The Missing Employees
Are you missing employees? Where did they go? I just got off the phone with a restaurant owner who temporarily closed one of his locations so that he could redistribute the staff to the other three. I’ve also heard or seen in the last week: A Starbucks closing at 4:00 PM for lack of staff. A director in a large accounting firm reporting that two pay raises in 9 months (for remote employees) are being characterized by the 30-something accountants as “non-competitive.” Apple employees publishing an internal letter saying the company’s plan to require 3 days a week attendance is “unacceptable.” A wire service story noting that only 12% of office workers in Manhattan have returned to their offices. The manager of a new restaurant scheduling 27 interviews, then sitting through 26 no-shows. Wait times for services businesses that are are unworkable for customers. Our tree trimmer offered me a date 4 months out. The pool contractor’s backlog is seven months. Both claimed insufficient crews to handle the business. I talk to at least a dozen employers a week, and all are complaining about the lack of qualified applicants. Several have raised their starting wage rates multiple times, with no discernable change in the flow of applicants. What the hell is going on? To start, I don’t believe that it’s all the fault of supplementary unemployment benefits. It is true that the states which discontinued the supplements have somewhat lower unemployment rates, and that $300 a week is enough to entice a $10/hour employee, but the missing employees are across the wage range. Factors Driving the Shortage and Wageflation One fact is that the economic rebound since 2009 has not previously had much impact on wages. They were bound to catch up at some point. The Federal Minimum Wage of $7.25 an hour is now insufficient to pay for basic apartment rent anywhere in the USA. Supplementary benefits or not, no one wants to put in 40 hours a week and not be able to live on what they earn. Another is the absorption of women into the workforce. For much of the ’80s and ’90s, women working for the first time represented a net addition to the number of available workers. This had a depressing effect on wages, as there were more bodies chasing limited jobs. The employment market has adjusted to this new normal. Remote working has frayed the cultural relationship between employers and employees. Where workers often stayed in a job because they had friends there, or were comfortable with their responsibilities, now salary is rapidly becoming the only factor they consider. The inflationary pressures of deficit spending are shrinking the buying power of static paychecks. The lessening of COVID-19 is releasing a backlog of employees who “wanted to move anyway,” but were hanging on to what security they had through the pandemic. Most importantly, over 50% of the Baby Boomers are now over 65 years old. Generation X is much smaller, so these retirements impact mid-level employees and managers the most. The available pool of experienced people is literally shrinking. Missing Employees and Exit Planning If you are one of the Baby Boomers who are now 21% of the population but still own 51% of the private companies in the U.S., missing employees will impact you in more ways than just on your daily workload. Increased labor costs will have a direct impact on profitability, and therefore valuations. The challenge of retaining employees long enough to develop true proficiency is growing. Higher turnover means you’ll need more people for the same tasks. The long-term commitment of a relationship where someone is in training to assume control of the business becomes in many cases, unimaginable to an employee. Lack of experience in a management team also detracts from enterprise value. In businesses that depend on repeat customers, relationships may need to be reestablished regularly. I saw a cartoon a few weeks ago. An owner is talking to his employees. He says “When we said you were essential workers, we didn’t mean you should be paid like essential workers.” Perhaps they can be forgiven for misunderstanding. In our mission statements, we often say that employees are our most important asset. It looks like we may have to put our money where our mouth is. John F. Dini, CExP, CEPA is an exit planning coach and the President of MPN Incorporated in San Antonio, Texas. He is the publisher of Awake at 2 o’clock and has authored three books on business ownership. The single largest transaction and transition of your life deserves special attention. Are you planning to exit and sell your business? Business Exit planning is quickly becoming a buzzword in the legal and financial communities. Your professional advisors position themselves to provide tax, risk management, wealth management, and contract preparation services. BEST Exit Plan Advisor has been trained to manage your team of tax, legal, business, and financial planners to navigate your exit strategy. Click here for more details and a video on how to get started. If you want to see how prepared you are for transition, take the 15-minute Assessment at no charge: There is one indisputable fact – 100% of owners will eventually exit their business. The Assessment is a multiple-choice questionnaire that does not ask for confidential or financial information. Nevertheless, it is a critical first step in starting the discussion and planning process. Click here for more information concerning our free, no-obligation exit planning assessment.
