I am now 66 years old. It seems like a strange statement to write here. Where did that time go? I have a grown son and my spouse and I are now empty nesters. It is just us now, but we do get to enjoy some delightful visits from my son when he can get away from his own business to join us. Does that sound familiar to you?

We will all be addressing a similar outcome as we age into our later years. This will also affect our busines lives. All business owners will exit their businesses, either by choice or as circumstances dictate (e.g., death, incapacity). Ideally, we want to exit on our terms:

• Leaving our businesses in the hands of successors that we have chosen
• For the money we need and want
• On a date we pick

In the public presentations that I get to do at trade shows and association meetings, I get to see an aging population where half of the attendees either have white hair or no hair (and I’m in that latter half)! We are an aging industry population, and I am guessing that you see the same thing in your own industry meetings. Is there a viable transition plan that we can implement moving forward?

In construction, we create building plans that map-out a vision that we construct for our clientele. We amend that plan as needed during construction because things do change during the construction process. We adapt to those changes and we keep moving. It’s part of the business model. Question – can we adapt a similar approach and do the same thing with our remodeling business?

There are 3 Universal Goals in any Successful Business Transition:

1. Financial: after you leave the business, how much money do you want annually for the rest of your life and your spouse’s life?
2. Departure Date: when do you want to leave your business? And what does “leave” mean?
3. Successor: whom do you want to be the new owner of your company?

Universal Goal 1: Getting what you want.

While we view financial security as a requirement for a successful exit, a second, related financial goal is the amount of annual income you want which will allow you to enjoy the post-exit lifestyle you envision. This second financial goal may be discretionary, but for many owners, it is important enough that they will postpone their exits until they can achieve it. As is true of all decisions in planning for the future of your ownership, the choice is yours.

In previous posts, I have already recommended that you work with a financial planner to determine what your financial goal is. I will continue to argue for the benefits of working with best-in-class advisors from several disciplines. But to quantify what it will take to live your dream, I repeat: rely on an experienced financial planner to establish your financial security wants and your financial security needs. As your planning moves forward, they can also help you bridge any gaps by providing investment advice.

Universal Goal 2: Leaving when you want

Establishing a specific departure date gives you and your advisors a time frame to plan and take the action necessary to prepare your business for your exit. This does not mean you must exit on the first day you choose. Just like amending a construction plan, you may decide to stay in the business longer than anticipated by choice. The choice is yours, but only if your business is ready for you to exit it.

Universal Goal 3: Transferring ownership to whomever you want

The third and last universal goal that I ask owners to establish at the outset of the exit and transition planning process relates to a successor. Whom do you want to succeed you: a child, a partner, or a third party? Which type of successor will best help you reach your goals?

At the outset of this planning process, you may not have a successor preference. You can postpone that decision until after you quantify your asset gap and begin to bridge it.

Modifying Your Goals:

When owners work with advisors to plan their exits, they think more deeply and clearly about what they ultimately want to accomplish for themselves, their families, and their businesses. It is not unusual for owners, as they gain clarity, to modify their goals. Making changes early in the process is more time and cost-efficient than changing course once a plan is finalized and implementation is underway.

Values-Based Goals:

The three universal exit goals are common to all owners. These may be the only goals you seek in exiting your business, but many owners have additional goals based on sentiment, attitudes, or feelings.

Values-based goals tend to be non-monetary. They also tend to be less tangible and more heartfelt. But they are no less important to owners than the goals we can measure objectively.

The following list of common values-based goals is by no means exclusive or all encompassing. You may wish to add your own:

• Family Harmony
• Owner Legacy
• Acknowledging Employees
• Taking the Business to the Next Level
• Minimizing Taxes
• Maintaining Culture
• Community Involvement
• Quality Retirement
• Charitable Impulses

To uncover your values-based goals, ask yourself the following:

• What is my vision for my company without me?
• What is my vision for myself without my company?
• Are my values-based goals important to either vision?

A great question you may wish to ponder is, “what are the likely consequences to others of transferring my ownership as I intend?” Discussing this topic with your spouse, children, advisors, or perhaps an owner who has already exited can provide insights into what will happen to your business, and to you after you leave. As your business has been your focus for so many years, where will you turn that focus after departing your business? What lies ahead?

Conclusion:

Setting goals is the most important step you can take in the entire exit planning process. I believe it is the most important action you will take in the rest of your business-owning career.

Once you set your goals and quantify your existing resources, you complete the first phase of the exit planning process. At that point, you will know how close you are to attaining your goals, how far you must go, and how long it might be before you cross the finish line.

Takeaways:

• You must set concrete goals. Unless you do, you will float aimlessly along instead of pulling with all your strength and cunning toward your desired destination
• Goals drive action. Coordinated, focused action requires specific goals
• Financial independence is the acid test of all successful exit plans. Unless your plan delivers financial security, it’s not a successful exit
• Base your three universal goals on facts, not assumptions
• Business exits take time. To determine how long it will take you to exit, you must start with a clear understanding of where you want to end up. The sooner you start to plan your exit, the more time and options you have to harmonize goals, avoid obstacles, minimize risk, maintain control, and increase business value

You do not need to reinvent the wheel. You may not know how to create a successful exit plan based on what you want to accomplish, but I do. If you would like to do a free exit assessment to get a better picture of your present position, contact me at david@remodelforce.com. A simple 30-minute assessment will tell you a lot!

The post Creating the Plan to Eventually Depart Your Business appeared first on Remodel Force™.

If we follow the advice from the book The 7 Habits of Highly Effective People by Stephen Covey, we want to implement Habit 2: Begin with the End in Mind! We can follow that recommendation due to another meaningful quote from Steven Covey “your most important work is always ahead of you, never behind you!”

