After over 15 years of small business consulting experience and countless business diagnostic interviews, a major fact about entrepreneurs remains clear – they have little focus on the end game.

Business is often referred to as a game. In most games, scores toggle back and forth among the players over time in competition, with the winner being determined by the END SCORE. Most entrepreneurs spend little time looking at the clock, calculating how much time is left to score the points necessary to win. and. more importantly, what winning means to them The same person who plans out a road trip, anticipating the time he/she will pass each mile marker and figuring out the exact budget per mile, has probably taken little lime to consider, calculate, and document:

  • A targeted standard of living, adjusted for future inflation, for his/her End Game
  • A set timeline for the Game’s End
  • Where his or her business must be. at the end of the game, to meet the End Game Goal
  • The action steps required in his/her business to achieve the End Game Goal (EGG)

The Destination

When discussing goals with entrepreneurs, we often hear glib and generic comments, such as:

  • I want to make as much as I can as fast as I can
  • I want take it as far as it can go
  • I hope to leave something for my children that will support their families

Unfortunately, the entrepreneur offering these remarks is working daily trying to meet those vague objectives without a calculated understanding that he/she:

  • may have already won the End Game: or
  • cannot and will never win the End Game; or
  • needs to increase the revenues of his/her business by an exact amount to meet the EGG.

The simple fact is that an entrepreneur’s End Game Goals (needs, desires, preferences) must be articulated and quantified The End Game Goal drives the changes required today

EXAMPLE:

    1. An entrepreneur who owns and manages a $10mm business desires to leave the business in 2 years. He or she enjoys a personal $400m financial benefit from the company annually.
    2. The entrepreneur wants to maintain his/her current personal life style and have an alternative seasonal life style in another climate during retirement that will require an additional $100m annually.

In the above scenario, assuming the rate of annual savings remains the same, the entrepreneur has to position his or her enterprise to either.

    1. Be sold for a price that nets an after-tax return of over $1Omm ($500m = 5% tax free return on $10mm)

OR

    1. Create an environment with management talent, controls, contracts and revenues where he/she can enjoy continued confidence in receiving a return of $500m annually without his or her presence.

Please note, the above required amounts may be reduced by other investments or retirement funds.

The Common Shock of M&A and Transition Planning

Without careful planning five to ten years in advance, the owner, after making the decision that he/she has “had enough”, is often shocked and dismayed The owner may visit a Business Broker to assist in the sale of the business, or he/she may connect with a Transition Specialist to build a program for the family to continue to run the business in the owner’s absence. Neither of these specialists has a magic pill to address frequent dilemmas that could have, with basic planning, been anticipated and corrected years before.

It is never too early to begin to increase the value of your company. The worst that can happen is you increase the value beyond your End Game Goal and you end up with too much money! Most owners think that the planning and value maximization is done in the last year or two before they sell We contend that is way too late and should be done five to ten years before the time of sale By starting early, you can dramatically Improve the value you receive for your business.This allows plenty of time to institute the changes required to maximize value. It also allows the owner to take into consideration business cycles, family members’ development, and formation of a strategic alliance that could create an exit strategy, management team development and future strategic acquisitions.

The Attempt to Sell

In most industries, the market value of a business is some function of EBITDA (Earnings Before Interest Taxes and Depreciation) Predictable profit and corresponding revenue are the drivers of value. The shocks are:

  • When the entrepreneur learns his potential sales price is far short of the perceived EGG; that the real value is in the predictable ability of the entrepreneur himself/herself to generate the profit, and
  • that, even with the sale, the buyer will require the entrepreneur to stay on. with penalties if performance hurdles are not hit over several years.

The Generation Pass

Many closely-held small businesses are family businesses. Entrepreneurs embrace family, frequently children, with high hopes of passing on the company. As small businesses reach scale, bifurcation of roles and specialization become natural. Employed children or key personnel gravitate to personal strengths and areas of comfort or preference. It is rare that job rotation or personal development programs are implemented.

This scenario breeds a world where owners fear passing control and financial dependence to others. In the end, the stock buyout contracts and legal work may be iron clad, but does the owner really believe that new management, without him or her, can keep the profits coming? Is there confidence that the owner’s return, plus inflation, will keep coming for 10, 20. 30 years to meet the standard of living aspired for?

It All Seems So Simple – Can It Be True?

The concepts above are simple However, in the real world, an unfortunate few spend the time to truly plan The entrepreneurial curse is “working so hard in the business there is not time lo work on it”. Or, as one of our favorite clients has said, “I am either so far in the box I cannot see the walls or so far out of the box I cannot see the box at all.”

A series of remedies are suggested. Ask and answer the following questions;
  1. What is my lifestyle goal and when do I want to achieve it?
  2. What does the company have to be to allow me to meet the goal?
  3. Do I have the resources to allow me to get the company where it needs to be?
  4. Do I understand the changes required in order to build my business to the level demanded to support my chosen lifestyle?
  5. Am I devoting one day per month to working on the business – not in it?
  6. Do I need help?