Kerri, Author at This Way Out Group - Page 16 of 25

Systemization – Concept and Theory

Systems – The word itself often repels people – they think systems require too much extra work. In fact, the whole principle behind systemizing is to create systems that make things run easier, smoother, cheaper; simpler and smarter.

The dictionary definition of systematize is: to arrange in accord with a definite plan or scheme; to order systematically.

When you systematize any thought or activity into a repeatable process, you have the clarity to teach and delegate that task or responsibility to someone else. You maintain control because you designed the system; but you are now free to focus on higher priorities and more strategic opportunities because a myriad of tasks and activities can be outsourced, automated or delegated.

Every time you establish a new system or process that does not have to be done by you and which is documented, you are adding value to the business for a prospective buyer. Every system, task, process, decision tree that you lay out in a repeatable form can be monetized for negotiating the value of your business when you want to exit. 

Concept and Theory

The concept is simple. Once you find out how well something works, you give it more weight, more value in your overall system, or less. If it doesn’t work, you can eliminate it, modify it, or reinvent it. Systemization is the process of integrating all your successful activities across the entire enterprise into a business strategy that is optimal for you in your business:

  1. You are measuring and evaluating the results produced by each component in your strategy. You can then look ahead to project and anticipate the implications, so you can track expected and actual results. You can better forecast the impact of your decisions, when you know consistently that when you do abc, you’ll get xyz.
  2. If you decide a component of your system works well and you want to emphasize it more, before you implement that decision, always ask:

What are the implications if you do, if you don’t?

The answers will reveal your best decisions. Each time you take the time to produce definitive answers, you will also establish tactics, best practices, and parameters to incorporate into your business strategy. This pattern will become a cycle you can apply in every area of your business. It’s a very simple way to create systems for everything you do in and for your business.

  1. Systemization is a commitment to transition from a tactical approach to business to a strategic approach to how things get done. Your optimal business strategy will add value to the business, make it easier for prospective buyers to see and recognize the value in your business because your systems are another way to showcase your most effective resources, strengths and assets.
  2. Enhancing and enabling each department of your business with the tools and processes to systematize does not happen overnight. It’s not always obvious. If an element of your new systemization efforts doesn’t prove profitable the first time you try it, or the first time you put it on the market; don’t reject it out of hand and go back to old familiar ways. Look at the results you’ve tracked and ask:

Is there another way I can apply this method/tactic and make it work for me in this business?

Often, there are new, state-of-the-art ideas you never knew, or cared to know, that will enhance the value of your business for your future buyer. Are you investing the effort, time and expense to systematize this department, this process, this product line to accelerate sales, to increase profit margins or to be buyer ready? If so, then in the context of your exit, persistence to master this new system, method or approach and refine it to work smoothly will add value to the bottom-line in the short-term and the long-term.

Systemization is a leadership skill set you’ll improve and master by doing. As you activate systems and upgraded systems throughout your enterprise, notice what this does for you as a strategic CEO. The discipline of systematizing decisions, processes and tactics is a leadership skill set. You are creating stronger leadership skills that clarify your long-term goals and benefits with broader thinking

What’s Required on the Legal Side of Exit Planning and Execution?

Just like exit questions we have discussed before, there’s a whole set of legal elements, preparation, documents, asset/stock/cash mix trade-offs for buyers/sellers, the process sequence, real estate, closing, agreements and the Closing Package that you need to prepare and work through to make your business buyer ready at the closing.

I’ve compiled a simple list of documents, decisions and pieces you need before you can transfer ownership of your business.

I’m not an attorney. This list of what’s needed  is just to get you started when you seek out appropriate attorneys for your exit planning team. You may need to hire specialists in each area, depending on how unique your situation is. The attorney who helped you start the business, the attorney who prepared your divorce, the attorney you use for real estate transactions is likely not the specialized attorney you need to prepare your business for exit.

Agreements including every confidentiality /non-disclosure/non-solicitation agreement with everyone, including:

  • Customers
  • Vendors
  • Employees
  • Competitors

Advance Preparation checklist:

  • Confirming asset ownership
  • Identifying intellectual property
  • Protecting intellectual property
  • Check for liens
  • Corporate entity definition, location and status
  • Review, Complete, Update all corporate documentation including:
    • Annual reports
    • Corporate minutes
    • Tax filings
  • Assess, revise and develop continuity contracts covering:
    • Key management and employee contracts
    • Vendor contracts
    • Key customer contracts

that extend beyond your exit and that add value to the business.

