The Importance of a Buy-Sell Agreement – Even if Your Partner is Your BFF

A buy-sell agreement, also referred to as a buyout agreement or business continuity agreement, is a contract that provides for the sale of an owner’s share of a business should certain events occur. When you start a business with one or more partners, your intention is to be in it for the long haul. If that partner is your friend, a new relationship evolves when you’re in business together. Friendships get stressed when friends become business partners – no matter how close you are before you start the business. And, while you plan to be in business with your current partner(s) indefinitely, it’s prudent to remember that nothing in business is forever, and having a buy-sell agreement in place at the outset is a smart business decision.

There are many events that can trigger the necessity for a buyout, including an owner’s retirement, bankruptcy, divorce, death, disability, changes (good or bad) within the families of owners, changes in career objectives, relocation, or a conflict with another owner that can’t be resolved. So it’s best to be prepared, not just hope for the best. The buyers that are party to the buy-sell agreement may be other owners, employees, or third parties.

Without a comprehensive buy-sell agreement, your business is vulnerable to a number of risks.

  • It can land in the wrong hands – maybe those of an angry spouse or disgruntled previous owner.
  • The business could die in the courts while ownership is being contested by surviving owners or heirs.
  • Without a designated buyer, you or your heirs may be forced to find a buyer quickly and settle for a sale price that is far below fair market value.

Who Needs a Buy-Sell Agreement?

A buy-sell agreement is especially important if you have business partners since it defines both rights and responsibilities of each owner to the continuity of the business. Crafting a buy-sell agreement is an opportunity to consider possibilities – that you may not want to think about, but should – and prepare for how you’d deal with them before you’re in the midst of a crisis or emotionally charged situation.

Even sole proprietors should consider a buy-sell agreement. You may have a long-time employee or even a friend or acquaintance that you’d like to take over the business upon your exit. With a buy-sell agreement in place, you have the peace of knowing that your business will end up in the right hands and your heirs or estate will be fairly compensated. A buy-sell agreement lays out a plan ahead of time to protect the future of your business, specifically:

  • It ensures that the right person(s) retain control of the business.
  • It specifies when shares of the business can be sold and to whom.
  • It specifies a fair price for the business so that other owners and/or heirs are fairly compensated if and when the agreement is triggered.
  • Partners also know what they can expect if/when they need to leave the business so it’s a great planning tool.

What should a buy-sell agreement include?

Each agreement will be based on the specifics of the business and the partners so no two will be exactly the same. But there are several basics that should be included.

  • Obviously, specify who is included in the agreement and who has voting control if this is applicable.
  • List the events that will trigger the agreement to go into effect. Consider the following.
    • Death
    • Disability
    • Divorce
    • Bankruptcy
    • Retirement
    • Conflict among co-owners
    • A threat to the business’ integrity because of an owner’s actions
    • Voluntary departure of an owner or “cash out”
  • Define the structure of the buy-sell agreement, which will determine who buys an outgoing owner’s share and for what price. Consider a variety of options and the pros and cons of each.
  • Define the value of the company by having a business valuation performed to determine a fair price for the business or its shares. Business values can fluctuate over months or years, and due to changes within the business or the market. Valuations should be conducted periodically to ensure that the agreement always reflects an accurate value and fair price.
  • Specify how the buyout can/will be funded should a trigger event occur. There may be many funding options including cash, loans, life insurance, disability insurance, installment payments, stock options, deferred compensation plans, or a combination.

A buy-sell agreement is one of the most important documents owners of a closely held business will ever sign. It should be crafted early in the life of the business, before complications or potential triggers occur. It’s sometimes an uncomfortable process but owners will breathe easier once it’s in place. Be sure to get the advice of your attorney when crafting this important contract. The expertise of an exit planner is also of great value. Review the agreement every few years to ensure that it reflects the current circumstances of the business and the current wishes of the owners.

I’d welcome the opportunity to help you plan for the potential events that can trigger a buyout, including crafting an agreement to ensure that your business remains in good hands and owners experience the confidence that having a plan in place for the future instills. Contact me for a complimentary review of your situation.

