My first suggestion to business owners who want to start exit planning is to pick a target date for their exit. Their next question is, “Now what?”

My advice – get an accurate determination of the current value of your business, forecast the amount needed to meet your financial objectives upon and after your exit, then calculate the gap between the two.

Your exit strategy will be built on closing that gap, which means that growing the value of your business is what it’s all about as you move forward. And the bonus – you’ll be able to develop the most thorough business plan possible when you have those exit objectives to work towards.

Value Drivers
Knowing and addressing the value drivers that affect your business is essential to attain the value you’ll need when you exit. These are the ten most common business value drivers:

• Stable, high-performing workforce
• Systems that sustain the growth of the business
• Diverse, stable customer base
• Good facility appearance
• Realistic growth strategy
• KPIs/effective and documented financial controls
• Business overview – legal audit, banking relationship, etc.
• Financial growth – cash flow, profitability, revenue, low debt
• Attractive business sector
• Protected technology/IP
• Having an exit plan

So, to expand on the answer to the “now what” question, do the following:

1. Review the list and choose the value drivers you can readily identify that apply to your business.
2. Pick three or four that need attention and prioritize those.
3. Aim to spend an hour or two a week working on your value drivers. As you get areas of your business in order, move on to other value drivers that may need attention.

Diving in Deeper: The Value-Based Management Concept
Since maximizing the value of your business is the focus of a good exit plan, it logically follows that a focus on value optimization should be built into your overall business strategy and how you run your business.

Leading management consulting firm, McKinsey & Company, developed a model for a comprehensive approach to value-based management (VBM), based on the concept that value is the precise metric upon which an entire organization can be built. The value of a company is determined by its discounted future cash flows – investing capital so that returns exceed the cost of that capital. This approach extends to using the company’s key value drivers to inform both major strategic and everyday operating decisions.

This management model begins with the company embracing value optimization as their ultimate financial objective. These steps should follow:

1. Identify and prioritize value drivers specific to the company.
2. Develop a strategy to optimize value.
3. Translate this strategy into short- and long-term performance targets, defined in terms of the key value drivers, and tailored to distinct levels of the company.
4. Develop action plans and budgets to define the steps that will be taken over the next year to achieve these targets.
5. Put performance metrics and incentive systems in place to monitor performance against targets and to encourage employees to meet their goals.

Strategies, performance targets, and processes must be consistent throughout the organization and structured to achieve maximum value on a continuing basis. Companies also need non-financial goals around product innovation and both customer and employee satisfaction. These objectives don’t contradict value optimization but rather, serve to establish values and guides for the organization and its culture.

How Value-Based Management and Exit Planning Work Together

VBM is the melding of a value creation mindset and the management processes and systems that are necessary to translate that mindset into action. Alone, neither element is sufficient, but together, they can have a tremendous and sustained positive impact on a business which leads to a successful exit – on your terms.

I’d welcome the opportunity to help you identify and prioritize your unique value drivers, assess whether VBM may be a fit for your business, or discuss starting or building out your exit plan. A highly effective way to develop your exit plan, with the benefit of sharing challenges and solutions with other business owners, is to join our Exit Planning Peer Advisory Boards (PAB). Contact me for a complimentary consultation or to be a guest at our next PAB meeting.

Bob Zarlengo is a certified exit strategist and CPA. More than four decades of experience in public accounting along with expertise in financial reporting, income and estate planning, and tax compliance makes him a valued and trusted advisor to his clients.