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Copyright © 2011 by Lorraine McGregor and Rob McGregor
ISBN 978-0-7414-6892-5 Paperback
ISBN 978-0-7414-7445-2 eBook

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The information contained in this document is subject to change without notice, and it represents the current view of the author(s).
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The case studies included in this book are based on our client files. Names, numbers, strategies and defining features have been changed, and some of the characters are composites of several people.
All of the achieved results are factual.

Table of Contents

Disclaimer
Acknowledgements
Testimonials
Introduction
How Saleable Is Your Business?
Section I: Orientation
Chapter 1
    Is Peter’s Business Saleable?
    Coming to Terms
    Exploration Exercise #1
    Taking Stock
    Think and Act Ahead of the Pack
    The High Price of Following Conventional Wisdom
    There is Much More to Becoming Saleable than Just Succession Planning
    Chapter 1 Summary How to Use This Book
Section II: Saleability Blueprint Basics
Chapter 2
    What is Your State of Readiness?
    Exploration Exercise #2 – Developing Your Preparation Checklist
    How to Interpret the Preparation Checklist
    How to Improve Readiness
    The True Cost of Waiting
    Chapter 2 Summary
Section III: Step One: Handle Reality
Chapter 3
    The Action Blueprint
    The Road to Succession Starts with You
    Wear the Right Hat
    Demystifying Challenges
    Organizational Structural Challenges
    Interpersonal Barrier Challenges
    Personal Challenges
    Exploration Exercise #3 – The Personal Exercise
    Chapter 3 Summary
Chapter 4
    The Right Mindset & the Right Action
    The Top 7 Mindset Adjustments for Success Myth – I Can Sell My Company for What I Want
    Myth – Similar Businesses are Offered the Same Multiples
    Myth – All I Need is a Successor and a Wealth Plan
    Myth – The Company Won’t be Profitable and, Therefore, Saleable Until the Economy Turns Around
    Myth – I Don’t Have Time to Do All of This Optimization Work
    Myth – My Company is Successful, So I Can Sell It the Way It Is
    Myth – If I Don’t Do It, It Won’t Get Done Right
    Chapter 4 Summary
Chapter 5
    How Does the Blueprint Work?
    A Case Study: The Profitability Struggle
    Get Informed!
    PSWA Saleability Blueprint
    PSWA’s Next Step
    The Investor Marketplace
    Chapter 5 Summary
Chapter 6
    The Work of Preparation
    What’s Your Secret Number?
    Are You Ready for a Valuation Reality Check?
    Your Next Act
    Chapter 6 Summary
Chapter 7
    How Much is My Company Really Worth?
    Valuation Methods
    The Multiple Approach
    Comparing EBITDAs in Your Industry
    The Multiple Scorecard
    Concern About the Internal Rate of Return
    Investors’ Terms of Reference
    Your Reality Check
    How Investors Add and Subtract Value
    Exploration Exercise #4 – How Much is Your Firm Worth?
    Chapter 7 Summary
Section IV: Step Two: Hone Goals and Decisions
Chapter 8
    What Saleability Story Do Your Numbers Predict?
    Make the Right Decisions Before Taking Action
    Start with the Conversation, Not the Action Plan
    How Action Before Understanding Can Undermine Goals
    The Habit of Taking Action Before Getting Informed
    Take Steps in the Right Order
    You Have to be Replaceable
    The Foundation of a Successful Exit Plan
    Chapter 8 Summary
Chapter 9
    Knowing What You Really Want – and, Need
    How to Work Intentionally
    The Phases of an Exit
    Phase One – Stability
    Phase Two – Transition & Growth
    Phase Three – the Exit
    Phase Four – Close the Deal
    Phase Five – Post Transaction
    Chapter 9 Summary
Section V: Step Three: Hunt the Right Acquirer
Chapter 10
    Who Helps Owners Sell a Business?
    Selling the Smaller Company
    Take-Over by a Family Member
    Making Money in a Tough Market
    What if the Company isn’t Saleable?
    Chapter 10 Summary
Chapter 11
    Going Public
    Selling to or Taking on Partners
    Being Acquired
    The Four Types of Buyers
    Which Acquirer is the Right Buyer for Your Company?
    Finding the Right Buyer
    Strategic vs. Financial Buyers
    When Growth in Revenues Looks Doubtful
    An Example
    How Investors View an Acquisition
    Chapter 11 Summary
Section VI: Step Four: Helm the Transition
Chapter 12
    Lead Your Company to that Certain Future
    Exploration Exercise #5 – Organizational Mindset Challenges
    Organizational Mindset Answer Key
    See the Company as an Interdependent System
    Be Responsible for Your Attitude
    Ask the Right Questions
    Exploration Exercise #6 – Personal Habit Pattern Mindsets
    Personal Mindsets Answer Key
    Set a New Desired End Result
    Build a Transition Plan
    Close the Value Gap to Reach Your Exit Goals
    Chapter 12 Summary
Chapter 13
    Stability Actions
    Improving the Base Multiple
    How to Find Typical Profitability Leaks
    Phase 1 of Stability
    Focus on the Four Pillars of Stability
    Finding Profitability Leaks
    Phase 2 of Stability to be Prepared for Growth
    How to Increase Another Point in the Multiple
    Phase 3 of Stability to Ignite Growth
    How to Upgrade 2 Points in the Multiple
    Chapter 13 Summary
Chapter 14
    Growth Actions
    How to Upgrade 3 Points in the Multiple
    How to Upgrade 4 or more Points in the Multiple
    Last Step – The Succession Plan
    Chapter 14 Summary
Chapter 15
    How to Get Started
    Exploration Exercise #7 – Your Blueprint Game Plan
    Chapter 15 Summary
Chapter 16
    Is it Really Worth it?
About the Authors
Appendix
    Gross Margin by Industry and Profit Margin by Industry
    Who is Buying Businesses Such as Mine?
    What Multiples are Paid in My Industry?
    Where to Get Support for Making Changes?
    What to Do Post Exit?
Table of Figures
Table of Exercises
Bibliography

