On Deal Talk, we often hear from former business owners who have sold their companies or professionals who are dedicated to helping entrepreneurs sell their...
Exit Planning for Baby Boomers
It's hard to believe, but true, that most small businesses simply fade away or close up all together when their owners decide to retire. Many owners decide to forego selling their companies and earning the potential financial rewards that come with a successful sale for a variety of reasons. That's particularly true of baby boomers--and there are a lot of them--many of whom are now faced with that decision of whether to sell or just lock the doors and head home. If you are a baby boomer in your 50's, 60's or even 70's, this show is for you because our guest--also a baby boomer--says you could learn a lot from the Gen X'ers and Gen Y business owners of today. Find out what he's learned when we welcome business coach and consultant, Bob Kroon, on this edition of "Deal Talk."
Questions Answered For You
- How can having an exit strategy in place help improve the value of my company?
- What are the generational differences in how business owners handle their business and plan for their exit?
- How can business owners begin to detach emotionally from their company and move forward with their exit plan?
- How can I reduce risk in my company?
"And in many ways, the very first day you start your business should be the very first day you think about selling your business."
Key Takeaways To Remember
- Business owners can get wrapped up in the day-to-day activities of running their business and neglect to plan for their eventual exit.
- Having a strong second in command is important, because a buyer will look to see if there is someone in place who can run the business when the current owner exits.
- If you’re getting started planning an exit strategy late, you might not get everything accomplished, but it's important to do a diagnosis to determine the big issues that you could move the needle on to increase value.
- If you have too much customer concentration, you raise risk and lower value.
Jeff: Planning your exit can be difficult to do when you’re busy trying to grow your company and run your business. So if you haven't given it much thought and you kind of need a little help getting started, you've come to the right place.
From our studio in Southern California, with guest experts from across the country and around the world, this is "Deal Talk," brought to you by Morgan & Westfield, nationwide leader in business sales and appraisals. Now, here's your host, Jeff Allen.
Jeff: Hello and welcome to the web's number one content source for small business owners committed to building a business for eventual sale. Here on "Deal Talk" it's our mission to provide information and guidance from our growing list of trusted experts that you and all small business owners can use to help you build your bottom line and improve your company's value.
Well, you've heard us talk about it on this program before, the all-important exit strategy, planning your exit. It's so important to do. But let's face it, many of us are in our businesses because we love it, because this is our life. We can't imagine ourselves doing anything else. We're paying bills, we're trying to grow our companies, we got a lot to think about. And yeah, OK, we've got a loose idea for the process that we're going to have to go through to move somebody else into our position when it's time for us to hang it up, or when it's time for us to sell our company, if there's nobody to succeed us currently in our organization.
And because of that, quite frankly, we don't give it any thought and we sometimes need a boost. We sometimes need some motivation. We need some inspiration. We need someone like Bob Kroon to come by and give us a little talking to.
Bob Kroon is an executive coach, mentor, adviser and business owner himself. And we're going to talk to him today about something very, very important indeed, and that is getting started. That is the reason that planning your exit strategy now is so crucial not only to you but to the other folks on your team. Bob Kroon, welcome to "Deal Talk," sir, it's good to have you.
Bob: Thank you, Jeff, and thank you for having me.
Jeff: We appreciate your valuable time today. And, Bob, like I said before, we've talked about this issue on our program. But I know that as an executive coach and someone who is really involved very heavily in helping managers and business owners improve their own performance, make them better leaders, and give them more to think about than just simply the day-to-day operations of your business, you feel very strongly about this particular subject.
How can having, Bob, an exit strategy in place actually help to improve the value of your company? Because that's something that we really like to focus on here on "Deal Talk," all these various ways that we can work toward improving the value of our organizations.
Bob: The value really comes down to reducing risk. The lower the risk the higher the value. That sounds overly simplistic. But if you have too much concentration with customers you raise risk, you lower value. If the business depends on a key person, maybe the owner, and they have too big a role in the business, that raises risk and lowers value.
So it's really about walking around your business plan and looking things through that lens of risk versus valuation.
Jeff: And so it sounds to me that by having that exit strategy in place, having something that's fairly concrete, something that's well planned out, you are helping to stabilize potentially, Bob, correct me if I'm wrong, the future of your company. There is less uncertainty because you have a plan in place. Perhaps it's part succession plan.
