Business Advisor Network Blog

Most business owners – and their advisers – know that they should do some planning around what will happen to the business when they decide to step back from it.  As we get older and the time frame shortens, the sense of urgency may increase but often it is something that can be put off to another day. It is something that is not needed tomorrow, is it?

Consider the following, perhaps not your particular situation, but I am sure you can see some common elements:

In the beginning…

• Business succession planning doesn’t seem a priority (or indeed, relevant) when your first set up in business. Generally you don’t have a lot and you just want to get on with starting your business. 
• Maybe you get some advice about business structures from your accountant but you don’t really know how it will go and you don’t have a lot of cash so you keep it simple and inexpensive. 
• Over time you get busy, your business grows and you accumulate “stuff”.  Things are going well and you have more important things to do than worry about business structures and what happens to the business when you retire.

Time passes and one day…

• you decide you’ve had enough; or you die; or a business partner dies or has had enough or gets divorced or gets sick. All common stuff. You need to sell the business and:

(a) You negotiate a great price. You get paid. The tax office gives you a bill!

(b) You can’t get the price you want. The market price is markedly lower than what you think the business is worth.

• Your business partner makes a mistake and someone is injured or a customer loses money.  They sue your business and win.  Your partner, recently divorced, has nothing but his/her interest in the business which is now not worth much. You on the other hand have lots of “stuff”!  Who pays?
• Unexpectedly your businesses partner dies.  He/she personally own half of the business.  He/she has a will which leaves everything to his/her spouse and adult children.  What happens now?  What if you don’t have the funds to buy your late partner’s share out, or cannot agree to the price that they want or…horror of horrors, one of the adult children – who has never been involved in the business – decides that he/she wants to get involved because he/she thinks he/she can do great things with it!

You get the picture. Not a pretty one but all too common.

Why you shouldn’t put off planning for succession and exit

Every business owner will one day exit their business. The exit may be voluntary or involuntary but it will happen. There are two certainties in life: Death and Taxes. They alone are reasons enough to address business succession and exit planning if you want to: 

• manage your business risk and preserve your wealth, and
• you want to know what will happen to your business (and your wealth and your family) if something happens to you and/or your partner.

As you have no say as to when that first certainty of life will occur, it is imperative that estate planning be undertaken as soon as possible, if you haven’t already done so.

There are essentially three stages in estate planning:

¨ Creation of the estate

¨ Preservation of the estate

¨ Distribution of the estate

This is not something that is done overnight — and one second post-mortem is too late.

What does “Business Succession and Exit Planning” involve?  

In the corporate world, succession planning means ensuring there is a smooth transition of personnel for a business role ie having the right person to fill a position when it is vacated, whether voluntarily or involuntarily by the incumbent.

For a privately owned business, management succession is important  and indeed critical if it involves family within the business. However, succession and exit planning for the private business owner goes far beyond this.

Have you considered what your exit options for you as a business owner?

• Sale pursuant to a management buyout or buy in?
• Sale of the business as a going concern via trade sale or public listing?
• Pass on the business to family members or to other stakeholders?
• Merge the business with others?
• Close the business down and sell off assets?

What are the implications of the various exit options? What strategies do you have to put in place to achieve the desired outcome for your  post-business years?

Effective succession and exit planning involves addressing a vast number of complex issue —legal, tax., strategic planning to achieve the desired exit path etc. Further, as the process inevitably involves other people, particularly family and key stakeholders, it can become emotionally charged.

Addressing all these issues sounds messy and time consuming but it doesn’t have to be if approached in a methodical fashion with professional guidance and advice. Don’t put it off any longer.

Where do I start?

With the wide range of issues that must be addressed for sound succession and exit planning, it is clearly an area where getting good advice will greatly assist and ensure that when the plan needs to be actions, “what is meant to happen does happen”.

Seeking advice after you have given thought to key matters is highly recommended. You will  then be in a position to ask educated questions of your advisors and ensure that the strategies and plans developed with them are reflective of what you — and most likely, your family – actually want.

We have listed some questions that you should be asking yourself as the start point. [See Box on page 4] Try and work through them in order.