Acknowledgements

To the people who take the big risks to own businesses and employ so many, thank you for serving as the backbone of our economy. You make our cities and towns thriving, liveable communities for us all.

Testimonials

“Every private client advisor (or wealth advisor, relationship manager) should provide their clients who own a business, a copy of this extraordinary book … this book is a fantastic breakthrough resource for preparing to sell your business at maximum value. If your client owns a business, they need to have this book … they will thank you endlessly and never move their wealth to another advisor.”
Thomas R. Sweet, Former VP Consumer Marketing, City National Bank, Beverly Hills, CA and Former VP Marketing, Nevada State Bank
“Supply and demand are critical to every business owner. You started your business to be able to supply a product, or service, to fill a need in your marketplace. Once you start to plan to sell your business it’s the SAME thing! You will need to once again become part of the supply-demand chain and if you are not properly prepared, the buyers will quickly move on to a business that is. It’s your choice. No, it’s your responsibility … to actively and aggressively plan for that date one day when you will be ready to sell out to the best possible buyer at the best possible price.”
Randy West, Certified Financial Planner, The Villages, Florida
“In my view, to maximize enterprise value, the key thing the seller needs to have sorted before they start a process to sell their business is to have thought through and implemented an organizational structure that does not include them. Too many times in small owner-managed businesses, the roles and responsibilities are not well defined and, ultimately, every key decision comes to the owner or his right hand person. That is not a scalable business model which sophisticated buyers will see; and, thus, feel the need to bring on additional management resources which is an additional cost to the business.”
Martin B. Carsky, CEO Con-Space Communications, Ltd and former EVP, Anthem Capital
“Insightful! What a great roadmap for maximizing the sale of a business. As a business lawyer, we often see overwhelming challenges for business owners who do not prepare for the sale in advance. An ounce of prevention is worth a pound of cure and there is a ton of information in this book that will help sellers quickly turn their business into one that is ‘saleable.’
I plan on recommending this book to every client who is thinking about selling a business or even just starting a business and wants to build it right from the start. Not only will it make business owners smarter about selling a business, it will make them smarter about running a business!”
Roger P. Glovsky, Esq. Venture Attorney, Indigo Venture Law Offices and founder of the Seminar ? “How to Save Thousands of Dollars on Legal and Professional Fees by Preparing in Advance for the Sale of a Business”
“Fast-Track Secrets for Making Your Business Saleable is an outstanding roadmap every owner or manager selling a business will want, to control the process and maximize returns. Suitable for any type of business, this step-by-step approach teaches the business and mindset requirements for success, including ‘what you don’t know that you don’t know’ which can jeopardize results. Buy this book if you want maximum profits and peace of mind!”
Susan Rosenthal, President World Markets Group, Former Vice President, Global Marketing CitiBusiness™ for Citigroup
“Just like bookends! In my own book, I claim that a small business is no more than a job unless the owner has it positioned to be sold. Now, along come Lorraine and Rob with all of the steps to do precisely that! This is a great addition to any business owner’s library.”
Roger McManus, Publisher, Ensanity Press