Why 2020 is the Year You Should Start Your Exit Plan

Most business owners count on the proceeds from the sale of their business to maintain the security of their lifestyle following their exit. Yet a study by business transition specialists, ROCG, revealed that no more than 33% of businesses actually complete the sales process and that only 42% of study participants had formal exit plans in place.

These statistics suggest a high correlation between having an exit plan and the ability to finalize the sale of your business – an event that will likely be the largest financial transaction of your life. With so much riding on having an exit strategy, why would anyone choose not to plan? There are many reasons cited, which include:

  • It’s too early to plan
  • Exit planning is too time consuming
  • The process is too complex or intimidating
  • I don’t want to deal with the associated family and employee issues
  • I don’t have, or know where to find, expert advice on exit planning

If you are counting on maintaining your lifestyle after selling your business sometime in the future, resolve that 2020 will be the year you embark upon your own exit planning journey!

There’s a step-by-step process for exit planning that will neutralize the intimidation factor. You’ll be inspired as you see things fall into place and are able to envision your future, your successful exit, and the next chapter of your life.

And, your business will benefit now. When you set your exit objectives and work backwards to determine what you need to do today in order to achieve those objectives, you’ll chart a course for the success of your company – one that is often more comprehensive than most business plans – with accountability built in.

Every business owner needs an exit strategy, along with a tactical plan to put that strategy to work. Where do you start? 

You likely have an idea of when you’d like to retire, sell your business, or otherwise step away and into your next adventure – or venture. Give that idea a specific exit date, write that date on a sticky note and post it where you’ll see it daily – perhaps on the door you use to leave your office at the end of the day.

As you see that date each day, it will change the way you think. A stated exit date is like a seed you’ve planted to start the wheels turning about your eventual exit. Now that you have the date, what’s next?

2020 is the perfect time to clarify your exit vision and sharpen your focus. For tips on how to do just that, read my recent blog, What Does Your Vision Look Like For the Next Chapter of Your Life? With a target date in place and a vision for the future, you’ll be motivated to jump in and start working on the specifics. Next?

Take our online Exit Planning Assessment to determine what progress you’ve made toward exit planning. Then take our Value Driver Analysis which will help determine the current value of your business and what it must be worth for you to achieve your exit planning financial objectives. Identifying your “gap” and filling it, is obviously a critical and major component of exit planning. This step will also illustrate why you need years to cultivate and protect the value of your business, and therefore, the importance of starting your exit plan now – well before that date on your sticky note.

For more information about exit planning, visit https://rjzinc.com/ then contact me to make 2020 the year you start to create your future.

What Does Your Vision Look Like for the Next Chapter of Your Life?

Every business owner will eventually leave their company whether by selling the business, or retiring and handing over the reins to a family member or trusted employee. While you might know that day is coming, you’re likely entrenched in running and growing your business today, and not giving your eventual exit much thought. Maybe that departure seems a long way off. But is it really? Think back to five years ago, or even ten. Seems like yesterday, right?

You’ve heard enough about exit planning to know you need to do it. But how do you get started?

A plan for leaving your business starts with the same thing that guided and energized you when you started your business – a vision!

A vision for the next chapter of life is at the heart of every exit plan. You can chart your course only if you know your destination, yet sometimes it’s tough to see it clearly. The more clarity you have of the vision of your eventual exit, the more strategically you can hone the plan to get you there. What does your vision look like?

Consider the theoretical phases of the life cycle of an entrepreneur (and see the infographic).

Whether or not we think of these steps consciously, we likely all have an expectation, which started early on, that our business will enable us to achieve the prosperity to have a life that generally incorporates these steps, though the specifics will vary with each individual.

  1. Your business starts with a dream and a vision.
  2. It is likely born in and lives its first years from your home office.
  3. Your business is solid and you lease a facility from which to conduct it.
  4. You’ve experienced success and are able to buy a bigger home.
  5. Your business has grown – maybe it’s time to own your own office building or facility.
  6. A vacation home becomes an option.
  7. Perhaps you buy some investment/rental properties.
  8. You’re able to afford some toys – like a boat or classic cars.
  9. You transition out of your business and have leisure time and the money for golfing, travel or hobbies.
  10. You’ve experienced good fortune and success – it’s time to give back.

