Owner Exit Planning: 7 Things You Must Do Before Putting Your Company on the Market

This is part one of a five part series on preparing yourself and your company for sale to maximize your outcome.

You have worked most of your life at a business that has been a key part of your life and now it is time to sell your company and retire. As an owner of a successful business you are probably thinking that managing your exit will come naturally. This cannot be further from reality…running and growing your business is much different than selling your company for a final exit. There is a need to look at your business and your life differently as you begin preparations to exit.

Over the next five articles we will explore the seven areas you need to do before putting your company on the market. These areas will help you prepare yourself and your company to deal with the sales process, maximize the value of your company, make your company more attractive at the time of sale, and help you develop your personal plan after the sale.

1. Are you ready?

Many business owners I meet find themselves waking up one morning with owner’s fatigue – sick of the business and ready to sell, with no planning or preparation. This makes the exit difficult at best with many of these business owners selling for much less than they want (or need) or getting trapped in their business with no exit horizon in sight. Start your planning as soon as possible – 5 years prior to putting your company on the market is not too soon.

What will you do?

Ask yourself “What will I do with my time after selling my company?” If you are like many business owners the response revolves around some leisure activity that you do not get enough time for today. It might be golf, travel or some outdoor activity…if this is your answer you need to be prepared for some boring times. Most independent business owners have too much drive to totally settle down after selling their business.

After 90 to 120 days of leisure they are ready to get back to something more like work, something with purpose. It is important to understand this and develop a personal plan for your next phase of life. This may include starting another business in an area that appeals to you and looks fun, it could be getting on a company board of directors, or it could even include getting involved with a non-profit organization. Whatever turns you on; you need to start the planning development of these areas while you are still involved with your current business. Diversifying your self-image while still in your business helps you during the sales process and also allows you prepare for the next phase of your life.

Financial Needs

Many business owners do not work with financial planner, but instead feel their business is going to fund retirement. The first step in getting yourself ready is to work with a financial planner that can help you assess what your financial needs will be to support whatever lifestyle you desire after selling your business. Your financial plan will provide you with a target of what you will need when selling your company. This is not the value of your business, but it will give you an idea of the work needed to build your company.

The financial plan is an important part of your planning efforts and should not be skipped. A good financial planner can help you develop a plan that can include philanthropic endeavors, gifts to family members or financing your next business venture. Whatever the direction, it gives you a direction and focus. You have been financing a lifestyle with your business and after selling, you will need to fund your lifestyle out of the proceeds from your business.

Your Business’s Value

Your business is not worth what you think it is. Most business owners believe their business is worth two times the real market value. Many times it is because they lack the knowledge of valuation techniques and in almost all cases it includes some level of emotional value attached to the business. You need to be prepared for offers to come in significantly lower than your expectations, if you have done nothing to prepare your company for sale. Start this process early with a professional that can give you an idea of the market value of your company and work on those areas that will have the biggest impact on increasing the value.

Coming up: Increasing the value of your business by managing the value drivers in your company, improving the value detractors, and getting your house in order.

Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. Larry is a consultant, public speaker, and the author of “Owner Exit Planning: Leave On Your Own Terms”. For additional information visit www.RoundhouseAdvisors.com

Kick Start Your Business: Without Spending Big Bucks

Over the past two years, almost every business has experienced a downward trend in their sales, but that does not mean you should stop selling and marketing your business. There are businesses that are increasing sales, building their pipelines and positioning for growth. These businesses will emerge from this economic mess a much stronger company and will dominate their competition.