  • Deal with any legal skeletons that are there. If they are there, you must resolve them because the buyer will find them during due diligence.

Explore and translate the asset vs. stock deal in the actual exit option you choose.

  • What is good for one party is not always good for the other party
    ex: in a stock sale, the buyer is buying shares of a company along with the liabilities – which will require more due diligence
    ex: in an asset deal, you as the seller may retain ownership of the company while the buyer buys specific assets required to run the business.
  • Define the agreement and understanding on the use of the name, brand, use of a name – especially if the brand is tied closely with the use of a family name
  • An asset deal  may require contracts, other documents and due diligence in order to transfer ownership

Processes to bring your business sale transaction to closure:

  • Non-binding Letter of Intent (LOI)
  • Purchase Agreement – including
    • Representations and warranties and survival of those representations and warranties
    • Indemnification
    • Arbitration provision
    • Allocation
  • Due Diligence
  • Contingency dates
  • Closing event and the transaction itself

Due Diligence Review will include:

  • Importance of other members of the exit team
  • Current, pending or potential litigation
  • Skeletons – if they exist, the buyer will ferret them out
  • Environmental issues and implications
  • Regulatory restrictions
  • Non-compete agreements
  • Employment agreements with key management and employees and the impact/implications for the seller

Real Estate – owned, leased, mortgaged, contracts, are they part of the sale or a separate deal

Closing Event/Closing Transaction Package Preparation

  • Ensure seller’s security in any earn-out, employment agreement or promissory notes
  • Non-compete agreements clear, agreed, up to date and countersigned
  • Employment agreements clear, agreed, up to date and countersigned
  • Documenting the conduct of business pending the exit event

This is just one area where it is apparent that you just can’t work through all this alone to attain your ideal exit. Note the scope of what the attorneys can do. It is important to recognize that  even with the right attorney at your side, the two of you can’t do it all. You need a whole team of trusted advisors, not just one.

Your Stakes Are High! Can You Afford Not To Get This Right?

stakes are high

You know the stakes are high – the highest, since your business is likely the most valuable asset you have and intend to monetize.

Then why do over 90% of all businesses avoid exit planning and do not have their transition plan documented? There is a mythical belief that business owners are invulnerable. There is an apparent universal belief that you can always do it tomorrow, that it’s too early to plan your exit.

But without a plan, you are leaving everything to fate, when time takes its toll. The statistics bear out what I’ve been seeing for years; brilliant successful, industrious business owners are frozen in inaction on this one area of their business that they do not want to address. Even knowing how much is riding on the result (taking care of a spouse, children, grandchildren, other family members, partners, employees, customers, suppliers, and others),  they still leave their legacy and their future lifestyle to chance.

In 2007, Mass Mutual did an American Family Business Survey. Their results, seemed to substantiate this lethargy. “Almost a third have no plans to retire, ever; and nearly another third report that retirement is more than 11 years away. Since the medium age of the current leaders is 51, this means that many people plan to die in office…” p44

MassMutual Financial Group, Cox Family Enterprise Center, Coles College of Business Kennesaw State University, The Family Firm Institute, Inc. (FFI), American Family Business, Survey, Study: Family businesses growing steady and strong but face future risks, 2007

Also in 2007, PricewaterhouseCoopers released a report on Canadian businesses succession plans, which found a lack of planning by owners that were 50 and over. They reported that, “many owners seem unwilling to seriously look into options to transition ownership before they are forced, by age or illness, to give up the business.”

The second overall top reason given on both surveys was ‘it’s too time consuming.’

Could this be the trigger point that will help drive owners into action?

As in your on-going operations, succession and transition planning is about business strategy. It is about creating a structure that will help you organize your systems, structure, and processes, which in turn will help you increase the value of the business, and provide you a vehicle to smoothly transition your business to new ownership while you cash out on your terms.

Getting Out – Have You Prepared A Transition Plan?

transition plans

Preparing a written transition plan is a critical element of your whole exit strategy. But surveys consistently verify that CEOs avoid this element regardless of age, or size of the business. There’s a concerted dearth of attention to how they will transition out of the business by CEOs, never mind determining to what they are transitioning.

Most owners:

  • Fail to get the highest possible value for their business, or
  • Transfer it to an ill-prepared successor, or
  • End up paying too much in taxes

or even all of the above.

