When Will Business Owners Take Exit Planning Seriously?

My last posting mentioned that there are a lot of businesses out there that will be coming on the market in the next few years and not many owners who are doing anything constructive to plan for a successful and lucrative outcome. Many owners seem to have their heads in the sand, or simply not the time available to put some thought into what options exist out there to exit their business and what tactics are then required.

By way of comparison I have met two business owners recently going through the exit process, but with very different stories. Both are true stories, but I have changed names to protect their identities.

Owner A (let's call him Jim) owns a small plastic injection moulding business. He has owned it for more than 20 years and is aged in his early 60’s. In recent times it has gone backwards a bit and his original business partner has pulled out, leaving Jim as sole owner. The facilities look tired, but the machines are in good condition. No long term contracts are in place from customers, but they do receive regular orders due to their high quality reputation. Jim still owes a significant amount to the bank for the purchase of one of the injection machines, secured on his private home. The business is in leased premises.

Jim wants to exit the business and due to no long term plan in place is looking at the most likely scenario of selling the machines, shutting the doors and walking away from the business, still owing money to the bank. Not much of a retirement to look forward to.

Contrast this with owner B (Lets call him John). John has owned an optometrist practice, for about 15 years. It started as a sole practice, but it grew to employ another optometrist, originally shared with another practice. About 8 years ago John realized that one day he wanted out of the business and to follow his passion for travel and geology with his wife. A couple of years after that he needed to hire a new optometrist graduate and was lucky enough to hire Sally. When John broached the idea of Sally buying into the business, she was enthusiastic and a plan was put in place. A new company was formed with both Sally and John as shareholders. A shareholders agreement was thrashed out and a share valuation conducted. Over the next 5 years Sally has slowly invested her drawings into buying John’s shareholding and within the next couple of months this process will be completed and John leaves on the first of what he hopes will be many trips overseas with his wife.

Which outcome do you want for your business and your life? Putting some longer term planning in place will help you achieve a successful exit from your business, or at least maximise the chance of a successful exit happening.

Join me in a 2 hour workshop in Albany on March 3 to start this process off and start planning what you will do when your exit plan has been successfully executed. Register by emailing me at andyburrows@iconbusinesssolutions.com Tickets are $49 +gst per business.

Put the Success into Succession Planning

According to a study by the Centre for Small Enterprises at Massey University, during the next 10 years 64% of business owners intend to exit their businesses. For the North Shore, where I live, that means about 16,000 businesses may come up for sale during the next 10 years. That’s 130 a month, every month, summer, winter, good times and bad, for a decade!

If you are thinking about selling your business during that time, do you think you will achieve the sale price you need to fund your ideal future in such a potentially crowded marketplace? Of those business owners who intend to exit their business in the next 10 years, 70% intend the sale to fund their retirement, but 87% have no formal plan on how they will do this.

The message of planning a successful exit from business has not yet been taken to heart by the majority of business owners and this may result in a lot of unfulfilled dreams of a long and happy retirement. The general attitude of: “I’ll get round to it when I have to,” is all too prevalent and the point of early planning to maximise value at exit is lost on many.

To a lot of people, exit planning is viewed in a similar way as painting a house before it is put on the market i.e. something done close to the point of sale. Yet good exit planning should start much earlier. The benefits will be a wider range of exit options and a bigger pay cheque for the owner on handover day.

So what are the recommended steps?

1. Decide to put a formal exit plan in place and include it in the general, long term planning of the business.
2. Determine the strategic and tactical decisions that are required to progress the plan.
3. Look at risk factors that could knock an exit plan off its course, such as: shareholders’ agreements, share types, wills and shareholders’ insurance.
4. Look at all the exit options available and draw up a short list of the most preferred.
5. Establish a personal plan for the owner(s) to make sure as much of this value ends up with the owner(s), with the least tax paid and a long term retirement plan in place.
6. Identify and deal with possible impediments to a profitable exit.