INTRODUCTION

Think about this for a second – how will your life change, knowing you can sell your business when you want and for the price you desire? Do you think that certainty would affect your happiness, health and lifestyle? Here’s another thing to think about – if you have a plan in place for the transition of ownership of your business at the point of sale, how will that affect your employees? How will your family feel, knowing they will have a more secure financial future? What if you learn that the work of making your company saleable will actually produce better profits?
They’re interesting questions, aren’t they? If maintaining control over your future is vital to you, then it seems logical that you will wish to take appropriate action for a desirable exit when, and if, the time arrives. However, according to numerous studies, you probably aren’t taking steps to ensure a smooth exit strategy.
It’s not for lack of attention to the problem, though, because business advisors frequently push their clients to prepare for an ultimate exit. City governments quiz companies in their tax base about their plans, and the media’s attention to the growing perfect storm of effects that unprepared businesses will have on our economic health and wealth should convince boomers to burn the midnight oil.
So, why do we have to convince you to get a move on?
Having spent the last two decades helping owners grow and prepare for succession, transition of ownership and exit, we are keenly aware that owners don’t know that they need to know critical information that will help change the tide of inaction. The most powerful message we have is that there are immediate benefits to getting this preparation work underway. You don’t have to wait for the exit date before claiming more of your wealth! In the meantime, the work of preparing your company so that it is in saleable condition will make the business more profitable.
Our philosophy guides our methodology in helping owners claim their wealth. The secret to our success is in the cracking of the code for owners regarding how their company makes and loses money. And, we don’t follow the usual breadcrumb trail. We see a business as an interdependent system much like an engine, greased by the free flow of information. Employees power the engine, but the trick to high performance and profitability is the timely and effortless flow of information and knowledge throughout the company. A company functions at high performance when the leader is the mechanic, not one of the cylinders.
We are mechanics, too.
Using another analogy, we’re similar to sports coaches. For instance, if players don’t work on their communication strategies to signal each other, or they don’t eat right, their mental game lacks sharpness. When players don’t get the right cues from each other, they react in conflict. Despite all of their skills and talents, the sport suffers because of the weaknesses of the areas that are ignored. Yet pointing to any one of those areas and indicating that one is the culprit over the other, doesn’t work either. It’s never one person or one aspect of the whole system that is the culprit. Nonetheless, we see managers and owners repeatedly search for lone culprits, as if benching one player will make all of the other ignored (or unknown) issues disappear. And the result is a lot of angry, disappointed and sad players (and, fans!) with a frustrated coach.
A great coach, such as a great leader, owner or exit planning advisor, pays attention to mental, emotional, physical, psychological, financial, and operational concerns, as well as the interplay and interconnection among these factors.
The issues of not being saleable or profitable exist in pockets throughout the entire system. Once the system is tuned, then attention is spent noticing and fine-tuning the bumps, grinds and blocks to information flow, and educating the owner about how to become the mechanic of the company. Now, we have a high performance team ready to take on any challenge, be it the Indy 500 or attracting the exit deal of your dreams.
‘Team’ is the operative word for exit planning. For instance, we work with partnerships most often because partners talk to each other about their future. They are already a team, and they push each other to action in a way that single-owner companies don’t experience. This is also true for larger groups of shareholders. But, invariably, every partnership grinds noisily with a host of frustrations, conflicts and unmet expectations … and, that’s how these business teams often find us – a referral from a friend who listens to their frustrations.
The partners often know it could be different. They want their conversations to be different, but they don’t know how to get past the unfinished business that has piled up over the years, and they don’t know what is confounding their best intentions. Unless the solo owners are talking about what’s getting in their way with a trusted source, they often don’t know there are solutions and they don’t realize they are creating many of their company’s mechanical problems.
During our years of working with the Mergers and Acquisitions (M&A) and private sectors, we discovered that both groups struggle to understand each other, and they are frustrated when promising deals between a potential buyer and seller don’t culminate with a closed transaction at the end of a long, arduous process.
We see the same, low-performance team challenges and grinding information exchange dilemmas with every project we accept. Because of our divergent backgrounds, as well as our many years of working with numerous types of varied businesses, we see and hear the same patterns repeatedly. Why companies are not profitable. Why partners and shareholders mistrust each other. Why deals don’t work out. Why companies stumble and shrink when they embark on growth strategies.
How did we get to these realizations?
Well, Lorraine was a software entrepreneur in the ‘80s, long before there were many technology investors. When she noticed other business owners had the same problems she had growing and funding a company, she took what she learned into the consulting arena. She developed a methodology for growth based on identifying and rectifying profitability leaks and barriers. Lorraine also determined that leading managers and employees through the necessary changes is often the hardest business mindset adjustment for most clients to grasp.
So, she developed a set of easy-to-use tools that helped business owners become mechanics, enabling them to diagnose what wasn’t working in their system and how to change their mindset and their ways of working with the problem. Having worked with more than 100 companies over the years, from manufacturing to clean tech, retail and professional services, Lorraine’s insights and coaching approach allow the organizational machinery to work fluidly, thereby optimizing profitability.
Rob’s work as a counselor and behavior specialist for youth at risk, as well as a chaplain and negotiator, provides unique skills that get at the heart of why human interactions are often mired in the muck. His talent is advising leaders, owners, military commanders and CEOs about how to get out of their own way to clean up unfinished business, so they can unleash the potential of their leadership skills, work to their strengths and trust their people. Combined with Lorraine’s methodology, they built the system you are about to learn.
We have spent the last ten years working with and interviewing the intermediaries, organizations and people who facilitate the buying and selling of businesses.
In our quest to help our own clients (businesses that desire to grow) acquire other companies or prepare for their own exit, these observations emerged:
   •   Business owners have many erroneous belief systems about selling their companies that tend to block new information, or they consult a narrow group of people who don’t have complete information. The result? They don’t collect the right knowledge, so action doesn’t happen.
   •   Business owners run operations in a way that serves their needs, which may be at cross purposes to a buyer’s interests and risk profile.
   •   Intermediaries don’t educate business owners, except when they meet face to face over a boardroom table to discuss if and how they may sell the company. The result? The owner discovers there is much work to accomplish in order to attract a buyer at the precise moment they are ready to throw in the towel.