If they make you uncomfortable, that’s a good sign. They should. Don’t despair if the picture is not as rosy as you may have thought. At least you now have a better idea about the issues and can engage the right experts to draft agreements, wills, look after taxation issues, assist with retirement planning, estate planning etc.

How do I choose an advisor?

You should be aware that  the perspective of an advisor will influence how that advisor approaches the subject of business succession and exit planning; in particular:

• accountants tend to focus on taxation issues;
• business advisors may see it simply as an extension of a business plan or process improvement;
• business brokers and investment bankers may view it in terms of structuring a “transaction”;
• lawyers often see it in terms of legal agreements and structures around succession in a business; and
• too often, financial planners see it as putting insurance policies in place to fund a “buy/sell” agreement.

There is no one perspective that is more important than the other.

 You need to be particularly wary of any “expert” who professes to know everything and tells you that you do not need to consult any other advisors. Whilst a key advisor  may be able to guide and a business owner through the process of succession and exit planning, including estate planning, it is likely that they will only do this effectively when they stick to the things they do best and co-ordinate and collaborate with other specialist professionals. 

 If you decide to co-ordinate the process yourself, make sure that the ‘right hand’ always knows what the ‘left hand’ is doing if you are to achieve a cohesive effective succession plan.

QUESTIONS FOR SUCCESSION & EXIT PLANNING ^{Note 1}: A Starting Point

The following questions are a good place to start. No adviser can answer these questions although some can help you work through them.

1. What are your personal goals around family, work, location etc?

a. Consider: You are now financially secure, you have enough money to take care of your needs now and into the future, how would you live your life?  What would you do?  What would you change?

b. Consider: You know definitely that you have 5-10 years left to live and that during these years you will always be healthy; what you don’t know is exactly when you will die.  What would you do with your life?  Would you change anything and if so what?

c. Consider: The doctor tells you that you have one day to live?  How do you feel?  Ask yourself: What would I do in the time left?  What do I wish I had finished or had been? What do I wish I had done? What did I miss?

2. Now consider what are the things that are stopping you achieving the things considered above?  How many of these are related to your business … really?

3. What are your financial goals?

4. Where does my business (really) fit into me being able to achieve my personal and financial goals?

5. What do I want to happen to my business:

a. If I die or can no longer work in it?

b. When I choose to retire?

c. Do I want my children etc to take over the business?  Do they want to?  Are they really capable or is someone else better to run it? 

6. Right now, could the business be sold or handed on to a successor? If something happened to me, would the business fold or be sold for a song?

7. What needs to be done to make the business saleable?  If I were a buyer and it were offered to me:

a. Would I buy it?

b. What would I pay for it?  Really!

c. What could I do with it?

8. Would my family and/or business partner(s) answer these questions differently?

While the answers to these questions will not create either your estate or business succession plan, they will provide you with insights into what your personal goals are and where your business supports – or conflicts – with these. 

It will also give you some sense around some of the issues which may currently need to be worked on in the business to improve your position and make succession possible.  It is a sound basis on which to find an adviser who can assist you to work through the process, work with other professionals, and ultimately assist you to develop and implement estate and business succession plans.

Note 1:  These questions have been adapted from work by the Kinder Institute.  See Kinder, GD and Galvan, SE “Lighting the Torch—The Kinder Method^TM of Life Planning”, FPA Press, Denver, Colorado, 2006

by Chris McGlinn

When business owners engage the support of a business advisor, they’re actually receiving two very important things, experience and innovation.  Experience is gained in only two ways, via your own direct involvement or by reading or hearing about other people’s involvement.  Being able to tap into a vast well of experience that an accredited advisor brings to the table can open up a of wealth of opportunities.

The business problems and growth issues that you are experiencing are no different to those difficulties being faced by other businesses.  In other words, you are not alone.  There have been people that have been through what you have been through, adapted, changed, redesigned or reinvented themselves and/or their businesses and lived to tell the story – more often than not, this is the experience that an accredited business advisor draws from; they have been there and done that.

Innovation however is a method of thinking.

