Avoid Succession Pitfalls with Laurie Barkman

Reading Time: 22 Minutes

In this episode, Laurie Barkman shares her expertise in business transition, succession, entrepreneurship, and M&A.

Takeaways from Laurie

Leadership Tip: Build Respectful Followership

 Laurie emphasizes the importance of earning followership through respect and common purpose, advocating for a servant leadership mindset. By guiding with integrity and a clear vision, leaders can inspire others to follow willingly and passionately.

Begin Exit Planning Early

Laurie stresses the necessity of initiating exit planning well in advance. Waiting until the moment of exit is too late; instead, proactively building value in your business over time ensures a smoother transition and maximizes returns.

Control Owner Dependencies

Recognize and address owner dependency issues within the business. By delegating tasks, documenting processes, and fostering a culture of trust, owners can cultivate a business that can thrive independently of their direct involvement.

Focus on Financial Consistency

Start by ensuring financial reporting consistency and stability. A solid financial foundation not only boosts confidence among potential buyers but also sets the stage for strategic growth and investment opportunities.

Embrace Growth Potential

Foster a culture of innovation and continuous improvement to demonstrate your business’s growth potential. Buyers seek assurance of future cash flows and expansion opportunities, making growth initiatives a key driver of business value.

Mitigate Operational Risks

Address operational risks such as key employee turnover, customer concentration, and supplier dependencies. By diversifying risk and establishing robust contingency plans, businesses can enhance their resilience and attractiveness to potential buyers.

Optimize Cash Flow Management

Strive for efficient cash flow management to minimize reliance on external capital. A balanced approach that prioritizes cash inflow over outflow not only strengthens the financial health of the business but also enhances its valuation multiples.

Cultivate Competitive Differentiation

Identify and nurture unique aspects of your business that create a competitive advantage. Whether it’s proprietary technology, exceptional customer service, or niche market positioning, differentiation bolsters market relevance and attractiveness to buyers.

Prepare for Transition Challenges

Acknowledge the emotional and psychological aspects of business transition, particularly regarding identity and purpose. Start planning early to define post-transition goals and cultivate a fulfilling life beyond the business.

Build a Transition Advisory Team

Surround yourself with experienced professionals, including mergers and acquisitions advisors, attorneys, and tax experts, to navigate the complexities of business transition successfully. Collaborative expertise ensures a holistic approach and maximizes outcomes for all stakeholders.

About Laurie Barkman

Laurie Barkman, the Business Transition Sherpa™, is the former CEO of a $100 million revenue company that was acquired by a Fortune 50.

Laurie is the author of The Business Transition Handbook: How to Avoid Succession Pitfalls and Create Valuable Exit Options, and hosts the award-winning podcast, “Succession Stories.” Her expertise in business transition, succession, entrepreneurship, and M&A has been spotlighted in media including Newsweek, Forbes, and Yahoo! Finance.

Read the Transcript

Allison: Welcome back to the Deliberate Leaders podcast. I am your host Allison Dunn Executive Business Coach. Our topic today is the end game build a business with the exit in mind. Our guest is Laurie Bergman. She is the transition. The excuse me the business transition Sherpa. She is the former CEO of $100 million revenue company that was acquired by a fortune 50. Laurie is also the author of the business transition handbook. And she hosts the award winning succession stories podcast tried to say that several times faster. But double S’s. Laurie, thank you so much for joining us here today.

Laurie:  Absolutely. It’s my pleasure. Thank you for having me.

Allison : My pleasure. I love to kick these off with a deliberate conversation, what would be your number one leadership tip for our listeners today?

Laurie: Number one leadership tip…

I think the biggest thing for leaders is to recognize that you need followers. And followers can’t be demanded, they need to be out of respect, it needs to be off for a common cause. That could be showing which way is north and having a servant leadership mindset.