   •   Business owners speak the language of operations and to- do lists; intermediaries speak the language of finance and deal making – and, buyers or their agents know what to look for to match their own deal criterion. Guess what? The owner never received the rules of the game. The result? A huge communication and timing gap.
   •   Intermediaries will share the criteria of what an owner must do to spruce up the company’s ability to attract a buyer … but, owners don’t get that list until it’s almost too late to do anything about it. The owner is ready to sell now, not two years from now. In addition, optimizing the company’s valuation (using a buyer’s criterion) so that the owner can realize their expected valuation, takes time and know-how which the intermediary isn’t in the business of providing. Preparing a business for sale requires making many operational, management, communication and leadership changes to get the system functioning so it’s attractive to the right buyer. The result? Neither the business owner nor the intermediary knows ‘how’ to help each other get what the other needs or wants within the short term.
As consultants for the last twenty years, nothing is more excruciating for us than witnessing the light extinguishing in an owner’s eyes who has just been approached by an intermediary or buyer (who is ready to move on to the next more lucrative deal), as they realize their company is not saleable.
Similar to agents reviewing book proposals or producers looking at scripts, the typical private equity group may look at 900 companies a year and invest in just two to five of those businesses. A strategic buyer will search their select market niche for the one or two gems they will acquire per year.
Many owners aren’t considering private equity or strategic buyers for the transfer of ownership, because they envision someone closer to home taking the reins. Nonetheless, to make this transition effective, it requires an owner to gain a new perspective on the purpose of their business.
A company is in business to serve the needs of many stakeholders, ranging from customers to suppliers and employees, not just the owners. Your company needs to continue to serve its stakeholders despite your own personal plans, needs and agendas. Never confuse what the company needs with what you, the owner, desire or need. Trust that keeping your company’s legacy thriving will also address your personal needs.
The company is going to need its next leader before you’re ready to exit. Most businesses that have employees may need much greater preparation than you think.
Consider these questions:
   1. Are you thinking your employees might like to buy you out?
   2. Have you prepared them to be able to do that? Financially, it can take five to seven, or possibly ten years, for that kind of transaction to play out.
   3. Are you thinking family members will take over one day?
   4. Have you had the conversation to make sure that they want to, are ready for and have the leadership skills and financial capacity to purchase your position in an arms-length transaction?
   5. Do you want your partners to buy you out? Are you able to have the kind of conversation needed to develop a comprehensive plan and structure to which all agree?
   6. Do you have a general manager who can take over all of your functional jobs and knows your key clients? Will this person be able to buy your position over an extended period?
What conversations like these are you waiting to have, so you can disembark the train when you’re ready?
Chances are, proactive action is not happening because you aren’t aware of the immediate and long-term opportunity, so the work of preparing your business isn’t high on your agenda; and, in fact, you may think it is just a functional planning exercise. Preparing yourself to lift your hands off the controls requires much deeper exploration before you, an owner, can begin to plan; however, your conflicting emotions about the future may be blocking your action.
Nonetheless, you should know that if you prepare your company for sale now and don’t wait, your company will be more profitable and much easier for you to operate than it is now. In fact, by choosing to start the work of preparation, you will be claiming your wealth long before you need to exit.
We know this is true! We see greater profitability emerge at every company with which we’ve worked!
If you’re in the majority of business owners, you probably don’t know how to start this journey or whom to talk to; it can be confusing and piece meal. Advisors focus on personal financial preparation and transferring management roles, as if that is all that’s necessary to be ready to sell a business. Wealth planning may be well underway, but the formula for the rest of the equation regarding saleability is scattered among a variety of experts.
There isn’t a single source of information on the entire formula for successful exits.
Until now!
Until recently, what makes a business attractive to an investor in the boardroom of a private equity or strategic buyer, is its financing partners. And, usually, these facts are not well explained until a business owner is in front of a broker hoping for a quick sale due to uncontrollable circumstances. You can well imagine that, by then, it’s too late to optimize for saleability. To complicate matters, each buyer type (and lender) has varied criteria guiding their decisions.
The nature of many business owners is to keep their own counsel and push away any information that they don’t need immediately. It may seem as if the person giving advice is trying to take control away with that information and, with that attitude, important and difficult conversations don’t take place; plans don’t materialize.
Economic uncertainty adds more confusion to the mix of issues, adding to the stress of owners. The hands-on role owners play in their companies leaves very little time for anything other than dealing with and reacting to daily business demands. Being tactical in the moment is far more satisfying than thinking in more abstract and strategic terms for the future. And, to top it off, there is such a steep learning curve about what to do and whom to talk to, that exit planning keeps getting pushed further down the ‘to-do’ list.
While preparing a company for attractiveness to a buyer is complicated, if you want the exit of your dreams and you make a commitment to get the desired result, then your company can become saleable. A commitment to learning, getting help, changing mindsets and implementing the right plan succeeds in getting the job done. And, this path to success is exactly the same journey taken to start and grow the business. The distinction between the start-up journey and the transfer of ownership journey is the critical success factor that we reveal in this book.
To the rest of the world, the need for a plan is obvious; however, there isn’t much integration in the advisory world to pull together all the needed parts of the journey so they’re all in one place. This book, the supporting PlayBook and available online training at www.MakeYourBusinessSaleable.com, will demystify the entire saleability process. We’re bringing all of the information to you, so you can follow a useful and cohesive framework that breaks through the seemingly insurmountable barriers.
If you have a framework or a blueprint to follow regarding how to make sure your company catches the eye of an appropriate buyer, are you willing to make the necessary changes (starting today) in order to grasp that certainty?
We frequently witness some of the most excruciating moments in the history of our business lives when business owners discover the news that their company is not in saleable condition. The silence in the room says it all. It’s devastating for a business owner to hear from brokers or mergers and acquisitions professionals that he or she needs to do a little (OK – a lot!) ‘spring cleaning’, and make a few changes. ARGHH! All they want to do is find a buyer – yesterday! Even if you want to, you can’t make the kinds of changes a buyer seeks within a scant few months. In addition, you can’t go about it in a way that will lessen the risk for the buyer.
By reading Fast-Track Secrets for Making Your Business Saleable, you will discover what to do, and why you can’t make such changes in a big hurry during the most stressful event of your life.