Even if you are 40 years old and plan to work another 15 to 20 years, build your business with the end in mind! Plan for healthy and profitable growth, but also plan for the unplanned. Address the future of your business in good times but also address what will happen in case you are critically injured or die tomorrow. This is referred to as business continuity planning. Plan to do both. Let us begin to address the potential business exit timeline with the possible time frames that come with each milestone below:

Your Exit Timeline

If forced by circumstances beyond your control, you could likely exit your business within a year. Some business owners are here today and – literally – gone tomorrow, but usually not by their own choice. But leaving in style – with adequate cash and having achieved whatever other goals you have set— that takes time, far more than most owners expect.

So, you can leave whenever you choose if you are willing to settle for a less-than-ideal payday, or you can leave in style. The questions is: “do you want to control your own exit, or will it just be something that ‘happens’ to you?”  Most owners prefer to control their own destiny but may not have an idea when to get started. Let us look at some tasks common to all exits, and how long they take to complete.

Design and Create Your Exit Plan:

Timeframe: 90 days to one year

While it is possible to create an exit plan in as few as 90 days, most plans require almost a year to create. Most owners need time to ponder and weigh alternative paths, and to think through the many issues that arise when they move through a comprehensive exit planning process for the first time.

Close the Gap:

Timeframe: depends on amount of growth in value needed, but often five to ten years

There is likely a gap between the value you want to receive for your ownership interest and the value you are likely to receive if you transfer the business today. Many owners are in denial when it comes to objectively quantifying the size of the value gap, and exactly how they are going to close it within their planned departure timeframe. The surest way to create sustainable growth is to create a written growth plan for your business with deadlines and accountability as part of your overall exit plan. There are a variety of ways to integrate growth plan development and implementation into your daily/monthly/yearly business management activities.

Tax Planning and Implementation:

Timeframe:  three to ten years

Part of reaping full value for your company involves minimizing taxes. Keep in mind that one of the headwinds you may face is increased tax on income and capital gains. Fortunately, planning can not only manage taxation upon the transfer of ownership interest, it may help save taxes on an ongoing, annual basis.

The Ownership Transfer Transaction:

Timeframe: one to ten years 

It is possible to transfer your entire ownership by simply transferring all your ownership in exchange for a promissory note right now in one grand transaction, with a big celebration that follows. This is a form of financial suicide. What will you do if the note payments stop coming and you have been absent from the business for a couple of years already? A methodical, possibly incremental approach to preparing the business, preparing yourself and preparing the next owner (especially if he/she is a child or employee) for a successful future tends to create a better outcome for all involved. Take the preparation and execution of the ownership transfer in whatever size bites you can manage, whether that is attaching one area per month or per year – you know your business well enough to know how quickly the recommended action items in your exit plan can be completed.

Conclusion:

Think about your exit as a process, not an event. Everything you have done in your life that was significant took time and multiple steps or stages. Your exit plan is no different. Your exit planning timeline is your bridge to the future that you envision for yourself, your business, and your family. Take control of your future and begin creating your timeline today.

For a free PDF on The Five Critical Elements of a Successful Exit Plan, contact me at david@remodelforce.com.  I will forward that PDF report to you.

The post Creating the Perfect Business Exit Timeline! appeared first on Remodel Force™.

Now, successful owners are usually optimistic people, somewhat averse to dwelling on the more unpleasant aspects of business. Contemplating one’s demise certainly qualifies as an unpleasant aspect.

Sorry for the somber tone here, but you as a business owner must address the future of your business in case you are critically injured or die tomorrow. This is referred to as business continuity planning. Business continuity planning is the roadmap to address a variety of transfer events and consequences that can impact the business for the remaining (or new) owner when the original owner leaves.

Problem I: Loss of Continuity of Business Ownership

Sole-Owner Company:

Continuity of business ownership is the critical issue in solely owned companies. In fact, there is no continuity unless sole owners take steps now to create a future ownership group or groom a successor.

Multi-Owner Company:

Continuity of ownership is not an issue when a buy-sell (or business-continuity) agreement, funded by life insurance or disability buyout insurance, has been implemented. The problem is that most owners and their advisors fail to keep their buy-sell agreements up to date and, as a result, those agreements often can create more problems than they resolve.

Solutions to Problem I

Sole-Owner Company:

You can implement a plan to allow the business to continue after you are gone. If there is no co-owner, you must provide for the business’ continuity by securing the continued services of your most important employees. Do everything you can to prevent your employees from leaving, because they are indispensable to the business’s continued existence. Secure their continuation by compensating them at a substantially increased level (usually 50–100% more than they ordinarily receive). This is accomplished using a documented Stay Bonus.

A Stay Bonus is a written, funded plan that provides monthly or quarterly bonuses, usually over a 12- to 18-month time frame, for employees who remain with the company during its transition from your ownership to new ownership. (This applies whether the business is transferred to a third party, employees, or family members.) The Stay Bonus provides a cash incentive for your important employees (perhaps 20–50% of the total workforce) to stay.

Typically, the Stay Bonus is funded with life insurance in an amount sufficient to pay the bonuses over the specified time-period. The plan is communicated to the important employees when it is created so that they know a plan exists and, consequently, that thought and planning (and money to pay salaries) will ensure the continuation of the business. At the very minimum, you must communicate, in writing, your wishes as to what should be done with the business upon your death or permanent incapacity:

• Designate key employees or others who can be given responsibility to continue and supervise business operations, make financial decisions, and oversee internal administration.
• Name these individuals today through a business-continuity form (I have examples of this form so if you would like a copy, please contact me).
• Name advisors and others, who should be consulted in the ownership transfer process. (Again, the idea is to put these names on a business-continuity form).
• If it is your wish that the business be sold, state that intention. List the names and contacts of businesses that have expressed an interest in acquiring your company or who you think would make an appropriate successor/owner. Do so, in writing, on a business-continuity form. You may wish to indicate your desire that the business be sold to key employees, continued in the family, or liquidated. The choice is yours, but you must make it while you are alive. There is no better time than the present to do so.
• Finally, give the completed business continuity form to the person you trust the most (e.g., spouse, child) and copies to your advisors.

