Module 3: Where do I start?

Plans are designed to take you from point A to point B. Therefore, we start by looking at point A.

Key Points

• Your Master Plan is significantly affected by your current situation. You should evaluate:
  • Your business health
  • Your personal readiness
  • Risks that can discount the value of your business
• Risks can be assessed by the likelihood they'll occur, and their consequences if they do happen.
• The Master Plan incorporates risk management in every category.

Download the workbook for Module 3

You can use the workbook to take notes, and it also includes some assignments.

What do you have to start with?

Watch this video to see what you need to evaluate when defining your starting situation.

Key Takeaways

• The Master Plan begins by assessing your business, personal readiness, and potential risks.
• Many risks, if they occur, will reduce the value of your business.
• You can evaluate the likelihood and consequences of the risks you might encounter.
• Risk management and contingency plans should be part of all your plans and preparation.

Next Steps

• If you haven't yet, please download the workbook for Module 3.
• Looks like you're prepared to get started with an evaluation of your "Point A!"
• Move to the next lesson to expand your knowledge of arguments buyers use to discount the value of your business.

While owners look at their businesses through a positive lens, buyers look for negatives to lower their purchase offer.

Key Points

• One of every two business owners is pushed into an unplanned exit due to death, divorce, disability, or disaster. Buyers tend to make broad assumptions about the preparedness of the business if there isn't appropriate planning in place.
• Owners can prepare to minimize the consequences of many risks with:
  • Establishing buy-sell agreements
  • Creating disaster-preparedness plans
  • Proactively averting irrelevance
  • Minimizing business debt
• There are strategies to retain key employees, which also helps to protect your trade secrets and keep your customers.
• Strategies also exist to reduce the over-concentration of your business on too few customers or suppliers.
• Family businesses face challenges beyond the business. Transfer of a business to the next generation often creates conflict which can be costly to the family in terms of dollars and life quality.

What can discount the value of your business?

Watch this video for a series of potential risks and how you might mitigate or avoid them.

Key Takeaways

• There's a 50% chance you won't be able to time your exit from your business.
• You can prepare well for most of the risks that cause unplanned exits:
  • Buy-sell agreements for partnerships,
  • Disaster-preparedness plans,
  • Adding or modifying your offerings to avoid irrelevance, and
  • Avoiding excess business debt.
• Top employees are critical to the success of your company, before and after you transition out. There are common means to make staying attractive to them.
• If your business is overly dependent on too-few customers or suppliers, you can decrease your risk by diversifying or increasing the number of customers and suppliers.
• When transferring family-owned businesses to the next generation, families often experience conflict. Be sure to count the cost.

Next Steps

• Complete the assignment for lesson 2 in your Module 3 workbook.
• Take a moment for gratitude, that you haven't had to exit your business unprepared, and that you've been given this chance to get ready.
• Move to the next lesson to see how buyers use Key Performance Indicators to compare businesses.

Businesses whose performance is best-in-class get noticed and command a premium price.

Key Points

• Acquirers use Key Performance Indicators (KPIs) to compare the businesses they're considering buying.
• Financial KPIs measure revenue, profitability, cash flow, and more.
• Industry KPIs often measure factors such as safety, quality, and delivery (which, of course, affect the financial KPIs as well), but the range of typical performance varies by industry.
• A business's KPIs compare its performance against customer expectations and internal efficiency goals.
• Once in place, KPIs help businesses see their opportunities to improve. KPIs are helpful regardless of whether or not the owner exiting is a near-term goal.

How do you compare to best-in-class?

Watch this video to learn about common Key Performance Indicators.

Key Takeaways

• Key Performance Indicators (KPIs) make it easy for buyers to compare several businesses in their buying process.
• Some financial KPIs are considered in all business purchases in every industry, such as revenue, profitability, and cash flow.
• Other KPIs are somewhat standard, like safety, quality, and delivery. However, what is considered best-in-class varies by industry.
• KPIs within a business indicate whether it is
  • Satisfying its customers enough to maintain its edge in the market,
  • Maximizing its capital and human resources.
• The great news about the use of KPIs is that they help your business pursue best-in-class performance before you exit, which ultimately increases your benefits and decreases your frustrations.