As you can see, this life cycle is a continuum but each phase has required planning. You’ve not suddenly jumped from one phase to another. That’s especially true of the last phase – the exit from your business – in that it will likely be the largest financial transaction of your life and the quality of life you experience for the rest of your life will be dependent on how well you plan for and execute that last step.

Clarify your vision for the next chapter of your life by asking and answering some questions.

  • What is your current situation?
    • Where are you in the life cycle of an entrepreneur?
    • Are you where you want to be at this point in time?
    • Have you moved any closer to planning your exit and your work compared to 12 months ago?
  • What’s your destination?
    • Have you thought about life after your transition away from your business?
    • What does the big picture look like?
    • What does your day look like after you retire?
    • How does your day begin?
    • Do you have a bucket list?
    • What’s on it? Be specific!
  • Who’s going with you?
    • Have you shared your dream or vision with anyone?
    • Who would you like to share it with?
  • How will you get there?
    • What is the date of your exit? If you don’t have one, set it now!
    • Do you know how much money you need to retire?
    • Is your business your single largest asset? Second largest?
    • Do you know what your business is worth?
    • Do you know when you will retire/transition the ownership of your business to someone else?
    • What is a first step you can take to start charting your course to a successful exit?

Take some time to clarify your vision for the post-exit chapter of your life. It will help guide and energize you as you plan. Then get a strategy and plan in place. Yes, it’s complex and starts with knowing where you are, along with details regarding the value of your business. But there are tools and a tried and proven step-by-step process to help you accomplish all that you need for a successful exit. And, planning your exit will benefit your business today! Few business plans are as precise as the road map that will result from embarking upon the journey of exit planning.

I’d welcome the opportunity to lend my expertise as you start or refine your exit strategy, to share the excitement and help you as you plan for the next chapter of your life. Contact me for a complimentary discussion of your vision and exit objectives.

Whose Future — Besides Your Own — Is Riding on Your Exit Plan?

As a business owner you know that, eventually, the day will come when you decide it’s time to leave your company – a transition that will likely involve the single largest financial transaction of your life. Extensive planning, which will affect how you do business today, is critical to a successful exit.

And, of course, maintaining your lifestyle in the next phase of your journey is dependent on your successful exit. Yet you just can’t quite get around to starting an exit plan. Have you stopped to consider how many futures, in addition to your own, may be riding on your exit plan?

Family
If you’re retiring, you may be planning to enjoy much of your time with family – a spouse, children, grandchildren, and extended family. Of course, you want their lives to be as comfortable as possible and you want to be able to experience the adventures and special times with them that you’ve dreamed of. Perhaps you plan to help your grandchildren attend college or take a trip abroad. Maybe you hope to keep the business in the family to provide for the future prosperity of your loved ones, but you’ve not decided quite how that’s going to work. Are family members already involved? If not, do you know if family members are interested in the business? Might the absence of a plan, with decisions left to your loved ones, create a rift within the family?

Employees
You’ve worked hard to find the right people for each position in your company, especially those who are key employees. You’ve built a culture that has created a cohesive comradery that sometimes feels like a second family. Wouldn’t it be great if those specially chosen people who’ve been so instrumental in your success could feel secure about their futures with your company? Having a plan in place for that future is a great way to retain those crucial employees to run your business now, but will also ensure a seamless transition to a new owner upon your exit.

Community
Your community and/or region depends on your business for employment and/or products or services. Your company contributes to the balance of business in your area. Without it, certain choices for consumers or other businesses would be eliminated, impacting the micro-economy. What would the loss of your business mean to local causes or charities you support?

The ripple effect of an exit plan – or lack thereof – is far-reaching. With an exit plan in place you’ll leave a road map that family and employees can follow and from which the community will benefit. Following are some guidelines for getting started.

When should you start an exit plan?
It’s time to start an exit plan if any of the following apply:
• You are age 45 to 55 and control 70% or more of the ownership interest in your business
• Your personal net worth is tied closely to the value of the company
• You are actively involved in the financial management of your company
• Your business has a management team in place

What does exit planning involve?
Following are the 7 steps of the exit planning process.

