Posts tagged with: long term goals
It’s a tough market for potential sellers. Are you making it tougher? Is your business at risk?
Too Many Businesses Are At Risk
Did you know that for every 100 businesses in the lower middle market:
80% of companies are not ready for a transaction. When they approach an intermediary (broker, IB, M&A)
they get turned away. (80 not ready)
40% of the remaining 20% will fail as well from poor planning/preparation. (8 fail)
>50% of M&A transactions fail because of low valuations (<$5M). (6 fail)
We can double those valuations in the years leading up to a transaction
>80% of mergers and acquisitions never meet their long-term objectives.
(9 never hit long-term objectives)
50% of sellers are already under compulsion to sell when they reach out to an M&A. (3 compelled to sell)
That leaves <3 who prepare, sell successfully, and meet long term goals.
Will you be one of those 3:100?
1.You can proceed alone and assume all the risks,
2.You can reduce risk, maximize value and follow a holistic 4 step process using tools that drive value, to meet all your objectives. Check out Build Your Business Value to get started.
It takes a big commitment to start and grow a business.
You need to be clear on your mission and vision, business model, market research, marketing and sales strategy, and operations to implement your business plan.
You take risks and set goals.
You can be consumed by the day-to-day responsibilities and urgent demands.
All of this eats up time.
There’s another critical piece that gets put off but is as essential to achieving your long-term goals. That is your exit strategy. If you include your exit strategy as part of your initial goal setting, then all of your goal achievements will line up and lead toward your ideal exit strategy and you will have a much greater likelihood of monetizing the business you built. Here are a few guidelines to start:
- Choose the right exit strategy for your goals
You have monthly and annual goals for your business. Commit to these intermediate goals only if they are aligned with your long-term goals and the ultimate goal achievement of your ideal exit strategy. Otherwise, they take you down rat holes or dead end tangents.
- Set business growth goals aligned with your exit strategy
Your growth goals are essential to the health, strength and survival of your business. Look at your growth goals in the context of the exit strategy you want to implement. Be sure your growth goals are taking you in the same direction. Growth that is in conflict with your exit plan or competes with your long-term goals will hurt the business and limit your ability to achieve your exit strategy.
- Identify goals to increase value
The value of the business is not just in terms of assets or cash flow. It’s also in your intellectual property. A lot of your intellectual property is stuck in your head. Your intellectual property could also be in your team, your processes, and in the relationships you cultivate and maintain with clients and vendors, etc. So your objective to increase value before your exit could be to capture the intangible value in these less quantifiable areas. This will translate into a much higher valuation of the firm.
- Plan your exit strategy by intention rather than by default
This sounds like a lot of work. In fact, it is. Nevertheless, if you don’t do the work to plan your exit – your dream of achieving an ideal lifestyle, living your legacy and leaving a dynasty – then you are abdicating both the responsibility and the reward. If you don’t plan your exit by design, then you will settle for what you get by default.
- Systematize your exit strategy to maximize value
The more you can systematize your business so someone else can run it equally well without you, the more a buyer will be willing to pay you to keep it going.
The better you are at systematizing everything, the easier it is for a broker to pitch and leverage that value for a higher price. This step takes discipline and consistency that starts long before you intend to exit.
That’s how you ensure your own successful exit strategy.
At first glance, it may appear to be a futile contradiction for a CEO to try to grow the business and plan the exit at the same time. But when you look at them side by side, you’ll see that growing the business is an essential early phase of any exit plan. The mistake is trying to look at them as sequential projects instead of concurrent projects. The requirements of one will guide the decisions of the other and vice a versa.
- By you increasing revenues – a benefit to potential buyers – so growth itself becomes a growing the business saleable asset
- Increased revenue from growth is easy to measure and monetize when the business is being valued for a potential sale.
- When decisions are made that lead to growth, immediate goals are met. When those same decisions are aligned with the long-term goal of how the owner will exit the business, those decisions have greater strategic value.
- Test every decision – When the long-term goal of the owner’s exit is known throughout the leadership team, every decision can be tested against these long-term criteria before implementation.