This method is formulated in its approach.  When thinking about business, a common approach is to run through the same fundamental principles of success that govern all aspects of business.  A good checklist and resource is the book “Think and Grow Rich” by Napoleon Hill.

It contains thirteen principles based on common traits possessed by over five hundred super successful business people.  The book itself is a remarkable success story.  It was first published in 1937 and as recently as 1996 appeared in the non-fiction best seller book list.  Perhaps he was onto something?  You’d be hard pressed to find another book other than the bible that has stood the test of time that well.  The obvious reason for its success – the principles were valid back in 1937 and are still relevant today.

Unfortunately for small business, most owners think creativity and innovation is something that just happens.  Somewhere an overpaid ad agency has a group of zealous creative types in fancy clothes, mod haircuts, and attitudes to match locked in a room smoking some dried-out exotic plant material waiting for inspiration to pay them a visit.  Wrong (as funny as it is…)

Actually, creativity and innovation is a systematic process of checking off possibilities.  To be an innovator you should build yourself a checklist of basic success ideas and principles, such as those in Napoleon Hills book.  You should review them each time you want to apply innovative thinking to your business processes, advertising, packaging, marketing or any other area of your business.

Give your ideas definite purpose; ask yourself, What do I want to accomplish with my efforts?  How can we give our customers perceived value that is much higher than the cost?… and the list goes on.

An accredited advisor will be able to assist you in developing an innovative approach to your business and guide you along the path to invention without the potholes of adverse discovery.  The old adage – “two heads are better than one” could just be the difference between your business success and failure – think abut it.

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Thousands of new businesses will start up this year during uncertain times.  Unfortunately if history tells us anything, most of them (over 90%) will close their doors within two years.

Businesses are started with high hopes and glorious dreams,  it is easy to start a business, it is much more difficult to build it, to make it succeed, to avoid the traps and pitfalls and frustrations and enjoy the fruits of success over the years.

In working with thousands of entrepreneurs over the years, here are the mistakes we’ve seen most often.  Avoid them!

1.  Fear and confusion. There is either a sense of being over-whelmed by the size of the tasks, or a refusal to master the work of being an entrepreneur and business owner.  There are specific skills to owning and running a successful business.  Learn them! You can master these.  You can focus and succeed! ( this is often the time to hire a business advisor)

2.  Lack of capital. Capital comes in three forms: time, money and energy.  Some people have one or two, but not all three, and they fail because they simply cannot sustain the growth phase of their business.  Every business is a commitment of everything you have.  You may start ’small’, but that does not mean causal or part-time.

3.  Lack of courage or commitment. Building a business is always risky.  Some people perceive the risk as frightening, others see it as an exciting challenge, but there is always risk.  Manage it.  Limit your potential losses.  Understand the risks and enjoy the process.  You will make mistakes.  Learn from them and go on.

4.  Refusal to select and target an audience. No one can sell their services to ‘everyone’ – a message that goes to everyone is unlikely to create a sense of urgency in anyone in particular.  Attorneys focus on one type of law.  Physicians specialise.  So should you.

5.  Choosing the wrong audience. A market that cannot or will not pay, or an audience that is too small or dispersed, is a recipe for disaster.  The ‘poor’ desperately need medical, dental, legal and other services, but who is going to pay you?  The same problem exists when trying to reach an audience that is dispersed over a large geographic area and not easily identified.

6.  Fuzzy or unfocused message. What exact benefits do you provide?  To whom?  Under what circumstances and at what cost?  How can people contact you?  Be precise, be clear, be specific.

7.  Lack of planning – too many random efforts. Many entrepreneurs try a little radio, a direct mailing, join a service organisation, offer free samples and then report that they have “tried everything and nothing worked”.  Pick one and stay the course!  You become identified with your marketing techniques.  Choose a logo, a colour-scheme and a marketing technique and stay with it!

8.  Laziness and/or greed. Your business ONLY exists to serve the customer!  You must make a profit in order to continue serving the customer, but service is the key to success.  Everything must be focused on that.  The statement, “I want to be my own boss”, or “I want a business that supports me” may be true (and be totally honest and reasonable), but they are a dangerous focus for your business.  Customers first!