Step 1: Set exit objectives and lay the foundation for exit planning
Begin by identifying your exit date and write it down. That might be 5, 10 or even 15 years in the future. You’ll determine the state and value of your company today and where it needs to be at the time of your exit (your GAP). You’ll also develop an advisory team.

Step 2: Quantify financial resources
Identify business and personal financial resources, assess the value of your business, understand your current and projected cash flow, and consult with your advisors.

Step 3: Maximize and protect business value
Now, you’ll begin to take a closer look at your business value drivers, and put together a plan to maintain them.

Step 4: Consider the potential benefits of ownership transfer to third parties
Explore the possibility of transferring the business ownership to a third party. There are many pros and cons to this type of transfer, and you and your advisors will discuss the best solution for the company and the family.

Step 5: Consider ownership transfer to insiders
Perhaps there are co-workers, key employees or family members who might be a good fit for ownership once you exit. There are various insider transition strategies, including bequeathing the ownership, bonusing it, gifting it, and more. You and your advisors will discuss the best strategy for you.

Step 6: Consider the benefits of business continuity planning
Business continuity planning involves achieving your business objectives even if you don’t survive the exit and ensures survival of the business for the benefit of everyone.

Step 7: Create a well-balanced personal wealth and estate plan
This step addresses the protection of your personal assets, the management of wealth both now and in the future, and the promotion of harmony within the family.

Exit planning may seem to be a daunting task. But exiting is inevitable for every business owner. The more specific your plan, the more successful your departure from your business will be. Contact me for a complimentary review of where you are in the exit planning process and to discuss how you can make it a seamless one.

How Today’s Exit Plan Creates Tomorrow’s Lifestyle

I’ve worked with closely-held business owners for decades – as a CPA, tax consultant, and exit strategist. If there is one common denominator that holds true for each discipline, it is how crucial planning is in order to maximize one’s success. To ensure that the single largest financial transaction of your life – the eventual exit from your company – is a smooth and profitable one, essential areas such as minimizing taxes and maximizing returns require meticulous planning. Yet many business owners fail to plan for their eventual exit, or start planning too late.

Reasons Business Owners Don’t Plan Their Exit

In working with closely-held business owners, I hear many reasons for not considering exit planning. Do any of these sound familiar?

  • It’s too early to plan.
  • I don’t know what I want.
  • Exit planning is too time-consuming.
  • The process is too complex.
  • My identity is tied to my company.
  • I don’t ever want to retire.
  • I’m the only one who can run the show.
  • The unknowns are intimidating.
  • It’s too difficult to deal with the associated family and employee issues.
  • I don’t have, or know where to find, expert advice on exit planning.

Preparing for Financial Security

First, some interesting facts. In a study by business transition specialists, ROCG, 84% of survey respondents indicated that, upon their exit, the proceeds from the sale of their business would be critical to maintaining their lifestyle and financial security. Yet no more than 33% of businesses actually complete the sales process. Only 42% of respondents to the survey had formal exit plans in place. These statistics suggest a high correlation between having an exit plan and the ability to finalize the sale of your business.

The wave of retiring Baby Boomers is a factor as well. The majority of business owners in the U.S. are age 53 and over. A 2014 survey conducted by Pepperdine University revealed that 67% of business owners planned to retire in the next ten years. That was five years ago! The impact to the market by the trend of retiring Baby Boomers is already substantial and will intensify, which makes having an exit plan even more important.

Forecasts from The Exit Planning Institute (EPI) indicate that 4.5 million firms, valued at more than ten trillion dollars, will go to market over the next decade. But EPI President and CEO, Christopher Snider, predicts that sales will actually be completed for only 20 to 23% of these businesses. He attributes the inability to sell to a lack of critical planning for this event, especially taking those steps which will help determine, retain and recover the full value of their company.

If you are counting on maintaining your lifestyle after selling your business sometime in the future, now is the time to embark upon your own exit planning journey! There’s a step-by-step process for exit planning that will neutralize the intimidation factor. You’ll be inspired as you see things fall into place and are able to envision your future, your successful exit, and the next chapter of your life. And, your business will benefit now.

When you set your exit objectives and work backwards to determine what you need to do today in order to achieve those objectives, you’ll chart a course for the success of your company – one that is often more comprehensive than most business plans – with accountability built in.