Exit Planning: You Need to Grieve it to Leave it
Strategies for the Emotional Side of Exit Planning and Career Transition It was just a few minutes into our phone call, and our clients started to cry. Working on their business exit planning and reviewing the financial and transactional aspects of selling their nursery operation, it suddenly hit them as they looked over a beautiful array of plants in their greenhouse. Their nursery business was their “baby” that they had spent over 30 years growing day and night, and the fact that they were moving on brought tears of both joy and sadness. We empathized with them, and they began to apologize for their emotions and stated they were ready to move on. “There is no need to apologize, as this is all positive,” we said. “You are grieving the business, and this is an important part of your journey and transition to what’s next.” Accountants, lawyers, financial planners, business brokers, and business exit planning specialists all work in the transactional areas of selling a business. They bring expertise in each of their fields that, when combined, are critical to a successful sale or transition. However, what about the tears and the emotions involved in exiting a business? According to an Exit Planning Institute (EPI) report, over 75% of business owners who have sold their business profoundly regret it within a year after the sale. Most of these owners will end up grieving the loss of their business for many years to come. Many say that they have lost their identity and their reason for being – “How much golf can a person play?” How do we avoid this seller’s remorse, and what steps can we take to mitigate these feelings of regret during the exit planning process? We recently interviewed Chip Conley, a noted entrepreneur, author, speaker, and founder of the Modern Elder Academy. According to Chip, “We need to stop retiring from something and retire to something. There are (3) values people take from their company ownership – a sense of purpose, wellness, and community. They seemingly lose all three when they retire, and it can even accelerate their mortality by several years.” During the exit planning process, it is important to plan where the owner will find their purpose, wellness, and community after the sale or outline a personal vision of what life looks like after the business. It helps frame and answers the question, “What are we retiring to?” In addition, when working with owners on their emotional readiness for when they transition, “preparatory grief” or dealing with grief before the event happens is another way of preparing for the day they sign the papers and hand over the keys. In 1969, psychiatrist Elisabeth Kübler-Ross first identified five stages of grief in her book, On Death and Dying. She noted that those experiencing grief on losing a loved one (and a business can undoubtedly be considered a “loved one” to most owners) go through five emotional stages: denial, anger, bargaining, depression, and acceptance. Naturally, many will argue the merits of the process or disagree with the original and simplistic approach. After all, grieving is complicated, but there is consistency in our experience when the five stages are applied to exit planning. According to Dr. Patrick Downing, a psychologist who has worked with exiting business owners, “Grieving the loss of a business is not a seamless process, and there will be flip flops back and forth between the emotional stages— it is not a linear progression. It is all about finding cognitive strategies to help guide you through the emotions that hit you. It helps steer the emotions in a way to help process a sale of the business.” Thus, we find that exit planning itself can be akin to a grieving process. Denial “If you fail to plan, you are planning to fail!” – Benjamin Franklin There is one indisputable fact – 100% of owners will eventually exit their business. It could be through family succession, sale, liquidation, closure, death, or any number of reasons – many of which are outside the owner’s control. According to the EPI, 50% of these exits will be involuntary, and 40% of business owners lack even a basic continuity plan (should something happen to the owner). When it comes to exit planning, denial is by far the biggest hurdle. When we talk to business owners and ask when they plan to exit, the typical answer is 3-5 years. Ask them 3-5 years from now, and the standard answer again is 3-5 years. Denial is clinging to a false reality, and it plays a significant role in why 70-80% of businesses don’t sell. When we are asked by business owners when they should start exit planning, our answer is always a resounding “NOW!” Whether the business owner is in their 20s or 60s, we have never heard clients complain that they spent too much time planning. On the contrary, planning leads to business optimization, better decision-making, and less owner-centricity, all of which will drive up value in a buyer’s eyes. According to John Dini, author of Your Exit Map, “Five years is a reasonable planning time. Ten years is better. There is no time frame that’s too far out to be thinking about your exit.” Many owners can get stuck in denial indefinitely. We recently had a 72-year-old client tell us he wanted to delay the start of his business exit planning for at least six months, even over his wife’s objections, because he was just too busy. Certainly not what a potential buyer wants to hear. Overcoming denial is not easy, and it takes a lot of time, effort, and focusing on the bigger picture. We start with a preparedness assessment and a valuation because denial often manifests itself in postponing a departure and what an owner perceives as the fair market value for his/her business. How can one get past denial? Examine your fears, think about the consequences of doing nothing, and identify the irrational beliefs and your reality. Most importantly, talk to someone— a trusted