Allison: Yeah, I love the compass reference. So thank you for that. So today, we’re going to spend a bit of our time talking about how to create a business that ultimately you can sell or exit from So Laurie, Could you walk us through some of the key factors that determine a business’s worth and how entrepreneurs can realistically assess the value of their own companies?

Laurie: Yeah, absolutely.

Let’s start with just the recognition that 100% of business owners are going to leave their company one day, whether it’s horizontally or vertically, and very few people are prepared. And I like to say you can’t do Exit Planning when you’re exiting.

So I’m so grateful that you’re hosting this conversation, and that we’re able to talk to people who have a runway of time ahead of them. A lot of people ask me all well, how much time do I need. And of course, it depends on what we need to work on. But the good news in all of this is the things that I’m going to talk about to build value in your business are going to make economic sense today. And if you are going to build the value of your business, why wait to do that 20 years from now, or 10 years from now. It’s like my parents when they decided to move from my childhood home. And then they redid the kitchens and bathrooms. Well, why didn’t they redo the kitchens and bathrooms while we live there? It’s the same idea with your company.

So to your question, there are, there’s an acknowledgement there are external factors that will for sure, impact the value of your business, I’m going to focus today on the internal factors are the areas that we have more control. And there’s eight core value drivers that really can apply to any business. And each of them is sort of worth its own airtime. So I’ll hit all eight quickly, and then we can dive into any more specifically, if you would like Does that sound good? Okay, so the first is financial performance. And this is a pretty big one, right? It’s the first thing people are going to want to know, they’re going to want to know your financials. But there’s a couple of other aspects to it, which is that goes into your multiple and we can talk about, well, what’s a multiple and how does that matter, but essentially, what industry you’re in, what geography you’re in how big your company is, in terms of revenue, or size employee, and some other factors related to the quality of your financial reporting and consistency. So financial performance, hands down, first and foremost, there. And there’s and there’s a lot of different, you know, aspects to it, as I just mentioned, the second one is growth potential. The acquiring business wants to know that you have a predictable stream of future cash flow, that you have a growth path ahead of you that there’s field left to plow, there’s a lot of things about your financials will they’re going to poke holes, and they’re going to look for risk and reasons to discount your business. But growth potential speaks to the things that are proven that you’ve demonstrated that they can capitalize on. The third one is rolling out risk.

And a shorthand is to think of the of Switzerland so we call it the Switzerland structure. It’s essentially operating risks that we need to know about and address. And there’s three core pieces of them. There’s always risks, right? We’ve always risks trip wires, but the three two addressed in this one are related to key employees, key customers and key suppliers. So when it comes to key employees, you might be part of the risk bucket. Right? If we think about the five DS and these sometimes very uncomfortable topics like includes death or dissolution of the business, the things that we just don’t want to happen in are somewhat out of our control. Divorce is a common one. Those things can also impact the risk factors around Your business and in this category, its employees, the risks associated with employees for sure. And then also around revenue. So if you have revenue concentration, or you don’t have contracts, and it’s handshake deals, how transferable are those relationships? And then the third piece would be the vendor relationships. Same thing. Do you have contracts? Are they handshake deals? And do you have concentration risk code COVID showed us anything, it showed us that there’s a lot of risk in the supply chain. So we take a look at all of those aspects. The other one is cashflow. And there’s an inverse relationship. If your company needs a lot of capital to run, let’s say you’ve got heavy equipment, machinery, and you need, you need to be able to invest in the business.

Well, if your business cannot sustain the operations, and you need to be borrowing money, well, there’s a cost to that. So a different owner might make different decisions about how it uses capital to run the operations.

And the more we can pull cash in, as opposed to cash out, that’s the balance we’re looking for. So the more cash your business needs, we can see an impact on valuation multiples.

Another one that we that we work on and try to assess with businesses is competitive differentiation. Does your business have a competitive moat around it? What is unique and special about it? And because by the way, you know, buyers buy on their time, not yours. And they’re also trying to assess should they build or buy? So when you’re not in the room, you know what they’re saying? They’re wondering, Oh, can we do what they do? And how long will it take for us to replicate that? But look cost us? And how long will it take? We’re also taking a look at customer satisfaction, churn and retention, all those things are interrelated, and also refer ability of the business. And do we think we know the answers why customer buy from us? Or do we have some quantifiable measures?

