The Coaching Skill in Exit Planning

Posted on January 2, 2021 by John F. Dini

The single most important talent in your exit planning team is coaching skill. I’ve written often in this space about the need for multiple talents, from taxation to legal, financial planning, and risk management. None, however, is more important than coaching.

Let me put it this way. Your planning team can be led from any position, as long as the person leading has coaching skill. If he or she doesn’t, all the clever tax advice or ironclad documentation in the world won’t lead to your successful transition. But if the person leading the team is an experienced coach, you’ll probably be okay.

What is Coaching Skill?

coaching skillLet’s make it simple. Coaching is asking questions. An experienced coach will ask the questions that no one else does, preferably in a way that doesn’t offend.

Do you want to save money on taxes? Of course, and that should be apparent to every professional involved. Do you want to maintain control until you are paid what the company is worth? Sure. Do you want to ensure that your family is taken care of? Naturally.

These aren’t the questions that derail a transition plan. Here are a few that, left unasked, will.

Is there something more important to you than the proceeds from selling? Is there a part of your legacy that must be preserved if at all possible? Are there non-financial or non-equity stakeholders whose welfare must figure into the plan? Is your family on board with this?

These are the questions that an advisor who is focused on the technical complexities of exiting will often omit.

The Most Important Question

What will you do when you no longer own this business?

For many entrepreneurs, that’s the stumper. Unless you can answer it comfortably, your plan is very likely to fail. Most advisors will ask it in a casual way. “So what will you do next?” They may react little or not at all if your response is “I don’t know.”

When I was active as a business broker, I would decline a listing if an owner couldn’t enunciate a plan for life after the business. In my first book, 11 Things You Absolutely Need to Know about Selling Your Business, I describe a case where an owner declined two offers, each for twice his company’s estimated value. He simply didn’t know what he would do next.

“I don’t know” is a signal that the owner can’t envision life without the activity of the business.

Sometimes the answer is too facile. “I’ll play a lot more golf!” Nice try, but I’ve heard many a retiring owner tell me “I never thought I could play too much golf.” Here is an exercise I use with clients to help them visualize the next phase of their lives.

Filling in the Week

Start with the time you currently spend at the business. Include that “quiet time” at the beginning or end of the day when you like to think. Add in answering emails and texts at home or reading reports and articles on the weekend. Let’s say, conservatively, that you are engaged with your business for 50 hours a week.

Now, let’s start retirement with golf every Monday, Wednesday, and Friday. That’s a lot of golf, but we have only consumed about 15 hours of your workweek. What else?

Many folks will say they want to do more community service. Unless you plan to take on the full-time responsibility of running a charitable organization, let’s try simple volunteering to start. Two half-days a week? That’s another ten hours. We are up to twenty-five.

Travel is a big goal. How do four, two-week trips a year sound? That’s an average of another 8 hours a week.

Now you have two months of traveling, 150 golf outings, and 100 days a year working for charity. That only leaves you with about 17 hours a week to fill. Sleep in, exercise more, catch up on your reading?

There are lots of ways to fill the remaining time, but remember we are starting with someone who has a lot of plans. Many business owners have none.

Unhappy Exits

According to a survey by the Exit Planning Institute, up to 75% of former business owners are unhappy with their exits one year after selling.

I don’t know of any of my clients who are unhappy with the results. Perhaps that’s just luck, but I like to think it’s at least partially due to my coaching skill. The technical and financial complexities of a successful transition are nothing to sneeze at, but helping an owner be prepared is so much more than that.

Posted in Exit Planning, Exit Strategies, Life After | Tagged , , , , | 1 Comment

One Response to The Coaching Skill in Exit Planning

  1. Valerie Koenig says:
    January 4, 2021 at 7:42 pm

    Great points, John.

    Reply

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Ebenezer Wasn’t the Only Boss

Posted on December 19, 2020 by John F. Dini

Each year I reprint a post from 2013 about the underappreciated boss of A Christmas Carol, Mr. Fezziwig. I hope that you enjoy it. Merry Christmas!

This week was the 177th anniversary of the publication of Charles Dickens’ A Christmas Carol (December 17, 1843). The immortal words of Ebenezer Scrooge are ingrained in the memory of the entire English speaking world. I’d venture to guess that “Bah, Humbug!” can be correctly identified as to source and speaker by over 99% of those reading this.