Multi-Owner Company:

From a continuity standpoint, the nicest thing about having multiple owners is that the business will continue if one of the owners dies, provided measures are taken—usually in the form of an up-to-date, adequately funded buy-sell agreement—to allow the remaining owners to acquire the deceased’s interest in the business. However, chances are that your buy-sell agreement has not recently been reviewed, does not reflect current business value, and does not completely address the following possible transfer events:

• Death
• Disability
• Retirement
• Transfer to a third party
• Termination of employment
• Business dispute among owners
• Involuntary transfer due to bankruptcy or divorce

As may be apparent, the biggest risk to the continuation of co-owned businesses is not the death or disability of one of the owners. The biggest risk is that the abovementioned events are considered once and then memorialized in an agreement. All further thought and action on the subject are then shelved, along with the agreement. Do not allow that agreement to be shelved! Make sure that your buy-sell agreement is current and up to date.

Problem II: Loss of Key Talent (i.e., You)

Sole-Owner Company:

Your death likely has the same impact on your business as does the loss of any key person. Your talents; experience; and relationships with customers, employees, and vendors may be quite difficult to replace. Without planning, few businesses have the financial resources or successive management to weather this storm.

Multi-Owner Company:

Multi-owner companies seemingly avoid many of the problems endemic to single-owner companies. However, as it relates to the loss of key talent, this is only true if surviving owners can readily compensate for your loss. To the company, your death is the same as the loss of a key employee. If the remaining owners do not have your experience or specific talents, the business suffers as sorely as if it had been solely owned. Unless there is a key employee (co-owner or not) to fill the void, the business is wounded—perhaps mortally—upon the death of a co-owner who fulfilled the following roles:

• Marketing guru on whom the other owners were dependent to provide new clients
• Hub of most of the industry, customer, or other key relationships
• Overseer of the company’s operations

Solutions to Problem II

Sole-Owner and Multi-Owner Companies:

In a solely owned business, the key employee is almost always the owner. Usually, it is the owner’s entrepreneurial drive, experience, and dedication that stimulate the business. Losing its key employee, you, is a blow from which many businesses do not recover. If your business is a mirror image of you, it is unlikely that any amount of key employee life insurance or other source of cash will suffice. You must create value (within the company and distinct from you) in the form of successive management capable of filling the void left by your unexpected departure.

In a co-owned business, the loss of an owner is not as drastic, provided your co-owner can carry on without you. If your co-owner cannot replace you, you must train employees to perform the same or parts of the same role as you. You must take the same step if you desire to sell the business for top dollar during your lifetime. In either scenario, the underlying need is the same: capable employees must be able to assume the responsibility of running the business. In a lifetime transfer, if the owner is ready to leave the business but the business cannot thrive or at least survive without him or her, the owner is forced to continue operating the business until successive management is located and trained.

However, when an owner dies, the absence of successive management is more devastating because the owner is not available to do anything. The best hope is to provide the company with adequate cash, in the form of life insurance proceeds, so that the business can survive until replacement management is located and trained. That cash is also used to produce a cash-based incentive plan designed to motivate and retain the new management.

In a co-owned business, the loss of an owner can severely strain the business, but the remaining owner can, especially with sufficient life insurance proceeds find and train replacement management and provide that replacement management with a significant cash-incentive plan.

As you well know, finding and training your replacement can take years. Thus, you must prepare your company for an ownership transition starting today. Remember, at some point, you will not be in your business. I hope your absence will be due to a sale to an outsider or perhaps to the key employees you have brought into the company. However, your exit may be due to death or disability. No matter the cause, your business will survive and thrive only if you have found, trained, and motivated your replacement before you leave the business.

Realistically, the continuity of a business is reliant on a transition of ownership from you to equally capable individuals of an operationally and financially sound company. In the situations we have discussed, primarily the death of an owner, life insurance can instantly provide significant financial strength. However, the business also requires talented and motivated key-successor management, and for that, there are no quick fixes. The benefit of starting to search for that key-successor management today is that you will be building value within the company that will be converted to cash when you leave it.

Problem III: Loss of Employees and Customers

The death of an unprepared owner ignites a cascading series of events for the business. Chief among these are the departures of employees and customers. The loss of employees is followed immediately by defaults under contracts. Because of the inability to perform promised work, customers inevitably leave.

Usually, employees leave because they fear that the business will not survive, thus jeopardizing their salaries and future employment. Additionally, when the owner’s leadership role is hastily transferred to anyone other than a recognized successor, employees and customers grow uneasy. With uneasiness comes migration to new employment and other vendors. These financial and personal concerns must be quickly quelled by implementing a preconceived, funded continuity plan.

Sole-Owner Company:

A common and natural consequence of an owner’s death is the speedy departure of employees and customers unless an existing continuation plan is immediately implemented. Employees must know that a plan that guarantees their compensation and clearly names your successor exists. With these assurances, most employees and customers will stay with the company. Without such a plan, the key and non-key employees will wonder where their next paychecks will come from. Typically, they leave for greener and more secure pastures.

When the workforce leaves, contracts cannot be completed, and work is unperformed. Resulting losses can require payment by the deceased-owner’s estate.

Multi-Owner Company:

Companies with multiple owners must cope with the normal lifetime retirement of their owners. In most cases, retirement imposes a significant cash drain on a company. In a death scenario, the surviving owners must be capable of keeping both the employees and the customers. Simply having a successive owner is not sufficient. These successors must be able to maintain cash flow and the confidence of the business’ employees and customers. Confidence is best gained by having a written, well-capitalized continuity plan.

Solutions to Problem III

Sole-Owner Company In a solely owned business, financial and personal concerns about succession are handled through the following:

• A written Stay Bonus Plan (described earlier), funded by life insurance and communicated to employees when it is prepared
• A succession-of-management plan, which you prepare now, that names the person to take charge
• Your decisions—made today or as soon as possible—regarding the sale, continuation, or liquidation of the business in the event of your demise.