And then I think I’m Coming up on eight should be on eight. Number eight here is really, really big one, which is Hub and Spoke or owner dependency? Do we have a business that can thrive without us? Because if we don’t, the hard truth is that you may not have a transferable business. This might be because the business is so dependent on its owner, if you’re the only one that knows how to kick that machine and just the right spot. Well, what happens if you’re no longer in the company? And so many of these eight drivers intertwine as you can probably imagine, but these are the eight value drivers that we measure and help and help customers and help our clients understand what they can do to impact them.

Allison: To follow up on that, is there one driver that they should focus on start like, what’s the first one? Where do we start first, if we’re going to start to focus on one to increase the value today, even for ourselves as the owner?

Laurie: Well, the two the two most likely culprits to start is understanding what owner dependency issues you have in your business. And what you might be able to do to alleviate some of the pain points there. And the other is financials on the financial side, a big thing to take a peek at is consistency of your reporting. If you’ve changed your general ledger a few times and you have inconsistencies year to year, or you’re not tracking expenses, personal expenses that are going through the business, that’s also a great place to start. If your business is having some cashflow challenges, probably taking a fresh look at your accounts payable and your accounts receivable processes to say, Hmm, what might we do from a structural standpoint? If it’s policy related? What do we need to communicate with employees, or excuse me, with our customers, or if it’s truly just no one’s on point, no one’s responsible. There can be a lot of low hanging fruit when it comes to cash flow improvements.

And then when it comes to the owner dependencies, this can be a little more challenging, but a big Watch out is if you’re a control freak, right? You just can’t do it yourself, you’ve probably come to realize that, but there’s some trust issues and some gaps or we’ve don’t have things documented. There are resources available to help you with creating standard operating procedures, creating short videos to train people. The list goes on and on of how we might solve an owner dependency problem. But the biggest thing here, I think Alli is for people just to look in the mirror. You know, just look in the mirror. Just take a minute. When was the last time you took a vacation? And when you were on vacation? Did you truly unplug and if people need you for firefighting, why, you know what or track your time, what are you spending your time on? And as you know the concept of a mood elevator Are both of the stuff you’re working on? Just visualizing, right? Does it just bring it down a couple floors? Like, ah, I just don’t want to work on these things? Or do you get energized and excited about the stuff you’re working on? That can give us a clue for what areas to look to delegate. And maybe we have opportunity to delegate with some key people in your organization. Or maybe we need to look outside and, and try to find partial, partial help, partial CFO, partial head of sales, the list goes on and on. There’s so many wonderful resources and ways that you can get help without having full time w two employee.

Allison: Okay, thank you. You also left me wondering, and so I was like you said the five days and I got death, dissolution divorce. What are the other two?

Laurie: Well, a big one is disaster thing. COVID, right, something that just didn’t anticipate. It could also be a fire that’s burned down your company. I’ve talked to a couple people on my show that have encountered fires and their business that was really devastating. I think I mentioned divorce, and I think is that five or I’m missing one. But those are basically, when partnerships dissolve. Oh, and disruption and things that are really disruptive in the marketplace. I think another one that begins with a sea that creeps up on us a lot is complacency. Complacency can be a risk, not necessarily in the short term. But the long term, if we take our foot off the gas pedal, and we don’t keep reinvesting in the business and reinvesting in ourselves, for our preparation for ultimate transition, I think that’s a big Watch out. And especially in times like now, where the pace of change is so fast due to tools like AI and machine learning. Those availabilities are you know, it’s a dramatic difference from 10 years ago, even or even two years ago, and how companies are able to adapt and understand, particularly post COVID, what the market dynamics are, what your customers are looking for. And if your company’s not keeping pace, that can definitely be disruptive to your business over time.

