Exit Planning--Structured Financial Partners: Building value for your company's tomorrow ℠

Incentive Compensation and Exit Planning

"Often the terms "succession planning" and "exit planning" are used interchangeably, but the terms mean different things in different contexts…."

 

Our newly published Exit Planning Edge e-newsletter addresses the issue of using incentive comp as tool to keep key executives focused on the owner's strategic objectives.

 

To read the issue, click here.

 

 

 

 

Exit Planning brings together uncoordinated planning

You can now download our new Exit Planning Edge e-Newsletter— Exit Planning brings together uncoordinated planning.

Here's an excerpt: "Most of us are guilty of planning in a vacuum.  We choose a wealth manager we like and take his or her advice.  We buy our life insurance from someone else we like.  We choose our CPA and attorneys the same way.  But they do not communicate and coordinate with each other all that often".

Structured Financial Partners is a consulting firm working with the owners of closely-held Middle Market companies to improve the profitability and value of their companies in the years immediately prior to their sale to third parties, key employees or family members.

The Wisdom of Selling Too Soon

I made my money by selling too soon.
--Bernard Baruch

In our Exit Planning consulting work, we always get our clients—typically the owners of middle market companies—to identify a "target exit date."

We call it a target date, but it has flexibility…. The owner may decide to work longer because he or she wants to… Or may have to because financial conditions have changed. He may want to sell earlier because an unexpected opportunity arises.

The exit planning process is about having the business ready for that sale event, to the extent possible, even before the "target exit date."

We utilize a process we call Reverse Due Diligence. We coordinate a process using a sample due diligence questionnaire that a buyer might use in a Merger and Acquisition (M&A) transaction. We take on certain tasks and we assign tasks to the client and to the clients other advisors—particularly their CPA and attorney. By preparing Due Diligence binders in advance, we can 1.) find problems that will cause roadblocks in the sale process and correct them before a buyer is performing "real" due diligence" and 2.) look professional and organized when the sellers M&A team comes in to decide whether or not to represent the company and 3.) shorten the time it takes for the M&A firm to take the company to market.

By having this process completed in advance of the target selling date also allows the company to capitalize on unexpected opportunities, such as an unsolicited offer from a Private Equity firm. By having all of the necessary work done in advance, the company will look prepared and professional and likely get better results.

So instead of waiting until the top of the next market cycle, the best time to prepare for sale is now…

New Exit Planning Edge Newsletter—The Care and Feeding of Your Business

You can now download our new Exit Planning Edge e-Newsletter—The Care and Feeding of Your Business. In it we talk about the owner of a tech business who can use help making his good company better.

Structured Financial Partners is a consulting firm working with the owners of closely-held Middle Market companies to improve the profitability and value of their companies if the years immediately prior to their sale to third parties, key employees or family members.

CEOs Must Work Hard to Retain Key People

We've said it here many times, but it can't be reiterated often enough. Whether a $10 billion business or a $10 million business, your Key Employees are critical to your value and your profitability.

In an interview with business guru Ram Charan in the December 27, 2010 issue of the Wall Street Journal, Charan drives the point home. He says less than 10% of CEOs are focused closely on profitable growth and suggests quarterly reviews of people the way the CEOs do quarterly reviews of numbers. He also believes that in addition, to financial rewards for profitability, key people should be rewarded for how many other leaders they produce.

Here is a list of Ram Charan's biggest talent-management mistakes:

• Leaders not held accountable for developing talent
• Performance assessments without candor or focus on developmental needs
• Failure to drill deep enough to know best staffers well and put them into "stretch" jobs
• Top management's serious lack of time commitment and energy
• Placement of loners in leadership jobs

So, why all this in a blog about Exit and Succession planning? Charan's work is with Fortune 500 companies and our work is with companies under $150 million in revenue, most of them between $10 and $30 million. What can we learn from Ram's teachings? Owners of these small Middle-Market companies want to get the best price when they sell their companies. Sometime before they sell they either have made or will need to make the transition from and entrepreneur–led to a management- led company. The development of their Key employees and their ability to develop leaders within the organization will add tremendous value down the road.

 

 

Like in Football, the Time Clock Matters in Exit Planning

Now that we are nearing the end of football season, a lot is still up in the air, but certain things have been decided. Those teams that got off to lousy starts and lost too many games early have been mathematically eliminated from making the playoffs. When the announcers talked about "do or die" games for those teams, they didn't.

When you look at the teams that are leading their divisions, they are great at the "two-minute drill." When the clock runs down, they have a plan to move the ball toward the goal line. They spend a huge amount of their practice time on perfecting execution of what they will do when the game hangs in the balance.

Business isn't always like football, but sometimes, we see parallels in our exit planning practice. In a perfect world, clients would come to us in their early 60s or earlier when they assume they have two to five years left to work with full vigor. But in reality, most wait until later, they wait until the two-minute warning.