Sounds like a lot to cram into your brain, doesn’t it? It doesn’t have to get to this point, though! Don’t live with all that angst, risk and drama! Choose to learn how to prepare your company so you can claim your wealth, and then work through the steps for two-to-four years, so you get what you really want, when you want it!
Being saleable depends on many complex factors that are at the heart of this book. Your exit strategy determines the elements needed for saleability.
Think about being saleable the same way you would think about your home being saleable. It is saleable if there is a willing buyer for your home’s qualities and unique characteristics. Your house has to appeal to a buyer who wants everything your house represents. Of all the potential buyers in the market at any given time, only a subset will want what your home offers. Increase the desirability factors and you increase the percentage of interested buyers.
While becoming saleable may seem like a project for the future, doing the work now has far bigger, immediate benefits in store for those of you who make the decision to become saleable.
Want to know what’s possible when you prepare and implement the saleability blueprint to transition the ownership of your business?
   •   Employees take on more responsibility for management, sales, operations and organizational development, thereby leaving you free to lead strategy.
   •   The issues that plague your profitability become ‘reminiscing stories’ with the managers who help you fix the leaks.
   •   The base of customers grows, and their loyalty to your brand expands; the headaches that keep you up at night transform into solutions, making you leap out of bed in the morning.
   •   Opportunities to which you had to say, “No” to in the past are now well within your grasp, and people who won’t consider doing business with your company now are forging new partnerships.
   •   Star performers in your company rise up in their careers, and they jockey for the top spots in your company.
   •   Strategic buyers call you to see if you have interest in selling your company, and return on your investment moves into double-digit territory (possibly for the first time).
   •   You look forward to relinquishing control of the business because you are moving to a more vital, purposeful future, and you’re secure in the knowledge that your company will thrive under new ownership.
   •   You achieve the value of your business that you dream of – all of the years you invested in making the company what it is today reward you with a profitable, great place to work that delivers value for its customers and shiny returns for its owners.
How does that sound? Well, trust us – all of it happens when you focus on planning the proper exit, and you start building your two-to-four-year plan for making your company sale worthy. When you decided to be proactive by purchasing Fast-Track Secrets for Making Your Company Saleable, you also decided to learn how it all works. Kudos to you for recognizing this crucial step!
We will share with you how to transform your business from something in which you currently survive or merely hang on to for the near future, into the ticket to maximum returns for you and all of the people who rely on your company.
There are so many benefits to reap by taking the exit plan plunge – so, why is it that statistics portray a nation of procrastinators, pushing off the discussion of how they will claim their wealth from the largest asset they have ever known? We don’t get it! Or maybe we do and it’s time to explain it to everyone else who is waiting for business owners to act.
Our experience tells us that the lack of preparation points to more complex issues … not just the fact that an exit plan isn’t in place. Getting ready to sell a company can be an emotional and existential struggle, as well as a complicated, functional problem.
You can’t write an exit plan if you haven’t decided what’s important to you!
Owners talk about exiting their companies in a negative light – rather than seeing opportunity they see endless days of boredom, adrift in a purposeless and nebulous place called retirement. But, what if they don’t wear their company identity anymore – what will they do next? How will people measure their worth if there aren’t any accomplishments? What bragging rights remain?
Rather than dealing with these internal conflicting emotions, as well as the reactions of people around them, the typical owner reverts to his or her comfort zone. For owners who aren’t comfortable with their own needs, fear of the future may play a huge role in building and implementing this plan.
Focusing on a future that doesn’t include connecting to their business community and employee family anymore can feel very lonely. Not finding anything to get up and fight for in the morning can put fear in the hearts of even the toughest business leaders.
There are also other external reasons keeping the exit plan sitting on the bench. If your company suffers setbacks due to the economy, a bright future doesn’t seem possible, does it? If we were in your shoes, our thoughts would turn to, “So, why bother with an exit plan? My company is too small – no one is going to buy it!” Yet, until you invest time in learning more, you won’t discover what options are available to you.
Transitioning a business is more difficult when you don’t recognize and work with these strong emotional currents by navigating and charting your desired future. Put your oars in the water and you’ll soon master maneuvering through eddies and whirlpools through which this exit river will take you.
What if you have partners? They, too, have differing needs, time horizons and agendas regarding how they will exit from the business. The discord of opposing voices many times bars the partners from discussing the creation of an exit plan that maximizes everyone’s rewards. A smart exit plan harmonizes all needs. However, partners often spend fruitless hours searching for satisfying compromises or accommodating the noisiest among shareholders.
Yes, there never seems to be enough time to do anything, but work on or in the business – which is bad news for all of us. If you want to make any changes, you have to schedule this goal in your calendar.
How many of these factors sound like you or your situation?
A written plan is only part of your need as a business owner. The purpose of this book is to help you start and complete the journey of examining and learning about all of the aspects of preparing a business for sale. From the difficult personal and interpersonal issues, to the functional requirements for being attractive to a specific buyer, we’ll place you on the fast track to a successful sale by teaching you what you need to know.
So. You are beginning to recognize that an exit plan involves much more than conventional wisdom suggests. Looking only at the functional dynamics or the numbers is like planning a trip to Mount Everest, buying all of the gear, and hiring the best guide without getting into physical and emotional shape. Obviously, to the armchair quarterback, this is very short sighted. Can you imagine? Picture yourself on Mount Everest … you have everything you need. The sad irony is you will come face to face with your personal limitations – your emotional and mental state – long before you ever get to use all of your gadgets. And it will be a big surprise when you hit that wall.
It may take getting external support to get you there, but if you choose to be proactive and create an exit plan, you will reap the benefits and rewards. You’ll realize what you want, and you won’t wait for circumstances to make the decision for you.
By building your blueprint, you will have solutions for how you will:
   •   Portray a vital role in your next act in life
   •   Stay connected to your business community
   •   Get up in the morning with something worthwhile for which to fight
   •   Continue to achieve meaningful and enriching results
   •   Share what matters to you with friends and family
   •   Recover from economic setbacks
   •   Work in tandem and in harmony with partners toward common goals
   •   Restore profitability
   •   Find the right exit partner that fits your business, financial and time horizon goals
   •   Share, and even pass on, responsibilities to managers and employees.

