Exit Planning Tools for Business Owners

Pat Ennis

What are the Critical Elements in Training My Business Successor?

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Training your Business Successor is crucial in ensuring a smooth transition of ownership and leadership. The following are critical elements to consider when preparing your Business Successor:

Knowledge Transfer:

  • Identify the knowledge and skills necessary to run the business effectively.
  • Document and share critical information, processes, and best practices with your successor. This includes financial management, sales and marketing strategies, operational procedures, customer relationships, vendor management, and industry-specific knowledge.

Mentoring and Shadowing:

  • Provide your successor with hands-on experience by allowing them to shadow you and observe your day-to-day activities.
  • Encourage them to ask questions, participate in decision-making, and gradually take on more responsibilities.
  • Act as a mentor, providing guidance and sharing insights from your experience.

Delegation and Autonomy:

  • Gradually delegate tasks and responsibilities to your successor, allowing them to practice decision-making and leadership skills.
  • Start with smaller tasks and gradually increase their level of autonomy as their competence and confidence grow. This will help them develop their management style and take ownership of their role.

Communication and Collaboration:

  • Foster open and transparent communication with your successor.
  • Encourage them to share their ideas, concerns, and observations about the business.
  • Establish regular meetings or check-ins to discuss progress, challenges, and future plans.
  • Involve them in important meetings with key stakeholders, such as clients, suppliers, and employees, to develop relationships and gain a broader understanding of the business ecosystem.

Strategic Thinking:

  • Provide exposure to strategic decision-making by involving your successor in developing business plans, goal setting, and long-term strategies.
  • Discuss market trends, competitive analysis, and growth opportunities.
  • Encourage them to think critically and creatively about the future of the business and how to adapt to changing circumstances.

Building Relationships:

  • Introduce your successor to essential stakeholders in the business, such as key clients, suppliers, and industry contacts.
  • Help them establish and maintain relationships, as these connections can be valuable for the business’s future success.
  • Encourage networking and participation in industry events and associations to expand their professional network.

Emotional Intelligence and Leadership Development:

  • Focus on developing your successor’s emotional intelligence and leadership skills.
  • Help them understand the importance of effective communication, empathy, conflict resolution, and team management.
  • Provide opportunities for leadership development through training programs, workshops, or executive coaching.

Continual Learning and Adaptability: Encourage your successor to embrace continuous learning and adaptability. The business landscape is ever-changing, and staying updated on industry trends, technological advancements, and best practices is essential. Encourage them to attend relevant seminars, conferences, and workshops and engage in professional development activities.

Remember that the training process should be tailored to your successor’s specific needs and capabilities. It’s essential to be patient and supportive and allow for a gradual transition of responsibilities. By investing time and effort in training your successor, you increase the likelihood of a successful handover and the long-term sustainability of your business.

Pat Ennis is the President of ENNIS Legacy Partners. The mission of ELP is to help business owners build value and exit on their own terms and conditions.

What is a Certified Business Valuation and When Do I Need One?

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A Certified Business Valuation is a comprehensive assessment conducted by a qualified professional to determine the fair market value of a business. It involves a systematic analysis of various factors such as financial statements, industry trends, market conditions, company assets, intellectual property, customer base, and other relevant aspects to estimate the worth of a business.

You may need a Certified Business Valuation in several situations, including:

Selling or Buying a Business: When you’re involved in a business sale or acquisition, a valuation helps determine a fair asking price or offer, ensuring both parties understand the business’s value.

Obtaining Financing: When seeking a loan or financing for your business, lenders often require a valuation to assess the value of the company and its ability to generate cash flow to repay the loan.

Partnership Dissolution: If you’re part of a dissolving business partnership, a valuation is essential to determine the fair value of each partner’s share and facilitate a smooth division of assets.

Estate Planning: Business valuations are necessary when planning for estate taxes or distributing business assets as part of an inheritance. A valuation helps establish the value of the business for tax purposes and ensures a fair distribution among beneficiaries.

Shareholder Disputes: In case of disagreements among shareholders, a valuation can be conducted to determine the value of shares or ownership interests, aiding in resolving disputes or facilitating a buyout.

Financial Reporting: Valuations may be required for financial reporting purposes, such as complying with accounting standards or fulfilling regulatory requirements.

Litigation or Dispute Resolution: During legal proceedings like divorce settlements, bankruptcy, or insurance claims, a certified valuation can provide an objective assessment of the business’s value, serving as evidence in court.

It’s important to note that the specific circumstances and requirements for a Certified Business Valuation may vary based on jurisdiction and the purpose for which it is being conducted. Consulting with a qualified business valuator or professional accountant can help you determine when and how to obtain a valuation tailored to your needs.

Pat Ennis is the President of ENNIS Legacy Partners. The mission of ELP is to help business owners build value and exit on their own terms and conditions.

Focus On Net Proceeds And Not Just Sale Price When Selling Your Business

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John was excited as “today is the day!” Twenty-five years ago this month he had started his home remodeling business with a truck and a tool belt, and today at 3pm he was going to the deal table to sell his business to a much larger remodeling company. It would be a strategic purchase for the buyer who was willing to pay a premium with a goal of expansion in the region. With the check received today, John knew he could now do everything he and Kim had thought about doing for years — travel, more time with the family and for hobby’s and other interests they both enjoyed.