You've got a strong number two there in charge who is going to pick up the ball and run with it after you leave. And having that strong second person in charge there, or having the objective in mind of selling your company three to five years in advance, and knowing for sure where you're going to go. That just, like you said, reduces that risk, reduces that certainty, and provides that stable base underneath you that eliminates a lot of the concerns, and perhaps an even reduction in the value of your company.
Bob: Oh, I agree. A strong number two, it could be important two ways. One, that might be the person you sell the business to, the one you finance to. And if you are financing their purchase because you carry equity, you want to know that they're going to perform, that they're going to run the business to your benefit.
But on the other hand, if it's a financial buyer, let's say, who really doesn't get into the operations part, their diligence is to look to see if there's someone inside who already can run the business. So having a strong number two is really important.
When we coach owners we try to understand their personal goals as well as their professional goals. And we value the personal goals slightly more than the professional goals. We never want to advise something professionally that damages your personal goals.
Jeff: Executive Coach Bob Kroon joins us today on "Deal Talk" talking about the importance of planning of your exit. When it comes time at the end of the day you're ready to leave, how important that is to your company right now in fact to have the exit strategy in place.
Bob Kroon, let me ask you, what are a couple of the biggest roadblocks that business owners face that may delay or prevent planning for exit?
Bob: For many they're involved in the day-to-day. Planning for an exit is not something you do in six months or two months. You hear owners sometimes say, "I'm not ready to sell the business now but maybe six months from now I am." That's not true at all. Sometimes these issues take years to unfold and develop. And an exit plan that is on a short timeline isn't much of an exit plan.
And owners get involved in the day-to-day and wrapped up in that and don't stop to think about what they have to do. I understand, time is valuable here. Many of them are working 60-80 hour weeks already. It's hard to get away from your business to work on it rather than work in it.
Jeff: Boy, that's for sure. And I can just see all of the heads nodding right now as we're talking here, Bob, and that is true. For me as well, you don't for whatever reason always seem to have that sense of urgency about your future down the line as much as you might have about the importance of getting that order out, or calling that important client that you haven't heard from in some time. And making sure that you take care of all these other little details, things that you have to, the emails that are flooding your inbox. So I agree with you 100%.
Let's talk about, Bob, any differences that there may be out there. And as far as the philosophies and the way that they handle their business between Gen Xer's, millennial owners, and baby boomer business owners who may be running their businesses trying to maybe to continue to grow their businesses, or in the case of maybe baby boomers right now on the verge of making a decision whether or not to retire or sell their companies. How have you seen based on your experience the differences between the various generations and how they handle their business, and plan for their exits? Anything that you can share that some of us older guys might be able to learn from?
Bob: This has been very fascinating to me. Having the chance to talk to many business owners I start to see patterns. Now, I'm a baby boomer myself, so I get to say this, I get to be critical. But I'm really bothered by the baby boomers. And not all of them. It's unfair to say that.
But the trend I see is many of them have been in business a long time. And either they're happy or satisfied with where they're at and unwilling to take a risk at this point or take any chances with their business. Or they're jaded, tired, discouraged, and their view of the future is that I'm just going to shut this business down.
I talked with an owner last year. He'd been in business. He'd made it through the '81 recession. He'd made it through the '91. He made it through the .com recession. He made it through the '08 recession. He had about a 30-employee business, a pretty good sized business. And I said, "Where are you headed next?" "Oh, next year I'm just going to shut this down." I said, "Really? You made it through all of these recessions and you were smart enough to do all of that. And now you're not smart enough to find a way to exit in a different way?" I was discouraged by that.
Jeff: Did he not understand the reward behind leaving in another way? Making sure that the business could continue, but under the control of somebody else who is extremely capable and could continue to grow the organization?
Bob: I would've thought that. But he wasn't the only one. I used him as an example, but I've seen others that maybe it's their frame of mind. They just get to a point where they're tired and they just don't want to work on it anymore. Maybe it's an emotional thing. And it just seems too much work to them at that point to create an exit plan.
Jeff: Do you think the millennials and the Gen Xer's are going to be any better prepared? What can they learn from the baby boomers' mistakes?
Bob: Well, the Gen Xer's, they're more interesting in another way. Sometimes I pose the question to them. The industry you're in, is it expanding or is it consolidating? And their industry is a little more mature. It's likely consolidating. And so in that picture are you a buyer or are you a seller?
