In 1960, as he concluded a legendary career in baseball, Ted Williams stood in front of his locker at Fenway Park while mired in one of the few slumps of his career and told a pack of reporters, “Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.”
The Splendid Splinter, who had an eye-popping career average of .344, was right.
But what if he succeeded only three out of 100 times. I imagine he’d be searching Fenway Park for a great coach to get him back on track.
You see, only 3% of business owners are highly satisfied each year after selling their business.
That is alarming. Only three out of 100.
From a survey of business owners that completed the sale of their company, we know that only 12% of them were highly satisfied with the result of the transaction, and only around half were satisfied at all[1]. The time, energy and sacrifice it takes to build a private business and get it ready for sale is tremendous and for only 3% to be highly satisfied with the result is troubling.
Business owners need a great coach to help take apart your swing so together we can change the result.
It begins by having Defendable Equity Value in your business and that requires a high level of confidence in the following critical areas within your business:
Past and Future Revenues. You must be able to demonstrate deep knowledge of the last fives years of your financials. If there is a year where growth was significantly higher or lower, what was the cause? Are there one-time expenses or revenue that occurred that need to be explained? Similarly, with the future, you must show how the company will continue to grow revenues and why you are confident in your forecasts.
A Trading Multiple You Can Demand. You must understand how an outside buyer will view your company from a risk standpoint. Have you eliminated any causes for concerns so that you can demand a higher value within your industry ranges?
Your Ability to Successfully Realize Equity Value. There is no real value in your business if you are not able monetize that equity through a transaction that will provide for your financial goals. This requires effective pre-sale planning at both the company and your personal wealth.
Creating a company with Defendable Equity Value is mostly about risk mitigation, but for different reasons. It is all about shifting the view of the risk in the company today to what the company looks like in the future.
Have you developed a business that can back up a compelling story about delivering that predictable profits and cash flow into the future? This story would also need a great narrative from your strategic plan the success you have had in attracting scores of adoring customers, the use of your financial reports to make great decisions, the research on your industry to show the barriers to entry that will keep you on top, and a company without operational risk.
To build confidence that you have created a business with Defendable Equity Value and addressing the three critical areas described above, you must address the key Value Drivers of Growth and Equity Value.
Company Overview: Business Profile – Have you documented, and can you tell a compelling story of your company’s past and future?
Financial: Audit – Are you able to show the quality of your earnings to a potential buyer.
Legal – Do you have contractually committed revenue in the years ahead? Are your key employees locked in and incentivized to stay? Have you eliminated any legal issue that my scare a buyer away?
Growth – Can you document that you are driving growth faster than the competition and the market
Market Share – Are you able to show that you are the big dog in your market and niche?
Customer Diversification – Have you been able to diversify you customer base? Do you have strong customer retention to minimize the risk of future revenue to the business?
Barriers to Entry – Do you have a defensible market where competition is blocked using financial, legal, and other means?
Brand – Can you deliver proof that the brand helps drive sales and marketing success, high margin, recurring revenues, and has stand-alone value?
The other major factor that is in your control is the personal wealth planning that matches up with the planning in the business.
Many owners complete a transaction without ever fully formulating their personal goals for the transition. They did not know what they needed from the sale to be positioned to live the life of significance they wanted.
They may have been offered a price that seemed appropriate, but did not look at the tax implications of the sale and what the after tax proceeds would be. They have not updated their estate planning documents and asset protection plan to ensure that the windfall they receive will provide for their needs and the needs of their family or charitable organizations in the most effective way.
These strategies require time to research and develop and ideally are put together years in advance of a sale and then refined on a regular basis to reflect the changes in your goals for the business and your personal wealth.
Even if all of these factors have been addressed, realizing your Defendable Equity Value can be out of your control. The economic cycle plays a critical role and timing does matter. Is your company and your industry in particular in a growth cycle and is the economy as a whole providing for a frothy seller’s market? Getting your timing in sync with the market cycle is critical for maximum value. In order to be able to take more control of the timing back, all of the areas above must be addressed in advance.
But like a great coach told me once, its about controlling what you can control.
There are many steps that go into building a successful private business and ultimately realizing the value through an exit.
At Konvergent Wealth Partners, we are a team of coaches here to help. We have developed the process that streamlines these steps to allow you to get to this point quicker and more effectively.
Over the last 10 years, from working with my top business owner clients and partnering with some of the best partners in the growth planning industry, we have developed this process to analyze your entire business. From there we help map out a plan for the business to create the value needed to achieve your goals. And finally, we work with you on the pre-sale planning so that you can be one of the 3% that is highly satisfied with your transition to your amazing life of significance.
Whenever you are ready to step to the plate and focus on building value in your business, please email us at info@konvergentwealth.com or give us a call at 253-236-7000.
And one last thing on Ted Williams. Thanks to a great coaching staff, he emerged from that slump and in his final at bat, he hit a home run at Fenway Park.
We’re here to make sure you homer with your final swing as well.
Investment advice offered through Integrated Partners, doing business as konvergent wealth partners, a registered investment advisor.
[1] Source: AES Nation, LLC. N = 170 Business Owners
VFO Inner Circle Special Report
By Russ Alan Prince and John J. Bowen Jr.
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