Multi-Owner Company

In a multi-owner company, loss of employees and customers does not usually present a problem because of the presence of other owners.

Conclusion:

Business-continuity issues can be divided into two camps: those that occur while the owner is alive and those that arise upon the owner’s death or disability. This article reviews the latter. In the case of transfers during an owner’s lifetime, you have the luxury of time to find and train your replacement. This is not so in the case of death. Your company must have ongoing management and adequate cash (almost always subsidized by insurance on your life) to survive the following:

• Loss of key talent (i.e., you)
• Loss of employees and customers
• Company’s loss of financial resources
• Loss of continuity of business ownership

In the short run, money is required to do the following:

• Trigger a buyout
• Provide capitalization
• Provide cash incentives to entice your employees to stay
• Replace the loss of business value that you brought to the company. The management team must be capable and motivated to grow the company and incentivized to stay long after your demise

In the end, a successful business is one that you can either sell for top dollar and exit in style or one that can survive your exit in style. A failure to plan for business continuity can irreparably damage your business’ sale value and prevent you from exiting in style.

if you have any questions or would like to receive a sample business-continuity form, please contact me at david@remodelforce.com.

The post Business Continuity Planning – Your Business Can Survive Even if You Do Not appeared first on Remodel Force™.

• Either they would like to be someplace else—doing something else—
• Or they simply no longer get the same kick out of doing what they are doing

The second stream is the general awareness of the following:

• They are close to financial independence
• They are making significant strides toward reaching financial independence
• They can achieve financial independence today by selling their businesses

While each exit plan is as unique as the owner who creates it, a carefully crafted exit plan has several signature characteristics:

• They aim to increase business value
• They are put into writing so that all involved can measure their progress toward the owner’s goals
• They incorporate accountability by holding the owner and each participant to deadlines for completing each task

The Exit Path Road Map:

Set Exit Objectives/Goals:

Many contractors do not set exit objectives precisely because it is too emotionally wrenching to contemplate separating themselves from a business they have created, nurtured, lived with, suffered with, brought to maturity, and in which they have totally immersed themselves. Your exit plan should be based on your goals. It is difficult, if not impossible, for any planning professional to engage you in the exit planning process until you are emotionally prepared to begin planning to leave your business.

There are three straightforward exit objectives that once established, allow owners to cut through a lot of muddled thinking that otherwise bars them from moving forward.

These 3  exit objectives are as follows:

• Knowing how much longer they want to work in the business before retiring or moving on
• Determining the annual after-tax income they want during retirement (in today’s dollars)
• To whom they want to transfer the business:
  • Family?
  • Co-owner(s)?
  • Key employees?
  • Outside third party?
  • Employee stock ownership plan (ESOP)?

No owner can effectively begin planning (or acting in an efficient and coordinated manner) to leave his or her business without establishing each of these objectives. Many owners will also set other objectives, such as the following:

• Maintaining family harmony
• Providing for one or more employees
• Transferring wealth to family members
• Getting maximum value for the business
• Living a life of significance
• Giving to charity

Remember, your goals and objectives direct all subsequent planning efforts and actions. You are the person primarily responsible for this step, but you do not need to work alone. Who can help? Owners do not need to reinvent the exit planning wheel themselves. I have experience in creating and implementing exit plans for owners in the construction industry.

Quantify Available Resources:

A universal ownership objective is to secure the income stream that you (the owner) and your family will need to support a future lifestyle. The following three elements constitute your financial resources:

• Business value
• Projected business cash-flow
• Non-business sources of income

A Word About Business Value:

Knowing the value of the business is critical to the planning necessary to successfully exit your business because for most owners, their businesses are their most valuable asset. Accomplishing financial goals depends on converting that asset to cash. Based on owners’ knowledge of the current value of their businesses, owners, with the help of key advisors, can determine the following:

• Whether an owner’s financial objectives can be met at present through a conversion of business value to cash
• How much the business’ value must grow in-order to reach the owner’s retirement objectives (this is more common than the preceding point)
• Whether, and how quickly progress can be made to those financial goals

Focus on Business Value:

There are three parts to focusing on business value:

• Protecting existing value
• Increasing the future value of the business
• Minimize current tax liability and general liability when you transfer ownership

Increase Business Value:

An inevitable byproduct of a consistently well-run business is consistently increasing value. There are numerous actions an owner can take to maximize value. These include the following:

• Maintaining and consistently increasing cash flow
• Documenting the sustainability of earnings
• Motivating and keeping key employees
• Creating and using efficient systems

Increasing business value goes to the heart of a successful business and to the essence of your role within the business: to enhance value.

Minimize Risk:

A future buyer may not even consider purchasing your company if there is a risk that its value will decrease. Have you taken steps to make sure your key employees stay with a new owner after you exit?

Develop a Contingency Plan for the Business:

One of the benefits of developing an overall exit strategy is that you quickly appreciate how contingency planning is an integral part of it. Taking effective measures so that your business survives if you do not is a natural part of the exit planning process. In an ideal situation, business-continuity needs upon the death or incapacitation of an owner can be met by a business-continuity agreement with a co-owner. However, most businesses are solely owned. If sole owners do nothing else, they have a duty to their families and businesses to create written plans that answer the following questions:

• In my absence, who can be given the responsibility to continue and supervise daily business operations?
• Financial decisions?
• Internal administration?
• How will these people be compensated for their time and, most importantly, their commitment to continue working until the company is transferred or liquidated?
• What should happen to the business upon my death or permanent incapacitation?