And they tend to see themselves as a buyer. They're more aggressive. They want to grow their business either organically or through an acquisition, and they'd consider either. There's a different perspective.
Jeff: Very, very interesting.
Bob: The millennials, they see the world of business through a computer. And they want to be entrepreneurial in a destructive way. At least here, I'm in the Bay Area. A good portion are foreign born and very smart, extremely smart, and that's how they got here in the first place.
And they put together very disruptive business models, and not so much interest in buying old smokestack business. They're more interested in starting something that can be more disruptive. They'll live in their car. They'll share roommates, whatever to get to that point. And they're not well-financed but they have a very big vision.
The value really comes down to reducing risk. The lower the risk, the higher the value.
Jeff: It's a new world as we all know, Bob. And we're going to continue to see changes I think as we go through and maybe it's true. Maybe some of us older guys, you and I can learn something from these young whippersnappers about their business. But I tend to think that maybe they may fall prey to some of the same habits. And one of those habits might be simply taking and focusing too much on the here and now and what we have to do right now or within just a couple of weeks rather than what we need to focus on 20-30 years down the line in order to get ready for that transition somewhere down the line.
My name is Jeff Allen. Bob Kroon joins us today on "Deal Talk," executive coach, mentor and adviser. We're talking about the importance of planning your exit. We talked about it before but not quite in the same way. We're very glad to have Bob with us. We're going to continue our conversation when "Deal Talk" returns right after this.
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My name is Jeff Allen with my guest today Bob Kroon, executive coach, mentor and adviser talking about the importance of exit planning or planning your exit strategy as a business owner really regardless of where you are in the stage of the ownership of your business, whether you're talking about early stage startups, or you're kind of somewhere in the middle, or maybe even in that twilight stage of your business career as far as an owner is concerned.
Bob, that's kind of where I want to camp out right now, and maybe they don't have a comprehensive exit strategy planned out for themselves. But they still know that, "You know what, I'm getting tired. I've got other interests. I want to do some fishing or I want to go and do this in about another two or three years’ time." They want to sell their companies in two or three years. They don't have a comprehensive or well thought out exit strategy. Is it too late to put something together?
Bob: You might not get everything accomplished, but it's important to sort of do a diagnosis. What are the big issues that you could move the needle on? Maybe it is finding and hiring that number two, and getting that in place. Or maybe if you could acquire one or two more customers to diversify your sales base, that would help. If there's two or three years left, identify a couple of big things that you could do to move the needle to increase value.
Jeff: Bob, we had a very exciting guest on the program in the name of Bo Burlingham, the author of the best-seller “Small Giants: Companies That Choose to Be Great Instead of Big.” And then he came out with a follow-up as you well know, “Finish Big.”
And he profiled a number of businesses and their owners, those owners who sold their companies. And half of those owners he found were just delighted. They were happy. They went off doing other things. And the other half felt empty. They felt like there was a void in their life after they sold their companies. And partly because of the fact that in many cases they were so emotionally attached, their businesses were part of them. It was actually part of their soul, if you would. In some cases their entire soul, I guess you could probably look at it that way.
How can we begin to detach ourselves emotionally from our companies to make it a little bit easier to plan our exits, to move forward with our exit plans to sell our companies and get on with our lives after our businesses?
Bob: I think the easiest way for me to think about this is to put yourself in the shoes of a buyer, pretend yourself to be a buyer of the business. And a buyer... I like to say sometimes it's a messenger. And the message they're bringing you is how much money they can raise. It's often very difficult.
Potential buyers, if they're an individual, don't always have the personal wealth that might support what is required to buy your business. So they have to rely on loans or other investors or partners that they bring into the deal.
And so the message they bring you about the price or value of the business has to do with the money they can raise. And emotionally you may feel very strongly about the employees you've hired, maybe the machinery or buildings you have in the business, and the equipment you've purchased. And you see that is value. But if it isn't creating cash flow the buyer can't pay for that what you may have paid in the first place.
I'd like to encourage sellers to see through that lens of if they were buying the business how much money could they raise and look at it that way somewhat dispassionately.
Jeff: It beautifully blends into my next question, Bob. How can we really change the way that we think or how we view our businesses? You talk about looking at it from a higher elevation, from the way that buyers look at it. But it's not always that easy. It may not necessarily be that cut and dry. How else can we kind of, in the grand scheme of things, put us in an exit mindset?