The top three things you can do now to start the exit planning process

  1. Pick a date! You likely have an idea of when you’d like to retire, sell your business, or otherwise step away and into your next adventure – or venture. Give that idea a specific exit date. Write that date on a sticky note and post it where you’ll see it daily – perhaps on the door you use to leave your office at the end of the day. As you see that date each day, it will change the way you think. A stated exit date is like a seed you’ve planted to start the wheels turning about your eventual exit. It will motivate you to jump in and start working on the specifics. Now that you have the vision, what’s next?
  2. Understand the value of your business. Take our Value Driver Analysis which will help determine the current value of your business and what it must be worth for you to achieve your exit planning financial objectives. Identifying your “gap” and filling it is obviously a critical and major component of exit planning. This step will also clearly illustrate why you need years to cultivate and protect the value of your business, and therefore, the importance of starting your exit planning well before that date on your sticky note.
  3. Determine next steps to move forward in planning your exit strategy. Take our online Exit Planning Assessment to determine where you are in the exit planning process in terms of decisions you’ve made, information you have available, and where your priorities lie. Then share with me the exit date you’ve set and I’ll be happy to be your accountability partner! Additionally, take advantage of my complimentary review and deeper dive into the results of your exit planning assessment.

Once you start the process you’ll realize the opportunity you have to create the future you envision, and how your business will benefit now from the exit planning process. For more information about exit planning, visit https://rjzinc.com/.

How Long is a Business Valuation Valid?

There are many reasons to have a business valuation performed, including providing data necessary for buy-sell agreements, purchase and sale of a business, litigation support, insurance, estate planning and gifting, divorce, SBA loans, business planning, and gap analysis. And, of course, it’s a critical step in exit planning.

But how long is a business valuation valid? A general rule of thumb is about a year but it actually depends on many factors.

Business valuations are performed not only for a specific purpose but at a specific time. Although the valuation takes lots of data into consideration, the valuation is always of a certain date. But the final determination of value typically considers historical information as well as future projections about not only the property but its industry. Small fluctuations in valuation may occur, even on a daily basis, but with no significant modifications in terms of the business operations or capital structure, a valuation typically retains its validity for a year.

What factors could affect the valuation within a shorter time frame?

  • Changes that materially impact revenue or earnings
  • A change in control of the business
  • A new management team
  • Loss of key employees
  • Legislation that materially impacts the industry
  • A change in the purpose of the valuation

The impact that the purpose of the valuation has on the outcome is often overlooked by business owners. For example, a valuation that is needed for purposes of a divorce when the business is part of the marital estate will likely be very different than a valuation which is performed for purposes of a buy-sell agreement or for exit planning. And when legal matters are involved, jurisdiction plays a role in determining value. To avoid surprises, be sure that the purpose of the valuation is clearly defined.

I’d welcome the opportunity to assist you in the steps necessary to determine the current value of your company. It is a critical early step in the exit planning process. Knowing the value now and identifying the gap between current value and the value you need to exit on your terms is at the foundation of your exit strategy. Contact me for a complimentary discussion of your thoughts and questions on your eventual exit from your business.

When Should I Hire a Controller?

A client recently shared with me the story of his business, before and after hiring a controller. Like many small to medium-size businesses, he was relying on an existing staff member – his office manager – to handle bookkeeping, invoicing, and other financial responsibilities. But when she suddenly resigned, the company was in turmoil and struggling to hold the pieces together. It was an alarming revelation that the business had not had nearly the financial oversight needed for its size and complexity, nor did it have appropriate policies and procedures in place.

Business owners often attempt to manage their own finances and bookkeeping for a variety of reasons – to keep sensitive financial information safe, to personally maintain control of finances, or to minimize staffing and associated costs. This practice may be valid for startups and may work for new and small operations, but as businesses grow it becomes increasingly impractical – and costly. Money is the lifeblood of business and how it’s managed and accounted for can truly determine the health of the company.

When a business owner realizes he or she needs to loosen the financial reins and have some help, that sometimes means a family member or existing trusted employee is given the responsibility for bookkeeping, which may equate to data entry on a spreadsheet. Maybe down the road the company invests in a bookkeeping system and hires a well-qualified bookkeeper. But at some point, as the company grows, the need for a controller may be realized. Sometimes this realization comes because you find that your financial statements are incomplete or nonexistent, you don’t know exactly where you stand financially, or you experience a crisis as was the case with my client.