When owners make the decision to begin transferring their businesses, the last thing they are likely to consider is the need for adequate planning to protect the business if they should suddenly die or become incapacitated. Yet, this is precisely the point at which the business is most vulnerable: It has peaked in value, but the event creating liquidity (i.e., the sale of the business) is likely years away. The remedy is usually straightforward: adequate legal documentation in the form of a buy-sell agreement or a stay-bonus program that includes adequate funding for important employees.

Develop a Contingency Plan for the Owner’s Family:

With this last step, your exit planning process comes full circle. Review your financial objectives established in the first step:

• If you do not survive until your business exit, which financial resources will your family need and where will they come from?
• Which actions can you take to minimize or avoid estate taxes?

As a business owner your estate plan is another part of your overall exit plan. Unlike some of your lifetime objectives (e.g., financial security), estate planning objectives and business-continuity objectives are relatively easy to meet upon your death or incapacitation. To acquire the liquidity sufficient to meet your financial objectives, consider the purchase of life insurance and disability insurance. You may be surprised by how easy it is to meet after death objectives using insurance.

Once owners complete the first two steps of the process (setting objectives and quantifying available resources), they can jump to this final step (preparation of appropriate estate planning documents and funding financial needs using insurance) so they can minimize the financial impact their death would have on their families and their companies’ ability to survive.

Conclusion:

All the techniques that produce operational business success (learning from mistakes; developing business strategies based on experience; and conducting business efficiently and effectively) do not guarantee a successful business exit.

Sadly, the valuable experience owners develop over the course of their business lives does not equip them to leave their businesses successfully. Experience, learning, and trial and error all require time, a luxury most business owners do not enjoy as they approach the end of their ownership lives.

All this planning sounds complex and time consuming, but it does not have to be. I can help you create a comprehensive exit plan that gets you the money you need, achieves all of your other objectives in a time and cost-efficient manner, and meets the following criteria:

• Based on your objectives
• Includes each of the steps summarized here
• Holds you (the owner) and all advisors accountable
• Provides a means of measuring your progress toward a successful exit
• Imposes deadlines to ensure that you and your advisors act in a timely manner

Armed with a written exit plan, a team of experienced advisors, and with (ideally) several years before you exit, you can optimize your ability to leave your business in style. If you would like to do a free exit planning assessment to better plan your eventual exit, let me know.  You can contact me at david@remodelforce.com.

The post Leaving Your Business is Inevitable! appeared first on Remodel Force™.

Let us compare the 2 experiences:

• In elective surgery:
  • There is a big emotional investment
  • Prior to surgery, the outcome is uncertain
  • Patients desperately hope that they pick the right surgeon
  • If a child or family member, expertise, not cost is what is most highly valued

• In custom remodeling:

• • There is a big emotional investment (project imaging – wish list)
  • Prior to remodeling, the outcome is uncertain (potential clients have all heard stories of projects that did not go well)
  • Homeowner desperately hope that they pick the right contractor for their project
  • A contractor’s expertise and experience, over price are what homeowners are paying for to meet their remodeling dreams

Let us review the physical as well as emotional homeowner experience.   In this new Covid-19 working environment, what can we do to manage the homeowner experience to meet and exceed expectations:

Digital differentiation – there is a digital transformation taking place in construction

Contractors will set themselves apart by how they adopt and use technology:

• Website: dynamic, engaging, interactive
• Cloud Based Construction Project Management Systems:
  • Co-Constuct
  • BuilderTrend
  • ProCore
  • UDA Construction Online

Video Conferencing, Messaging, Screen Share and Chat:

• Zoom/GoToMeeting
• Loom/Glide (video e-mail and text software)

Remote Viewing and Design Tools:

• 3D Model virtual walk-throughs
• 360 Cameras
• Matterport

Onsite worksite considerations (following CDC recommendations):

• High-efficiency particulate air (HEPA) filters
• Dust walls to seal the work areas
• Hand wash stations
• Hygienic wipes
• Face masks

Following the worksite recommendations above protect by homeowner and employees.   This is what good contractors do.   Homeowners will pay more for this kind of expertise!

Now, let us address the emotional side of the homeowner experience:</

Homeowners, before any major remodeling project, are scared.   They are filled with fears-usually unwarranted, frequently emotional, and sometimes irrational.   There are many reasons that they feel the way they do, but 5 major reasons are reviewed below:

1. Crooks: Homeowners are afraid they will hire an unreputable company:

Almost every homeowner begins the remodeling process with some baggage.   If you watch television, read the newspaper, or listen to the radio, you will inevitably read or hear stories about unscrupulous building contractors.   In these stories, some unsuspecting homeowner was taken advantage of that cost them thousands of dollars.   Many homeowners do not trust building contractors.   They are afraid that they will hire someone that could “rip them off”.

2. Money: Homeowners do not understand the real cost of remodeling.   They are afraid of the “hidden” costs:

Most homeowners do not understand how difficult it is, and how expensive it is to remodel an older home.   Most homeowners underestimate the true cost of remodeling.   It is a difficult and expensive process to integrate the “new” with the old.   This process is made even more difficult because of the uncertainties that arise during the remodeling process.   Dry rot, termite damage, bad electrical wiring, and insufficient load bearing capacity are problems that are frequently exposed once a project has begun.   Whether planned for or not, these problems must all be fixed.

3. Disappointment: After extended design time, and a lot of money, homeowners can fear that “It’s not what I wanted!”:

In working with hundreds of homeowners over the years, I’ve made a very important discovery – homeowners can work with a set of plans for months, but with 90% of the homeowners I worked with, they did not fully understand what their project would look like until the walls started going up.   The two-dimensional reality presented on building plans is not-enough for most homeowners to truly visualize what their project will look like when it is done.   Most homeowners fear, that after spending all that time and money in the planning process that they may not get what they wanted.

4. Disruption: Homeowners are afraid of the disruption that remodeling brings:

Remodeling is a tremendously disruptive process.   A homeowner can be without a kitchen for weeks, or longer.   They can be without a bathroom for weeks, or longer.   A major remodeling project can disrupt just about every routine a family may follow.   It is also a very invasive process.   A psychiatrist I know, who himself went through a major renovation on his own home, said it was one of the most difficult times in his marriage.

