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: Attracting Buyers and Investors
Is it time to sell? Use this checklist to see if you’re ready to put your nursery on the market. Uncertain economic conditions in the past several months have created new opportunities for owners of businesses who are able to produce cash flow. They can cash out now. The time has not been this pregnant with opportunity for years. Why? It’s all about rates and returns. A key number considered when placing a value on a business is the interest rates available in the open market. Many times, the Treasury Bill, or T-Bill rate, is referenced. The lower the interest rate, the higher the value of a business. For some time to come, it will be hard to achieve more than 1% return from interest even in the long term. The Federal Reserve has telegraphed that for the next two years, they will keep interest rates near zero. Investors are seeking better and more reliable returns on their money. They are dissatisfied, keeping it on the sideline, earning almost nothing in interest. Right now, there is enormous liquidity in bank accounts looking for a home. Warren Buffet is reported to have two major holdings — one is Apple, and the other is cash. This legendary investor can’t seem to find a suitable place to park his money for a return. Many horticultural businesses have reliably generated predictable positive cash flow over the years. The ability to generate significant repeatable positive cash flow year in and year out is highly desired when looking at any business to buy or invest in. If you own one of these companies, it might be high time to sell. For many, it has been a great year, while others have suffered losses. In horticulture, there is a skill level a buyer or investor must have to own and operate a green-industry business, or at least be able to hire qualified expertise. That is also true in pharmacology, technology, and finance. All those hot categories are driven by superior expertise and innovation. Good people are like gold in this market. Some company owners have visions of their children taking over. Historically, it is unusual for a second generation and even less for a third generation to do as well as the founder did. The old adage “rags to riches to rags in three generations” is still true in many cases. It might be better to find a buyer and leave your grandchildren with cash and not a business to run. There are exceptions, but few. See How You Measure Up Deciding you want to sell your business or attract an investor is the first step. Once that decision is made, you need to get the company ready for a sale. A careful evaluation of the things that add or subtract from/to your business value will need review. Investors know what they are looking for in buying a business. BUSINESS CHECKLIST On a scale of 1-10, these are the key issues an investor considers in buying or putting money into a horticultural business. How does your company measure up? Score yourself: A: Size of business (compared to others in the space): 1 – Small, not a big player in the market. 10 – We are one of the largest and most successful in our space. B. Quality of the financial records: 1 – Pretty scattered and fragmented, a bit better than a shoebox full of receipt slips. 10 – All our records are computerized, complete, and reviewed; our CFO keeps us well informed. C. Positive cash flow and potential increases: 1 – Not generating significant cash flow or profit. 10 – We are a cash cow; lots of room to grow and even double our net revenues. D. Need for capital investment: 1 – Will need significant upgrades; will need capital soon. 10 – All our equipment and infrastructure are up to date and paid off; no needs on the horizon. E. Credit line requirements: 1 – We use a large credit line and sometimes have difficulty paying it back sometimes. 10 – We don’t need a credit line, and have significant cash resources to back up. F. Owner centric – management team: 1 – This company can’t exist without me there every day; only I know how it works. I don’t have anyone to back me up when I am sick. If I died, this company would die. 10 – If I never showed up again, it will work just fine. This is nearly a passive investment. I have great people. If I retired tomorrow, I have a team who can pick up where I left off and maybe make it better. G. Workforce quality and access to labor as needed: 1 – We just can’t find anyone who wants to work anymore. 10 – There are a lot of good people in our area. Hiring is easy because people want to work for a company like ours. H. Customer concentration and loyalty: 1 – The bulk of our business comes from a handful of steady customers. There are a few that buy once and never come back again. 10 – Our top 10 customers only make upon 5% of our total revenue. Losing a customer is not a death sentence. Our customers see us as an essential primary vendor. They come back again and again. I. Competition in the market for the dollar: 1 – Lots of aggressive competition; we have to discount deep to make deals. 10 – We are the competition. In our space, we make the rules. J. Compliance with environmental, labor, immigration, OSHA, and EPA regulations: 1 – We fly under the radar and keep the feds at bay. 10 – We try to make sure we are never vulnerable to the violation of any regulations that could shut us down. Obviously, no company on the planet can score a 10 in every category, but the closer to 100% in each of these important areas, the more valuable your company will be in the eyes of a buyer. You
Who wants to be President?