Next Steps

• Complete the assignment in your Module 3 workbook for lesson 3.
• Congratulations! You're probably thinking of areas you can begin to measure and monitor that will improve your business performance.
• Move to the next lesson to see how you can prioritize all the tasks you're adding to your to-do list!

Even if all things are equally important, we can't address them all at the same time.

Key Points

• Risks can be ranked by their relative consequences and likelihood of occurrence.
• A prioritization matrix makes it obvious which risks to address right away.
• Risk-aversion solutions can be compared by impact and the investment required. This prioritizes protections and contingencies to maximize your resources.
• Choosing which KPIs to measure can be simplified by considering their potential impact on performance.
• Getting started is critical - keep at it! Repeat the prioritization routinely to methodically reduce most of your risks and improve your business performance.

How do you prioritize?

Watch this video to discover how the prioritization matrix works.

Key Takeaways

• The first risks you'll want to address are those that are most likely to occur and that have the worst consequences.
• A simple matrix and a pad of sticky notes make it relatively easy to compare risks in different areas of your business.
• Solutions require time, money, and people; therefore, they should be compared and evaluated according to their potential to protect against or avert risks.
• Too many KPIs can be overwhelming, and not necessarily helpful. Prioritize which ones to implement based on what will help you advance the most, and the fastest.
• Priorities constantly change. What's critical now might not be critical six months from now. Continually revisit your risks, add and remove tasks as needed, and compare what's left. Repeat!

Next Steps

• Complete the assignment for lesson 4 in your Module 3 workbook.
• Now you're in the driver's seat. No need to fear the unknown because you know how to identify risks and find ways to prevent them.
• Move to the next lesson for a brief recap of this module. We will reinforce the overall point that you can start now!

In the last four lessons, we've shown you how risks and KPIs impact the value of your business. We understand there's a lot to do, so you'll want to prioritize where to start. Here's a summary.

Highlights from this Module

• Begin by assessing your current situation: your business, personal readiness, and potential risks.
• You can prepare for the most common triggers of unplanned exits: death, disability, divorce, and disagreement.
• Reducing over-dependence on key employees, customers, and suppliers improves the value of your business, and, furthermore, can relieve some of your operational headaches now.
• KPIs show you how you compare to other businesses in the market. Financial, industry, and your business KPIs can also help you improve your profitability and reduce frustration long before you choose to exit.
• Prioritize your risks by their potential consequences and likelihood of occurrence. Then compare the solution options based on their impact and required investment of money, time, and people.

Start Now!

Watch this summary of Module 3.

Key Takeaways

• Evaluate where you're starting so you know what needs your attention, and how much is needed.
• Get ready in case you're one of the two owners who have to exit their business because death, divorce, disagreement, or disability force them to.
• Too much of a good thing can be detrimental to the value of your business. Reduce your dependence on high-concentration customers and suppliers.
• Find ways to keep your best employees and protect your trade secrets.
• When faced with several choices, buyers will tend to select businesses that are best-in-class. These businesses perform well, make their customers happy, and bring in lots of cash.
• While all risks pose a potential threat, you don't have endless resources to circumvent them. Prioritize which risks to address first, then decide which solutions will have the greatest impact for the lowest investment.

Next Steps

• Complete the assignment in your workbook for lesson 5.
• Woohoo! You're half-way through the course! We hope you're feeling great about the future value of your company, and your preparedness for the next phase of your life. In any case, you have come one important step closer to getting a grip on the value of your business and your future plans.
• Meet with the advisor/expert who recommended this series and/or your roundtable. Please bring your questions and ideas for discussion.
• Look forward to the next module where you'll see how you can begin increasing the value of your business now.