Exit Planning

You worked hard to build your business. It is probably your most important single asset. Its value is important to you—in terms of an eventual sale or from passing it on to your family. How do you prepare to maximize the value and success of your business upon exit?

Before you do anything, do some homework. Have an honest discussion with yourself about your goals as to legacy and money. Include family members in the decision process to avoid any misunderstandings later. Have a knowledgeable person explain all your exit alternatives, which can range from partial to full sale of the business to family, employees, financial buyers or strategic buyers.

Plan Your Estate. This process focuses on the legal, financial and tax aspects of the transfer of your ownership interest in the company. No matter what your exit strategy is, a transfer of some sort will occur upon your retirement or death. Good estate planning uses advisors such as attorneys, investment advisors, insurance agents, tax specialists, and accountants to ensure that the transfer of your business occurs smoothly and without undue tax consequences.

Position Your Business. Learn about valuation in your industry. Think about why companies are being bought and sold in your market and in related markets. Understand how your customers’ needs are changing. Use all this information to position your company for future success and maximum valuation.

Prepare Your Business. This, more than ever, is the time to do things right. Make sure your management reporting and bookkeeping will present a useful, accurate picture of your operation. Consider getting your statements audited. Clean up your balance sheet and your physical plant. Exit unprofitable product lines or customers. Refresh other product lines and prune costs to maximize cash flow.

Prepare Your Successors. The final step is preparing to replace yourself as a manager. This is covered in Michael’s Strategic Action piece this month, Management Succession Planning.

-Mary Adams (adams@trekconsulting.com)

• Protecting the company in case of your sudden or catastrophic absence
  
  
• Preparing family successors for an eventual transfer of the company
  
  
• Reassuring a potential acquirer about the long-term viability of your business—with or without you
  
  
• Ensuring continued business success during a sale or transfer process. M&A transactions can be very time consuming, and management depth is critical for maintaining company performance while dealing with the demands of a deal process.

Having a good succession plan will yield a higher value and greater success for your company in a transition. Developing a management succession plan does not have to be complicated. We recommend a simple, three-step process:

1. Identify Your Specific Roles, Knowledge, And Relationships. This is another way of saying what you do, what you know, and whom you know. These three dimensions cover most of the ways that you influence your company. Just getting the list on paper is a great exercise.
   
   
2. Identify Potential Successors or Supplementsfor that Role, Knowledge Area, or Relationship. There are some roles where a CEO must always play a primary role. Having a description of these roles will make it possible to identify a replacement, either now or in the future, as part of a transaction. However, this exercise also invariably identifies roles, knowledge, and relationships that don’t need to be concentrated in the CEO; delegating these functions can make the CEO vastly more productive.
   
   
3. Outline Action Plans. If you are ready to groom your successors, identify the steps to prepare them for the role. If you still need to identify your successors, use the work you have done to develop a profile of the ideal candidate. Finally, get to work on delegating and/or involving members of your team in roles, knowledge, and relationships that can be delegated immediately. This exercise will free up your time and enable you to focus on the high-return activities that build value in your company.

VOIP and the Changes to Come

Everyone is talking about Internet telephone, known as voice over Internet protocol (VOIP). Like all new technologies, it will create disruption and opportunities on many levels. One mundane, but very interesting, aspect of this will be on the installation side.

We know a company that has a good, long-standing business selling and installing telephone systems. VOIP could be a threat to their business—or is it an opportunity? The pressing question for them is “who will deliver VOIP systems?” It seems that there is no one player in today’s world that has all the skills to meet the needs of this new market.

Who will win and who will lose? It’s still too early to tell. However, this is a classic case where having the right definition of your business could play an important role in how you approach the problem. A company that defines its business as “telephone installation” will probably be left behind. A better definition might be, “building and servicing voice communication systems.” None of us knows all the answers today. But, we do know that you have to keep asking the questions.

While your own industry may not be quite this challenging, significant technology shifts affect almost every company today in one way or another. The best defense is a continuous strategic process: gather fresh information to make decisions, learn from your results, and keep watching for changes in your environment.

• The CEO’s primary responsibility is execution.
  
  
• The CEO leads productivity growth that leads to higher corporate value.
  
  
• When the CEO focuses too much on external issues, the company can lose its edge, direction, and urgency to execute.
  
  
• Each strategy must be reasonable and not exceed the company’s ability to execute. The CEO must pursue the strategy’s fulfillment with diligent follow-up and questioning of the managers responsible for each segment of the strategy to ensure success.
  
  
• Execution is a discipline and a system. Execution must be built into a company’s strategy, goals, and operation.
  
  
• Execution is a specific set of behaviors and techniques that companies need to master in order to have competitive advantage.
  
  
• The CEO must have the right people in place in an execution culture.
  
  
• Compensation must be strictly based on performance.