The novella, serialized in five parts, was not a commercial success. Unhappy with the sales of his previous novel (Martin Chuzzlewit– no wonder!), he refused his normal fee from the publisher in favor of royalties on the proceeds, which proved disappointing. Critical reception was favorable, although it didn’t catch on in America until much later. The New York Times first published a review in 1863, 20 years after its publication in England.

Like most of Dickens’ work, A Christmas Carol clearly includes an indictment of the social inequalities of the Industrial Age; child labor, workhouses, and debtors’ prisons. It stands out, however, because of the lessons taught by its memorable ghosts, and the redemption of its main character in only 113 pages.

During the Protestant Reformation in England and Scotland, Christmas had become a period of penance and reflection. A Christmas Carol is credited by many for leading the return to a celebratory holiday, focused on appreciation and thanks for family and friends.

Modern Ebenezers

Modern filmmakers have returned to the straight-ahead plot and uplifting storyline (not to mention the recurring royalties available year after year) with a frequency that helps Ebenezerstamp the legend in our psyche. After seven silent and four “Talkie” versions, the first big sound production was the 1938 Reginald Owen version (originally released as “Scrooge”) and then the 1951 Alistair Sim classic. The character of Ebenezer has been tackled by actors ranging from George C. Scott to Michael Caine (with the Muppets.) Ralph Richardson, Frederick March, Basil Rathbone,  Patrick Stewart, Kelsey Grammar and Rich Little (in various celebrity impersonations) have taken a shot, as have Mickey Mouse, Mr. Magoo, the Smurfs, Barbie, Oscar the Grouch, Yosemite Sam, Dora the Explorer, and The Flintstones.

Let’s not forget the variants; Bill Murray in “Scrooged”, or Boris Karloff, Benedict Cumberbatch and Jim Carrey in versions of “How the Grinch Stole Christmas.” In all, IMDB lists almost 200 filmed variants of the story.

Unfortunately, the characterization of Scrooge has become ingrained in the minds of many as a stereotype of all bosses who dare to focus on margins and profit. How many employees identify their bosses with Fezziwig, who took pride in making his employees a happy group, even though Scrooge dismissed it as “only a little thing?”

FezziwigInstead of focusing on the things that allow Fezziwig to spend lavishly on his employees (a motivated workforce, honesty, doing what’s right, profitability), we prefer to fantasize about a boss who expresses sudden enlightenment by unexpectedly bestowing gifts and extra days off (well, actually just one day off.) Fezziwig is relegated to an afterthought, an overweight doting uncle with no visible reason for his success.

Most of us are far more Fezziwigs than Scrooges. Oddly, if we celebrated the season of giving by handing our employees a list of all the extra things we’ve done for them during the year, we’d be considered more akin to Ebenezer. We bow to the popular myth, give even more at the holidays, and hope it has some carryover of appreciation into the New Year.

Just remember to remind your employees when you are being Fezziwig the rest of the year. A Christmas turkey for Tiny Tim isn’t as important as being a good boss.

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The Dismal Ds and Exit Planning

Posted on October 27, 2020 by John F. Dini

The “Dismal Ds” is an inside joke in exit planning. Every industry and profession has them. In some, it’s “You can have it done well, done fast, or done cheaply. Pick any two.” In planning it’s “Sooner or later, every owner exits his or her business… 100% guaranteed.”

Clearly, that refers to the unplanned but inevitable departure from the biggest D – Death. That isn’t the only D, however. There are others, NONE of which lead to a controlled, lucrative, or enjoyable transition. Most start with dis- defined as “dis– 1. a Latin prefix meaning “apart,” “asunder,” “away,” “utterly,” or having a privative, negative, or reversing force.”

The other Dismal Ds include:

  • Disease – the critical illness of the owner or an irreplaceable employee.
  • Dissension – between partners, shareholders, or family members
  • Disaster – Fire, flood, storm, or accident
  • Disability – An owner’s inability to oversee operations
  • Disinterest – of the founder or next-generation ownership
  • Distraction – When an owner’s focus is elsewhere. (frequently love or bar ownership)
  • Disarray – More simply, bad management
  • Dishonor – financial fraud or other skulduggery
  • Disenchantment – A fancy word for burnout
  • Divorce – a bitter fight over the business asset or its value
  • Debt – Leverage taken on in good times but no longer sustainable
  • Depression – Economic malaise (think hospitality in 2020.)
  • Defection– The poaching or bolting of a key employee, frequently in sales
  • Defenestration – Getting thrown from a window

(Okay, I may have gone too far with that last one, but I couldn’t resist.)