So how does a company effectively increase sales and the sales pipeline without spending huge amounts of money? It can be done by leveraging what you already have and supplement with some cost effective marketing programs to expand the exposure in your industry and served market. Some of the tactics that can support your growth initiatives include:

Internet marketing

Internet marketing initiatives are a cost effective way to increase your company’s exposure and provide sales leads for your business development organization. The options are wide ranging with two examples being:

- Search Engine Optimization (SEO) – This process positions your web site more favorable to the major search engines and helps move your web site up in the listings when your key words are used in a search. This can be done in-house if you have the resources and knowledge, but most effectively implemented by using an outside organization. There are a large number of things that impact your search engine rankings and they can change over time. Typically, there is an upfront cost to perform an initial process to your web site and then a small monthly fee to continue updates as well as provide content to outside sources, such as blogs, that point back to your web site. This is not an overnight process and will take many months to see big results, so be patient. The work done here also supports your position on Pay Per Click advertising.

- Pay Per Click – This advertising allows you to manage your daily costs associated with advertising. You select the keyword that best represent your company, products and services. Once the keywords are selected, ads are created that will display for your selected keywords. This is a cost effective way to develop leads from your target market.

Sales calls

The business owner and senior leaders should be going on sales calls. I have always found that making sales calls with my business development staff not only gives the sales person a step up in the sales process (they brought the owner or senior leader to visit with the prospect), but is also demonstrates to the organization how important it is to be sales focused. Too often, even in good times, individuals working in the office focus solely on their job and not the customer or supporting sales.

Creating sales focused environments requires internal communication related to how everyone can contribute to the sales process, follow-up through the management staff, and reinforcement by the senior leaders making joint sales calls with the sales organization.

Customer visits

The lifeblood of any organization is your current customers, BUT it is so common that these customers are neglected by senior management unless there is a problem. Be proactive and visit your current customers. This provides direct communication with your customers, identifies areas that you can improve in your company, and gives you an opportunity to convey to your client how important they are to you and your company.

Start by focusing on the top 20% of your customer base, and visit them with the assigned sales associate to have an account review meeting. I have found that this process not only helps protect your current customer base, but also can result in short term sales gains by uncovering unmet needs.

Internal Communication

Communicate with your employees how important sales and customer retention is to the health of your company. Every employee can contribute to your goal of increasing the customer base which may include their focus on supporting the sales organization, the way all your employees support the customer, the turnaround on sales orders, and the ability to implement new service agreements quickly. You will find that increasing the communication internally along with reinforcement through the actions of the senior leaders will provide a more enthusiastic employee base, with many of your employees responding to your request for help.

All of these items are low cost or no cost, and will provide a short term gain in sales, as well as a long term impact to your sales pipeline. These items do not eliminate the need to have the right strategic approach to your business or eliminate any of the other tactics you have implemented to stabilize your business during this goofy economy, but they will provide added sales activity and refocus your employee base on positive activities.

Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. Larry is consultant, public speaker, and the author of “Owner Exit Planning: Leave On Your Own Terms”. For additional information visit www.RoundhouseAdvisors.com

Managing in Uncertain Times

Turnaround… Tough Times… Terrible Economy. Call it what you will. In any case it takes a special focus to manage in a down turn economy and be able to emerge positioned to grow. I have managed organizations that required turnaround skills as well as hyper-growth, and there are challenges associated with both. Turnaround management skills require you to improve or stabilize financial results without putting the company in a death spiral.

The best turnaround management includes not only cost cutting, but more importantly increasing or stabilizing revenues. Too many of the companies I have met with in the last two years have waited too long before looking for help and have focused primarily on trying to ride out the storm, only to find out they do not have the cash reserves to make it to the end.

A focus on the following areas is necessary when managing in uncertain economic times and/or a turnaround situation.

Employees – Employees are your most important asset. Your employees have probably gone through at least one round of layoffs and/or seen reductions in their salary/hours. It is difficult in good times to keep employees motivated and even more difficult when they have gone through the turmoil of the last few years. Unmotivated employees can negatively impact customer service, productivity and ultimately profits.

A key area of managing your employee base during this time is communication. In fact, there is no such thing as over communication during difficult times. In the absence of information, your employees will fill the void with what they think is happening, and most times it is untrue and detrimental to moving the company forward.