Allison: One of the statistics at least that I have in the back of my mind, and it’s been a couple of years since I have an update. So let me know if I’m way off on this mark. But I’ve heard 98% of business acquisitions never actually come to fruition. Is that Is that a true fact when you’re sort of being evaluated, and you just can’t come to terms it never actually closes and transfers?

Laurie: I mean, it’s hard to really know. But the statistic that I usually say is that two out of 10 do which would mean eight out of 10 Don’t. So we’re in the same ballpark. Right, there’s a there’s a pretty big percentage of companies in the lower middle market with an intention to sell that don’t, I think half of that reason can be explained by the five days, because there are things that our company just hasn’t prepared for in terms of contingency planning, which can thwart all kinds of succession. And also, in addition to the five DS there are, there are lots of reasons why deals don’t come together. I think an owner dependency issue isn’t always fully realized by the owner themselves, unless they’ve taken a hard look at it. And when they’re going through diligence in, in the process with a buyer, a buyer can be discovering what some of those owner dependencies are, and then feel like there’s a lot of risk. And then as a result, the offer is much lower. So of course, there will be lots of reasons why the buyers and sellers can agree on a price. And I can talk from both directions. But of course price is a big reason why a deal ultimately isn’t concentrated. And, and it’s all about the perception of value. And it’s also about the perception of risk. And that can be on either side, a seller can walk away just like a buyer can. Because it’s not if you sign a letter of intent, you’re not committing to a deal that you’re committing to explore the deal.

Allison: That’s a really good clarification. When you think about it’s not like buying a house. It’s not like if you back out there’s a consequence to it in any way. Yeah. That’s how many business owners experience regret after they sell their companies. From your perspective. What are some of the common causes of regret?

Laurie: Yeah, about 75% of business owners one year after the sale, say that they they expressed regrets and it’s, it’s, it’s really a big number if you think about it, and I think the main thing, number one is identity.

So many business owners have their identity tied into the business itself. Even just thinking about the words, right? Am I a business owner, or do I own a business? One is more arm’s length than the other.

And so let’s just start there. What is your age? Identity and what’s your identity within the workplace? From a social relationship standpoint, you may have friends that are coming to your family, your family events and the weddings and the birthdays. And it feels wonderful. And it’s amazing. And that’s it’s a very good thing. But if we’re not balanced, and we don’t have friends and social relationships outside of work, when we leave that environment, it can feel very lonely, and we miss those things.

Another aspect is when we have our name on the door, and I think the general number is about one out of five, or you know, 20% of companies have their names on the door, literally, it’s a family company, or you are the founder. And of course, we feel identity there. So identity and purpose can be intertwined. A lot of people don’t have that same feeling of purpose when they leave their company. And that’s a huge reason why I’m doing the work I’m doing is to try to help people upfront, think about their transition, and what’s the meaningful life they want to live outside of their company? What roles do they play with social organizations, religious organizations, their family, you know, how do we choose to spend our time, I don’t think that we have to put our feet up and just be on the beach and do nothing and watch television. In fact, that’s the opposite of what I’m anticipating will happen in our lives. Let’s be purposeful, and start the runway now and not just think, oh, my gosh, when I leave my life is over.

There’s some startling statistics out there that I think particularly for, for men, when they do leave, it’s a very lonely thing. There, they don’t want to just be on the golf course. But yet, they haven’t found the time and space to plan ahead for what it is they wanted to do.

So again, I really appreciate that we’re able to talk about this, it shouldn’t be a taboo topic. And on my show succession stories, I’m bringing on more entrepreneurs to talk in advance, they haven’t left their company yet. And we’re talking about the importance of legacy and how they want to put things together. And so I’m trying to encourage the conversation also.

Allison: Speaking of taboo, I’m a New Englander originally, and from a privately held business that’s been around for 75 years, my grandfather started it my father and his sister ran it for years now my sister runs it. But the whole topic of succession planning or how the business was going to transition in any way was, you don’t talk about it. I don’t understand why that is, and how can we help people realize that this is a really healthy conversation to be having, especially with your current leadership to see if there’s that opportunity.