By Dr Philip E. Humbert

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We all have goals.  It may be to keep our current job, or to get a different one. We have goals to save for the future, or to travel, take a vacation, or purchase the things we need and want to make our lives more enjoyable.

An important distinction however, is that top achievers are very intentional and focused on their goals, while many of the rest of us are not.

Top achievers know that the wording structure, timing and format of a goal can make its achievement much easier – or far more difficult. Top achievers understand the basic skills for setting and reaching their goals every time!

They know how to design goals that create success.

Here are the 10 most important steps to set and achieve your goals:

1. Reachable goals are SPECIFIC

Top achievers know that to reach their goals the brain must know exactly and precisely what they are trying to accomplish. Never word a goal with vague terms like “some” or “a little bit” or “more”. Be Specific. If you want to lose 8 pounds and reach a weight of 175 pounds, specify those exact numbers. If you want to save $200 this month, be exact.

2. Reachable goals are SIMPLE

Many people describe their goals in complex terms of retiring on the beach in Hawaii with nice cars and lots of money and….. the list goes on and on. Any one of those things is a great goal but the combination becomes overwhelming and the brain gets confused. If you want to retire in Hawaii, just say so! If you want to increase your sale by 10% this month then say so! Keep your goals simple, clear and focused.

3. Reachable goals are SIGNIFICANT

No one can muster the enthusiasm, hard work and courage to reach a goal they don’t really care about. A reachable goal is one you really, really, REALLY want! It’s something that will change you life, enhance your health or wealth and make you proud.

4. Reachable goals are STRATEGIC

High achievers know that the best goals accomplish many great outcomes all at one time. Running a 10 mile race will almost certainly: 1) feel great! 2) help you lose weight; 3) lower your cholesterol level; 4) strengthen your heart; 5) lower your risk of heart disease; 6) increase your energy and stamina and 7) improve your outlook. Design you goals to strategically impact as many areas of your life as possible. You’ll have more reasons to reach your goal and more excitement when you do.

5. Reachable goals are MEASUREABLE

A goal without a measurable outcome is just a pipe-dream. You can’t achieve a pound of “happiness” or six inches of “self esteem”. Someone has wisely observed that “what gets measured gets done”. Define your goals in terms of height, weight, dollars, inches or hours. Then measure your progress until you achieve your desired outcome.

6. Reachable goals are RATIONAL

To reach your goal you will need a plan, a path and a vehicle for getting there. Your goal must make sense. When you explain them to friends and family, your goals should create excitement, draw support and encouragement. Your goals should be just out of reach but not out of sight. You want to stretch to be your best, not strain after impossible dreams. Set goals you CAN and WILL achieve.

7. Reachable goals are TANGIBLE

Choose goals that you can see, hear, small or touch. Go for things you will enjoy and that you can clearly visualise. The brain has a hard time going for “financial security” but it can visualise a bank statement with nice large numbers on it. Define your goals in terms that excite the senses then go for it with all your heart.

8. Reachable goals are WRITTEN

High achievers always know precisely what they want because they’ve written it down. Often, they write a short description of their goals every single morning as a personal reminder of their priorities and their objectives.

9. Reachable goals are SHARED

We are far more likely to stick to our plan and reach our goals if we know our friends and family support us. Being part of a team increases our determination, our stamina and our courage. Caution: never share your goals with anyone who may ridicule, tease or discourage you! The world is full of doubters and you have to no time for them.

10. Reachable goals are CONSISTENT WITH YOUR VALUES

One of the biggest reasons people fail to achieve their goals is that they have conflict between their behaviour and their values. However, when your values and your goals are in agreement there is no stopping you. Clarify your values first then set simple, specific, measureable, tangible, written goals that are consistent with those values.

By Dr. Philip E. Humbert

Associate Accredited by the Institute for Independent Business

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If you don’t have a systematic referral programme you are missing out on one of the simplest, lowest cost ways to generate your highest quality customers.

Referrals are the lifeblood of small businesses. But do you actually know how to ask for one?