Career goal setting and development. Do you have a specific career vision of being the President of a company someday? Are you working on adding professional skill sets that will enable you to take on a C-Level role? Do you have a career dream? As a company, have you invested in a definitive training and development program to foster your next generation of company leaders? The horticultural industry is just one of many that need more leaders now and progressively into the future. The number of retirements coming up is staggering. Did you know that there are over 100 owners of companies retiring soon who have no clear leader to succeed them? That is just in horticulture. Overall, 60% of the professionals in the agriculture industry are over 55. As an industry, we endured a period with historically low numbers of students and professionals interested in pursuing a green industry career. This period has created an employee talent gap in what would often be considered the next traditional leadership group. This group is talented and knowledgeable, but it is merely a matter of supply and demand. There are just not enough leaders to take over, and not enough have been provided the necessary leadership training. Throughout every sector, demographic, and role in the green industry and many other industries, there are too few individuals who have had a specific desire and career focus to run a company. Compare this to the financial or IT sectors where a high volume of professionals have an early passion and focus on driving their careers to their industry’s top leadership roles. It is surprising how few professionals have had an initial desire to be a President of a company. A dynamic affecting this is the sheer number of family-held companies where leadership has traditionally been passed to 2nd or 3rd generations. While this is admirable, it has also tempered the career aspirations of those who are not part of the family. We are now at a tipping point where there are fewer generations to pass leadership roles to, causing new and challenging exit planning options for the current leaders. How do we address this? From the mutual effort of individuals and companies. Encourage students and early career professionals to dream and envision being a company leader. Leadership is not for the faint of heart with all its responsibilities and challenges. However, we need more professionals to dream about wanting to run a company. Ask yourself if you have allowed yourself to dream about this type of role? To have more leaders, we need more professionals desiring to take on this level of leadership. With that desire comes the awareness that a person needs to embrace continual learning with curiosity and accept certain sacrifices driving their career to achieve top leadership positions. This could include putting in longer hours some days, the ability to relocate as necessary, and volunteering to take on new tasks or help in other departments when they are shorthanded. Academically, technical knowledge is essential. Many excellent educational institutions produce technically knowledgeable students. However, many lack focused programs on developing company leadership with curriculums geared to business and management. We rightly celebrate our grower interns, but we should also celebrate those doing horticulture industry internships in sales, marketing, accounting, or human resources. Have a professional growth plan. If you do want to take the helm of a company someday, identify in yourself the knowledge and industry skillsets you need to master, so you are ready. Proactively take charge of gaining the knowledge and experience you lack rather than relying on others. There is as much onus on companies to be a part of increased leadership development. Yes, this does require an investment. Begin to balance your team’s professional development with your automation budget. No matter how automated, it still takes strong professionals for a company to realize success. Many assessment tools are available that will help a company identify individuals with leadership behaviors. These tools identify a career plan for those individuals that will infuse them with the skillsets needed to become a strong leader in the future. Does your company have ongoing career development planning, which includes rotation through different departments or functions? At the very least, does the company invest in continual education or training programs focused on improving communication, soft skills, sales, marketing, financial, operations, or supply chain knowledge? Encourage and support your company’s professionals to become active within your industry via associations, seminars, or other educational and networking events. Don’t be afraid of losing this talent by this exposure. Professionals who know their company is investing fully in their growth are much less likely to leave. Employees who feel stifled in their development will leap at the chance for growth elsewhere. No company has an endless budget, but a company can apply strategies that do not require a monetary investment – transparency in your business and delegation of responsibilities. Openness with your employees about all facets of the business directly correlates to increasing their professional growth. For example, companies applying the Great Game of Business approach to transparency have more engaged and motivated employees concerning their career progression. Pairing high potential employees with positive mentors will also benefit the mentor themselves increasing organizational talent strength. Encourage delegating responsibilities and not micro-managing those assigned these tasks. This must start from the highest leadership levels. Current leaders – ask yourself if too many business decisions are run through you, or have you honestly delegated to your team decisions without hovering over them? FYI – your business’s valuation increases when delegating decision making abilities and becoming less owner-centric. Growing the number of leaders is critical to the future success of any industry. The gap can be closed with more professionals who desire to run a company and put their plan in place. Couple this with companies providing increased focus on training and development, and we have set the stage for increased industry success that becomes sustainable for many years to