Whatever your goals or your timeline, it is time to plan for your exit now.  Experts agree that if you want to maximize the value from all your sweat equity, you must invest in proper planning years in advance of your intended exit.

The ROCG Report results confirm:

  1. There is an overall lack of planning. Their survey found that only 9% of business owners have a formal written plan that includes succession and transition planning for the business. That means 91% of all CEOs in the US have no plan on how they will transition out of day to day operations.
  2. Current estimates report that more than 40% of business owners plan to exit within the next five years; and 80% of all business owners plan to exit within the next 10 years.
  3. But on a timeline of market trends, there will be many more sellers than buyers in the market place from 2013 – 2018, just when that first 40% are expecting to sell their business.

It is a disaster waiting to happen. It will only be compounded when you add in the fact that 21 million baby boomers will be selling off their businesses over the next 15 years.

Will widespread catastrophic losses be the result?

Without proper advance planning, we could see wave after wave of business owners fail to get out with the wealth they need for their reinvention. These CEOs:

  • May not be in position to maximize their personal finances for financial independence when they sell sale;
  • May be forced to sell at a deep discount or accept unfavorable conditions;
  • May risk a business closure, leaving them with nothing;
  • May have a business that ultimately fails and/or potentially destroys family harmony in the transfer to family members.

Timely transition planning is a core strategy to avoid facing these types of obstacles and despair. Pro-active strategic business planning and transition planning can help to ensure that the transition is successful at meeting all your goals for the business as well as your lifestyle and legacy objectives.

Is Your Business Ready to be Sold?

It’s not the same thing. How many of these 8 questions can you check off as done – to make your business ready to be sold?

  1. ___ Do you have a history of consistent sales and profit growth? 
    Documented history of sales, profits and growth which you can show buyers provides proof that can be used at valuation
  2. ___ Do you have at least 2 years of clean financials?
    Your bookkeeper and accountant don’t see the whole picture. You have other assets and contracts. All of these will be reviewed and valued. You can’t hide anything from buyers or brokers.
  3. ___ Do you have a foundation of robust systems, processes and structure and are they fully documented?
    Does your business run on consistent processes and procedures or do you run it out of your head? To be ready to be sold, all systems, structure and strategies must be documented.
  4. ___ Do you have projections showing increasing value for the buyer long after you exit?
    Buyers don’t want to buy an old tired business on its last legs. They want to know there’s more life, more opportunity for them to make a good profit for years after your exit. Can you prove that opportunity?
  5. ___ Are you ready to make the necessary changes to make the business buyer attractive?
    How much time, effort, and expertise will you invest back into the business now, as you get ready to move on? Are you willing to set the business up for even greater success without you at the helm?
  6. ___ Do you know what makes your business buyer attractive?
    You must know what it is about your business that makes it valuable enough for someone else to buy it. This is the biggest sale of your life – selling the business you built.
  7. ___ Do you know what makes your business successful in your market?
    Be sure the value is in the business and not just in you the owner.
  8. ___ Are all your stakeholders prepared for the transaction?  
    Just because you are prepared for the exit transaction on your terms and you’ve planning your transition to reinvention, – doesn’t mean all your stakeholders are on the same page with you. Before you get to the transaction, be sure all business stakeholders support the transaction so you indeed can make a successful exit from the business.

Many CEOs prepare themselves for their exit and forget to prepare the business. That can make for a very tough transition for the business, clients, team, and suppliers. All of these challenges are totally avoidable if you prepare the business for the exit transaction while you prepare yourself for your exit transition.



The most important thing you can do today is VOTE.

Are You Ready to Sell Your Business?


Quick, simple and cheap will shortchange you when selling a business.

Are You Ready To Sell Your Business?

Equally Important:

Is Your Business Ready To Be Sold?

Are you ready to sell your business? Is your business ready to be sold?
These are not the same question although the answers must be consistent.

Have you thought about the former but assumed the latter to be true?

Are you prepared to let go of your business, to get out now? Physically? Logistically? Financially? Emotionally? That’s a series of discussions right there that you must address before you can sell your company. Those are questions you will address as your team, your broker and your family ask them.

But What About The Business Itself?

What have you done to make the business buyer ready or buyer attractive?

What have you done to prepare the business not just you for this transition? You’re transitioning to your next adventure, venture or avocation. Your business will transition to new ownership in a financial or strategic sale. These transitions can be easy or very tough.