If nothing else, following this process will result in a business that is running better, with higher profits and less reliance on the owner. At best it will result in the type of comfortable retirement that the owner wants and enable him or her to really enjoy the fruits of their labour. Not following it could result in the owner standing in line with lots of other business owners with similar offerings, hoping for a quick trade sale while facing retirement not as well off as hoped. The choice is yours.

To learn more about this process, join me at a workshop on exit and succession planning on the 3rd of March in Albany, North Shore City. Email me at andyburrows@iconbusinesssolutions.com for venue details and time.

A final word:

“The best time to start planning your exit is from start-up. The next best time is NOW!”

Don't Quit!

About September last year I started working with a new client to help him improve his business. He was in a desperate situation. He was working ridiculously long hours because he was taking on any work that came his way, but making no money because of poor credit control and the lack of other management controls. It took quite a while to sign him up as he forever cancelled appointments due to this emergency or that.

Eventually we made a start on the journey to change his business and his life, but no sooner had we been going for a couple of weeks that he "went to ground" again, reneged on his first payment and did not return emails, texts or phone messages. This went on for 3 MONTHS. Me leaving message after message; visting his office in the vain attempt to catch him in, and texting in between times.

Eventually I decided to call him at home one evening. Something that I don't like to do, but the complete lack of response had left me no option. Surprisingly he was glad to hear from me and recounted the stress he had been under for the past couple of months. He actually thanked me for getting hold of him and it looks like we are going to get back on track with the original plan. Here's hoping anyway!

It reminded me of the dogged determination you need to exhibit to be in business. When you get to the point of giving up on something, just try that one more time, make that 1 extra phone call or hang on just that little bit longer. You don' know how close you are to succeeding.

To quote Walt Disney, "The difference in winning and losing is most often... not quitting." I am also reminded of the last verse of a poem I had on my wall from an unknown author.....

Don’t give up though the pace seems slow –
You may succeed with another blow.
Success is failure turned inside out –
The silver tint of the clouds of doubt.
And you never can tell how close you are.
It may be near when it seems so far:
So stick to the fight when you’re hardest hit –
It’s when things seem worst that you must not QUIT.

I think I will print that poem out again and hang it up in my new office.

Are You a Fox or a Hedgehog?

I started this blog with the intention of focusing on ways in which a business can improve its competitive advantage. To keep on this track this post is about one of the fundamental strategies that provides the cornerstone of developing a sustainable competitive advantage over your competitors. That strategy is, FOCUS.

Jim Collins in his classic book, Good to Great, retold the story of “The Hedgehog and the Fox”. The fox knew many things, but the hedgehog knew one big thing. The fox was a cunning creature, able to devise a myriad of complex strategies for sneak attacks on the hedgehog. Fast, sleek, beautiful, fleet of foot and crafty – the fox looked like a sure winner. The hedgehog , on the other hand, was a dowdier creature. He waddled along, going about his simple day, searching for lunch and taking care of his home.

One day the hedgehog wandered in front of the fox. “Aha, I’ve got you now!” thinks the fox as he leapt out towards the hedgehog. The hedgehog, sensing danger, rolled up into a perfect ball, sharp spikes poking out in all directions. The fox retreated back into the forest to plan a new line of attack. Time and time again the fox tried different ways to attack the hedgehog, but every time the hedgehog won by following the same, roll into a spiky ball strategy.

What has this got to do with business? Well, lots actually. Jim Collins used this parable to classify companies as either hedgehogs or foxes. A hedgehog company generally had a crystal clear understanding of what they can be the BEST in the world at, the single KEY economic driver that had the biggest impact on their profitability and PASSION for what they do best.

Fox companies, on the other hand, were quick to jump on new opportunities, even if they were in a significantly different market to where they had most of their business and were more passionate about “doing the deal” than their core business. Senior management were generally driven more by their egos.

Hedgehog companies generally outperformed similar sized fox ones in the same industry by many times over. The important message is that to be successful in the long term and develop a sustainable competitive advantage, you are better to focus on one thing that you CAN be the best at, even it appears to be rather boring in comparison to your flashy competitors’ try everything approach.

