Building a bridge requires an elaborate plan that calls for many resources - materials, labor, time, money, experienced professionals, and a vision of the completed bridge that allows people, cars, trucks, and buses to safely cross to the other side. Without blueprints, without qualified experts, without a documented construction plan, workers can’t build the bridge.
And so it is for planning your exit. If designed properly, your “exit bridge” will transport you from your current leadership roles and responsibilities to an entirely new place. What will go into your exit planning blueprint to forge a successful exit? Thought, skill, good advice, financial resources, and time. At Clear Advice, we help our clients to build their bridge; we call it the “Bridge to Monetization.” Let’s take a moment to explore the idea.
Bridges 101
Have you ever wondered what holds up a bridge you’re crossing so you can safely make it to the other side? The fact is, there are many kinds of bridges, but they all have three major components. Starting from the ground up… [1]
1. There’s a foundation. It’s what transfers the weight of the bridge to the earth.
2. There’s a substructure consisting of piers, abutments, and other components that hold the upper construction together.
3. There’s the superstructure, which includes the surface you walk on or drive over and other supporting members such as girders and suspension cables.
Civil engineers go to college to learn how to build bridges, and they have the advantage that their work rests on many years of experience that has codified the processes required to build a bridge. While bridge construction is a complex undertaking, the overall job is one that engineers understand quite well. There’s no longer much mystery or uncertainty involved after so many years of building bridges.
Building Your Bridge to Monetization
Your bridge is different. Despite building a successful company, the foundation that supports your bridge to monetization needs to be built using a proven, documented process. It’s not because exit planning is mysterious, but because business owners often don’t know what they don’t know about the business exit process. Further, exiting a company for most business owners is a first. And it has the added pressure of being the largest, most important transaction of one’s life.
Clear Advice has developed a proven exit process to help successful business owners of small to mid-size businesses ($10-$100mm) with their business, tax and succession planning needs. Working closely with you, we design and facilitate your unique exit plan, educating you and your team while helping you execute a successful exit using our 3-step process.
1. Build Value
2. Protect Value
3. Monetize Value
Monetizing your business, when done properly and covering all aspects of an exit plan, will bring you peace-of-mind and satisfaction. However, it takes time to prepare. And, just like physical bridges, your bridge to monetization also has three major components.
Building Value
When we work together to implement your exit plan, we’ll start by establishing the current value and help increase the value of your business. This phase needs to begin years before your exit because it takes time to increase the dollar value. Several steps are involved, and they need attention over the long term.
You must clearly identify what drives value so you can enhance and expand those “value drivers”.
You’ll need to explore your company’s goodwill - that mystical intangible asset that can be hard to quantify - because it can dramatically increase value.
You should reaffirm and enhance your brand and messaging in the marketplace as well as internally, enhancing your image among customers and staff .
Just as a physical bridge uses abutments and piers to support the entire bridge, all further efforts to build a bridge to monetization rely first on building value in your company. It’s the foundation.
Protecting Value
As you evaluate alternative exit paths and strategies, you and your company will be exposed to pitfalls and challenges that can quickly erode value. Things like financial mismanagement, weak or no employment agreements, not locking down talent properly, and exposing employee theft haunt business owners upon exit. How can you secure and protect the value you’re building against those influences and events? While it’s not possible to anticipate every challenge, there are several steps you can take to protect what you’ve worked long and hard to build.
Human Capital should be considered a valuable asset worth protecting. It embodies the skills, knowledge, experience, and creativity your people bring to the job each day. It’s time to make sure you have the right people on the bus and in the right seats; and the wrong people off the bus.
As Sir Richard Branson points out, “Train people well enough so they can leave. Treat them well enough so they don’t have to.” [2]
Taxes levied on your income, capital gains, and your gifts and estate can significantly erode value. Taxes will deplete value unless diligent planning takes place. Seldom do business owners take the time to explore strategies and techniques to minimize or defer taxes. It requires more than just consulting with an accountant or attorney. It takes a team of experts to develop a comprehensive exit strategy where taxes don’t excessively dilute value.
Risk can quickly dilute your company’s value if not addressed before you exit. There are many types of risk that should be dealt with, long before they potentially impact value. Things like liabilities and lawsuits, data storage and protection, employee grievances, vendor, and banking issues as well as your many internal processes and documents. Something as simple as an employee handbook could open the company to risk if it doesn’t adequately protect the company. You must ask yourself what risks might your business face and what’s the most effective way to manage them?
Protecting the value of your business requires ongoing attention and action. Like the substructure of a physical bridge, a solid risk management plan “holds things together” and protects the value you’ve built from storms of unanticipated events.
Monetization, the Final Step
Deciding how to monetize the business to meet your specific goals is the ultimate step in the business exit planning process. Since there are so many options and variations, it will take time to explore the options and the specifics to see which is best for you. Based on my 35 years of experience in working with business owners to plan for their future after an exit, it’s not just themselves they worry about when monetizing. It’s the company itself as their legacy.
The monetize value step in the Bridge to Monetization process requires very careful consideration, since it will affect much. Will you sell your business to insiders or a third party? To family members or private equity? To a friendly competitor or venture capital? Or maybe to an employee stock ownership plan?
Without a formal written exit plan that addresses the unique challenges each option brings, the business owner and those who take the reins will be disappointed.
Conclusion
There is little doubt that exiting from a position of leadership and control within your company is challenging. Done properly, it’s a journey that begins with enhancing value, then protecting that value so the exit event exceeds your expectations.
Just as a team of engineers and contractors have codified bridge-building, exit planning requires a team of experts to develop and execute on a process that works.
Are you within five years of existing your business? Learn more about our process by downloading our Building Your Bridge to Monetization ebook today.
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