Words Have Power

Words Have Power

NorthBridge Business Advisors

Words have power. We have all heard this saying in different contexts. This week I heard a discussion about the COVID -19 vaccine roll out and whether we need to have a “vaccine passport” to be allowed to enter certain places. Regardless, what you think on this topic, one commentator said that calling something a “passport” has an off-putting connotation. It implies that you will be monitored since your passport has a record of where you have traveled internationally. He suggested that an alternative description might be more palatable to some. Where that ends up, I do not know, but I started thinking about how words matter in another context.

I hear this theme frequently from business owners when they hear the term “exit planning”. “Exit planning”, they exclaim, “I am not exiting anything or going anywhere”. That is where the discussion starts.

Exit planning is not about exiting anything at all. It is about building a bridge to a new plan. Building that bridge involves ensuring that the owner is financially ready to sell a business, emotionally ready to make the transition and that the business is attractive to a third party, whether that be an internal transfer or a sale to a third party.

The goal of an exit planning professional is to create a transferable business so you can transition on your own terms. Sometimes we are fortunate enough to gain insight on how important that can be.

Several years ago, I saw a presentation by a business owner running a manufacturing company with about twenty employees. The business was financially successful, but quite reliant on his leadership. We all know someone like this owner. He was obviously a hard charging highly motivated person who loved being in the office or at a customer site no later than 7:30 AM. One night he had a car accident that totaled the car and left him scratch free - except for the realization of what would have happened had he not survived. He realized that the business was too reliant on him - which meant the stakeholders - customers, vendors, employees and family were at risk. He then focused on building a transferable business which was less reliant on him. He subsequently sold a majority of the business to a private equity firm and retained 20% of the business as well as a role in the business, if I recall he retained his role as president. The PE firm assisted in growing the business to the level where his 20% ownership is also quite valuable. In the process, he took some chips off the table while securing the business and protecting the stakeholders. That wasn’t an exit plan per se, it was a plan to build a great business that could exist without the owner. This car accident enabled him to see the business and his circumstance in a different light.

On the flip side, I have taken good businesses to market at the direction of the owner, only to find that the owner’s true desire was revealed after further business analysis. Although the owner’s initial demand was to sell the company, as we looked more and more at the company and growth potential, the owner realized the opportunity was greater in growing the company and NOT selling at the current time. That is a great solution in that it creates a more valuable business. It further revealed that the owner was not emotionally ready to exit the business, which is obviously a critical component in the process.

The moral of the story is that ‘exit planning’ may be a bit of a misnomer since it often comes down to good business planning.

Will we continue to call exit planning ‘exit planning’? Probably, but it is foremost the process of building a transferable business that meets the owner’s personal plan and personal financial objectives while supporting the stakeholders of the business, including the owner’s family.

Jack Cox is a Certified Public Accountant, MBA, Certified Exit Planning Advisor, Accredited Business Intermediary and licensed realtor. He works with business owners as a value growth advisor or business intermediary. He is located in Morristown NJ and can be reached at 973-210-3040 or Jcox@northbridgebusiness.com

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