The hidden goal of the smartest business owners

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What are your business goals for the year? If you’re like most owners, you have a profit goal you want to hit. You may also have a top line revenue number that’s important to you. While those goals are important, there is another objective that may have an even bigger payoff: building a sellable business.

But what if you don’t want to sell? That’s irrelevant. Here are five reasons why building a sellable business should be your most important goal, regardless of when you plan to push the eject button:

1. Sellability means freedom

One of the fundamental tenants of sellability is how well your company would perform if you were unable to work for a while. As long as your business is dependent on you personally, there’s not much to sell. Making your company less dependent on you by building a management team and creating just-add-water systems for employees to follow means you have the ability to spend time away from your business. Think of the world of possibilities that would open up if you could choose not to go into the office tomorrow….

2. Sellable businesses are more fun

Running a business would be fun if you were able to spend your days on strategic thinking and big picture ideas. Instead, most business owners spend the majority of their day on the minutia: the government forms, the employee performance reviews, bank reconciliations, customer issues, auditing expenses. The boring details of company ownership suck the enjoyment out of owning a business—and it is exactly these tasks you need to get into someone else’s job description if you’re ever going to sell.

3. Sellability is financial freedom

Each month you open your brokerage statement to see how your portfolio is doing. Not because you want to sell your portfolio, but because you want to know where you stand on the journey to financial freedom. Creating a sellable business also allows you peace of mind, knowing that you’re building something that—just like your stock portfolio—has value you could choose to make liquid one day.

4. Sellability is a gift

Imagine that your first-born graduates from college and as a gift you give him your prized 1967 Shelby Ford Mustang. Your heavily indebted child takes it on the road, but after a few miles, the engine starts smoking. The mechanic takes one look under the hood and declares that the engine needs a rebuild.

You thought you were giving your child an incredible asset, but instead it’s an expensive liability he can’t afford to keep, and nor can he sell it without feeling guilty.

You may be planning to pass your business on to your kids or let your young managers buy into your company over time. These are both admirable exit options, but if your business is too dependent on you, and it hasn’t been tuned up to run without you, you may be passing along a jalopy.

5. Change takes time and planning.

There are some things in life that take time, no matter how much you want to rush them. Making your business sellable often requires significant changes; and a prospective buyer is going to want to see how your business has performed for the three years after you have made the changes required to make your business sellable. Therefore, if you want to sell in five years, you need to start making your business sellable now so the changes have time to gestate.

Are you curious about how sellable your company is and what you would need to tweak to sell it when you’re ready? Then it’s time to get your Sellability Score. The questionnaire takes about thirteen minutes and your responses are kept confidential. You can complete the questionnaire by clicking on this link: http://www.gtgrowth.com/the-sellability-score/.

 

Frank Mancieri, Chief Growth Advisor, GT Growth & Transition Strategies, LLC, 401-651-1585, frank@gtGrowth.com

“My Mental Readiness for an Exit is LOW”

A recent release of findings from an ongoing research effort being conducted by Pinnacle Equity Solutions, Inc., a national leader in the emerging field of exit planning, reveals that 85% of business owners who are considering a future exit from their privately-held business currently have a Low Mental Readiness for their exit.  This newsletter discusses these findings and provides insights for owners of privately-held businesses to learn how you might begin planning for your own business transition or exit in the future by knowing more about what your peers are thinking and doing. 

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Exiting Your Business, Protecting Your Wealth – Financial and Mental Readiness

In October of 2008, John Wiley & Sons published John Leonetti’s book, Exiting Your Business, Protecting Your Wealth – A Strategic Guide to Owners and Their Advisors.  This seminal book on the topic of exit planning provided a system for owners and their professional advisors to plan a business exit.  This exit planning system provides two (2) initial components that an owner should assess – their Financial Readiness and their Mental Readiness for a future business exit.

An owner’s Financial Readiness is simply a measurement of the amount of wealth that is held outside of their business, and/or other sources of income, that can pay for maintenance of their lifestyle.

A business owner’s Mental Readiness is an indication of how much longer the owner would like to continue working in their business.  For example, a business owner with a High Mental readiness is someone who is NOT enjoying working in their business today and would like to move on from the business.  However, a LOW Mental Readiness reflects an owner’s desire to continue working in the business because they enjoy the continued challenge and thrill of running their business.

The data presented in this newsletter are the initial results of more than seventy-five (75) owners of operating companies who have completed an assessment conducted by Pinnacle.  The results provide a view through which we all can better understand an owner’s attitude and preparedness for their future business exit.

Traits of LOW Mental Readiness

The following attributes apply to the 85% of owners who have a LOW mental readiness for an exit.  As a group, they generally:

–          Have no written plans for an exit

–          Have not thought about a future without them working in their business

–          Take less than 3 weeks of vacation per year.

–          Are performing at the ‘top of their game’.

–          Lack the management team to replace their responsibilities at the company

–          Continue to have a high level of enthusiasm to work at their companies.

These traits vary in degree among different owners who completed the Pinnacle report, but are the general areas where they all reply positively to the survey questions.

How Can You Apply These Survey Results to Your Exit Plans?

As you review the list of traits in the preceding paragraph regarding owners with a LOW Mental Readiness, you may see many that apply to you.  If so, you may begin to consider your own Mental readiness for an exit and how this could impact your planning.  And, notably, if your desire is to continue to run your business into the future because owning and running your business is what you enjoy doing, then you are in the majority of your peers.

However, our important message to you in this newsletter is the following:  just because you desire to remain with your business does not mean that planning should be ignored or put off until a later date.  In fact, ‘exit planning’ does not (and should not) mean that you are leaving your business.  Rather, planning for an exit includes growth planning (i.e. increasing the cash flow and value of your business), leadership planning and development (so that the business can run without you), personal planning (so that you have the peace of mind that you can afford an exit) and contingency planning (to assure that you don’t lose what you created if someone unforeseen should happen to you).  These are all very important areas that you can plan for today, even if – like the majority of other owners – you do not plan to exit for a number of years.

Concluding Thoughts

We hope that this newsletter has accomplished the objective of having you understand what your peers are thinking and doing for their exit plans so that you can better define your own.

© Copyright 2014 Pinnacle Equity Solutions, Inc.