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“Is the money, time and distraction of an Exit Planning Consultant really necessary? And does it really add any value at the end of the day?”
Aaron Toresen, Managing Director, LINK(NZ) poses those questions and answers them in his LINK Business email Newsletter 14 May 2013.
In answer, he baldly claims:
“The truthful answer is only occasionally. More often than not the whole "Exit Planning" nonsense is no more than fee generation by well meaning but ultimately misguided advisers.”
“Almost every business consultant, coach, or mentor has screeds of information, manuals and guides that they will happily take a business owner through, on an hourly rate, to prepare them for the sale of their business. The more complex and esoteric the adviser can make the process, the better. Often these advisers have never sold a business or indeed owned one, but nevertheless confidently march their clients through various business plans, strategic plans, checklists and milestones . . . . . .”
It turns out these claims are mainly a straw man for then claiming that his firm can prepare a business for sale in within 2 or 3 months.
What he doesn't say is whether those businesses sold for their full value to the exiting owner. The truth is, very probably not. 90% of businesses sell for less than half what they’re worth to the exiting owner.
A broker’s main interest is typically efficiency of effort to achieve increased turnover, not selling price. Most brokers want you to sell within four months for whatever the business will fetch. They want you to be grateful that they found you someone who's willing to pay to take your place in the hamster wheel. 90% of the time that’s what business owners do. Brokers typically depend on it.
However, he is right about most business consultants, coaches and mentors. That’s why, if you really do want to sell for an earnings multiple of 4-6 you need to be particular about your choice of help (and your broker).
You’ll need to establish a profitable growth curve and extract yourself from the centre of operations. Unless you've already achieved that, it’ll be impossible to achieve in 2 or 3 months, even with Aaron Toreson's personal help.
The project will take at least two years with business-savvy, trustworthy people helping you lead it. They’ll be educated, experienced business owners with wisdom, passion and expertise to share. They'll quickly, deeply understand you and your business, empathise with your situation and work comfortably within the messy reality of your business.
The project isn't so much about planning as it is about acting strategically; about changing the way your business is organised and operated; so that you have time to work on it instead of only in it.
By the time you complete the project you may have changed your mind about selling because the business will be a profitable pleasure to own.
So don't sell yourself short. You and the nation need you to realise the full value in your business and for it to continue to flourish for it's new owner.
Take care in selecting your strategic change support and your broker.
There’s no shortage of advice and advisors for Kiwi SME owners: plenty of “should do this” and “should do that”; “should use TOC” or “should do a one-page-plan; “shouldn’t be satisfied with the 3Bs (boat, BMW & batch)”; and “should be aiming to be global magnates”. And why should they do these things? Because NZ needs them to create wealth, that’s why. But 20 years of advice, advisor, mentors, consultants, coaches or whatever hasn’t done the trick. Why?
At least part of the reason is that SME owners don’t have the time or patience for advice unless it’s immediately, practicably useful. Regardless of how justified, well meaning or authoritative it is, or how virtuous or good, it’s unlikely to have the prescribed effect unless it pops up at the right moment coming from the right person.
Advice works when, for some reason, the owner is unusually receptive and keen to change, and when it comes from or through someone that the owner trusts to produce the change. It’s an opportunistic, entrepreneurial process. Not a corporate planning exercise.
Trouble is most advisors aren’t business experienced entrepreneurs. They’re more likely ex-corporate executives or experts who, though they think they understand the SME owner, have never experienced actually having their own tender parts on the line; have always spent someone else’s money with only a salary and bonuses at risk.
And that’s not all. 50% of current SME owners are 55-70 yr old baby-boomers whose success in business is largely due to an exceptional coincidence of market opportunity and technical and entrepreneurial talent. Over 90% of SME start-ups disappear within 3 years. Only about 2% grow to be more that a job for the owner.
That 2% aren’t successful because they went to university. More likely they left school early. They’re not successful because they read endless business books or adopted every new TQM, Zero Defect, Process Re-Engineering or whatever Management fad that raged virus-like through the corporate world.
They’re successful because of who they are, what they’re naturally good at, what they happened to do, and when they happened to do it. Why would they be keen to change, especially when the advice comes from a stranger claiming to have the answer?
A current example from my experience is a substantial client whom we met through a long trusted agent/advisor of his who is also a trusted business friend of ours. The introduction coincided with the client facing unexpected demand for a new product he’d developed.
In conversation we learn that although 70 next birthday, he’s tired of being the general and operations manager - at the centre of everything – because he wants to focus on what he loves and is good at – developing new products and processes. He has a list of possible projects.
I ask him, “In the best of all possible worlds, how many of these projects would you like to take to fruition.” “All of them,” he says. “What’s stopping you?” I ask. He’s silent for a moment then replies, “No one asked me that before. My bank manager, accountant, solicitor and friends all ask “What would you want to that for (at your age)?”” “Look”, I say, “there isn’t much you don’t know about your industry and we personally know very little. So we're not proposing to teach you to suck eggs. But we do have the skills, knowledge, direct experience and network to help you remove the barriers to achieving your goal; to profitably exit what you don’t like, profitably get into what you do. It’ll take 3-4 years and involve a lot of change, including you.”
To cut the story short, we’re eight months into the project on his condition: that we complete it in 2 years not 3-4.
We aren’t “doing TOC” with him per se, or “one-page-plan” or any other “tool” or programme. But we are using those and many other approaches and techniques in a rolling-wave project to achieve his goals. In the process we're engaging with him and his people experientially so that in two years that knowledge and skill will be “built into” the organisation(s). The bits he then sells for a high price will be a great buy for new owners who likely are or want to be global magnates. He can keep the other highly profitable bits he likes.
The thing is we met him at that right time and through connections he trusts. Notice also that like him we are also baby boomers and like him we are also SME experienced entrepreneurs. Unlike him we have high-level specialist business skills and knowledge that he knows he lacks. He trusts us and we trust him too.
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