Fortunately, in the transitioning out of one's business, it's not about winning or losing a game, but in preparing for the exit event, time gives one options.

We have recently taken on two client companies where the owners are 88 years old. For each of them their age causes similar problems:

• They want more for their companies than they are worth in today's market environment
• They are set in their ways and don't want to do anything differently to improve profitability and value
• They don't have time to ride out the market cycle and wait for sales and profits to improve and multiples to (potentially) improve
• One has recently had a heart attack. The other is in good health and his younger (80 year old) brother runs the day-to-day operations and is in good health, but come on…

Many business owners want to work as long as they can. With Exit Planning, that can be worked into the plan. But one can't go into Sunday without a game plan. Even Brett Favre  gets knocked out of a game one day.

For most business owners, a prudent game plan dictates beginning this process earlier so they can reap the fruits of their labor from a easy chair before they are to beaten up to enjoy it.

SF Partners launches Life Insurance Division

Susan Laine, CEO of Structured Financial Partners announced today that the firm has launched a life insurance division which will be headed up by her partner, Steve Craig. Ms. Laine will continue to lead the firm's Exit and Succession planning consulting practice.

The mission of the SF Partners Life Insurance Division:

SF Partners Life Insurance Division is focused on providing Personalized Solutions for Complex Problems to our clients who we define and the owners of closely held middle market companies and their senior executives.  We bring a consultative approach to problem solving, creativity to plan design and clear concise explanation of what is being recommended and why.

We made this strategic decision at a time when clients in our marketplace need clarity. They don't need a life insurance agent who is a financial planner and wants to manage all their assets. They don't need a life insurance agent to handle their employee benefits, because that is an entirely different specialization. They don't need an agent who has one company's name on their card, but claims to be independent. They need an agent whose only loyalty is to the client—no preconceptions as to what products need to be purchased or which companies need to be used.

Our approach to life insurance is quite simple. It can be a powerful financial tool when applied properly to the appropriate situation.

Please check out the new Life Insurance page on our website

July Issue of Exit Planning Edge Newsletter Available

In the middle market business community, we often hear the terms "Succession Planning" and "Exit Planning" used interchangeably. They are not synonymous, but rather two terms that are closely related.   

We see succession planning as an important component of the exit planning process. 

Exit Planning is a global approach. It involves coordinating all the decisions a business owner needs to make prior to leaving his or her company.

For the full text of the July issue of Exit Planning Edge, Please click here.

Be Careful Crossing the Street

Here’s a post from SFP’s Susan Laine  

What if you get hit by a truck tomorrow?  Have you prepared your business so that it can run without you until your family / estate can sell it?  Most business owners we meet have pushed this issue to the bottom of their list because they don’t want to think about it—no one wants to think about it.

But it’s imperative.  Think about how it will affect your family if you don’t.  The long term answer is Exit Planning.  But there are things you can do right now as a stop-gap in the event of this worst case scenario.

Set aside an hour or two one afternoon.  Don’t answer the phone, look at emails or texts.  Think about what you would want your family to know about your business:

· Where are the keys to the building, your office as well as your passwords to access protected information

· Who are your trusted advisors—CPA, attorneys, banker

· Who are your trusted employees and what is the likelihood of them remaining with the business until it can be sold? 

· Where are any important papers--life insurance policies, 401(k) or profit sharing statements

· Who should your spouse rely on for advice and guidance—create a list of trusted advisors who should be on this advisory board

· Who are competitors you would and would not like your estate to consider when planning the sale of the business

These are the basics which you need to get down on paper.  There are many more, but only you know what would be valuable information to your spouse.  Do it NOW.  For the longer term, think about preparing your Exit Plan.  And in the meantime, don’t walk in front of any trucks!

“I just got an unsolicited offer for my business. Should I sell?”

Many owners face this scenario during their business lives. The conversation is sparked by a fax from a stranger or a letter from a competitor. The owner enters into a conversation with the buyers representative and before long his lawyer is negotiating a deal with them for an amount of money more than the owner ever dreamed of.

GREAT, RIGHT?

Not necessarily.

My investment banker friends tell me that after the business is properly packaged for sale and other prospective buyers are asked to bid on the business, the final sale price could be 2 or3 times in the initial unsolicited offer (if not more.)

Remember these few tips if you get a solicitation to buy that you are curious to explore:

• Don't make the call yourself. Have an attorney, investment banker, consultant or other trusted advisor make the call on your behalf.
• Don't talk price. Whoever mentions price first loses.
• DO NOT send any financial information. They might say the worst that can happen is you get a free valuation. Not so. You have just put your financial data in the hands of a competitor or someone who will be buying a competitor.

If you are getting to a point in your business life where one of these unsolicited offers to sell might be welcome, there are things you should be doing to the business today to make it more valuable in the eyes of the buyer.  This exit planning process will add value and improve efficiency when the M&A firm takes over.

You never know when that call might come.