Customers – Customers are the lifeblood of your business. You cannot risk your top customer’s hearing about any turnaround effort through the grapevine. They can and most likely will hear about any difficult time you are managing from your employees or others in the industry. Be proactive and discuss your situation with key customers. Visit them in person when possible and reassure them that you are focused on emerging a healthier company prepared to serve them well into the future.

This is also the time to review profitability by customer and make the difficult decision of firing those unprofitable or marginally profitable customers. The client meeting is a good opportunity to discuss a price adjustment that brings them in line with your objectives or terminating the relationship.

Partners – Partners may be dealers or Value Added Resellers, joint venture partners, or banking/finance partners. It is necessary that you communicate openly and honestly about your situation along with the recovery plan in place. Be proactive with your partners and present your plan of recovery along with timelines. It is good with this constituency to be very conservative in your recovery plan, so feel comfortable and confident that the company can achieve the results even with any unforeseen issues that may arise.

Leadership – This is the time your company needs you most. Demonstrate confidence in front of your workforce, even if behind closed doors you and your management team are having violent discussions on the recovery plan. Your employees need to see a common front from the management team to confidently follow your leadership and the direction to improve company results.

Leverage the collective strength of your management to provide the focus and direction of the organization. The diversity of skills on your management team is exactly what is needed to prepare for the recovery. Remember, the collective group is smarter than the individual.

Business as usual will never be the same after the economic turmoil of the past few years. Communication and focus on the right areas of your business is necessary to be in the best position as the economy continues to improve. You may be too close to your business to see all the areas that should be addressed, so take advantage of outside help to provide a 360 degree view of your situation and opportunities. This may be your advisory board, contacts in a networking group, or hire an outside consultant to help with your efforts.

Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. Larry is a consultant, public speaker, and the author of “Owner Exit Planning: Leave On Your Own Terms”. For additional information visit www.RoundhouseAdvisors.com

No Better Time to Prepare Your Company for Sale

You have built your business, planned on selling it and retiring in the next 12 months, but now the economy has forced you to change your plans. Your company is treading water and the last thing you want to do is think about preparing the business for market, when you feel the need to survive the rest of this year. This is a typical story for many company owners over the past few years. Don’t use the economy as an excuse for putting off your plans to sell the business.

Many of the strategies to increasing the value of a business and get it ready for sale can also be used to manage through the difficult economy. Value creation in a business can be done in good and poor economic times, but it does take more discipline when times are difficult. Focus on these four areas to improve your business, make it more attractive when put on the market and emerge a stronger company once the economy improves:

1. Assess and upgrade management. – Take a serious look at your management staff and key employees and identify those positions that need to be upgraded. It is an employer’s market and there is strong talent looking for the right opportunity. The new blood is good for driving improvements in your business today and a key to increasing the attractiveness of your business when it goes on the market.
2. Increasing revenues and cash flows – When it comes time to sell your company, the financial results will be measured compared to your industry’s performance. If your revenue growth/decline is as good or better than the industry, then you have been successful in building the value of your company. - Increasing revenues can be difficult during a tough economy, but you do have the ability to steal away customers from your competitors. Now is the time to get aggressive with programs targeted specifically at this prospect base. Use lower cost marketing programs to make the most of your budget. Some of these programs include PR, telemarketing, pay per click web advertising, search engine optimization and email marketing.
3. Recurring revenue stream – Find opportunities to generate new revenue and more specifically recurring business. A telemarketing firm that I have worked with in the past started a new program that included a database and 50 hours of telemarketing activity from dedicated callers. It turned out that I was thinking of starting a program, but this program was enough incentive to get me to sign up for their services.. Their intent is that the first 50 hours is successful and will generate additional telemarketing. They promoted this to those already in their database through an email blast – very low cost to run the program and successful.
4. Get your books in order – Now is the time to cleanup your legal and financial records. Your legal records will be reviewed by potential buyers and any board meeting minutes that are not up-to-date indicate that there may be other issues in your business that need to be addressed.