5. Control: Homeowners fear losing control of both their home and finances during the remodeling process.

Due to all the factors I have reviewed above, many homeowners express the fear that once their home remodeling project begins, that all of the unknowns involved leave them with a feeling of “being out of control.”  This is a very fearful time for many people.   Their home is usually one of their biggest investments, and they are spending a lot of money.   They want guarantees.   Home remodeling involves unknowns.   Remodeling contractors cannot always provide the kinds of guarantees that homeowners want.   They must trust their contractor.

There are some things a good remodeling contractor can do to help a homeowner through this process:

1. It is a process, not a product: A good remodeler understands they are not just selling a product-they are also selling an experience.   The best ones understand they must manage the process, as well as manage the project.   Homeowners need to be guided through their remodeling experience every step of the way.   They need to trust that their contractor will always be there for them, no matter what.
2. The 4 elements of trust:  Homeowners desperately want to trust their remodeling contractor.   If a contractor understands the 4 elements of trust, and practices them honestly, most major problems will be avoided.   The 4 elements of trust are:

• Consistency: Remodeling contractors need to set, and follow, consistent routines.
• Honesty: Tell homeowners what is going to happen each week and acknowledge mistakes.
• Promise Keeping: Contractors must keep their word.   They must fulfill on the promises they make.
• Reassurance: Good remodeling contractors reassure homeowners on a regular basis.   Homeowners want to know their contractor will be there for them every step of the way.

3. Homeowners are emotional: Experienced contractors realize a major remodeling project is an emotional time for homeowners.   Good remodelers expect this.   They gear their efforts towards reducing homeowner fears and dealing with the inevitable upsets.   Emotional homeowners are not the exception-they are the rule.   It comes with the territory.

David Lupberger is the author of the book Managing the Emotional Homeowner.   For a free digital copy of his book, contact him at David@RemodelForce.com.   He will forward a copy of the book along with the Homeowner Emotional Roller Coaster.

The post Dealing with Homeowner Fears – Creating an Exceptional Homeowner Experience appeared first on Remodel Force™.

For every business owner, determining how to increase transferable value is the business owner’s job. However, once owners and their advisors determine which of the appropriate value drivers must be strengthened, everyone in the company should be involved. By definition, business owners cannot do it alone. If they could, they would not be creating transferable value, because once they departed, the value drivers would disappear.

If you wonder whether installing systems in these (and all) areas of your company is worth your time or effort, let us look at systems from the perspective of a potential buyer. If a buyer compares your company to another, which company will he or she pay more for?

Your Company which is run by an owner who:

• Has creatively and effectively built the business with intuition and intelligence; and
• Will be gone once the buyer takes the reins.

Or:

Another company which relies on systems that:

• Are written and communicated clearly
• Are adhered to by all employees
• Produce consistent results
• Will be in place long after the owner leaves

As you can see, systemizing internal operations are a critical Value Driver. In the context of transferable value, operating systems are the established and documented standard business procedures that demonstrate to potential buyers that a business can maintain its profitability after an owner leaves it in the buyer’s hands.

The Value of Documented Operating Systems

The theme of Michael Gerber’s best-selling business book for entrepreneurs, The E-Myth Revisited, is, “Let systems run the business and people run the systems. People come and go but the systems remain constant.” This advice is as true for smaller businesses as it is for larger enterprises.

Having great processes means customers, vendors, and employees enjoy the same experience each time they interact with a company. It also means that the data surrounding each interaction can be measured, interpreted, and mined. Using that information, next-level management teams continually modify and improve those experiences.

If your objective is to sell your company at some point, you would be well-served by building reliable systems that can sustain the growth of your business. Before we get started on discussing this important value driver, here are a few quick definitions:

• Systems refer to a group of related processes
• Processes have purposes and functions of their own and are components of a system. Taken independently, a process alone cannot do the work of a system
• Procedures are the approved way we do things and often include a sequence of steps
• Steps are the actions we take to get something done

That was a mouthful! A solid management team is one of the first important value drivers to focus on when you are preparing for a potential business exit. In addition to building a strong management team, it is important to build reliable operating systems that can sustain the growth of the business. The second value driver then is the development and documentation of business systems that either generate recurring revenue from an established and growing customer base or create financial efficiencies.

Look at your business from a buyer’s perspective. Would you buy your business? If you leave shortly after a sale, what remains? If the answer is top management and highly efficient business systems, you can be more confident that you will have a strong legacy and be able to get full value for your business.

The documentation of company systems and their related processes and procedures is important to ensuring that quality and consistency can be maintained after the sale. They also signal to a potential buyer that elements critical to the successful transition of a business are in place. Some examples of items worthy of documentation are:

• Financial control systems and accounting policies.
• Policies to ensure compliance with legal and regulatory matters, especially those related to employer/employee relationships and safety.
• Data management and information systems that tie the company together.

Again, put yourself in the shoes of a would-be buyer. Buyers want assurance that the business can continue to move forward under new ownership and that operations will not break down when the former management leaves. This assurance can be obtained when there are documented systems in place that enable the potential buyer to repeat the actions of the former owner to generate income and grow the business.

There are several business systems, which, once in place, enhance business value whether you plan to sell your business now or decide to keep it. These systems include:

• Effective marketing practices with metrics that can be measured
• Effective customer qualifying processes – only working with qualified clients
• A documented sales process that guides potential clients through their sales experience
• A documented sale to production handoff
• Daily production management systems so that clients enjoy the same experience every time
• A documented close-out and warranty process
• Processes on converting every past client into a client for life

There is a lot of content here. If you would like assistance with generating documented company operating systems, please contact me. I have a business manual with 21 construction-specific job descriptions that will facilitate this process for you: David@RemodelForce.com.