Think for a moment. Has someone ever asked you for a referral? Did it go something like this: “Do you know someone who could benefit from my services?”

You start to think about it and eventually say: “Well, not off the top of my head, but I’ll keep thinking about it.”

This is how 90% of all referral questions are asked and unfortunately, the question may as well not have been asked at all. Rarely, if ever, will it get a positive response.

Why? Because it was not asked correctly. The typical “Know anyone who….” questions are too broad for people to think about.

People need a frame of reference to help them narrow down the playing field of potential referral candidates. For instance, imagine you are talking to one of your good clients who is pleased with your services. You ask her: “Mary, you’re a member of the Women’s Financial Planning Association here in Brisbane aren’t you?”

Mary responds: “Yes, I am.”

You ask: “Do you go to their meetings on a regular basis?”

Mary replies: “Yes, most of the time.”

You ask: “Is there anyone in your association that you believe could benefit from my services? Maybe one or two people you’ve known in the group for a while or sit next to regularly?”

Can you spot the difference?

You gave Mary a narrow frame of reference from which to think about it. It allowed her to visualise the potential referrals in her mind.

This may limit the number of potential people that your client might know, but it is far more effective than opening up the ocean of people that Mary might know, but can’t remember.

Your request will also stay in Mary’s mind long after you’ve asked it because she can visualise your services with much greater intensity.

Virtual Business Advisor

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Let’s presume that you’re thinking about writing a Mission Statement which really defines what the purpose of the organisation is. And let’s say you’re even thinking about using the ‘to earn a profit …’ platform as the basis for your own Mission Statement.

If that’s the case, one of the questions you might be asking yourself is “But what will our customers think if we talk about our profit motivation and if we remove all the ‘warm and fuzzy’ bits?”

There are a couple of parts to the answer…

First of all, your customers aren’t dumb. They realise that the fundamental purpose of your business is to make a profit … and so if they see words to that effect in your Mission Statement; it’s unlikely to cause any undue comment. Besides, if your customers have a problem with you earning a profit … then you need new customers.

Indeed, given the expression ‘to earn a profit’, it’s clear that you’re prepared to make efforts and offer value which justifies a profit. No one has a right to complain about that.

The second part of the answer is “The customer shouldn’t see your Mission Statement anyway.”

Granted, this flies in the face of conventional thinking. Most businesses make a point of putting their Mission Statement in front of customers at every opportunity they get. I’ve even seen some who frame their Mission Statements and hang them in their reception areas.

But if the purpose of the Mission Statement is to focus your team … what’s it doing in front of customers anyhow?

A mission statement should be kept ‘in house’ and not generally visible to the public. That’s not to say it’s something to be ashamed of – but rather, it’s a management document and so no one but members of your team has a right to see it.

What about the ‘warm and fuzzy’ elements of the ‘traditional’ Mission Statement which are now missing from our new ‘lean’ version? These can be incorporated into another document which can be seen by the public.

You could, for instance, create a “Customer Service Commitment Statement” or “Service Policy” or “Business Philosophy” which spells out the details of your thinking.

And given that this document is designed primarily to communicate your intentions to customers, it CAN be written in a way that is most likely to appeal to them … and it CAN be published and displayed to the widest audience.

In this format, you could and should display it in your reception area – as well as include it in your proposals, your brochures, your sales presentations and so forth.

Because it’s been ‘purpose built’ to appeal to customers, you don’t need to explain anything away. And because it’s written in a form which is designed to appeal to customers, you can count on it to enhance the customer’s perception of you.

The bottom line is this: have horses for courses. Your Mission Statement is a management document and is designed to communicate a message to your team. Your Customer Service Statement is a marketing document and is designed to communicate a message to your market.

Mix them together and you wind up with a hybrid which does neither job properly. Keep them separate and you’ll have greater flexibility to express things in the most impactful way.

Virtual Business Advisor

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If your competitive advantage isn’t clear to you … how can it be clear to your customer?

Here’s a question for you…

If the next customer that walks into your office or store asks you “Why should I give you my business rather than take it to a competitor?” How would you answer?

