Newsletter: July 2011
Insights Into Exit Planning for You and Your Business
How much time do you spend thinking about exit planning? If you’re like many of the small business owners we meet – not much. That’s okay as long as you don’t care about supporting yourself and your family when you retire or leave the business, and if you are not attached to what happens to the business, your employees and your customer’s after you leave.
But in truth, the business people we meet do care. They care a lot; they just haven’t yet done much about it.
Here’s why it’s important for you earlier than later: Exit planning prepares for the inevitable transition of your business - the expected (intended or desired reasons) and the unexpected and even undesirable circumstances that can arise. And this transition may be due to:
- A strategic or financial sale
- A succession sale to an employee(s) or transfer to a family member
- In the event of a disagreement deadlock with a partner(s) (Yes, unfortunately this commonly ends or seriously changes many businesses.)
Or it may be triggered by a biological event, what we have coined “the biology of exit planning”. A biological event can be:
- You’ve died
- You’ve become ill or disabled
- You’re too old to effectively run the business
Biological events are seldom discussed, yet are a looming reality in business life. And due to the sensitivity of the topic, many people simply avoid them in their exit planning, and then are left to deal with the muddle of unknowns amid the highly emotional and sometimes financial losses of an owner.
Regardless of whether the exit event is planned (i.e., the sale of the company, leadership succession of a employee or family member) or not (a biological event), at some point there will be a transition.
So we ask again, how much time have you spent thinking about an exit plan that considers not only the planned exit options, but also the unplanned exit possibilities?
To start thinking about it, we suggest you start with one question: Can your business continue if you could no longer run it tomorrow?
If the answer is yes – absolutely, then you are well prepared for a sale or for a biological event. If your answer is no because the business relies either solely or primarily on you for sales and key operational activities, you are not a very attractive acquisition target. And should a biological event occur, sustaining the business will be a serious issue.
Clearly, we recommend that regardless of where you are in your business life cycle (start-up, or nearing the end of your tenure with the business), you have an exit plan. You now know that you may need to work on your business to prepare it to achieve your personal objectives when you leave the business.
If you are still not completely convinced that you need an exit plan, then we ask you to do the following exercise to determine how well positioned you are for leaving the company -- willful or by elements outside of your control—the unexpected.
Set aside some time and answer the following questions:
- Where do you see yourself in 3 to 5 years?
- Retired
- Still working with the company
- Sold your company and either started a new company or working for another company
- When do you plan to retire?
- Be specific
- If you say, “I will never retire”, remember the reality of biological events and the planning for the current company (verses others you may wish to be involved in the future)
- What is the income you will need when you retire to maintain your current (or an acceptable) lifestyle?
- Working with your accountant or financial advisor:
- What are your current expenses?
- What will your expenses be upon retirement?
- What are your current assets? (savings, investments, whole life insurance, property, other)
- What other income streams are available to you upon retirement? (Social Security, spouse pension, pension you may have from a previous employer, other)
- How much is needed from your business to support your retirement? (We call this filling in the gap.)
- Working with your accountant or financial advisor:
- What do you expect from the company to support your retirement? (This could be from a sale, from an ongoing financial payment – possibly as part of a buy-out)
- How much money per year? – specifically
- How many years?
- What needs to happen with the company so as to support your retirement objective?
Question 5 is a key question if there is an expectation that the business will provide funds to you after you retire. Question 5 begins the thoughtful and planned process for exiting the business. It is the exit plan, and it is based on your expectations and what will be required for the business to support your post business goals.
To help you best position yourself (and family) for your exit and to position your business to get what you want from it (its worth or legacy or both), we strongly encourage that the owner(s)/partner(s) start with answering these key questions.
Healthcare Corner
The Economics of Wellness
In our last Newsletter we emphasized the importance of wellness – taking control of your health with the clear intention to not only feel better but also to forestall and prevent the onset of an acute or chronic illness.
It seems obvious that wellness should be at the center of our health initiatives. But it’s not. And one reason is that our healthcare system, the way we pay for it and who pays for it, focuses on the cost of care and the return on investment (ROI). It’s very difficult to measure the benefits, or the ROI of an illness that did not happen. On the other hand, it’s much easier to measure the return on methods of treating, say heart disease: an event that has already happened. It’s like the difference between making sure the fire department can respond quickly and efficiently when the building starts burning rather that putting in preventive and deterrent measures to insure the building does not burn in the first place.
But fortunately, some companies are taking aggressive steps not only to encourage and support wellness programs but also to calculate the benefits to the organization. One of these companies is Cerner, a health information technology company located in Kansas City, MO.
Cerner reports (based on an article published on TheNewsTribune.com):
The company has invested in an on-site health clinic, pharmacy, fitness center, in-house health screenings, health coaches, healthy cafeteria foods, weight loss and walking challenges. Cerner says it sees a return on investment in the fact that over the last four years, its average premium increase for health insurance has been about 3.5 percent, well below the national average. And it has raised its deductible only once in the last five years. “We’re moving the mark,” Roberts said about employee health. “We’ve been running the program since 2006. In the next couple of years we may be looking at savings.”
The Wellness Council of America (WELCOA) offers free reports, case studies and other valuable information to support the economic value of wellness. One of their reports is entitled: The Top Five Strategies to Enhance the ROI of Worksite Wellness Programs in Economically Challenged Times. You can read the report on http://www.welcoa.org/freeresources/index.php?category=12.
But in the end, for a wellness program to work and for it to have a positive impact on reducing healthcare costs (bending the curve), it requires you attention and action: your awareness, your interest and your motivation to act and behave differently. And if you are an employer, as many of our readers are, you can make a positive difference by not only being aggressive about offering wellness programs to your employees, but also demonstrating the value of living a wellness focused lifestyle.
To improve health and to focus the healthcare system on the importance of wellness requires a fundamental change in attitudes and beliefs. And it requires action – each of our action.
As we struggle with and argue about a health care policy and initiative that will work, we need to remember that trying to tinker incrementally with a complex system is not likely to achieve a positive result. And as so much of the cost of health care is a consequence of our lifestyle choices, the key to “bending the curve” and decreasing health care costs is to reduce the need for healthcare. And wellness initiatives will do that.
A Feather In Our Cap
Our Brand and Culture article is featured in the July SALES & SERVICE EXCELLENCE edition sent out to over 187,000 paid membership base including the Fortune 1000 and many of the world’s “movers, shakers, and decision makers.” This issue is also featured at the HR Management Institute Conference (July 24-26) in Colorado, and the Talent Management and Leadership Development Conference (July 21 & 22) in Toronto, where all attendees will receive it. If you would like an electronic copy of the article, please contact us by email or you can download it from our featured articles on our home page after August 1st, 2011.
