SCORE: Tips For a Great Round in Business!

Starting a new business is like playing a round of golf: you need a great drive to get the ball up into the air and see it travel far down the course.

Maceo Z. Keeling is currently the owner of Asheville Alliance Finance and Business Accelerators (AAFABA.com). He also volunteers as an Executive Committee Member at Large for Asheville SCORE.

Staff Reports

Many entrepreneurs spend a lot of time on their start-up business plans. That’s a great thing to do, but what about down the road? You also need a solid plan in place to become successful in the long term.

Not planning an exit strategy for your business is like spending all your time on the driving range. You practice your swing, and you might hit it right on the target – or you might miss the ball completely, so you practice some more. But what happens on the fairway? The ball might be in a trap, in deep grass, or bouncing off a tree – and on the course it’s too late to practice.

And what happens when you are on the putting green and you need to tap the ball into the hole? You can’t swing wildly, and often you miss the short shots because you haven’t practiced your end game.

If you fail to plan, you’re planning to fail!

SCORE counselors recognize that sometimes your efforts don’t turn out exactly as planned. And if you fail to plan at all, you can be fairly certain that your effort will be all for naught: you are likely to wind up in a circumstance you really didn’t anticipate (like the bunker or the sand trap).

That’s why it’s essential to plan, from the moment of your “tee-off,” to have an exit plan in place. What are your long-term goals for when you are older? How will you protect what you have created? What do you want the business to do for you as you get older, or when it’s time to retire?

Trading income for outcome

Goals like buying a house or building savings are easy to see, but not always easy to reach. You can see the flag sticking up from the hole even from the tee, but you can almost never see the hole itself. The flag only indicates the goal; getting the ball in the hole is what matters.

So what happens when you can no longer do physical labor, work the long hours, or handle the travel associated with your business? What’s your goal?

Do you want a golden parachute like executives get when they leave corporate America? What are you doing to get one?

Or do you want a steady income – in addition to Social Security – after you stop working? How will you arrange that?

Still working, year after year

As a consultant, I have traveled all over the United States, and far too often I find business owners who have worked well into their sixties because they had to work to keep an income. They had not taken vacations in years and many had little or no money saved for their own retirement. This could be the result of a lack of planning for an exit from the business. While a business should be a “going concern,” which means it goes on indefinitely, you, the owner, can’t just go on forever.

Now, it might be that you want to continue ownership of your business while others do the work – but that means you’re not really retired. You still have to oversee their work product, maintain relationships with clients, and follow the income and expense budgets closely.

For most people, it’s better to sell the business altogether: transform your labor and expertise into cash or a desirable lifestyle through a sale, merger, or even an initial public offering (IPO) – and to do that successfully, you need to prepare every step along the way!

Life doesn’t offer mulligans!

In other words, you need to plan your shots when you tee off so you have an easier short game! Because you won’t get to take a “mulligan” (a do-over) with your business.

Business Value Mapping is a methodology to build value and equity in your company and keep it there by implementing systems, processes, and procedures to help sustain the business after you have left. Here are some strategies to consider.

The most common exit strategy for any business owner is to sell the business to another individual or company. A sale typically results in the seller receiving cash in exchange for the company. The tricky part of any sale is valuing the company.

Cashing in

The highest value usually comes from a “strategic buyer” – one who is in the same or a similar business who can achieve significant financial synergies and benefits from the integration of the new business – especially by taking over your client list to add to existing accounts. You’ll usually see this happen with small- to mid-size businesses that provide professional services such as insurance companies, CPA firms, law practices, and even distribution and manufacturing organizations. These are companies that have accounts that generate recurring fees for products or services.

Remember, a deal like this is often tied to performance of the business at the time of the buyout and after you leave (Future Value). Usually, you’ll get a better deal if the acquiring company can pay upfront rather than doing a “contingent buyout,” in which the buyer uses the future cash of the business to pay off the debt to the seller.

Cashing out

Another type, “Financial buyers,” have similar investments, but not necessarily any synergies with your business. Someone who’s bought out an insurance brokerage might be looking to buy a CPA firm; an owner of an auto dealership might purchase a car-repair or body-work operation. For a financial buyer, it’s a strategic investment decision – and they tend to be bottom feeders.

Selling out

The lowest sales value is through liquidation. If you don’t have any debts, you can achieve liquidity by shutting down your business and selling your assets. Of course, you’ll need to find buyers who value those assets, and you’ll have to negotiate a fair price for those that are not clearly identified in terms of a price point.

For example, a truck and landscape equipment and supplies have specific value; but what about your client list and good reputation and lifetime of professional experience – or the loyalty of your staff? Liquidation means you get the smallest amount of money, because you’re basically selling raw assets and trying to agree on a price the buyer is willing to pay.

Step by step to satisfaction

Since most small businesses generally don’t have a structured way to determine their business value, the final transaction price may be less than the actual value of the business – often as little as half. To avoid that level of loss in your investment, take these three steps:

1. Take the time now to create an appropriate business exit strategy.

2. Carefully structure your plan to see what liquidity is going to be for you.

3. Make sure you get more than one valuation of the business so that you have confidence that the price is right. A SCORE Business Analysis Team (BAT) can help to you evaluate the value of your business, and it’s free!

And down the road, you’ll find that you’ve built a business that has value to others without you having to be there every day to run it.