This story was originally written by EPI President, Scott Snider and published on Forbes on July 27, 2021
Where I live, we have a relatively short growing season. We start our garden by seed, planting inside little cups that are placed onto my enclosed sun porch. By mid-May, we can get out and start to tend to the garden. We fix up the fence that was jarred from the freezing and thawing cycle; we tend to the soil before we till it up.
By Memorial Day, the tomato plants are ready to be planted. We transplant the small plants from the cups into the soil of our garden. Every day we care for the plants as they continue to grow. We check and protect against insects, water them, tie them up as they grow up the nine-foot fencing, and prune as needed.
By Labor Day, it is time to harvest the fruit of our labor: the tomatoes. But instead of harvesting, I go back out and do the same routine. Sprinkle water, check for bugs, and move on into my day. As the autumn season hits, the plants start to wilt and the tomatoes begin to fall off the plants. By mid-October, the plants and the tomatoes have fallen to the ground and have begun to decompose. By November, our first snow hits, and the plants are totally covered, decomposing into the ground. We have lost our crop and have wasted our time completely.
Growing Tomatoes And Growing Value In Your Business
For any gardener, this sounds like a rather silly story. What gardener spends their time, money, and resources over a nearly six-month period to never harvest the fruits of their labor? Likely no gardener. Of course, we have made all those efforts to harvest the tomatoes so that we can eat them and share them with our loved ones.
In this story, the tomato plant is much like the owner’s business, while the tomato itself is much like the business owner’s wealth trapped inside this illiquid asset. Many business owners who started their companies in their backyards, their garages, or bedrooms have built their company over the course of 20 or more years. They have sacrificed, invested, lost money, and made money. If the business owner today has a significant company, they have something that is harvestable. A business with a transferable value.
How To Incorporate Exit Planning In Your Business
The term “exit planning” has been used by business owners and their professional advisors heavily since the late 1990s. It has become even more relevant for many small and lower middle market privately held business owners due to business ownership among the baby boomer generation. Baby boomers were born between the years 1946 and 1964, according to the United States Census Bureau. These business owners likely have most of their wealth trapped inside their companies.
The Exit Planning Institute, where I serve as president, recently published “The State of Owner Readiness” survey, which gauged business owners’ readiness, attractiveness, and preparedness to exit their companies. We found that 61% of owners agreed that having a transition strategy was important to their future, both personally and for the company. Though these business owners said a transition strategy was important, they also noted that they were not doing anything to prepare for a successful company transition. They had not begun planning for their exit by taking on projects in value growth, due diligence, or exit or succession planning. This leads me to believe that appropriately planning for their exit is not as important as many claim it to be.
Harvest The Value In Your Business
Yes, business owners build companies to eventually harvest the wealth in their business — their largest asset. The disconnect comes when the business owners attempt to harvest, but they are not clear on what to do. There are three major mindset shifts the business owner must make if they want to harvest the value from their company.
• Focus on holistic planning. To have a successful and significant transition, a business owner needs to have three aspects aligned: business, personal and financial. The owner needs to understand what they want out of life outside of their business, align their personal financial plans, and build a company that has transferable value.
• Exit planning is a business strategy. Business owners are doing things inside their company daily that eventually will affect their exit. They need to focus on measuring and building value across the four intangible capitals: human, structural, social, and customer. Not only will it build a better company for the owner — their employees and customers today — but it will build a company that is valuable in the future.
• Plan for the unplanned. Companies die daily because of involuntary and unforeseeable circumstances. These are called the five D’s: divorce, death, disability, disagreement, and distress. Will you be ready when one of these unexpected items impacts your business?
Just as you put strategic effort into your tomato garden for a bountiful harvest, prioritize the strategic planning of your business’s exit strategy so that you can harvest the wealth you’ve spent years cultivating.