The amount received actually exceeded John’s “number”, and hence, he and Kim spontaneously pulled together a celebration dinner with family and a few close friends at their favorite restaurant. John had done a great job through the years building a “saleable business” focusing on a strong management team, strong financial performance, a plan for growth, up-to-date systems and processes and other value drivers which and now he was reaping the rewards. There was indeed much to celebrate!

Fast forward, six months later: John has come to realize that his number needed to be quite a bit larger than what he had originally calculated. In whatever way he had performed his calculations, he failed to consider to the extent needed, or at all, the following important factors in the equation:

• Of the $10 million in proceeds, he was going to net approximately $6 million after these charges/expenses:

o Transaction and professional fees.
o An asset sale was negotiated and there was income tax on some asset depreciation recapture.
o $1 million in business debt needed to be repaid.
o Capital gains and affordable care act taxes.
o Miscellaneous expenses including “stay bonuses” for two key employees.

John was in a small percentage of small business owners who have built a saleable business and actually sold it for their “number”. For that, he is to be commended and congratulated. At the same time, John was now experiencing much regret and was actually concerned about his financial ability to do everything he and Kim had planned on. What could have John done differently when planning for this most significant event? Worked with his exit, financial, transaction, and tax advisors well in advance of the sale in calculating the real number… net sale proceeds…and whether or not he and Kim could do all they wanted with that number.

Pat Ennis is the President of ENNIS Legacy Partners. The mission of ELP is to help business owners build value and exit on their own terms and conditions.

Key Employees: Build and Protect Business Value

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Key Employees

You may have people working in key roles who are instrumental in growing and building the value of your business. These key people can be identified as having the following characteristics:

  • Makes a substantial business contribution
  • Possesses critical information or knowledge
  • Maintains and nourishes key contacts and relationships

Sellable Business

In helping clients plan to build a sellable business, and then eventually exit on their terms and conditions, we emphasize that “key people are a key value driver” in realizing success in both of those strategic goals. And, we find it helpful for owners to have two categories in mind when considering key employees:

  • Building business value
  • Protecting business value

Key people help owners build value and exit successfully as their roles serve in removing the owner(s) from the day-to-day management of the business, and by accomplishing objectives and key results for growing the business, that is aligned with the exit goals of the owner(s). An important planning focus for the owner(s) in building value, as it pertains to key employees, would include alignment of the employee’s performance goals with the exit goals of the owner(s), and a well-defined key employee incentive plan that provides impactful awards for goal attainment and retention.

Owners Beware

Owners need to be aware, that there is also inherent risk related to key employees. Risks involving departure and competition, solicitation of customers and/or employees, and disclosure of confidential information. There is also the risk of losing a key employee due to unexpected death or disability. It can be costly to recruit, train, and compensate for a replacement in such a situation, as well as make up for any loss in corporate earnings. Important planning areas in protecting business value, as it pertains to key employees, would include: Well-written and regularly reviewed employee documents (i.e., Employment Agreement; (listen to ExitReadiness® PODCAST Episode 43 w/attorney Marc Engel) and adequate life insurance coverage on the key employee (listen to ExitReadiness® PODCAST 54 w/Bill Betz of Betz Financial Advisory).

Pat Ennis is the President of ENNIS Legacy Partners. The mission of ELP is to help business owners build value and exit on their own terms and conditions.

Wealth Management for Business Owners

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Wealth Management Considerations for Business Owners

Small business owners are at times neglected by the wealth management community as the business is commonly (not always) the owner’s largest asset rather than a portfolio of stocks, bonds, and mutual funds. You’d be well-advised as a business owner to engage a Financial Advisor who is proactive and experienced in factoring your future plans for the business, into your overall plan for managing your wealth.

 

Key Elements of Exit Planning

Impactful wealth management for you as a business owner would include at least these elements of exit planning:

  • Clarifying what “exit” means to you. For example, do you want to leave entirely at some point, or gradually over time?
  • Clarifying your financial, values-based, legacy goals, and what role the business needs to play in attaining your goals.
  • A financial needs and gap analysis with an accurate valuation (not back of the envelope – meaningful planning requires accurate data) of the business. How much $$$$ will you need to do everything you want to do after the business? Is there a financial gap? Will that gap need to be closed by increasing the value of the business?
  • Personal risk management including asset protection, insurance planning, tax planning.
  • A current estate plan — a business owner cannot do exit planning without doing estate planning.
  • A plan to preserve the value of the business (typically a small business owner’s largest asset), and a plan for it to survive during unexpected events of your permanent disability or death.
  • An appropriate plan for managing financial assets resulting from the successful sale or transfer of your business.

Exit planning is wealth management for business owners that requires assessing, preserving, and building the value of your largest and most complex asset…your business.

Invest 15 Minutes and take our FREE Exit Readiness Assessment. We do not request any confidential information.

Pat Ennis is the President of ENNIS Legacy Partners. The mission of ELP is to help business owners build value and exit on their own terms and conditions.