Internal Leaders Affect the Value of Your Business
Internal leaders may not be obvious. They may not even have a “leadership” title. Make no mistake, however; internal leaders are critical to value and attractiveness when it comes to selling your business. In Super Bowl 55 we saw the impact of an internal leader. Tom Brady has the highest winning percentage of any single athlete in major professional sports. The Tampa Bay Buccaneers have (or at least did up until this season) the worst win/loss record over their entire existence of any major professional sports team. Yet one man changed the culture of the organization almost overnight. Remember, for all the accolades being heaped on Brady, he is an employee. He doesn’t own the Buccaneer enterprise or negotiate any contracts other than his own. He didn’t choose the team’s logo, uniforms, location, or coaches. Tom Brady is paid to fill only one of 53 player positions in the organization. There are also 31 coaches on the team, whose jobs are to teach and give direction to those 53 players. Although every player will acknowledge that winning is a team effort, none will argue the impact of one strong internal leader on his 83 coworkers. Internal leaders can be good or bad When I was a very young business owner, I hired an experienced salesman. He was an alcoholic and began inviting other employees to his house for a cocktail after work. It took me some time (too long) to realize that he was plying his coworkers with free booze while he ranted daily about how poorly the company was being run. I couldn’t understand why there was so much resentment among my team. They seemed to resist any direction I gave them. Finally, one person was kind enough to explain to me what was happening. Because this salesman was my top producer, I was afraid of the impact on revenues if I fired him. He didn’t want my job. In fact, he didn’t want any of the responsibility that should go with leading. He had merely discovered one of the biggest truths about leadership. It’s easier to tear something down than build it up. People love to hear that things could be better. It’s making them better that is the tough part. Tom Brady made the Tampa Bay Buccaneers better. Like any good internal leader, he didn’t limit his contribution to his job description as Quarterback. He helped recruit and train the people around him to build a better team. Identify your internal leaders An army dispatches its troops under the leadership of its lieutenants, but it succeeds on the ability of its sergeants. As a business owner, you can inspire with core values and set great goals. Whether you reach them, however, will be determined by your internal leaders. When it comes time for your transition, they are more important than ever. If you are selling to family or employees, they may not expect to be included in equity, but they will determine the acceptance of those who are. If you are selling to a third party, his or her achievements following the sale are conditional on the support of your internal leaders. They can prop up an inexperienced owner, or sink him without a trace. If any part of your proceeds from exiting depend on the continued success of the business, you would be wise to identify your internal leaders and make some provision for their continued loyalty after you are gone. If they don’t buy-in, you could see the value of your enterprise (and your payout) decline substantially. John F. Dini, CExP, CEPA is an exit planning coach and the President of MPN Incorporated in San Antonio, Texas. He is the publisher of Awake at 2 o’clock and has authored three books on business ownership. The single largest transaction and transition of your life deserves special attention. Are you planning to exit and sell your business? Business Exit planning is quickly becoming a buzzword in the legal and financial communities. Your professional advisors position themselves to provide tax, risk management, wealth management, and contract preparation services. BEST Exit Plan Advisor has been trained to manage your team of tax, legal, business, and financial planners to navigate your exit strategy. Click here for more details on how to get started. If you want to see how prepared you are for transition, take the 15-minute Assessment at no charge: There is one indisputable fact – 100% of owners will eventually exit their business. The Assessment is a multiple-choice questionnaire that does not ask for confidential or financial information. Nevertheless, it is a critical first step in starting the discussion and planning process. Click here for more information concerning our free, no-obligation exit planning assessment.
Exit Planning: It can wait until tomorrow, right?