How does all of that sound? Good?
Then this is the book for you! We’ll help you get started, not just learn about what is involved in preparing your business for sale – you will have a plan of action and starting point; you’ll move forward from thinking about your business becoming more profitable and saleable, to achieving a business that is profitable and saleable. And, in the process, you’ll gain a much better return on your investment!
What can be better than that?
So, get off the bench! You don’t have to sit on the sidelines waiting for life’s circumstances to pull the rug out from under you. You don’t have to avoid the succession discussion or transition discussion with your team. You don’t have to lie awake at night wondering how you are going to keep it all going. All you have to do is decide to read this book, tackle the exercises, follow the quick start guide, and then share thoughts and plans with friends and family. If you do that, then you’ll take your first steps toward your dream! You’ll feel remarkably unencumbered – and, when that happens, you can design the right course of action based on our recommendations. Even thinking about it, makes you feel ‘lighter’ already!
Every business owner can take these steps. The question is – will you take these steps? Are you willing to begin your learning journey in an effort to create your plan, and make the necessary changes to create your desired result?
Rob and I wrote this book because after two decades of helping business owners become better at growing their companies and preparing them for sale, we know that the biggest obstacle to getting what you really want is to stop thinking about what you don’t want – then get the right help!
What do we mean by that? You might envision all of the ways that this plan won’t work. After all, who could really run the business as well as the owner? The company is successful and, if anyone else steps in and takes it to a new level, does that negate the owner’s success? No! Not in the least. But, for some owners, this idea is a tough mindset to relinquish.
Here’s the rub. Owners get lost in the daily ‘to-do list’ of their operations, and they don’t take the time to step out of that mindset to manage their futures effectively. They are too busy to learn how to be strategic and ready, or even to discover that they can have much more control over the entire process if they build a plan two-to-four years before they want to sell.
If you’re like the majority of business owners,1 an overwhelming 70% of employer business owners reported that their business was their primary source of income compared to 44% of non-employer firms. The owner of a firm with employees tends to need more complex exit planning2 compared to a sole proprietor for the following reasons:
   •   There are simply more stakeholders (employees, partners, shareholders, bankers, suppliers and customers rely on your business financially and in other ways.)
   •   Employer firms tend to be larger, with greater scope and scale. About 25% of all American businesses are employer firms as opposed to non-employer firms or sole proprietorships.
   •   Employer business owners tend to be more financially dependent on their businesses and, therefore, they identify personally with its success.
   •   Businesses with employees generate 96% - 97% of all sales receipts. In 2002, the average employer firm generated $1.7 million in sales receipts, while the average sole proprietor made just under $44,000.