Planning – The Cure for the Dismal Ds

The point is, there are many ways of a forced exit from your business due to circumstances. Some might be beyond your control, but most can be avoided.

  • Disease – Have solid business continuity instructions in place
  • Dissension – Start with a good buy/sell or shareholders’ agreement that makes it plain how disagreements will be handled
  • Disaster – Fire, flood, storm, or accidents can be insured, including for loss of revenue.
  • Disability – Business continuity instructions again
  • Disinterest – Start implementing an exit plan before your business shows the effect. In brokerage, we used to say “Show me an owner who says he is burned out, and I’ll show you financial statements that evidenced the problem three years ago.”
  • Distraction – Don’t buy a bar. Don’t buy another business. Don’t have an affair.
  • Disarray – Get help. Consulting, coaching and peer groups all work.
  • Dishonor – Have an outside party check your systems and security.
  • Disenchantment – See Disinterest
  • Divorce – Settle the value of the business first, preferably before the lawyers do it for you.
  • Debt – Limit your debt to half what your current cash flow can service.
  • Depression – If you have to cut expenses, do so deeply and quickly.
  • Defection– Two words- employment agreements
  • Defenestration – Stay away from the Departed, or Irish, Italian, and Jewish mobsters in general. Alternatively, live where there are only low-rise buildings.Dismal Ds

I obviously have my tongue firmly planted in cheek for this column, but my point should be clear. Your business is probably the most valuable asset in your life. Losing it to unplanned events hurts. Even if you are no longer in the picture, you have some responsibility to your family, employees and customers.

A good exit plan, whether it’s for implementation now or years down the road, should take many, if not all of the Dismal Ds into account. All entrepreneurs want control over their future. That is why they are entrepreneurs. Planning isn’t merely an intellectual exercise. It’s all about control.

Posted in Building Value, Entrepreneurship, Exit Options, Exit Planning, Exit Strategies, Management | Tagged , , , , , , , , , , , , , , | 2 Comments

2 Responses to The Dismal Ds and Exit Planning

  1. Valerie Marie Riefenstahl says:
    October 29, 2020 at 11:17 am

    Tongue-in-cheek or not, this is a good follow on to your comments about, “Today is the First Day of Your Exit-Planned or Not.”

    Reply
  2. Kerri Salls says:
    December 17, 2020 at 5:02 pm

    Excellent list, John. All too true and need to be considered. With planning there are alternatives to every one.

    Reply

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Exit Planning When Kids Don’t Cut It

Posted on September 18, 2020 by John F. Dini

Many owners want to see their children inherit the business, but what happens when the kids don’t cut it?

Some years ago I worked with a business owner whose exit plan was to sell into one of the private equity roll-ups that were active in his industry. His son was finishing college, where he studied for a career in wildlife management. The son’s ambition was to spend his life in the great outdoors.

One day my client was beaming when I walked into his office. “Guess what?” he said. “My son called. He wants to take over my business!” After a few minutes, it was pretty clear that we weren’t going to have a conversation about experience or qualifications. This owner had a whole new exit plan.

Fortunately, that plan worked out. There was strong management in place, and the son paid his dues in sales and management training before the transition. Not all such shifts work out that way.

When kids don’t cut it

when the kids don't cut itThere was another prospect who gave me my “assignment” for proposing. “My son has been in the business for the last ten years. He seldom shows up. He is nominally in charge of a department, but we do little or no business in that area. He’s abusive when he is here, and all the employees hate him.”

“We (his mother and I) want to sell him the business, and we need him to perform well to fund our retirement. How much will you charge to straighten him out and get him to run the business right so he can pay us?”

I wanted to answer “Infinity,” but chose instead to politely decline the engagement.

I’ve written many times about the attachment a founder has for his or her business. Of course, parents (hopefully) have an even stronger bond with their children. Watching the first client’s face light up when he made the announcement was the best illustration of how important legacy preservation can be to an owner.

Yet, keeping the business in the family isn’t always the best idea. It involves a number of stakeholders, including employees and other children.

Key Employee Issues

For brevity, we will start by presuming that you’ve never promised, indicated, discussed, or even hinted to key employees that they were going to own the company. If you have, that’s a whole different can of worms that we’ll deal with another time.

We also aren’t talking about a succession plan where the son or daughter has always been the heir apparent, and has trained for the position.

Commonly, it’s somewhere in between. The child holds a job in the company, but not the second-in-command position. He or she does it well enough, but isn’t a star. They are interested in ownership (another too-often ignored question,) but their ability to act as CEO in the foreseeable future is doubtful.