The post Building Company Value – Documented Operating Systems appeared first on Remodel Force™.

Owners can remove themselves from daily operations with some foresight and planning with their eventual exit in mind. This does not happen by chance – it happens when a strategic plan is implemented in a thoughtful and deliberate fashion.

What does this look like?  I have included a short outline of this process below:

• The Exit Planning Roadmap:
  • Set goals/timeline
  • Quantify resources
  • Grow transferable value/minimize risk/taxes
  • Reviewing a potential sale to:
    • Children
    • To a 3^rd party
    • To co-owners/key employees
  • Business continuity/estate planning
• Three universal goals:
  • How much money do you want when you leave your business?
  • To whom do you want to transfer the business?
  • When do you want to exit?

You must begin planning and executing a strategy to accomplish your exit goals well before you are ready to leave. Otherwise, it is highly unlikely that the business will be ready for transfer when you are ready to transfer it.

Here are the outcomes that every business owner strives for exiting their business:

• Having the financial security
• Ensuring that their chosen successor(s) are in place when they leave
• Beginning their purposeful new life

Design and Create Your Exit Plan:

Most Plans require almost a year to create. Most owners need time to ponder and weigh alternative paths and to think through the many issues that arise when they move through this exit planning process.

Close the Value Gap

There is likely a gap between the value (money) you need to receive for your ownership interest and the value you are likely to receive if you transfer the business today. The time it takes to close that value gap depends on the following:

• By how much does the business need to grow?
• What is a realistic growth rate for your business in today’s economy?
• What is the estimated growth rate of your non-business investment assets?

The time required to close the value gap is the wildcard in estimating when you will be able to leave your business. The surest way to create sustainable growth is to create a written growth plan that includes deadlines and accountability as part of your overall Exit Plan.

I find that most owners are in denial when it comes to objectively quantifying the size of their value gaps and determining exactly how they are going to close them within their planned departure time frames. The reason behind the denial of what is generally a large gap is that most owners have no plan to close it other than “work harder.” Owners frequently do not know how to build value consistently at the pace necessary to achieve financial independence.

Tax planning and implementation

Part of reaping full value for your company involves minimizing taxes. Fortunately, planning can legally minimize (or even eliminate) taxation upon the transfer of ownership interest and save on taxes annually. Of course, the IRS does not make this easy. Regardless, if you leave tax planning until you are ready to exit, the IRS wins.

Transferring Your Business to Children or Employees

It is possible to transfer your entire ownership to a child or employee by simply transferring ownership in exchange for a promissory note. However, this can be a form of financial suicide. If you wish to transfer ownership to children or management while achieving your financial and other objectives, you need time to do the following:

• Grow business value and cash flow. As growth occurs, you benefit from increasing distributions of excess business income and can invest the net proceeds in non-business investments.
• Develop the incoming owner’s management and ownership skills.
• Begin a methodical transfer of small amounts of non-voting ownership to children or key employees based on their achievement of pre-set performance standards. During this time, you retain full control of the business until your children or management can pay cash—enough to ensure your financial security—for your ownership interest.
• Ultimately transfer the balance of your ownership interest for cash after your children or key employees have acquired sufficient equity to borrow money to pay for your remaining ownership interest.

Or Selling Your Business to an Outside Third Party

Assuming your transaction advisor determines that you are likely to receive the money you want from the sale of your business, your last step before beginning the sale process is to engage in pre-sale planning. This involves having your advisors review the structure and operations of your company to discover and properly bury any “skeletons” that might stall or halt the sale process.

A few examples of skeletons are potential lawsuits, disgruntled minority owners, and any accounting discrepancies. These skeletons can derail the sale process in its tracks.

An adage of deal attorneys is that “time kills deals.” You do not want correctable problems to cause delays and the pre-sale planning process helps prevent this. Pre-sale planning takes but a few months, but correcting problems that are discovered can take several more months. Once remediation is completed, the sale process begins and is usually complete within a year. Obviously, if your transaction advisor has good reason to believe that your business cannot be sold for the price you need, you will need more time to accomplish all of the actions necessary to close the value gap.

Conclusion

I am confident in saying that almost all owners today are ready to exit their businesses long before their businesses are ready to be exited. If the time before the business can be successfully transferred drags out for years after owners feel ready to exit, those owners face burnout and frustration, and lose interest in the business, making it even hard to build its value.

The pie-chart below reviews the key considerations in any business transfer. If you would like to review  a free exit planning assessment to identify your company exit priorities, e-mail me at David@RemodelForce.com.  The evaluation takes less than 30 minutes to complete!

The post Planning a Strategic Business Exit – What Is Involved? appeared first on Remodel Force™.

Determining how to increase transferable value is the business owner’s job. However, once owners and their advisors determine which of the appropriate value drivers (listed below) must be strengthened, everyone in the company should be involved. By definition, business owners cannot do it alone. If they could, they would not be creating transferable value, because once they departed, the value drivers would disappear.

As you read through the following list, remember that it contains only “generic” value drivers. Depending on what your company does, you may have other factors that create and increase transferable value. Additionally, there’s no particular order to this list, except for the importance of the management team: It is management that creates, manages, and grows these essential business characteristics which is why establishing a “best-in-class management team” is always the most important factor of creating transferable value.

Common Value Drivers:

• A stable, motivated management team that stays after the owner leaves
• Operating systems that improve the sustainability of cash flows
• A solid, diversified customer base
• Recurring revenue
• Sustainable revenue, resistant to “commoditization”
• A competitive advantage
• A documented and proven growth strategy
• Financial foresight and controls
• Good and improving cash flow
• Scalability.

Let’s look at each of these Value Drivers in a bit more detail.

