Exit/Transition Readiness
SCORECARD
A business can be among the greatest assets of a business owner. Owners depend on their businesses to support them today, and more importantly, they depend on the business to help support their families, their retirement, and their way of life in the future. What assurances do you have that this will happen as planned? Reports have shown that 8 out of 10 business owners do not know what they need to do today in order to prepare for a future successful business transition. Because of this, only 2 out of 10 business owners will get the amount they expect to receive when they transition their companies. Why is the percentage of successful transitions so low?
We attribute this to the lack of knowledge about the exit/transition process, which is ideally not a one-time event. Often business owners are prevented from profiting on all those years of hard work, and ultimately their retirement plans are significantly diminished. We cannot stress enough the importance of PLANNING and IMPLEMENTING the necessary steps well in advance, to help ensure that an owner’s value will be sufficient in meeting their personal financial objectives, Will you, as an owner, and your company be ready?
An effective way for business owners to view their current business situation is by reviewing their Exit/Transition Readiness Scorecard. This scorecard highlights your degree of readiness in a number of key areas that if addressed ahead of time, can enable a smooth and successful exit and transition from the business. This evaluative process drives an accurate perspective of a company’s readiness, and helps owners and their advisors identify the areas that require improvement, to help ensure they successfully reach their financial goals and other personal transition objectives.
The Exit/Transition Readiness Scorecard in the next section is a visual representation of a company’s readiness based on the information you have provided.
Areas that must be further addressed and could be significant value inhibitors or potential impediments to an owner’s exit and transition, are shown as RED.
Areas that are only partially addressed for an owner’s exit and transition, are shown as YELLOW.
Areas that are currently in “good shape” and adequately “in process” for an owner’s successful exit and transition, are shown as GREEN.
Your Business Exit Readiness Scorecard
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Financial Reliance on the Business
This measures how much of an owner's financial goals depend on monetizing the investment value they built in the business. Red indicates overreliance and green indicates proper financial diversification.
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Customers
This measures a company's focus on its' customer or client relationships. Having strategies that are updated and monitored regularly, will ensure customer or client relationships remain in place throughout the sale/transition process.
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Time to Implement
Generally the more time owners have to adequately prepare before exiting their business, the more successful they will be in achieveing their goals and financial objectives.
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Desired Control Post Transition
A desire by the business owner to maintain control post transition will reduce the number of exit options available.
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Clearly Defined Goals
Having clearly stated goals is one of the critical indicators to determine an owner's personal readiness to successfully exit or transition from the business.
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Company Size
Oftentimes, the relative size of the company determines risks associated with the future success of the business, and the likelihood of buyers' potential interest.
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Profitability
Buyers of businesses not only measure the level of profitability but also look carefully at the consistent level of profit and growth over time.
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Business Valuation
This measures whether or not business owners took the initial step to fully understand their business investment value.
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Strategy
Execution of the strategy based on a clear vision, indicates whether the business can remain sustainable throughout a transition.
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Management Team
The ability to develop and train a management team that can run the business independent of the owner, is a key indicator to the business readiness for a successful transition.
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Contingency Plan
This measures how well owners have prepared various contingency plans in case something happens unexpectedly to them prior to transitioning the business.
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Vision
Buyers seek businesses with a clearly stated future vision & direction, which helps ready the business for transition.
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Value Drivers
This measures key value drivers already existing in the business.
Business Owner's Overall Readiness Score 62%
This represents an overall score on a scale of 1 to 100. In order to ensure a successful exit or transition from the business, one should strive to achieve a score of at least 75%. Within a fully personalized comprehensive Report, an in-depth assessment of your situation in all of these areas includes potential action steps needed to improve your readiness score. Feel free to request this Report from your business exit transition specialist.
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Business Weaknesses
This measures critical weaknesses existing in the business that might negatively impact a transition.
Successful Exit Strategy
Business owners typically invest countless hours, lots of energy, and risk their business investment hoping that one day when they retire, their company might provide them sufficient value for a comfortable and enjoyable lifestyle. NOW is the time to educate oneself on the exit and transition process, and to begin implementing steps to create a company of investment value that will support their future dreams, and ensure a successful business transition.
You've taken the initial steps by completing this questionnaire in order to understand your readiness to exit your business. As business exit and transition specialists, we would be happy to answer any questions you may have and/or work with you to build from this initial analysis, in order to create a more comprehensive exit plan based on all of your personal exit objectives, and we can then assist you with the critical steps of implementing it successfully. As you begin to prepare your company for an eventual exit or monetizing event, regardless of the exit strategy, the goal should be to maximize the positive impact of "Value Drivers" on the business, so as to increase business value, and to help ensure the long-term sustainability of the business post exit. To assist owners with getting started, we offer a comprehensive EXIT/TRANSITION READINESS ASSESSMENT REPORT that will address in depth, various value drivers such as having:
- Management depth and adequate capabilities within a solid organizational structure
- Operating systems that are measured, monitored, and adjusted regularly to improve efficiencies
- Customer relations and business development strategies
- A vision and culture with strategic actions being implemented to maintain and enhance it
- Effective financial management and monitoring
- Processes that minimize or eliminate owner dependency issues
The alternative to successful Exit & Transition planning is to do nothing, or to limit your work to only one or two areas that are not part of a detailed comprehensive plan, where all action steps build upon each other. Some of the more frequently mentioned unintended consequences of not having such a plan are:
- Creating issues of continuity, which could affect employees, customers and suppliers
- Family and stakeholders who are unclear as to what an owner's goals actually are
- Not having the chance to enjoy life while allowing the business to work for the owner
- Risk of insufficient funds to support an owner and his/her family through retirement
- Risk of not realizing an owner's business and personal goals
- Risk of selling the business for less than it's worth and not knowing the business value
- Transitioning and exiting at the wrong time
Take control over your business exit plan ahead of time, and avoid being another unsuccessful statistic. Feel free to contact your exit and transition specialists by requesting a complete full version of the EXIT/TRANSITION READINESS REPORT by completing the entire ASSESSMENT if you haven't already done so. This more in-depth report will address each of the gauges individually, and will allow you to think through how they could impact your unique business transition planning and implementation. Additional space is included within each section of the Report for you to write notes, and/or to describe initial action steps owners and senior managers might want to begin working on.