Maybe it’s best to consider hiring a controller sooner than later. Whether a controller is right for your business will be determined by several factors including your industry, the size of your company, and how it’s structured. Following are some indications that it may be time to hire a controller:

  • You lack accurate and timely information on the financial condition of your company
  • You are spending too much time on accounting functions when you need to be focusing on developing your business
  • You need to ensure you are in full tax compliance – state, local and federal
  • Your company increases in complexity in ways such as adding lines of business or opening additional sites
  • Your company is growing rapidly and there is uncertainty about the financial consequences of business considerations such as buying a new facility or exploring a new stream of revenue
  • You have large amounts of inventory and receivables that need to be managed with both an accounts payable and accounts receivable person, respectively
  • You have stockholders or a board of directors who aren’t close associates or family members

Hiring a controller is a sound business practice that protects your company and its assets. A controller provides accounting staff supervision, tactical financial management, and financial reporting so that you always know where you stand financially. If you have no CFO, a controller may work with the business owner to develop financial strategy, policies and procedures. In addition…

  • With the ability to not only generate data but interpret it, a controller is well equipped to demonstrate how changes have occurred over time and to aid in decision making as you move forward.
  • With an in-depth understanding of the financial situation, both from a big picture perspective and in minute detail, he or she can make recommendations that will position the company to lower expenses, save money, use capital, streamline operations, and maximize profits.
  • A controller can cast a financial safety net by mitigating risks with appropriate insurance coverage, inventory management, diversification, and fiscal threat assessments.
  • You’ll have the confidence that you’re in compliance and maximizing savings where taxes are concerned.

Business owners typically find that hiring a controller – whether full or part-time, employee or contractor – results in a net gain for the company. Just as important, it frees the business owner to focus on developing and growing the company, armed with the financial tools needed to avoid pitfalls and optimize opportunities. And, of course, having your financials in order and working to maximize the value of your company is essential to a successful exit.

As my client noted, “If we’d known then what we know now, we could have increased profitability by ten percent. If I’d hired a controller five or six years ago, we would be light years ahead. We wouldn’t be looking to grow like we are now without him.”

Goal Setting – You Can’t Exit Without It!

Business owners leave their companies under many different circumstances and each owner’s vision of the next chapter of their life is unique. But all have some common objectives when eventually exiting their business:

  • To leave their business in the hands of successors you choose
  • To leave on a date you pick
  • To leave with the money you need and want for what comes next

Understanding and quantifying these three universal objectives – when, for how much, and to whom – are the first steps in planning your exit strategy and mapping the route you’ll take to get to your destination.

But it may not be enough to just define those objectives.

You must set the goals necessary to achieve them, and what you build into those goals – or not – can determine the level of your success. The Business Enterprise Institute recommend that goals be SMART: Specific, Measurable, Attainable, Relevant, and Time-bound.

Goals should be written and broken down into the tasks or steps necessary to achieve that goal and each action must have a deadline. Each step or task must be assigned to a person who is accountable for accomplishing the task. The process of putting goals in writing motivates you to think more in depth about them and sparks more ideas for how to achieve them. Working with advisors during the goal setting process will give you access to expertise and a repertoire of strategies for achieving your goals.

Detailed goal-setting and planning will enable a more efficient process and will serve to lessen the impact on your wallet in the long run. Depending on individual circumstances, achieving these goals may take 5 to 10 years so it’s good to have the specifics well-defined up front. Having everything spelled out will dramatically increase your ability to accomplish the short term steps necessary to achieve your ultimate exit goals.

The Business Enterprise Institute defines three types of goals: Foundational, Universal, and Values-based.

Foundational Goals

Financial security is a foundational condition of a successful exit. Your exit strategy is successful only if it achieves your financial goals. You’ll need to define, with precision, the pre-tax, annual income – adjusted for inflation – you’ll need to be financially independent of your company. For this critical financial analysis, you’ll need the assistance of an experienced financial planner who can help you map out a long-term strategy for maintaining the income stream you need once you no longer own the company.