The last thing a potential buyer wants to hear when at the negotiation table is something having to do with “normalizing” expenses and cash flows because of what the owner took out of the business. Make those changes now, so you do not need to put yourself in a negative position at the negotiation table. These may include adjusting your salary to industry norm for someone running your business, eliminate cross charges with other companies you have setup to fund some of your interests, cut back on.

At some point, the economy will improve and the acquisition of privately held businesses will heat up again. We are all getting older, and the need to transition a business will not go away. When this happens, you can expect to a large number of businesses come onto the market. Those companies that took the time and effort to get prepared will be the companies that will sell first, and at a better price than those that only survived during the past two years. Don’t let the economy be your excuse to be a slave to your company and delay any retirement hopes you may have.

Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. Larry is consultant, public speaker, and the author of “Owner Exit Planning: Leave On Your Own Terms”. For additional information visit www.RoundhouseAdvisors.com

The Profit Trap: Cost Cutting Your Way To Profits

Too many companies have relied on cost cutting to hit profit and cash flow targets in the current economy. This strategy without efforts to grow the top line is one that will lead your company into a downward death spiral. Cost cutting can only provide short term gains, with no ability to sustain the results.

Starting efforts to increase sales is a matter of focus and identifying the activities that will result in generating a larger sales pipeline. These efforts can be performed on a tight budget and will provide eye opening information that will help you drive your entire organization. The following areas will get you started on identifying the opportunities and implementing change in your sales teams.

Sales Pipeline

Review your sales pipeline and analyze close rates associated with your activity. The business activity that generated results in the past is not going to drive the same level of sales today. During your analysis, track the number of cold calls made by your sales staff and how many of these result in a follow up meeting. Of the follow up meetings held, how many of these result in demonstrations or deeper discovery meetings? Follow all sales activity until you get to the number of proposals generated and number of sales closed from these proposals.

It is also good to start tracking average sales size and number of sales closed by day / month / quarter. This will help you in understanding the dynamics of your sales process and allow you to focus your sales activity to generate sales needed to grow your top line. By expending the effort to understand your sales pipeline dynamics, you will be in a better position to define what level of activity is needed to operate in our new economy.

Activity

You can expect the sales activity needed today to generate the same amount of sales closed 18 to 24 months ago is going to be a multiple of two to three times your old activity levels. This means that if your sales teams had been 10 cold calls per day to generate your past revenue, then they will most likely need to be focused on 20 to 30 cold calls per day to generate the same level of revenue. Use the information from your sales pipeline analysis to direct your efforts.

You have seen the difference in today’s buying cycle -- .longer sales cycle and the end result is usually a smaller sale. Companies and households are still buying, but at a much more conservative level and more caution when making a decision. Those companies that are increasing their sales activity will get in front of more decision makers and in the end will close more sales.

In addition to using your internal staff to generate activity, I have found outside resources allow you to increase your prospecting activity without the addition of sales headcount. For example, use an outside telemarketing firm to generate appointments for your sales staff. This allows you to leverage your sales team for activities that generate proposals and sales. There are a number of very good telemarketing firms that provide services in small blocks of time. I have used a firm over the past 6 years that is great at setting appointments and charges as little as $1,500 for a 50 hour block of calling time.

Get Started

Your programs do not need to be expensive, and can be as simple as redirecting the activities of your sales organization. Focus on increasing the pipeline to generate more sales activity, which will result in increased sales closed for your organization. By starting with an analysis of your current sales cycle you can understand the new business dynamics and develop a plan for your sales team. Once you have the plan and communicated your expectations, be sure to hold your sales team accountable for generating the activity needed to fill the pipeline.

There are more companies going after fewer dollars, and those that increase activity to meet the new demands of the economy will be those that win more deals. Be one of the companies that emerges from the current recession a much stronger company by building revenues along with your balanced cost cutting efforts.

Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a consulting practice focused on helping businesses increase enterprise value by managing pain, growth and owner exits. Larry is a consultant, public speaker, and the author of “Owner Exit Planning: Leave On Your Own Terms”. For additional information visit www.RoundhouseAdvisors.com