Exit transitions for you the owner can be easy when you have a detailed plan for your next adventure, avocation or indeed a new business – something to look forward to, something to plan for on your terms. Your exit transition can be tough when you ignore what comes next, leave your reinvention as a black hole that will magically fill itself in or don’t communicate with the most important people in your life about how this transition will impact them.

For the business itself, these same issues arise. Allowing the business and your team to transition smoothly and successfully to new ownership is your responsibility. Indeed, that successful smooth transfer is a key to the value a buyer will pay for. To make the business transition easy, you must prepare the business to be an attractive asset for the buyer. In the next post, we’ll list eight questions to consider to ensure an easy and profitable sale when you exit the business.

An Exit Planning Financial Snapshot

There are many aspects to exit planning that business owners take for granted, never think about, or abdicate to others. This naiveté is one of the biggest roadblocks to getting out on terms that give you the full value of the business. This scope of this book is broader, more all encompassing than just the finances of the exit transaction. You can find experts and financial models to help with the exit transaction in financial terms and you will need them.

To tame the numbers beast before you get there and make it absolutely manageable for any business owner, here are six core elements to consider on the financial side of exit planning:

  1. Setting Financial Goals
    Your long-term income needs and the financial requirements of your reinvention (new venture, avocation, adventure, hobby). From these financial requirements, you can determine the sale price and terms you want your business to deliver when you exit. Initially, these two numbers may not match up. That’s just one good reason to start planning early.
  2. Current Value of the Business
    To be buyer ready, you should always know the current value of your business. You won’t be disappointed by a buyer’s offer if you know the current fair market value of your business. Valuation experts analyze the business books and other materials and compare its profits and losses to relevant businesses in your region and/or industry. With the current competitive value in mind, you can track your timeline to exit on your terms and meet your financial goals.
  3. Build Business Value
    To exit early and maximize the value you walk away with, it is imperative to always be building business value. If you are always adding value, accelerating growth and making the business more buyer attractive, you will have the opportunity to exit with the financial freedom for your reinvention. If you have not been building value all along, start now so that you can sell the business for what you know it’s worth and meet your long-term financial goals.
  4. Selling a Business
    Selling a business has many parallels to selling a house. Once you decide to sell and the business is buyer ready, it can still take 6 months to 2 years to close a transaction. Before you must sell (for any reason), consider all your exit options, all possible buyers and the impact of each option on your exit, on the future of the business and the future employment of your team with the business. Before you choose a specific option, also investigate the tax impact on you and the business. The tradeoffs can be severe.
  5. Contingency Plans
    Murphy’s Law – if something can go wrong, it will. The same is true for your business, as well as your exit from the business. Knowing this up front, is another incentive to start early and aim for an early exit. You want to build a contingency plan for the business in case of any crisis or emergency. For example: you need an emergency plan documented with a copy kept totally offsite – if for any reason you can’t get into your offices, you lose power and can’t access computers or passwords, there’s a fire/blizzard/hurricane that destroys your business, etc. Plans like these and plans for other types of unexpected situations should be built right into your business exit plan from the outset. You also need a documented contingency plan in case you, the owner/CEO, become physically or mentally disabled, have a heart attack/stroke and are laid up for six months or even worse, if you should die. Additionally, your contingency plan must include all current buy-sell agreements, services, resources, client orders, employee contracts, key employee incentive programs, business/disability/life insurance policies that are in effect.
  6. Life and Legacy Beyond Business
    With your comprehensive business exit plan and strategic contingency plan in place, you can explore and consider options for reinvention alongside your estate planning goals to leave a legacy and secure your dynasty. Much of your financial independence beyond the business as well as your estate planning are tied to the sale of the business (aka a liquidity event). You have more estate planning options, more tax advantaged options and more ways to maintain the owner benefits you enjoy; if you start this planning early – ideally, five years before you can fund those options at your exit.
    Your financial position, holdings, and control over the business and those holdings, will change drastically and instantly once you sell the business. Therefore, you must revisit your personal financial plan and your estate plan at each business milestone of the exit process. As you make choices for exit options and reinvention opportunities you want to pursue, be sure to circle round to be sure they still coincide with your business exit and contingency plans.

Stating the obvious, this is not a complete discussion of the financial aspects of exiting your business. It does however give you a general outline of the scope of the financial issues to address with various key experts on your team. Just on the financial side, you can begin to see the value of starting now, planning early and preparing to maximize the value of your business when you want to get out.

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