Laurie: It’s a super important topic. That’s why I dedicated a whole chapter to it in my book, it’s called who should own your business after you that particular chapter. And it not only educates the reader on who different types of buyers are, it also talks about what some of their motivations are. And the two groups that you mentioned, specifically, family and management, are what I call insiders, and they fall under the category of related buyers. These are people that are pretty tightly connected into the business. So if you as the owner, envision a continuity of the management, a continuity of your legacy. For those really good reasons, we might look to those groups of people to see if they are interested in succession.

So let’s talk about succession in from two standpoints. One is ownership succession, and the other is leadership succession.

So for purposes of today, we’re really focused on ownership. And I think that there’s some critical talking points to be had lots of folks that come on my show and talks about this. And again, I talked about in the book to where we can’t just make assumptions, right? We can’t just make assumptions that and we’ll just say, you know, next gen or Jr, wants the role. Maybe they want the role, but they don’t want to be an owner, being an owner is a whole other level heavy is the head that wears the crown, right. And some people are just not cut out for that type of that type of responsibility. It also could come down to acumen and capability there could be a just not a fit in terms of what is needed. And for that role, if it’s a if it is the president, role, CEO role. Chairman, if you’re a hands off owner, and you’re one of many family members, perhaps there’s a family board and so it’s not so much about acumen, it’s more about good governance and other ways that people can get involved in the family over time. Is definitely something to think about.

For companies that are under 25 million in revenue. We don’t typically see a family board it’s you know, the ones are a little bit larger, and even then having a fiduciary board so the governance side, especially if you’re envisioning a multi generational approach to succession in your company, I would encourage companies to really start thinking about governance and putting some things in place to do that. Yeah, it’s a complicated topic, because we don’t always know what people want it. So that’s why I encourage having productive conversations. And starting relatively early so that we don’t make some wrong assumptions on either side. Likewise, if the next gen thinks, Oh, it’s coming my way, and then it doesn’t, you know, that can hurt a lot of feelings, too.

Allison: Thank you for that. In terms of transition planning, how much time should someone plan for? And what are the first steps if they are going to create a transition plan?

Laurie: I think the best time to start is yesterday, frankly, and you know, if you’re kind of pinned me down to a timeframe, it does come down to what are the things we need to work on? And and what is your overall vision for a transition? And can we work backwards? If if we have to think about it in terms of time, I would say seven to 10 years is probably ideal. Could it be longer? Absolutely. Could it be shorter? It will, it can, but it can be a little more challenged, depending on what we need to work on. I have some tools and measurements that we can do to understand what’s the value of your business today, whether it’s a full blown valuation process, or I have some assessments that business owners can quantify the value of the company today based on those drivers and compare it is in our industry.

And if we are setting a goal and intention, a monetary intention, a personal intention, what is that number we need. And if we have a gap, let’s say we need our business to be worth 10 million, we we model it out, and today, it’s worth five, well, if we have a good 10 years to work on that and double the value.

Awesome, let’s get started. If we have two years to double the value, that’s probably not so much gonna happen. Maybe we have to look at acquisitions versus organic growth. So we need different ways to get there would need to understand what it is we’re working with. And again, when more time is on your side, we have more time to create those options.

Allison: In your experience, and like what you see as far as market trends, what do you see going on in the marketplace for successions, mergers, acquisitions, closures, like what is there any anything enlightening, that’s happening in the 20/20 century of you know, this next decade?