When asked about succession or exit planning, have you given one of these responses? “I think I will leave my business in three to five years.” “The operation still needs me.” “The business is not ready to be transitioned.” “We are too busy to worry about succession.” “I will easily sell it in a few years and walk away.” “I am just not ready yet.” Or perhaps you know someone who has given one of these answers when discussing their potential exit from the business and retirement? Like starting an exercise program, exit planning can easily wait until tomorrow. However, for the Baby Boomers, tomorrow is here. Business owners born between 1945 and 1964 make up 25% of the population but own over 60% of the small businesses. The high ownership levels result from their surge into the job market in the 1970s and the lack of room in corporate America to absorb a much larger and better-educated employee population. From 1975 until the mid-1980s, Baby Boomers opened new businesses at a rate never seen before and not duplicated since. Today, over 5,000,000 Baby Boomers are preparing for retirement. Just as when they all went to college, started new businesses, and became prolific consumers, they will create a flood of small business sales in the United States. So, what is exit planning, and why should you do it? Also, how do you do it, and when should you start? Exit Planning: What is it and Why do it? When a business broker creates an “exit plan,” it usually involves listing the business for sale to a third party. An attorney’s planning focuses on the legal documents that allow the transition of a company’s assets to new ownership. An accountant or financial planner will look closely at tax and inheritance issues, and an insurance broker offers products that reduce the risk of interruption or disaster. It is logical then that exit planning is quickly becoming a significant focus of the legal and financial communities. Although boomers are healthier than prior generations, they all have to retire eventually. Tens of thousands of professional advisors are positioning themselves to provide tax, risk management, wealth management, and contract preparation services to this flood of sellers. You may be in your 40s and 50s and maybe thinking that this doesn’t apply to you. After all, you have plenty of time. However, the answer to that question is another question: then why buy life insurance? Anything can happen to any of us at any time. Exit planning is another form of insurance— just as you are making sure your family is being cared for, don’t you want the same for your business and employees? There are many additional benefits to starting exit planning early— the process of getting your business transition ready means making it more attractive to investors. That includes, but is not limited to: maximizing revenue, lowering expenses, increasing efficiencies, eliminating owner-centric processes, getting the business modernized, up-to-speed, and more profitable. All of these will have tremendous benefits for you and your company regardless of your exit timing. Examining the strengths and weaknesses of the business, IT systems, management team, and customer base are good continual improvement practices that make the company more profitable in the short-term and make it much more attractive for a potential buyer. How to Plan Your Exit? A successful transition starts by determining the planned date of exit and the post-tax proceeds required from the business to satisfy the owner. The target proceeds should be achievable in the chosen time frame. If they are not, you can extend the time frame or reduce the financial goal. After determining schedules and financial information, there are essentially three options on whom will take over as an owner: a family member, an internal team sale, or a third-party sale. Discussions with accountants, attorneys, financial planners, and others likely feel similar to a complicated maze that makes you not even want to start the process. A trained advisor will help initiate the process and will engage in constant communication with all of the parties listed above, with your control of the process remaining intact. The most effective and efficient approach to exit planning is to select a single professional who can manage all the others involved. Creating new entities or sale agreements is pointless unless the tax implications are first understood. Planning to reduce the impact of income taxes may be rendered moot if a company is not in a position to sell. Putting the company up for sale may be a disaster if an owner doesn’t understand what buyers are looking for and how much they’re willing to pay. Not only will this process determine the best options for your eventual exit from your business, but it also provides a screenshot of the company. It helps to identify areas of the organization that can be improved and what we can outsource to others to achieve the highest sale value possible. Eventually, the planning also leads to a smooth transition, operationally, so that your business continues to be run in the best manner possible by new leadership. When to Start? Retiring Boomers will outnumber GenXers reaching ownership age by 4,000 a day! Studies show that the generation reaching retirement age is 2.5 times more likely to want to own a business than those in their 30’s and 40’s. Thus, this severely limits the small-business buyers in our economy today. It often takes a minimum of 5 years to develop most succession and exit plans—a more realistic number might be as much as ten years. Time and potential buyers will likely be the two most significant challenges for you in this process. Once you have a plan in place, you can implement it whenever you chose. Why wait until it is too late? Get the conversation started with the correct parties now. Are you ready? The single largest transaction and transition of your life deserves special attention. Are you planning to exit