Is it something as easy as looking through books, magazines, and I'm talking about the old fashioned way. Sometimes they tend to be a little bit more inspiring than going online and looking at things in kind of a viral sort of environment. But is it a matter of trying to find new hobbies and new interests to kind of pique our level of interest and send it off into a different direction to take our minds off of our businesses a little bit?
If all you've ever done in your life is run the business 80 hours a week, of course there's nothing to do after the exit. And people feel lost at that point.
Jeff: What other kinds of things might you be able to suggest that help us get into this future planning mode to do other things to take those next steps in our lives?
Bob: Back up a little bit. If you're putting 60 or 80 hours into the business every week, there's probably not enough time for you to develop any outside interest or passions. And so if you do that up to the last day and then you exit, then what do you do with your time?
Some years earlier if you can find a way to manage the business by putting less hours into it that gives you a spot personally to develop some other kind of passions or causes that you want to support so there's a place to go after you exit. If all you've ever done in your life is run the business 80 hours a week, of course there's nothing to do after the exit. And people feel lost at that point.
Jeff: By the way, Bob, let me ask you a question. You're touching on something very interesting, and it kind of strikes a chord here. I think a lot of people would probably agree with this. I hope that some of them do anyway, that when you are the owner of a business you tend to more often than not put your business ahead of yourself.
And you might think it's one in the same really. The business is me. I'm the guy who runs it. My face or my name is on the door, or whatever you want to say. But the fact of the matter is as we end up spending a lot of time working on the brand of our business, trying to heighten its credibility and build its integrity, and we want everybody to know about it.
But isn't it true then based on what you say that if you try to spend a little bit more time on yourself when you can, taking those few spare moments that you have to discover some new areas of interests, some new passions, some organizations that you want to help, that maybe you want to sit on a board, for example.
That in turn can actually enhance our own reputations, can actually build our own self-images, and that projects outward. Our reputations become more widely known throughout the community as identified with us as individuals personally. And that could actually build our own brands, build our own value as people that could open up some doors after we decide to sell our companies, or after we leave. Isn't that possible?
Bob: Absolutely. There is a demand for the experience that someone may have in their business. You can serve on a board. You can be someone else's mentor. You can help your children in their business. There's places to go.
When we coach owners we try to understand their personal goals as well as their professional goals. And we value the personal goals slightly more than the professional goals. We never want to advise something professionally that damages your personal goals.
Jeff: Very, very good. That is a great, I think, remark to kind of lead toward what unfortunately now is kind of the end of the program. Our time is short there, Bob. Any couple, two or three takeaways you can leave us with before we close things out on this edition?
Bob: I think that it's really important to think through how a buyer might do diligence on your business and put yourself in those shoes. I think it's important to assess your own values. I've experienced people who've committed fraud or other things. There's no place for that in this. The other takeaway I would have is, and this comes to things we talked about earlier, is to plan this well in advance.
And in many ways, the very first day you start your business should be the very first day you think about selling your business. And created as something that will be passed on or sold later. And don't get wrapped up totally in the day-to-day.
Jeff: We've heard this before but it bears repeating, Bob. And certainly you bring a tremendous amount of weight to this particular subject with your experience and all. If anyone would like to get in touch with you, Bob, about their particular situation and talk to you about ways that you might be able to help them with their questions, with all the experience that you have in executive coaching, how can they reach you?
Bob: A couple of ways. I have a very extensive LinkedIn profile. You can find me there under Bob Kroon. I also have a website, expeerious.com. Either of those would be, you can find easy ways to connect with me through those.
Jeff: Bob Kroon, this has been an outstanding conversation. I really enjoyed it, having you as a guest for the first time here on our program. And hopefully in the future we can catch up with each other and have you back on again.
Bob: Thank you, Jeff. I appreciate it.
Jeff: That's Bob Kroon. He is an executive coach, mentor and business adviser, and we're very glad once again to have had him on the program today. I hope that you enjoyed the conversation as much as I have. So I appreciate once again your tuning in to "Deal Talk." In addition to morganandwestfield.com, you can find us on iTunes, Stitcher and Libsyn.
"Deal Talk" is brought to you by Morgan & Westfield, a nationwide leader in business sales and appraisals. Learn more at morganandwestfield.com. My name is Jeff Allen, thanks so much for listening. We'll talk to you again soon.
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