Laurie: Well, there’s a lot happening now because of the economy. And I think that interest rates definitely impact the ability for buyers to access capital, that makes sense for them. So an individual who is an acquisition entrepreneur, who’s self essentially self funded, and is going to get an SBA loan to buy a business, you know, it’s been more expensive to do those transactions. So there’s been a little bit of softening in the lower middle market. So as a consequence, if we kind of go upstream and think about private equity groups, which are also another type of financial buyer, they’ve been sitting with lots of dry powder. For a number of years, we’ve been talking about this for a number of years that private equity groups have a lot of dry powder from investors, and they want to put it to work. And because there’s a pretty big number of baby boomers who do not have a clear succession for ownership, we see that there’s a lot of demand for these types of businesses, whether they are in the lower middle market, which I’ll define as under 20 million in revenue, that some private equity space, some private equity investors have been coming more downstream.

And when we hear about PE deals, there’s two types just to give a little bit of a some more terminology, one is a platform deal, which means the company will stand alone on its own, and the other is a tuck in, and which is a much smaller deal. And so we’ve been seeing more and more tuck in activities from the lower middle market, because they need to stitch them and use the dry powder for their for their existing platform or portfolio companies. strategics are always out looking for good things that will enable them to capitalize and differentiate in the market, particularly in the tech space. There’s an aqua hire type of strategy that strategics might have to say, we need this talent, let’s acquire this company to get this technology or to get this team who can develop this technology. And also, you know, because of the market acceleration forces that so many, so many companies are experiencing, they look to acquire things that have a unique value proposition.

Because remember earlier when I said companies are thinking about do we build it ourselves or do we buy it? So there’s no doubt that organic growth With an innovation is also a trend. mature companies should not walk away from, from new products and services and innovative ideas and keep thinking about, you know what I’ll call the r&d expense. But strategics that have much larger budget, much larger resources are also thinking about what do we need to do to innovate? And should we build it or buy it?

Allison: I have quite a few employee owned companies that I have the opportunity to work with. That is a transition strategy. I’m curious what your thoughts are for employee stock ownership plans.

Laurie: Yeah, Aesop’s are a really interesting tool. If your audience isn’t familiar with them, definitely encouraged to Google it. I think there’s two camps of whether or not Aesop’s are a fit. Some folks say this is an amazing opportunity for the right type of organization that can sustain the administrative tasks and costs associated with becoming an ESOP. The other camp would say, Well, you know, is the juice worth the squeeze, and, and so on. I’ll just talk from kind of a neutral standpoint, and that one of the major benefits of an ESOP is that the owner can choose to sell a majority or minority stake to an ESOP trust on their own timeline. And you can also maintain control, you know, you could also stay as CEO you can serve on the board of the company. And so if one of your goals is legacy preservation and staying involved in the organization, that that ESOP option is a really interesting option.

Another reason why companies really do look to ESOP as an option is financial. I’m not going to quote the tax code, but they’re basically this, this is governed by ERISA, which if you think about the 401, k’s and our retirement plans, this falls under the same type of thing, which essentially, is a form of deferred retirement benefit for your employees. So the longer people stay with you, the more can go into their ESOP account. And then when they choose to leave, like for retirement, it’s a nice little piece for their nest egg. And that that can mean a lot to people. And it also can help with culture and retention. So it can be a very powerful tool. And then for you as the owner in the transaction, and I would describe this as a financial buyer, you’re essentially getting funding either, you know, let’s just use it as an example, like from a bank, if the bank is funding the buyout.

And it gives, it gives the company a really interesting pivot, which is it can become a tax free entity at a federal level, and boom, what would you do with 30% more money to spend as a business and based on what I said earlier? Well, if we want to grow through acquisition, over time, not paying taxes, what we’ll use that money for, perhaps we will use some of those funds to, you know, double down and invest in the business. So there’s a lot of really interesting ways to go about the feasibility study and see if this is worth the effort, a company has to be large enough, and it has to have an employee census that, you know, not everybody is retiring at the same time. Because essentially, when people do retire, that’s a liability. It’s a liability on your books, and you have to be planning for that. So I’ll just use a general benchmark that companies are, if they’re interested in becoming an ESOP, they probably need to have at least and this is just a ballpark, at least 2 million of EBIT da annually.