To receive help in determining if you have a hedgehog concept that will help to build your sustainable competitive advantage, and what to do about it if you don't, contact the author at andyburrows@iconbusinesssolutions.com

Disaster Planning

For more than a week now we have been shocked at the scenes of utter devastation and chaos that is happening in Haiti since the magnitude 7.0 earthquake struck on the 12th of January. In New Zealand we also live in fear of “the big one” hitting us one day as we exist in a similar area of tectonic instability. It’s not a question of if, but when.

How would your company cope if a major earthquake struck tomorrow and have you done anything about planning for how you would recover as fast as possible? A disaster plan will allow you to make decisions before a disaster strikes your business and forces you to determine how you are going to deal with one should it happen.

A disaster plan will allow you to deal and come to terms with the disaster situation in those first critical hours or days rather than deciding on how you are going to deal with it.

A plan is ideal for recognising physical disasters such as fires, floods and the very real act of terrorism. It will help you to identify possible threats and take the necessary preventative action while preparing the business to deal with it effectively. The first step may be to set up a disaster planning team that includes staff responsible for: HR, buildings, PR, IT, general management. Consider including an outside advisor in the group as often they will see risks that people from within the company may miss.

Next the team should assess the risks to the company. This would include such things as: insurance cover levels, building and equipment maintenance, alarm systems, fire detection and evacuation, back-up off site of records, power, etc. From here a disaster plan can be designed and implemented. Remember to update it every year and modify it to suit the changing situation.

Below is a suggested checklist in which you will need to assess, implement and determine for your disaster plan. Contact the auther with help in pulling this together, so you can better focus on core activities.



The Disaster Plan:

Key Issues Must address:

• Key personnel and their out of hours contact details
• Key personnel responsibilities and authority
• The location of the Disaster teams control centre (this should be off the work site where possible)

Items to Cover
(consider all functions and areas of your business including employees, customers, etc)

• Functions and procedure prioritised
• Floor plans
• Evacuation area
• Evacuation procedures
• Precautionary measures
• Procedures for jobs to be done while the recovery is taking place
• A list of all suppliers and businesses for emergency equipment and supplies
• Other emergency numbers or contacts

Employee Information

• Ensure all employees have provided their details and/or phone numbers for after hours contact
• Have a counselling service or agency decided so that they can provide counselling and help to employees to deal with the disaster
• Communicate with employees about what is going to happen, etc to keep them in the loop of what is happening and what they should do, etc.
• Advise employees of who to contact should they have any problems
• Consider an alternative to pay employees should the usual method be destroyed or unavailable

Alternative Premises

• Determine an alternative place to carry on business should yours be destroyed
• Consider making arrangements with other businesses to share space until things are back to normal

Operations

• Determine possibly delays should something happen
• Aim to be operational as soon as possible after the disaster (next day)
• Inform customers and suppliers immediately to let them know what has happened otherwise they may disappear
• Brief and prepare your PR representative to deal with media

Communications

• Advise your telephone company and request them to forward your calls to your designated place
• Prepare your personnel so that they know what to tell your customers, suppliers, etc.
• Decide on where your mail should be sent

Equipment and Resources

• Ensure that you know and are able to identify where critical documents are so they can be retrieved
• Store backups off site of materials, documents, etc
• Define which resources would be needed during the recovery period and make them available
• Make sure money is available at all times
• Consider hiring instead of buying new equipment – it maybe the best option
• Keep the Disaster Plan in a number of locations so that it can be accessed should it need to be

How To Build a Competitive Advantage

With a blog title of “Your Competitive Edge”, I remind myself to try and post topics that will help business owners to gain just that; a competitive edge. Of course making small, incremental improvements in many areas of a business will always help to improve the competitive situation of a business. But what should be the main, over-arching strategy that an owner should follow in order to direct all other activities in the business and ensure efforts are going in the same direction? Where does our competitive advantage lie?

