When a client chose a date ten years out for her expected exit, she asked about next steps for developing and working an exit strategy.
We started by documenting foundational information about her company and her desire to sell to an outside third party. She had the value of her company assessed and determined what it needs to be worth when she exits to meet her financial objectives for retirement. She calculated the gap amount between the two values as the basis for the exit strategy we developed to reach her ultimate value goal.
The next steps in carrying out her exit strategy involved optimizing her company’s value drivers – those elements that add worth to the company. Enhancing the performance of the business in these key areas will provide two key benefits:
- It helps her business TODAY by focusing on increasing profitability and reducing risk now, while ensuring the sustainability and growth of her business.
- It helps her business in the FUTURE so she can get top dollar when she sells.
The Value Driver Question
We typically look at the top 10 value drivers, and one of her first questions at this step of the process was one I’ve been asked many times: “How do I know which value drivers to focus on first?”
Value drivers vary from company to company, and an exit strategist can help you pinpoint those that impact your business. However, the #1 value driver for most companies is the same – a stable, high-performing workforce and motivated management.
Your #1 Asset
Your people are the heart of your company, the one thing you can’t do without. This asset contributes to growing and maintaining the value of your business, its short-term success, and the eventual exit you envision. A dynamic, evolving value driver, your “people” component will need constant attention, monitoring, and adjustments over the long haul.
As you begin to assess this value driver, consider the elements that influence its performance from both a qualitative and quantitative perspective. Then develop an action plan to address any shortfalls or needs you may uncover. Take these steps and ask yourself some questions to assess your workforce.
- Prepare a list of all your employees in key positions, by years of service.
- Calculate your employee turnover each year for the last three years.
- Determine the amount given in raises to each employee in the last three years and whether the raise was based on merit or some type of outside influence.
- Who on the list would be the hardest to replace and why?
- Assess the knowledge, skills, experience, training, and creative abilities employees bring to the business.
- Assess management talent.
- Have you introduced ownership thinking into the culture of your business?
- Do any employees exemplify ownership thinking?
- What is your company’s growth potential?
- If the company is to be sold, is it owner-centric or dependent?
- Do you have:
- A “golden handcuffs” plan for long term compensation and retention?
- A bonus system that works for your company?
- An engaged and well–trained workforce?
- Depth and diversity of workforce?
- Articulated purpose, core values, and goals?
- For key employees – non-compete agreements, stay bonuses?
- A healthy company culture?
Take time to think through these points and document your thoughts and findings. Then look at what you need to do, short and long-term, to retain and enrich your #1 asset and value driver.
I’d welcome the opportunity to help you assess where you stand when it comes to your people and where you might improve their circumstances, which in turn, improves your company. Don’t hesitate to contact me for a complimentary consultation to discuss your people, value drivers in general, or exit planning.
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.