Don’t Let Your Succession Plan be a Bad Sequel
When movies are made correctly and have appeal, there is no denying the impact. They win awards, inspire the audience, and fill the pockets of the movie studios. However, these blockbusters can also be the platforms for some of the biggest flops on record. After a successful movie the audience wonders what will come next, and the studio wonders how they can keep the franchise going? Good sequels can be important, expanding on worlds and delving deeper into plot lines, but a bad sequel can strain our love for the movie by losing key actors and directors, and recycling plot lines and jokes. One such example is director Allan Arkush succeeding Harold Ramis to direct Caddyshack II, which flopped and earned a 4% score on Rotten Tomatoes. Compare this to the 1980 original classic, which received 74%, and you can see the difference. The same thing can happen in business. Once it is time for a CEO or business owner to retire, the whole company can be put on edge. Many of the employees are thinking about what happens next. Are they left having to find a new job or can a new CEO/owner create the next bright sequel for the company? It might not be possible for the Dan Ackroyd’s of the world to replace the Bill Murray’s in an iconic role, but with the right director they have a better chance to make the role their own and not some cheap imitation of the past. A study from the Exit Planning Institute shows that 76% of business owners plan to transition their business in the next 10 years. However, 83% do not have a transition plan in place. Coincidentally, lack of planning is the number one reason why businesses fail. During succession planning a business needs to be transitional, meaning ready to pass leadership onto another. A business also needs to be transactional, meaning maintaining a high level of value and low debt, so it is attractive to a potential buyer. The Script The key factor that determines a successful succession is planning. One should begin this planning the moment they obtain leadership and/or ownership because succession does not happen only when one retires. The only way to beat the worst-case scenario is to plan for it and pray it never happens. With a thorough plan a company will increase in enterprise value, secure future worth, and reduce potential stress. Without a plan, the decrease in value could be substantial. According to the Exit Planning Institute, 80% of companies are simply not able to be sold and only 8% of companies actually get their asking price. When creating a sequel, the studio needs to consider how popular the first movie was and if a second would generate enough revenue. Then they choose a director, receive a budget, write the script, and cast all the roles before sending the project off for production. The same considerations need to be undertaken in succession planning. This requires weighing all your options for a successor. Most people look just to the C-suite, but is there any outside hire or fresh face in the company that should be considered? You also need to budget. How much is this transition going to cost? Are there going to be other changes that will take place that need to be considered? Next comes the company plan. Is the new successor going to use the same business model or create one of their own? The answers to these questions will help the company become more transition-ready. This means that all the transactional and transferable aspects have been fine-tuned and prepped for the next stage. In a movie you can usually tell when there will be a sequel. At the end of the movie you are left with either a cliffhanger or some unanswered questions. It is also easy to tell when a movie studio was not planning on doing a sequel but decided to release a shameless cash-grab. Typically, the sequels that are released after a movie that seemingly wrapped everything up and left no real questions are the ones that flop. Caddyshack II was a movie that did not need to be made and the director believed that enough people would enjoy it purely for the nostalgia and not notice the absence of all but one of the key characters. This lack of planning left the audience bored and consequently became one of the worst movies ever made. Your Sequel? Only careful planning and a sufficient amount of time can prevent you and your business from becoming a bad sequel. If a studio decides to make a sequel, you need to pick the “director” who wants to continue the growth of the company and lead it into the future. Budget? Focus on making the business more financially attractive so there is sufficient capital, investors, and/or potential buyers. Script? Engage in continual business and succession planning and make sure your key financial advisors, accountant, and lawyer are also involved. Casting? Work with an industry recruiter, consultant, or advisor to make sure you have the right people in the right roles. After all, your team needs to be as transition ready as your business. Succession planning is ultimately about the transaction of your life and not all sequels are bad. The Godfather II is arguably better than the first movie and is considered one of the best sequels, if not movies, of all time. Do you want to be a Caddyshack II or a Godfather II? The choice is yours and now is the time to get started. “Quiet on the set… Action!” SOURCES: PWC Family Business Survey; Exit Planning Institute; and Pew Research Center. The single largest transaction and transition of your life deserves special attention. Are you planning to exit and sell your business? Business Exit planning is quickly becoming a buzzword in the legal and financial communities. Your professional advisors position themselves to provide tax, risk management, wealth management, and contract preparation services.