like to use the SMART acronym. There are several variations but I have used the following successfully:

S -  Specific and Significant: Your goal statement should be very clear and specific as to what you want. This will facilitate the goal-seeking mechanism of the brain. Significant goals are the ones that will make a positive difference in your life.
M – Measurable and Motivational: There is an old saying that says “what gets measured gets done.” Making your goal measurable helps you see your progress, recognize if you are moving in the right direction, and see how far you still need to go. Goals need to be motivational. They need to inspire you to take action and make progress. One of the best ways to make goals motivational is to ask yourself why you want to achieve them.
A – Achievable and Action-oriented: Achievable doesn’t mean easy, just that you can have a reasonable expectation of achieving it. Action-oriented means your goal should focus on actions you can take that are in your direct control.
R – Realistic and Relevant: Realistic is another word for achievable. It means that the actions associated with your goal are things that you can do. Good goals are relevant to you and to your life. Relevant goals are meaningful and significant; they can make a difference in your life.
T – Time-bound and Trackable: For goals that have a natural ending (like outcome goals), establishing a clear deadline for them adds an element of urgency and motivation. All goals should be trackable so you can see what your progress is, either in terms of results you are experiencing, or actions you are taking.

From my experience, taking the time to complete this exercise has been invaluable. As a business owner, I used this format with my key employees to set both annual and quarterly goals. Writing them down is the first and most important step in the process. Reading them and internalizing every day helps to keep your mind focused on what is important.

Most of us have been exposed to goal setting during our careers. Unfortunately, what we know is common sense but not common practice. There is an old saying “Fail to plan, plan to fail.”

Tags: , , , , , ,

View Comments
Back to top