From business income to asset
There are a lot of reasons my siblings and I didn’t go into the family floral business but the biggest one is that my dad worked for himself. He build a job not a transferable asset.
In the beginning, it was a means to an end that allowed him to take care of his family and work for himself.
In the middle, it was easier to keep on keeping on than it was to strategically respond to a changing market, create a plan, document and professionalize processes, and design the business to operate without him.
In the end, there was no business exit plan. It was too late and there was nothing of real value to pass on or to sell.
An asset can be grown, shared, gifted, sold, collateralized, liquidated, repurposed, or monetized.
A job can’t.
If you focus on maximizing income without also building value in your business, you limit your options and diminish how much wealth you can generate by being a business owner. (Hint: value is more than revenue and there are many ways to build value and exit a business.)
My dad’s choices feel particularly relevant as clients of all ages are asking me
How do you exit a business?
What is a business exit strategy?
What’s a business exit advisor?
The truth is, most owners assume they have lots of time and only a few options for when and how to exit their business.
There are actually lots of options - including more than one exit opportunity for the same business.
And, in it’s current state, your business probably isn’t attractive to a buyer.
Given that 70% of businesses that go to market don’t sell, there’s no time like the present to start assessing your business readiness and attractiveness so that you have plenty of time to increase the value of your business before it’s time to exit.
The good news is that many businesses can improve their attractiveness to buyers and readiness for the process by making choices now about how to grow strategically. You can start by
Conducting a realistic assessment of the current state of your business
Understanding how your business ranks compared to best-in-class competitors
Committing to develop a three to five year plan (executed in 90-day sprints) focused on increasing income and value while de-risking the business
This approach not only builds value in the long-term, it also increases income right now.
Which means a solid growth strategy = near-term gain = a solid exit plan for the future.
Exit planning isn’t a separate process from your annual visioning and planning. It’s an intentional approach to business growth that prioritizes asset building over income acceleration, without having to sacrifice either.
So, if my Dad had treated his business as an asset and not just an income stream, what would that look like?
Create value. Make sure the business has all the resources it needs to grow - staff, customers, processes, and relationships. Taking yourself out of the equation as much as possible is essential. If the business relies on you for sales, product development, and/or key relationships it has little value for someone else.
For example, by building a list of well defined, qualified leads, you add to your business’ value. Likewise, by having guaranteed recurring revenue, replicable processes and procedures, and a well known and reputable brand, you make your business more valuable. Value is also derived from solid cash flow management, consistent profitability, and investments in the business infrastructure. You have to assess where your business is in all areas to know where you need to invest time building value.
Most of your business value will come from intangible assets, your intellectual capital - people, relationships, processes, and reputation.
Seriously!
You need a strong P&L, balance sheet and cash flow. But that’s not enough.
2. Grow. Since your business needs to operate without you, you probably need to increase revenue and cash flow so you can hire a management team capable of successfully running the business. Growing your business may also require additional capital. You may need to invest time and money to position yourself to get top dollar when you transition.
Once in place, the management team needs to strategically grow the business for sustained success. Buyers want to know that your business has the potential to create more profit and wealth for them. And you deserve to get the most out of your business while it provides you income and when you harvest its value. Preparing to exit is good business strategy.
3. Plan your next act. This is especially important if you need a specific amount of money from the sale of your business to finance your retirement or next venture. Do the proceeds from the sale need to be invested to replace your income? Or will that money seed a new venture? Will it help you travel or fund your grandchildren’s education?
In addition to knowing how much you need to live the life you want, you also need to know what you want to do with your time when you no longer have a business to run. According to the Exit Planning Institute, 76% of business owners who sold their businesses profoundly regretted selling within a year. Don’t underestimate the feelings you will have about selling. This is a big deal. A major life transition that needs to be planned for. You’re way more attached to your business than you think you are.
You are not your business. You built your business but it exists separate and apart from you. It’s worth is not your worth. It’s one part of what you do but not who you are.
4. Engage advisors. There are no less than seven ways to exit a business in an orderly manner. And there are hundreds of ways to do it that can destroy more than a once reliable income stream.
Yes, good planning takes time.
Yes, good planning takes money.
This is true whether you're planning to exit or just trying to get the most out of your business right now. Great execution requires more than a good plan. It requires several teams, a few outstanding individual performers, and a leader who can put the right people and resources into play at the right time to achieve success.
As owner, you’re the visionary and quarterback. Your job is to lead your team to deliver consistent wins, relentlessly, over and over again, despite the circumstances, through both your personal performance and your singular ability to strategize and lead others.
Your management team is the team on the field responsible for execution on the front lines, in real time.
Your advisory team is equivalent to the team behind every legendary quarterback who has walked onto the field. This team helps them train, condition, strategize, and focus mentally, emotionally and physically to visualize and manifest success. Yours will do the same and help you push through the pain, prepare for the unexpected, develop new plans in response to specific competitors, reduce your distractions, engrain the fundamentals, and recover from setbacks.
You’re the starting quarterback. The leader of your advisor team is your backup quarterback. This is usually a business consultant, value or growth advisory, someone who understands your vision and can mobilize and organize other advisors to help you deliver effective decision-making and consistent accuracy in executing toward your goal.
Feels pretty intense, huh.
Don’t get me wrong, it is.
But the thing is, you work hard in and on your business everyday. Building an asset vs. an income stream doesn’t require you to work harder, only smarter.
Vision, intention, planning, resource deployment, and execution take your work from intense to purposeful.
Working with an advisor - one to start, others as needed - gives you the depth of bench you need to get and stay focused.