Universal Goals

You want to enjoy a certain level of post-exit income, depart when you choose, and transfer the business to the successor of your choice – three goals that are universal because almost all business owners seek to achieve them. These goals are not actual needs in terms of your financial survival and therefore, give you some flexibility. They are often more than wants, however, and some owners will postpone their retirement or exit in order to meet them. Base your decisions regarding these universal goals on facts rather than assumptions.

Values-based Goals

Goals such as creating a legacy, acknowledging employees, charitable giving, assuring family harmony, or considering how your exit may affect others and/or your community may not be on your mind initially. But you may find as you move through the process that there are specific objectives you want to accomplish based on your individual values – what’s important to you personally and what your heart leads you to do. That doesn’t mean these goals are any less important than others – they are important to YOU in that they define how you walk away from your company, and that’s what matters. It is suggested that you examine your vision for the company without you and your vision for yourself without the company when considering your value-based goals.

Setting these initial goals is the most important action you can take towards exit planning – and as a business owner in general. Setting goals provides direction and drives action. Once you go through this initial process you’ll know where you are, where you want to be, and the steps you need to take to get there. A bonus – you’ll have the confidence and motivation that goes along with that invaluable knowledge and having a plan!

I’d welcome the opportunity to help you gain that confidence. Contact me to discuss setting goals that will benefit you both now and in the future.

The Most Efficient Way to Plan Your Exit – and Reap Benefits Today

As a successful business owner, you’ve likely considered the day you’ll exit your company and what the next chapter of your life will look like. Although many business owners consider it, far too few start planning with enough lead time to exit on their terms. Exit planning is a complex process that truly can never start too early. When navigating those complexities, there is efficiency and success in numbers!

Our Peer Advisory Board (PAB) on Exit Planning can streamline your journey. Robert J. Zarlengo, Inc. launched its PAB in 2017 to provide business owners with a laser-focused approach to their eventual exit. The board consists of closely-held business owners that meet every other month. The group is facilitated by Bob Zarlengo, who, after successfully exiting his CPA firm after almost four decades of ownership, now focuses his work on assisting business owners with exit planning. He has applied his expertise to craft more than 60 successful exit strategies in the last several years.

Members of the Peer Advisory Board on Exit Planning share insights and resources, discuss strategies, and uncover solutions as they plan their individual exits. Participation on the Board provides owners with an unprecedented opportunity to share experiences with peers who are on parallel paths – and a truly unique, synergistic environment that will serve to compound your exit planning success.

Bob guides Board meetings as members explore, in depth, various exit planning topics including:

  • Identifying Your Exit Objectives
  • Quantifying Financial Resources (cash flow, business valuation)
  • Maximizing and Protecting Business Value
  • Handling Ownership Transfers
  • Learning how to Construct Your Advisor Team
  • Understanding Tax Implications of Various Transition Strategies

Other well-known groups, such as The Alternative Board (TAB) and Vistage, share the Peer Advisory Board model, but these groups address a variety of far-reaching elements of business. Exit planning may be touched upon as a singular topic, but not nearly in the detail necessary for a business owner to build and execute their individual exit strategy.

The Peer Advisory Board in a Snapshot:

  • Meets six times per year, every other month
  • Board consists of closely-held business owners
  • Discuss challenges, share resources and cultivate solutions throughout the exit planning process
  • Each PAB Board member receives six one-hour individual consultations with Bob Zarlengo, opposite the board meeting months.
  • Board membership requires a minimum one-year commitment in order to provide continuity and afford the greatest opportunity for each member’s success.

The exit planning process starts with a vision of the future and the objectives, both business and personal, that each owner wants to achieve when he or she eventually leaves their business. The existing situation of each company is evaluated and the gap between the current state of the business and the owner’s exit objectives is identified. Then a course is charted to get there.

What benefits can closely-held business owners expect when they join the Peer Advisory Board?