Take a Breath and Think
You deserve it, and your business may require it. By Ben Molenda, Human Capital Advisor, and Todd Downing, Managing Partner at BEST Human Capital & Advisory Group Are you tired of “Work From Home,” “COVID Procedures,” and “New Normal” articles? This one is different. Instead of being advised on how to do something, the goal here is to experience thought. “THINK” is what Thomas Watson Sr., the legendary founder of IBM, would tell his people, encouraging everybody to be thinkers, from the assembly line worker and engineer to the salesperson and office admin. It was what would bind the company together and become the cultural cornerstone of one of the world’s great companies. Despite the immense challenges thrust upon all businesses during the pandemic, the Green Industry has experienced positive, and some would say unprecedented, growth. Other industries have not fared as well and are just starting to recover. The stresses you have responded to in running your business with an uncertain future, proper COVID health protocols, plus the volume of business experienced or lost, have left many leaders feeling reactive. There has been considerably less time to focus on strategy as much as they would like. And – a bit exhausted. The pandemic has also created profound change and impact on the people who make up your organization. Strategic Human Resource planning is a vital component to successfully navigating this business evolution. We are all searching for solutions to protect, stabilize, and grow our businesses. But how do you define solutions when your time and energy have been dramatically stretched? A helpful first step is to identify what the Human Resource challenges or opportunities are that require problem-solving. To support leaders in identifying Human Resource solutions, ask yourself a few of these questions to flesh out potential areas that will require change. You can then begin formulating solutions to address these challenges. WORKFORCE DEVELOPMENT Have you identified specific training or development investments to grow key employees? Are your employees cross-trained if a key individual leaves the team? Does each position have a career progression plan? Have you openly discussed it with the individual? Do you have silos between departments requiring increased collaboration? HIRING What are the current bottlenecks or challenges to your business, and what type of professional would you hire to solve these problems? Is your ongoing hiring process compliant with applicable employment law and producing the desired and necessary results for your organization? Are your HR-related marketing tools and company branding message aligned with the current strategic plan to attract the proper level of talent to drive these organizational directives? Do you have a positive company brand image on social media and sites such as Glassdoor to help attract top talent? TOTAL REWARDS – COMPENSATION & BENEFITS Have you updated or benchmarked your benefits and compensation packages lately? If yes, how frequently do you do so? Do you include perks like profit sharing, continual education, or health initiatives to better invest in your employees? What unique benefits do you offer that are attractive to potential new hires or increase retention? Is your compensation in line with your geographic region, cost of living, and other industries to attract top talent? HUMAN RESOURCE SYSTEMS & SOFTWARE Do you have an organized electronic system for classifying and holding all your employees’ documents? Do you have an up-to-date chain of command to report HR issues? Do you have the appropriate technology and tools to maximize efficiency and effectiveness? (i.e., HRIS, LMS, TS, ERP, and Payroll). Do these systems seamlessly integrate? Are your HR employees adequately trained on them? EMPLOYEE RELATIONS Are your employees truly engaged in the business or simply “punching the clock”? What is your retention rate or turnover rate? What type of leader would your employees communicate that you are? Has an appropriate investigatory process been put in place? Are your HR professionals trained to objectively implement such a process to resolve employee relations issues regardless of their severity or nature? HUMAN RESOURCE COMPLIANCE If your Human Resource policies and practices were audited, would you pass without a fine? Have current policies been recently reviewed and updated to conform to recent legislation, court cases, and executive orders? Especially revised regulations? Are Human Resource audits (internal and external) conducted regularly to ensure compliance with all employment laws? SUCCESSION & EXIT PLANNING When was the last time you took time away from your business as its owner or leader of a division? Are you able to take time away knowing you have a team to keep running the business profitably and efficiently? Do you know what you will do when you retire? Have you mapped internal succession paths, including your own, so you know where to recruit externally and where to