But preparing your company for sale is not just your personal concern. What’s the problem if some owners might not take the initiative to build and execute a plan? There is a more profound issue at stake regarding the lack of time and effort being put into preparing a business for transition of ownership.
Of the total 20.5 million business owner respondents to the 2002 Census Bureau COB Survey, 5.6 million are owners of employer firms. We know that 80% of all business owners are now over the age of fifty; and, if we apply this percentage to the number of employer firms, there are 3.2 million business owners in need of immediate exit planning. Without that planning, many of these 3.2 million companies are not saleable in their current condition. Any sizeable percentage of this group not able to sell or transition ownership will have a substantial effect on our economy, given that these businesses earn 96% of all dollar receipts of the 50% of businesses that power the economy.
Should a majority of owners be forced into circumstances that are between a rock and a hard place, and having to wind down or hand over a business that could have generated a lot more for lack of advanced planning, the effect on every age group will be pronounced.
From 2009, roughly 750,000 businesses, per year, need to transition their ownership over the next ten to fifteen years. Prior to the aging of boomers, there was a fraction of owners selling. Burgeoning supplies of businesses for sale will put downward pressure on company valuations, and when the supply of companies for sale surges, buyers can afford to be very picky about what they want to acquire.
The unprepared business owners will have few choices if they leave their futures to circumstances such as disease, divorce, uncontrollable variables or death that demand the sale or liquidation of assets. In addition, this situation has even more profound impacts that may affect entire towns, industries and people.
If the goal of becoming saleable is not impetus enough for you to start taking action this year, think about these facts: 3.2 million businesses generate most of the economic returns that power our local communities. Look around your town. Think of the businesses you know, your suppliers, competitors, value chain, members of your industry association and community or business clubs. How gray are they3?
If the company owners in your network have not developed a plan to claim their wealth, what happens to the future of those businesses? Companies from which you buy materials may close, forcing you to look elsewhere, retool, and absorb the costs of such changes. When local government loses an employer, its tax base shrinks, thereby adding to losses in property tax revenue from the real estate bubble bursting.
As a community faces this contraction in economic health, the collective mood declines, affecting civility that places a burden on social services. This domino effect increases when a city, town or area has numerous businesses, all in limbo, due to the graying of our economic engines.
This tidal surge will also affect associations. What will happen to your industry? As the wealth of experience and knowledge wanes, the connections that disperse practical wisdom and support shared best practices erode.
The choices owners make and the speed with which they begin to implement the changes to become saleable will have a profound effect on all of us. We wrote this book to spur action, to engage business owners across the country to want more from their next step in life, and to show them how to get started. Preparing your company for sale is the right thing to do for so many more reasons than you might ever have imagined!
Which boat do you want your company to be sitting in as this tidal surge happens? To be in demand by buyers or part of the over-supply? To ensure your legacy thrives or to watch as the value of your assets erodes, the longer you wait to prepare your exit plan? To be part of the solution that revitalizes your community or one that adds to the domino effect it faces?
The prepared business owners engaged in implementing a well thought out saleability plan will be able to choose when, how much and who acquires their assets; and, they will contribute vital stability to stakeholders.
By reading this book and setting out blocks of time to follow the plan you will create, you will do far more than give your family a secure financial future. You will leave a legacy that reverberates and ripples across the country for the good of all.
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1 2002 Census Bureau’s Characteristics of Business Owners (CBO) Survey
2 Leonetti, John. “Business Exit Strategy Planning: A Growth Niche” http://www.pinnacleequitysolutions.com/ public/ 107print.cfm
HOW SALEABLE IS YOUR BUSINESS?
Everything you now do is something you have chosen to do. Some people don’t want to believe that. But if you’re over age twenty-one, your life is what you’re making of it. To change your life, you need to change your priorities.”
John C. Maxwell4

