Exit Planning Tools for Business Owners

exit strategy

Are You Prepared for the Next Stage of Your Business?

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You’re a successful business owner who’s devoted all your time and effort to growing your company to be a best-in-class provider in the industry. With your head down so long, you’ve probably never thought about what you were going to do as you approached the next stage of life.

Planning for that next stage before you actually get there can help solve many of the problems today’s business owners often face following an exit transaction. It may sound great to play golf every day, or to sit at the lake and fish, but does that replace the daily rush you had while operating your business?

In the most recent State of Owner Readiness Survey conducted by the Exit Planning Institute, 75% of business owners were dissatisfied with the result of their exit transition, post-transaction.[1] While several factors can contribute to this dissatisfaction, developing a plan – and adjusting that plan based on what drives you emotionally – may help you from becoming one of the statistics. As Churchill once said, “Plans are of little importance, but planning is essential.”

Many owners think about what’s best for today but aren’t necessarily considering unforeseen situations. And planning for the unforeseen can be what helps transition a business successfully. No one wants to contemplate what might happen to the business if you’re suddenly incapable of running it, and you most likely have key man life insurance that can help cover certain things, but do you have someone in the house who can step in and keep the business afloat in your absence?. Having such a plan in place, and making sure everyone involved in the plan is on board, could help your business continue to be successful during a transition period.

Developing that type of plan also presents your company as more valuable, since it’s not viewed as being solely reliant on one person to run the operation.

After all those years of working to build a respected business, you want to be able to recoup the most value out of your efforts. With a little planning, you just may be able to set yourself up for a better than expected payday in the future.

[1] 2013 “State of Owner Readiness” Survey

This article was first published on the Schneider Downs blog “Our Thoughts On.” John Kohler, CPA, CEPA has more than 15 years of experience in assisting clients in a variety of tax and accounting functions across numerous industries. He actively assists clients with business succession opportunities, helping them identify options for successful ownership transitions to families, third parties, and strategic partners. Complete an Exit Readiness Assessment for yourself.

Exiting a “Time and Place” Business

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“The purpose of middlemen in the marketplace is to provide time and place utility.” I remember the light bulb going on in Economics 101 when my professor said that.  Suddenly, I understood the concept of added value. Someone had to get the product to the customer.

“After all,” the professor continued, “The footwear manufacturer in Massachusetts can’t sell a pair of shoes directly to someone in California. They can’t manufacture and handle thousands of customers. It would be a nightmare, and completely unprofitable.”

The fact that Massachusetts was still known for shoe manufacturing gives you some idea of how long ago this took place. So long ago, in fact, that Zappos wasn’t even a word yet.

The independent shoe retailer gave way to the department stores. In turn their shoe business was decimated by the specialty chain retailers. In fact, most shoe departments in Macy’s and others are actually chain operations within the store. Shoe sales moved into sporting goods stores and discounters. While the industry shifted multiple times, they all still provided time and place utility.

Then came the Internet. Now the manufacturer can sell directly to consumers. In fact, they can eliminate several layers of middlemen, along with the mark-ups.

Lately my area has been swamped with billboards saying “Mattress Dealers are Greedy. TN.com.” TN.com turns out to be Tuft and Needle, a direct selling (via Internet) manufacturer of mattresses. Their pitch is based on eliminating the middlemen. They have diagrams for their supply chain (From us to you.) on the website, along with a list of the markups in the “other guys” logistic chains.

Providing time and place convenience to consumers is challenging when your competitor’s time offering is 24 x 7 x 365 and the place where they purchase is their own home. Even when you need something “right away” online vendors will deliver in as little as two hours.

Last December my wife went out early on a Sunday morning to, “Pick up a few last gifts in time to ship them.” She returned an hour later, empty-handed. “This is ridiculous,” she said. “I’m going to finish my shopping on the Internet, and have all the gifts shipped for me.”

There’s an additional issue when it comes to selling time and place businesses. Many of the new generation of business buyers, the Millennials, value their personal freedom above financial opportunity. They have little interest in coming in early to open up, or staying late to close. Skipping the Thanksgiving family dinner to prep the store for Black Friday is a non-starter.

If you are hoping that I will reveal the secret sauce for perpetuating a time and place business, I’m afraid I’ll disappoint you. There is no magic formula aside from the age-old wisdom of differentiation and service.

Beating Time and Place

My friends at Digital Pro Lab in San Antonio are an excellent example of adjusting to change. What could be more outdated than a drive-up 30 minute film developing shop? What was formerly an epitome of time and place convenience (pictures in a half hour without getting out of your car), has become almost a caricature of “old school.”

Technology has shifted from celluloid film to digital. “Developing” now consists of uploading the files from your phone to a mega-printer who mails 8×10 prints overnight for less than Digital Pro’s cost. The photo chains, Ritz Camera, Fox Photo, and Wolf Photo are all gone, crushed by those “mail order, ” or perhaps more properly “email order” houses.

Digital Pro has survived (and thrives) by their differentiation and service. The large, bright showroom is full of computers where they can show customers the effect of adjusting color balance or editing. They can print your lifetime memories on almost anything, from a key chain to a large metal panel. They can still give you prints made with permanent liquid ink, not the water soluble powder used by most printers.

In addition, they can do all of this online because they’ve invested in the technology necessary to keep up with the “convenience-based” competitors.

As the cost of digital printers fell, professional photographers invested in their own machines. Digital Pro Lab has replaced their business with consumers who want to discuss their special moments, choose how to preserve them, and hold the results in their hands before they pay.

In an industry where the number of time and place based outlets has fallen by over 90% in the last decade, Digital Pro Lab has beaten the big boys with product differentiation and service. When the time comes for planning an exit, they will have options.

Do you know a business owner who will be exiting in the next ten years? Please share Awake at 2 o’clock!