Seriously. How would you answer? Before you read any further, try to enunciate what you’d say.

More often than not, when business people are asked that question you’ll get one of three different types of response. The first type is where they look perplexed and stare vacantly back at you. The second type is where they snigger and say “Because I need the money!”

Sorry, but neither of those responses will encourage anyone to do business with you.

And the third type of answer is where they at least have a crack at it. This is where people say something like “Well, because we give great service, we’ve got a terrific quality product, and because we offer keen prices.”

That’s a start. But the problem is that if that very same customer was to walk next door and ask a competitor the same question, they’d probably respond by saying something like “Well, because we give great service, we’ve got a terrific quality product, and because we offer keen prices.”

And there goes your supposed competitive difference.

The customer is the most logical beast on earth. No customer will choose to willingly deal with a supplier which offers an inferior “package”.

Instead, they’ll always strive to find a supplier who gives them something more than they can get elsewhere. That “something more” might be as simple as a higher level of service, or it might be a higher quality product, or it might be undercover parking, or child minding, or cheaper prices, or better looking staff, or a friendlier smile … or something else.

Whatever the case, it’s critically important we recognise that the customer wants (what they perceive to be) the best deal.

And … here’s the point … if you can’t instantly answer the question about why a customer should choose to deal with you rather than with a competitor, then it’s obvious that you don’t know what your own “specialness” is.

That’s tragic, because if you can’t define your difference … then it’s an absolute certainty that your customers won’t be able to clearly discern what’s special about you either.

For as long as that’s the case, you can only expect that you’ll lose as much business as you win.

The answer, as always, is self-evident. If right now you can’t define, in a snappy sentence or two, precisely what it is that makes you the best supplier of your particular good or service to your target market … then spend some time thinking about what that snappy sentence or two should be.

Define your true “specialness.” Or, to use the jargon term, define your USP (Unique Selling Proposition). For as long as you fail to do so, you’re doomed to sit in the middle of the market, scratching out a living.

But get it right … and you’ll need bigger bags to carry the money home.

Virtual Business Advisor

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At its peak, IBM was generating revenues in excess of $53,000,000,000 (that’s fifty three BILLION dollars) per year. That means every hour of every day was worth around $6,050,000 … in small, unmarked bills.

But IBM lost its way.   So what went wrong? And what can we learn from their mistakes?  Here are some thoughts…

First, you must never confuse head count with true growth. During its years of explosive growth, the IBM staff head count grew at twice the rate of its revenues. The simplest and surest way to keep hold of this factor is to constantly monitor staff productivity – expressed most simply as $Sales per $Wages.

Second, you must make your people responsible for their actions. At IBM, some staff were so mobile that they’d moved to a new position before their mistakes became obvious. The lesson here is, if you move a person to a new position, you must ensure that they retain at least some responsibility for any projects or decisions which were commenced or made during their stewardship.

Third, you must know which products are the most profitable. IBM sales people were rightly recognised as being amongst the best and brightest on the planet. Problem was, they (and their managers) didn’t know which lines carried the ‘fattest’ margins. As a consequence, they did the best they could by selling the most expensive products possible.  History has shown that many less expensive products would have made a greater contribution to profitability.

Solve this problem by telling your sales team what the Gross Profit is on every significant product that you sell. If there are too many lines for them to remember, develop a tag or colour-code or some other system which lets the salespeople see, at a glance, which products are more profitable.

Reinforce this and keep them focused on promoting these lines by tying commissions and incentives to Gross Profitability, rather than straight sales value. Better still, tie the commission or incentive to the actual COLLECTION of the money, rather than paying it as soon as the invoice is cut. This alone will make a world of difference to how quickly you get paid – and it will keep your sales team focused on providing a quality ‘after sale’ service and experience.

Bottom line: let’s learn from IBM’s mistakes. You might never achieve the same turnover which it achieved … but then again, IBM started out as just another small business. And as Michael Gerber, business author and philosopher says, “Big businesses are just small business that got it right.”

Who knows what you might achieve if you make all the right moves and none of the mistakes?

Virtual Business Advisor

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