Take the guesswork out of your future! Claim your wealth! Learn how to prepare your company, so you can exit when you want and for the amount you desire.
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4 Maxwell, John C. “Today Matters: Twelve Daily Practices to Guarantee Tomorrow’s Success”. Center Street Publishing, New York, NY 2004

Section I

Orientation

In this section, you will learn:
•   What is involved in an exit
•   The challenges involved in being able to sell a business
•   The two critical questions that need answering in order to start building an exit plan
•   How to use this book and get the most out of it

Chapter 1

Is Peter’s Business Saleable?

It’s a bright sunny day, and Peter is having lunch with an advisor. They are sitting on the patio of his golf club talking about what Peter will be able to do once he’s lightened his workload. He runs his hands through still thick salt and pepper hair, his hands and words painting a picture in a voice filled with enthusiasm. His back won’t bother him then. He’ll teach his grandson how to fish. Maybe even take one of those volunteer vacations his wife tells him about. And be done dealing with the good, the bad and the frustration of owning a company with partners. He laughs.
The advisor asks Peter when he might be able to ‘lighten his workload’. Will he hire someone to run the company? Or, does that day come only once he’s sold the company?
Peter shifts in his chair and squints as if the sun is now too bright. He focuses on the table where his buzzing Blackberry is parked next to the remnants of his lunch. He pushes his sunglasses over his eyes. Lightening his load won’t be possible until the company is sold. His voice returns to its former serious clip, and he leans back in his chair as a sigh escapes.
The advisor asks when Peter thinks he will be able to do that.
The cloud appears.
Peter considers for a long moment and then he offers a story. A friend who owns a distribution business just had a pretty good offer put on the table. It came unexpectedly from a big company back east, and he’s thinking he should take it. “I would,” he says. “Of course he doesn’t have partners. Different kind of business, too.” Another sigh. “What do we have to do to get into the same position? Are there buyers for a technical consulting firm? Is it even possible to think we could sell?”
The questions are delivered rapid fire and then stop.
“Can we get it done this year?” His voice is hopeful and hesitant. “For around $20 million perhaps?”
The advisor hears this question a lot. “Is that number close to what it’s actually worth, Peter? There are always buyers for good businesses, but every business is in a unique situation. And the number? That depends on whether you’ve made it attractive to the kind of buyers that want technical consulting firms in a growing market niche. Those are some of the things that determine when you’ll be ready to sell it.”
The advisor notices the answer provided is not what Peter is expecting.
“And, would you all agree on that value? How attached are your partners to that number? Most important, it depends on whether the company is actually in saleable condition. Is it?”
Peter thinks for a while. “What does saleable mean? How do I find out find out if PSWA is saleable before I get my partners’ hopes up?”

Coming to Terms

It used to be that when an owner decided it was finally time to sell, all it took was a few calls and a transaction with a buyer often materialized. Forty or fifty years ago, entrepreneurs were rare. Companies kept growing; they weren’t sold. However, boomers changed all that, and owners now have the freedom of choice regarding a company’s future: to grow, to acquire other companies, or to sell to larger companies, employees, financiers, new partners or individuals. But with more freedom of options, comes complexities and difficult decisions. Some of these options require dedicated focus to a path of action in order to achieve the desired result.
Today’s business owner faces a convergence of events. The market for private transactions has evolved, buyers have become more sophisticated and, therefore, more discerning; scrutiny of deals is more intense, and while there are many more buyers of private companies in the market, you may think that finding the right match between buyer and seller should be easier.
Not so much.
There is, however, a larger imbalance that may affect the ability of business owners to claim their wealth. The supply of owners wanting to sell is greater than demand. Buyers and deal financiers are looking for specific key performance indicators to tell them what is worth investment.
The emerging conclusion is that only those businesses of interest to buyers and those that qualify for transition financing or buy-outs will find an exit partner.
To qualify means to be saleable.
What of the rest?
According to the Small Business Administration (SBA), boomers entering what used to be called ‘retirement age’, own 50% of all businesses (approximately 10,000,000). Of that 10,000,000, 3,200,000 have employees such as Peter and his partner. The owners of these companies are privately wondering if their future dreams are even possible. And maybe the old idea of retirement should be thrown out in favor of living a vibrant life on your own terms – which can be done, if you have the freedom to use the money from claiming your wealth. Many boomers have pushed the date too far into the future, and their uncertainty about their own interests affects the company’s saleability. Let’s be clear, preparing your company to become saleable offers you the freedom to make all sorts of decisions. Indecision stalls any thinking, planning or action. And, like anything when we don’t make a decision, circumstance takes over and makes the decisions for us. Without decisive, immediate action, and commitment to focus, these owners will have to face the fact that the biggest asset they invested in for years will not deliver expected returns for a good post-exit lifestyle.

End of this sample Kindle book.