Even if key managers aren’t resentful, they are not chattels. Giving ownership to a child is a clear message that their career path has reached a stopping point. It may be an eye-opener, and almost certainly disposes them to look at other opportunities, even if they don’t do so actively. Remember, their loyalty is to you. It isn’t automatically transferrable.

One solution that’s often employed is the perpetuation of the founder/owner. He stays on in a consulting role long after normal retirement age. Often it works out, and it can lend tremendous experience to the company.

If you don’t want to stick around in the “answer man” role, however, you need to secure the continued commitment of the key managers. That should be done through conditional compensation, tied to the continued success of the company. If appropriate, it may also require reaching benchmarks for training the offspring to take the reins of the business.

Long-term compensation can be through virtual equity (Phantom Stock or Stock Appreciation Rights,)  direct profit participation, actual minority equity ownership, or supplemental retirement insurance. It needs to be more than just a salary, though. Someone else can always beat a salary.

Keep Thanksgiving Friendly

The other stakeholders who should be considered are the siblings who don’t work in the business. Often the owner wants to leave the business to the child who has worked in it. The owner’s spouse wants to divide it equally among all the children. Both ways are fraught with issues.

Leaving the entire income-producing capability of the family (the company) to one child can obviously create resentment. On the other hand, forcing that child into a lifetime of working for the benefit of his or her siblings is likely to end family Thanksgivings. No one wants to grow a business only to see a third, or half or three-quarters of the benefit go to bystanders.

Some owners choose to balance their estate with other assets outside the business. If that isn’t practical, we frequently recommend dividing the business equally, but with a valuation formula and documented agreement to sell the inherited shares to the active child or children. Everyone benefits from the parent’s work, but going forward the active child keeps any increase in profits (and also bears the risk of any decline.)

Passing the legacy of a successful enterprise to children can be one of the greatest thrills of a parent’s life. When the kids don’t cut it, however, it is wise to face facts and plan accordingly.  Glossing over the issues will inevitably lead to more pain down the road.

Posted in Exit Options, Exit Planning, Leadership, Management | Tagged , , , , , , , , , , , , , , , | 2 Comments

2 Responses to Exit Planning When Kids Don’t Cut It

  1. Valerie Koenig says:
    September 18, 2020 at 3:37 pm

    Nailed it, John.

    Reply
  2. Maryanne Guido says:
    September 18, 2020 at 4:52 pm

    You got this right!

    Reply

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COVID Fatigue Unites Business Owners

Posted on August 1, 2020 by John F. Dini

Dealing with  COVID fatigue unites business owners. If that sounds strange to you, let me make my case. I’m not doing this to whine, but I want business owners who don’t have an existing support structure to know that they aren’t alone.

I facilitate several peer groups of business owners. For decades, we’ve met monthly to discuss trends and issues in our businesses. It is typically a lively roundtable. Hiring, termination, customers, vendors, regulation, new initiatives, and finances present themselves at most, if not all meetings.

The First Wave

At the beginning of the pandemic, we increased our meeting frequency from monthly to weekly. It really helped with the news pummeling us every day. First, we had sanitation and control of infection. What should we do if an employee was diagnosed? What were the guidelines, or more accurately, the current guidelines regarding quarantine? How serious was this? Opinions ranged widely on the severity and need for action.

COVID FatigueThen came the lockdowns. Who decided that this was within the power of a mayor? Like so many regulations, it seemed to come without any discussion of the impact on small businesses. We never “blamed” the medical community. They were told to recommend the best way to slow the virus’ spread. They did.

Our meetings became both strained and strange. We started living in two worlds. Some businesses were decimated, others were setting sales and profit records.

The Light in the Tunnel

Then came the relief bills. How did FFCRA work? Who has the poster? Will our employees all choose to go home at 2/3 pay? (Not very many did.) We traded policies and memos from HR advisors, CPAs, and law firms.

Then the CARES act. BAM! $2 trillion flushed through the economy like a transfusion. We didn’t talk much about EIDL. The need to pay it back from PPP proceeds and running out of money early on focused us all on the Paycheck Protection Program. Of the 28 participants in the groups (myself included,) all 28 applied for and received PPP funds. We all shared application information and intelligence on which banks were handling it best.

Again, we had concerns that the $600 unemployment bonus would dry up the recruiting market. It made things a bit more challenging, but not insurmountable. Most folks seem to prefer continuing employment. People who seek to milk the benefits to the last dollar aren’t the ones we wanted anyway. Of course, watching the collapse of the antiquated government infrastructure for unemployment may have influenced applicants as well.