Allison: Thank you for your insights on that. I think my final question is, do you have any advice for entrepreneurs or business owners that would be navigating the possible transition or sale of their first business? What guidance would you give?

Laurie: Yeah, absolutely. I mean, you’re not building your business on your own most likely. So why would you look to sell your company on your own? I think you want to build a team, I think you want to create what I’ll call the boat was the is the business owner advisory team, and people that you might consider to be on your boat, different professionals. One would be somebody like myself, a mergers and acquisitions advisor who’s experienced in not only the negotiations, but of course, the process. And it starts with the valuation and getting an understanding of who our potential buyers are. And what’s the story we need to tell. quarterbacking the deal, that’s our role, and there’s lots of things we’re doing in the whole process A to Z, when we have other people like mergers and acquisitions, attorneys, corporate attorneys that are experienced in transactions. They’re super helpful, you might have a wonderful attorney that has been so you know, working with you for many years.

But if they don’t have corporate m&a experience, I would say this is a great opportunity to bring in someone with that specific expertise. And likewise, on the tax side, you might have the accountant that’s been doing your taxes year after year doing it. They’re involved with bookkeeping, but they’ve not been involved with transactions, the more complex transactions, the more implications for tax deferral and tax mitigation strategies, which by the way, then ally is another reason why the earlier we can start this the better because when it comes to tax planning, and legacy planning, estate planning, all those other aspects really take time. For sure, tax is one of those things. So I’d say the accountant, tax advisor, the legal adviser and the m&a advisor are going to be critical parts of your team, you know, critical pieces of your team. And we might need to pull in other folks too. And that’s one of the benefits of working with somebody like me is my rolodex becomes my clients Rolodex, and we try to find the best fit people to be in the boat.

Allison: Laurie, I really appreciate this conversation I’m sure listeners do as well. And I just want to make sure to say that I will put links to how to connect with Lori in the show notes below. Thank you so much for joining us today. It’s been a pleasure.

Laurie: Absolutely. Thank you.

FAQ: Navigating a Business Transition

What is your #1 leadership tip for business owners?

Laurie’s #1 leadership tip is recognizing the importance of having followers who respect you and are aligned with a common cause, emphasizing the need for a servant leadership mindset.

How can entrepreneurs assess the value of their companies?

Entrepreneurs should focus on internal factors over which they have control, including eight core value drivers: financial performance, growth potential, risk mitigation, cash flow, competitive differentiation, customer satisfaction, and owner dependency. Assessing these areas helps in understanding the business’s worth.

What are the key factors that determine a business’s worth?

Key factors include financial performance, the company’s growth potential, the ability to minimize risks, effective cash flow management, maintaining competitive differentiation, ensuring customer satisfaction, and reducing owner dependency.

Why is early exit planning important for business owners?

Early exit planning allows business owners to systematically increase their company’s value over time, rather than rushing to improve metrics just before exiting. This approach ensures a more stable and higher valuation.

How can business owners prepare for a successful transition or sale?

\Owners should build a “business owner advisory team” including a mergers and acquisitions advisor, an experienced M&A attorney, and a knowledgeable tax advisor to navigate the complexities of a business sale or transition effectively.

What causes regret after selling a business?

About 75% of business owners experience regret due to lost identity and purpose post-sale. Ensuring a balance between work and personal life and planning for life after business can mitigate these feelings of regret.

What role do ESOPs play in business transitions?

Employee Stock Ownership Plans (ESOPs) can be an effective transition strategy for the right business, offering benefits like owner control retention, legacy preservation, and potential tax advantages. However, businesses need to consider the administrative and financial implications of adopting an ESOP.

What is a critical first step in transition planning?

Identifying owner dependency issues and financial inconsistencies is crucial. Addressing these areas can uncover opportunities for immediate improvement and set the foundation for a smoother transition process.

I'm Allison Dunn,

Your Business Executive Coach

Join our list for exclusive tips, content and a welcome gift – our ebook on how to engage your team and boost profits.