  • An inexpensive way to gain valuable, strategic insights into exit planning
  • A process by which to formulate your own exit strategy using tried and proven methods
  • A sounding board, with peer insight, for issues that surface as you plan your exit
  • Accountability to your own exit planning strategy
  • Access to ideas you may not have considered
  • Comradery with other like-minded, closely-held, business owners
  • Resources that will ensure your successful exit when the time comes

How the Board Can Help You TODAY

Each participant emerges with an exit “destination” and a road map and strategy to get there. But there’s more!  Along with developing a strategic plan for their future exit, Board members will find that this plan benefits the health and stability of their business today. A strategic exit plan charts the course for many aspects of your business for the long-term. It is designed to optimize and protect the value of your business, and it provides systems to monitor your progress. Few businesses have this degree of strategy, long-term planning, and accountability in place without having gone through the exit planning process.

For more information or to be considered for membership on the Colorado or Virtual Peer Advisory Board, email Bob Zarlengo at BZarlengo@RJZinc.com or visit https://rjzinc.com/about/exit-planning-board/.

Right People, Right Job – A Case Study of Transformation

#3 in a Series of Three Articles on Key Employees

Having the right people in the right positions is the foundation for a cohesive culture, seamless operations and greater success. It’s especially true for those who are considered “key” employees, who are also critical to a successful exit strategy.

My most recent blogs focused on Finding and Hiring Key Employees and Developing and Retaining Key Employees. Now I’d like to share with you the experience of a colleague that clearly illustrates the transformative power of making just one change in terms of putting the right person in the right position.

Immediate Attention Required

Jim’s company, which employs 55 people, provides a service from which we all benefit – maintaining refrigeration equipment for major chains like King Soopers, Sprouts, Whole Foods, and Costco. Loss of refrigerated products can amass huge costs for these companies and affect the availability of food to consumers, so Jim’s company is on call every day of the year.

Even though his operations were well run, Jim didn’t feel as if his company had strong financial processes and financial data management – a common issue for small to medium sized businesses. From its inception, his business had relied on their office manager, who had no accounting background, to handle bookkeeping and billing using QuickBooks. Jim knew he needed a more powerful system that would handle costing, billing and dispatch, all from one platform. After exploring several options, a new platform was chosen. About three weeks after its implementation, their office manager resigned. Suddenly the rest of the company was struggling to hold things together and maintain business as usual.

Finding the Right Employee

A friend referred Jim to a consultant who’d been a CFO and controller. She worked with the company for two months to put the pieces back together. Jim credits her with helping him stay in business. During that time, she suggested that Jim hire a controller and gave him a list of criteria to look for including skills, experience, personality, and whether the individual was a fit for their business culture.

He took her advice, reached out to two staffing companies, and in May 2018 brought Nick on board – a young man who’d excelled in a staff accounting position and was ready to assume the responsibilities of a controller. By the beginning of 2019, Jim’s company had already experienced remarkable change:

  • Their archaic accounting system was replaced with a new one.
  • It was being implemented correctly and managed in-house by an individual with the right qualifications.
  • Billing was being done quickly and interactions with customers had improved.

Now the company was keeping good, solid books that provided data on monthly income and expenses, monthly performance by both department and manager, and accurate month- and year-end results – numbers they’d not had in the past.

In addition, Nick was able to revise the status of vehicle leases to show more profit, and the company’s tax savings in the first year paid for Nick’s salary. Jim was able to look at the profitability of his six revenue-producing departments, which was invaluable for running the business, planning and goal-setting. It is also great information for investors and lenders, which will be critical for potential buyers when Jim eventually exits his business.

Coming Into the 21st Century

Jim credits his key employee, Nick, with helping them look at things they didn’t know to look at before and truly analyzing the company’s finances. In addition, other members of Jim’s team have expanded their skills and capabilities, following Nick’s lead.

Of their old system Jim noted, “If we’d known then what we know now we could have increased profitability by ten percent.” And he adds that, “The value of a key employee is hard to define. If I could have added Nick five or six years ago, we would be light years ahead. We wouldn’t be looking to grow like we are now without him.”

In addition, understanding the difficulty of replacing an individual who is central to the organization, Jim is putting a strategy in place for developing and incentivizing other potential key players, creating a more productive environment, and one that promotes retention.

Jim’s experience illustrates what a profound difference having the right people in the right positions can make. “It’s like flipping a light switch,” Jim shared. We were operating in the dark ages and are just now coming into the 21st century.”