We traded information on remote working. How to keep employees engaged? Tips on contests, productivity tracking, and virtual technology. Those in essential industries never stopped working (see my post on Morlocks and Eloi.) Some found that remote workers had no desire to return to the office, and began looking at reducing their commitments for leased space. Others went back as soon as they could.

As we progressed into June, we basked in the belief that we had dodged the bullet. Our region (South Texas) had among the lowest in infection rates in the US. Many of us applauded the governor’s early, but seemingly sensibly staged reopening. We cut back to one “touch-base” meeting midway between our usual monthly half-day sessions.

The New Normal – Not

We were fed up with COVID fatigue. Discussions turned to new initiatives, how to best utilize the PPP money (for those who didn’t need all of it just to stay alive,) loan forgiveness, and how to deal with the “new normal.”

There is an old saying. “Man plans and God laughs.” No sooner did we start to draw a collective breath than we were hit with the results of Memorial Day. It seemed that the entire population under 40 decided the crisis was over. Our county went from the least infected major metropolitan area in the nation to one of the 5 worst in a few weeks. The tone of the meetings became somber again.

We weren’t dealing with a short-term crisis, nor with a new normal. It was just getting worse each day. One member with a small retail chain has seen more holdups in 90 days than in the last 5 years. Those with school-aged children, or employees who have children, are at a loss on how to deal with the school issues. (my post on school return) Many of us who had no direct experience with COVID now know people who were very ill, or who died.

New problems keep popping up. One member who spent a weekend getting emergency plumbing done in his offices (due to flushing of disinfecting wipes) called COVID “The gift that keeps on giving.”

COVID Fatigue

Now we are living in Bill Murray’s “Groundhog Day.” We keep trying to talk about non-COVID related issues, but there aren’t any. Hiring, attendance. productivity, communications, customers, supply lines, shortages, backlogs. All this has to be considered in light of the damn virus.

COVID Fatigue 2We are all gun shy with COVID fatigue. Every issue surmounted may come back. It may take on a new aspect, or pop up when or where it is unexpected. No one wants to say “We’ve got this.” At best we say “We’ve got this so far.”

As business owners we expect more control over our environment. That’s why we are business owners. Instead, we keep fixing a problem only to face the next one. They aren’t unique. They are serial manifestations of the same root cause.

We are fed up with the lack of direction or plan. Cities sue states (with our tax money.) States sue the Federal Government (with our tax money.) Protestors march, and sometimes riot. Frankly, if I was watching all this from a home from which I feared being evicted and weeks or months without an unemployment check. I’d probably be in the streets too.

Quoting the Temptation’s Ball of Confusion, “And the band played on”. At the end of every conversation, we have to go back to running our businesses. We have to show a strong face for our employees. We have to overcome or circumnavigate the challenges, even though we know that the solutions will be temporary.

It’s what we do. If you are doing it alone, find someone who understands the burden. I can assure you, dealing with COVID fatigue is a bit easier when you share with people who know what you are dealing with.

There really is strength in numbers. All too often, business owners assume they have to go it alone.

Posted in Entrepreneurship, Leadership, Management, Thoughts and Opinions | Tagged , , , , , , , , , , , | 3 Comments

3 Responses to COVID Fatigue Unites Business Owners

  1. Kay Scroggins says:
    August 2, 2020 at 10:55 pm

    Thank you, John, for writing this. The chronic impact of COVID-19 seems to get heavier as time goes on. Being part of TAB where I can share thoughts/feelings about difficulties has been so helpful during this time. Successful business owners have perseverance, but these times sure have been challenging. Your statement about the serial issues/problems is spot on. We fix one issue only to have several more lined up to deal with. The issues brought about by COVID-19 are on top of our usual issues so take even more time/energy/money… I hope you are well. Thank you again for your article.

    Reply
  2. Jay McDowell says:
    August 3, 2020 at 12:13 pm

    John,
    In a few short paragraphs you have succinctly stated what so many feel, but are at a loss to define or adequately express. I have copied and shared your thoughtful article with a couple of my Business Coaching Clients that are doing “well” during COVID and yet feel strangely guilty in doing so. They know much of their “New Normal” success is COVID generated, and is temporary in nature, but are thankful, and a little guilty, that it comes from the misfortune of others.
    Lemonade from lemons with a COVID twist?

    Reply

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