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  • Brian White

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Traction Implementer - Entrepreneurial Operatings System

December 19, 2017

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About Imperfect Insights

What makes for a Valuable Exit?

October 24, 2017

I've made an amazing discovery. My discovery is the secret of timing. The secret of knowing when to sell your business and get the most for it.

 

Over a two week period I've attended two different family business forums with best selling authors presenting their strategies for planning the best possible exit from your business. I guess that many see a "boom" in the baby boomer M&A market and are attempting to capitalize. No harm in that. In addition, I thought that the authors had valuable insights into the process. But, at the end of both forums I felt that something had been missed. 

 

As I listened to their views and thoughts into one of the most complex and emotional decisions an owner can make I came to the following conclusion...

 

The best time to sell your business is when it's running so well that you don't want to.

 

Obviously if this is a topic that interests you then you have at least a vague familiarity with the business value equation. Free Cash Flow x Multiple = Value 

So if you find yourself pulling your hair out, tired, frustrated with people and unable to get away for more than a few days then please don't expect to get a high multiple when you sell.  Let me explain.

 

In his book Walking to Destiny, Chris Snider states that "Value acceleration is achieved by focusing on the multiple, which, again is largely based on the strength of your intangible assets." Not sure what intangible assets are? I'll try to define them with a comparison below but know that your high levels of stress as an owner is a pretty good indication that you may lack any valuable intangible assets.

 

So let's compare two very different companies. One who runs on EOS (the Entrepreneurial Operating System) and the other runs off what I like to call BOS (the Bootstrapped Operating System). See if the intangible assets start to become apparent to you.

 

 

  • In the EOS company there is a clear Vision, Plan and list of issues that stand in their way. The BOS company has never really defined a vision and it's assumed that the owner has one in his head.

  • The EOS company has a track record of executing on the plan with an average quarterly priority completion rate of over 80%. The BOS company has a large backlog of stalled projects, aging systems, and few examples of successful capital expenditures.

  • Our EOS company utilizes a Scorecard that provides a real pulse on the business through weekly activity based numbers over a rolling 13 week period. Unfortunately our BOS company is constantly playing catch-up, looking at the P&L to find out what happened last month and then hoping for improvements to occur.

  • At the EOS company you'll find a culture of engaged employees who all contribute to the vision of the organization, know where they stand and are energized by having measurable numbers of their individual weekly performance. The BOS company experiences either turnover or complacency. Because they don't have the right people in the right seats they experience frustration from growing entitlement, lack of motivation, no accountability and no discipline.

 

Which company would you rather buy? Which company would you rather run?

 

The value of a company that runs on EOS has to do with three things.

1. Increase in Revenues, Profit and Cash

2. Increase in Multiple (through those intangible assets)

3. Freedom to keep running a business you love, and wait for the right exit.

 

Many exit planners suggest that you start planning 3-5 years before exiting the business, but who knows what the world will look like then? On average EOS is implemented in as little as 18 months. You can then quickly determine if you want to "Love It or List It" like the popular HGTV show. There is no better way to prepare to sell your business than to get it running on a proven and complete system that allows you the freedom to keep it.

 

So what does exit planning have to do with a blog based on vulnerability? First I think we need to realize that our business is not our baby but as Thomas Deans writes in his book Every Family's Business, they "are a concept born out of love." The blood, sweat, tears and risk we put in them only creates an emotional attachment that puts us in the worst possible position to negotiate, strategize and make sound decisions. Because of this weakness of position my imperfect insight is...

Businesses only exist for two reasons, to create wealth and serve others. They aren't your legacy. They aren't an inheritance. The don't define you. However, the intangible assets do!

The team you have built, the systems that run, the very pulse and track-record of execution all leave a legacy of your leadership and investment in others. What makes for a valuable exit? You, embracing your vulnerability, ditching that ego and investing in the fundamental health of your organization. In other words a valuable exit is when your are forced to sell by an offer you just can't refuse (but secretly want to because you're having so much fun running your business).

 

A Valuable Exit starts with a Vulnerable Entrepreneur!

A System to Safeguard us from our imperfections...

 

EOS is designed to help owners get more from their business. Trust the system that has been implemented in almost 4,000 businesses to help you prepare for a valuable exit.

 

Applicable EOS tools:

The Vision/Traction Organizer (video) (PDF) - Clear Vision and Plan = Engagement

Scorecard (PDF) - The data never lies = Get an Absolute Pulse on your business

People Analyzer (video) (PDF) - In Black and White...are they the Right Person in the Right Seat?

 

Want help applying the practical tools above? Email me for a free phone consultation at brian.white@whitestoneagent.com or call me at 717.502.2084.

 

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Can we get Value from Vulnerability? I'm starting to believe so and this is my attempt to share. I'll no longer hide behind what others may think and instead step into the fray, bad punctuation and all.