- There are many options to consider when CEOs want to grow their business. The options they select have a direct impact on their exit strategy and timeline. And if the exit plan is in place, all options for growth can be sorted to align business growth with the CEO’s exit plan. Here are just a few basic options to use individually or in combination:
- Increase sales prices
- Increase new sales
- Increase volume of sales/customer
- Increase add on sales
- Increase life of each customer
- Open new markets
- Open new channels
- Increase capacity (sales, marketing, customer support, production, facilities)
- Reduce costs
- Reduce overhead
The forethought and documented strategic planning you invest to grow the business develops depth within the entire management team. That depth in leadership as well as the resulting measurable growth increase, adds value to the business that is very attractive to buyers.
What’s the rule about how to drive out of a skid or a spin in that situation?
Focus on where you want to go,
not where the car appears to be going.
It’s the same with working on your goals to realize your dreams. You have to stay focused on the goals and not get discouraged or distracted.
The biggest danger for any business owner is the allure of the new shiny object. That new shiny object could be a new tool, a new marketing strategy, an affiliate offer, or a new revenue stream. The danger is that by pursuing the new shiny object, you get pulled off your path, off your timeline, away from your exit goals.
Instead, with your exit goals clearly set and your milestones keeping you on track, you are in a position to evaluate each new shiny object more objectively, as it relates to your priorities. By focusing on your goals with tenacity and almost tunnel vision, you can put those new shiny objects on the shelf, on a list, on the backburner, to consider only if they will accelerate your path to turn your business into the wealth-producing machine you deserve.
Stay Focused In Spite of Temptation
How do you do that?
- Before you set your task list for the day, review your long-term goal, your timeline to get there and the one-year goals you are actively working on.
- Identify your short-term goal priorities that are tied to your long-term goals and your exit.
- Build your daily tasks based on what must be done today and must be done by you to achieve those short-term goals.
- Finish tasks that lead to your exit goals first. Only then, and if time allows, can you consider those new shiny objects.
If you don’t focus on where you want to go with your business, and prioritize it daily; you can’t get the results that will deliver the outcome you desire.
Begin With The End In Mind
There’s a lot to consider when you are starting a business. You need to be clear on your mission and vision, your business model, your market research, marketing and sales strategy; and your budget and operations to implement that business plan. It’s easy to get busy working in the business, making it a viable concern. That’s the fun and the immediate reward for your vision and effort.
Another critical piece that’s easy to put off but critical to your long term goals is your exit strategy. If you set your exit strategy as part of your initial goal setting then all your goal achievements will lead towards your ideal exit strategy. Here are two areas to explore to be sure you achieve your end goals.
Is Maximum Value One Of Your Goals?
- What does that mean to you?
- Goal achievement is only possible if you have a goal you want to get to.
Do you have a number you want the business to be worth?
- How long will it take to achieve your goal, achieve that number?
- How important is that number to your personal long term plans?
- Do you have a number that you need in the bank in order to secure your retirement?
- Do you want to live your legacy and leave a dynasty or do you want to work yourself into an early grave?
- Do you want to pass on the business to family or successors and create an exit package?
These are easy questions to ask. They are hard to answer. If you find yourself not doing this homework or you keep justifying why you don’t need to do this now, or you think it doesn’t apply to your business, then you are unconsciously jeopardizing your business and your future.
What Is Your Timeline To Exit?
Do you have a timeline to achieve your goal? You have a choice starting today.
- You can sell quick, or any time you want OR
- You can take the time to position your business to sell high
You can’t do both.
I strongly recommend you work actively on your exit strategy starting now if you intend to implement it in the next 36 months. You have 12-24 months of work to do before you engage a broker, attorney, or CPA if you want to position your business for optimum sale.
Think about how much work is involved in getting your house ready to sell, improvements, repairs, decluttering, staging and curb appeal. The same is true for your business to get the highest valuation and an ideal buyer.
You need a goal, an exit strategy, a valuation number you are striving for, and a timeline. To do all four, you must do two things:
- Implement systems for every aspect of your business, in detail.
- Get the business out of your head and documented.