Competitive advantage can be simply stated as: Something your customer considers extremely important, at which you excel. If this advantage is something that your competitors find very hard or impossible to copy, then you have a sustainable competitive advantage. That’s even better.

Competitive advantage can be gained through price, differentiated products or services, or niche strategy. There is a saying that a business can offer Price or Quality or Service. You cannot successfully offer all three at the same time and expect to remain profitable. At best you can offer two. Deciding on which one or two you have a natural strength in will help you develop a competitive advantage strategy and focus your efforts where your chance of ongoing success is greatest.

I suggest you take the following test. Be as objective as possible and score yourself in each category:

5=We are the best in the industry
4=We are better than average
3=We're OK
2=We stink at this
1=Say what?

Controlling our supply chain. [ ]
Setting up channel partnerships. [ ]


We have great products/services. [ ]
Basic research and development. [ ]


Creating marketing materials. [ ]
Building customer relationships. [ ]


Keeping existing customers happy. [ ]
Getting customers to refer prospects. [ ]



Total each pair. The highest numbered pair indicates your core competency.
Match that with the strategy you should embrace, below.

• First pair is highest: embrace a “lower your price” strategy.
• Second pair is highest: embrace a “uniquely better product” strategy.
• Third pair is highest: embrace a “hassle-free experience” strategy.
• Fourth pair is highest: embrace an “ownership of results” strategy.

Warning: if no pair adds up to more than 6, your company may not be a viable competitor.

For help in relating this to your particular situation and tailor making a competitive advantage strategy for you, please contact me at andyburrows@iconbusinesssolutions.com or post a reply below.

Do Something Different in 2010

So it is early January, 2010. The beginning of a new decade. A chance for a fresh start and to really achieve better results than last year. So what are you going to do different this year that will actually make a change in your situation more likely?

Having goals of how much extra profits you will make or how much extra time you will spend with the family are great and essential to drive you forward. But that is only half the story. The other essential element in the planning process is converting ones goals into practical action plans and tactics that affect your day-to-day activities. It’s what you ACTUALLY DO that really counts, not what you PLAN to do.

So take a stock of your activities last year in various parts of your business. What marketing activities did you undertake? What generated leads and what did not? How many leads did you convert into sales and what techniques did you use in the sale process? Did your customers pay on time? How many complaints did you receive?

Take stock of what worked in your business and what did not. Then decide to make a fundamental change or two in some areas and reinvent part or all of your business to drive change. Some areas you may wish to consider:-

Delegation.
Look at your lower level tasks that sucked up too much of your time last year. Decide to pass these tasks to someone else (either internal staff or an outside contractor), put in some measures and controls and focus more of your time where it will pay you more.

Plan more.
Make planning a weekly event, either with yourself or key staff. It is easier to make lots of small adjustments as you go through the year than put up with inefficiencies and try to make big changes once or twice a year.

Learn more.
Read more business books. Attend a seminar or two. Pick a topic you don’t know much about and aim to become proficient at it. Consider skills outside business as well. Take up archery or cycling or something.

Get rid of that frustration.
Maybe you have an old printer that jams all the time or a phone system that does not work properly. Consider throwing it our and getting a new one. The new equipment will be far more efficient, will reduce everyone’s stress and may even improve customer relations.

Network.
Join a business network group. This can be a low cost way of making business contacts and promoting your business, especially if you pick a group that is heavy on prospective customers and lighter on competitors. At worst you will get to talk to other business owners, share your frustrations and ideas and learn from others in a similar position as you.

Whatever you do in 2010 aim to do something DIFFERENT to what you have been doing for the past year, or years. If you keep doing to same stuff you will only get what you have always got, or possibly even less as the competition passes you by. Drop what hasn’t really worked and move on. Something better will turn up if you work at implementing new strategies and tactics consistently through the year.

I welcome you comments and feedback. Click on "comments" below to post your thoughts