• A stable, motivated management team that stays after the business owner leaves. If you plan to take any exit path other than liquidation, capable management is indispensable. Having best-in-class management is the surest way to become a best-in-class company. Capable management is what buyers buy when owners sell their businesses, so establishing the best possible management team will make it more likely for you to receive the best possible price for your business.
• Operating systems that improve the sustainability of cash flows. The establishment and documentation of standard procedures and systems demonstrate to a buyer that the business can maintain profitability after the sale.
• A solid, diversified customer base. Buyers typically look for a customer base in which no single client accounts for more than 10% of total sales. A diversified customer base helps insulate a company against the loss of any single customer.
• Recurring revenue. As a buyer, wouldn’t you want to acquire a business that prints money with the push of a button? Recurring revenue is that button that buyers look for in purchasing a business. Without recurring revenue, you may struggle to find a buyer who is willing to pay top dollar for your business.
• Sustainable revenue. Buyers look for revenue streams that continue despite fluctuations in the economy. They also prefer those that are resistant to “commoditization,” which is when a company, product, or good loses its distinctive attribute forcing that company, product, or good to compete based on price alone, which leads to slimmer margins.
• A competitive advantage. To paraphrase Michael Porter of Harvard Business School, competitive advantage is a product or service that a company offers that, over time, performs either better or more cheaply than its competitors. Your company’s competitive advantage is the reason your customers buy from you instead of your competitors. Thus, having a strong competitive advantage can differentiate you from the rest of the pack, and if that differentiation is positive, buyers will be more likely to pay top dollar for it.
• A documented and proven growth strategy. Even if you expect to retire tomorrow, it makes sense to have a written plan describing future growth and how that growth will be achieved based on industry dynamics; increased demand for the company’s products; new product lines; market plans; expansion through augmenting territory, product lines and so on. This detailed growth plan, effectively communicated, will help attract buyers. Buyers will give credence to your current growth plan if previous plans have achieved their goals.
• Financial foresight and controls. Effective financial controls protect company assets and support the claim that a company is consistently profitable.
• Good and improving cash flow. Ultimately, all value drivers contribute to stable and predictable cash flow. You can begin increasing cash flow today by simply focusing on ways to operate your business more efficiently by increasing productivity and decreasing costs.
• Scalability. Could your company improve its profit margin if it increased its revenue? Considering value-added services or even creating a mobile app can contribute to the company’s scalability.
Creating a plan to increase transferable value in your company is the business owner’s job. No one else cares nearly as much as you do, and no one else will reap as great a reward for making sure that your company has the most transferable value it can. However, executing the strategy to increase value is everyone’s job. If you don’t already have top managers and skilled advisors ready and willing to provide ideas and implement value drivers, I suggest that you recruit them. Today. Good employees want to work with a growing and successful company. They want to be part of something like this!

The post Creating Company Value Drivers appeared first on Remodel Force™.

One of the most important elements of a successful business exit or transition is the creation of transferable value. No matter what an owner sees for the future of their business, transferable value can be the common denominator that makes every goal more achievable.

What is Transferable Value

Transferable value, for a closely held business is most simply what a business is worth to someone else without its original owner. Transferable value should not be confused with profit. Just because your company brings in thousands of dollars of profit each year does not necessarily mean it has transferable value. True transferable value in a business is determined not by how well you run the business, but by how well the business runs without you.

Business owners are not always aware that transferable value is more than a formula involving multiples of earnings or some calculation of discounted future cash flows. To get a more accurate representation of the current state of your company’s transferable value, you can start by asking yourself the following questions:

• If you permanently leave your business today, would it continue with minimal disruption to its cash flow?
• Who will be responsible for running the business without you—and with minimal disruption to cash flow?

Value Drivers

One way to start to build transferable value is to evaluate your company value drivers. Installing and enhancing value drivers can help create a company that can be transferred to someone else (whether that’s the next generation of family members or an outside third-party buyer)—without the owner—with minimal disruption to its cash flow. Some examples of value-drivers that you may need to focus on are:

• Next-Level Management
• Operating Systems Demonstrated to Increase the Sustainability of Cash Flows
• Diversified Customer Base
• Proven Growth Strategy
• Recurring Revenue That Is Sustainable and Resistant to Commoditization
• Good and Improving Cash Flow
• Demonstrated Scalability
• Competitive Advantage
• Financial Foresight and Controls
One might measure the effectiveness of value-drivers in two ways:

• Their positive contribution to cash flow
• Their ability to continue to contribute to cash flow under new ownership

Simply, a company with strong value drivers will be worth more than a company with weak or non-existent value drivers.

Build Transferable Value with Your Management Team

Building a management team that you can confidently leave your company with can be challenging. You may want to create a loyal “next-level” management team that will not only maintain the value of your business but is just as motivated as you are to grow the business to new heights. Understanding where your company may have weaknesses is an important step in knowing the type of person you will need to attract to help fill the gaps. It is worth it to ask yourself whether you are focusing on attracting people with the skills sets the company needs to accomplish growth independently from the efforts and resources of the current owners. Establishing this highly qualified team long before you are thinking you will transfer the company can give them the time and space to prove their ability to perform.

Attracting the right team is the first step. Retaining the team long after your departure is the real task. To hold onto these vital team members, they may require more money or some percent of ownership as a condition of employment. Creating an effective incentive plan that fits the needs of your team is the best way to ensure your management team stays in place and continues to increase business value after your departure. Simply, plan your future with the end in mind!

The post Creating Company Transferable Value appeared first on Remodel Force™.

The Internet is changing the marketing landscape. Print advertising is slowly diminishing as more and more print advertisers migrate to online advertising. To understand how to do this successfully, you need to understand the distinctions of the Internet shopper.

They have specific characteristics, and understanding these characteristics will facilitate your online success.

In this program you will discover:

• Generating Leads Online – a new marketing frontier
• The parts of an effective online marketing strategy
• SEO – search engine optimization (How it works)
• SEM – search engine marketing, and how it works (How it works)
• Building a brand – how to develop Leads Online
• How to use specific tools to turn online leads into your customers

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