develop internally? DIVERSITY Would your organization’s effectiveness benefit from someone with a different background, mindset, viewpoint, or values? Have you hired individuals from various backgrounds and educational backgrounds? Have you properly followed Equal Employment Opportunity Laws? Are you tracking appropriate diversity data regardless of whether you must file an annual report? OPERATIONS & PRODUCTION Are you struggling to achieve complete buy-in to LEAN principles or Health & Safety protocols? Do you have employee retention or engagement problems with your production team? Are current performance metrics or KPIs aligned with job expectations, job descriptions, and organizational outcomes? SALES & MARKETING Do you hire sales professionals based solely on knowing your product and customers, or have you taken time to identify and assess for successful sales or marketing behaviors? Have you worked with your sales, marketing, and production teams to understand and increase collaboration with one another relative to production capacity and sales growth? Are your customer-facing professionals a positive reflection of your company with customers and the industry? NEW PRODUCTS & MARKETS Do you have new products in the pipeline that will require hiring professionals with a unique skill set or knowledge? Have you identified new markets to enter that will require hiring professionals with the targeted industry knowledge? FINANCE
Your Exit Plan: The 3 Inarguable Reasons to Start NOW
What is Your Business Exit Plan? If you’ve ever done a business plan for the purpose of raising capital, one of the key questions is “What is your exit plan?” Many business owners think that question is self-serving, intended merely to let the venture capitalists figure when and how they will get their return on investment. In truth, however, that question is far more important. A business exit plan is a strategic plan with an end date. Putting a time frame on your plan, and defining the goals to be achieved by that date, creates a future-focused mindset for the owner. It controls and reduces your tendency to prioritize daily firefighting over long term thinking. It provides you with a yardstick to measure progress. Most importantly, it affects your thinking about almost everything in your business. Here are the 3 inarguable reasons why you should start your exit plan now. Reason 1: It’s Never Too Soon In my years of working with business owners, I’ve helped many transfer their businesses to family and employees. I’ve worked with others who sold their companies to a third party for tens of millions of dollars. Surveys show that many owners have regrets afterward. Others happily move into the next phase of their lives or careers. A few have seller’s remorse. On the other end of the spectrum, some come to the realization that they hated their business owner lives for years. The majority feel that they received a reasonable reward for monetizing their work of decades. None of them. NOT ONE of them has ever said “I spent too much time planning.” It’s likely that the sale of your business will be the most important financial event of your life. There are a few lucky owners who have wealth outside or beyond the value of their businesses, but for most of us monetizing those decades of effort is the culmination of our working careers. If your exit plan is to transfer to family, you can choose vehicles like Grantor Retained Annuity Trusts (GRAT) or Self Cancelling Installment Notes (SCIN). These may have to be in place for years to substantially reduce or eliminate taxable proceeds for you and/or your heirs. In a sale to employees, developing the documentation that shows their assumption of managerial responsibilities over time is a basic qualification for SBA loan approval. That, plus developing their “down payment” equity, punches the ticket for you to walk away with your proceeds in pocket on the same day that you cede control of the company. In a sale to third parties, the condition of the financial markets at your time of exit will decide the size of your multiple. Preparing your business with due diligence in mind, and understanding the different classes of buyers, allows you to better choose the time, method, and proceeds of your transition. Although it is difficult to time the stock market, shifts in acquisition multiples take much longer to develop. Being prepared allows you to enter the market while prices are at a peak. Five years is reasonable planning time. Ten years is better. There is no time frame that’s “too far out” to be thinking about your exit. Reason 2: It Changes Your Thinking It’s difficult to run a business without being reactive. Employee issues, customer problems, and vendor policies can shift your priorities on a daily basis. When your exit plan is in place, you have a broader perspective. Every decision you make is now in the context of “Does this support my bigger picture?” There are numerous examples. Hiring: If your exit plan is to pass the business on to your children, then hiring becomes a support function. You look for employees who can fill in areas where your offspring lack the necessary skills or don’t have an interest. If you plan to sell to employees, then you are looking for a Successor in Training (SIT). That is someone who shares many characteristics with you. If you are selling to a third party, you want a Second in Command (SIC). That is someone who compliments your strengths, and who can be contractually incented to stay on the job with a new owner. Securing a management team adds considerable value to any company. Lease vs. Buy: If your plan calls for selling to someone who is likely to relocate the company, or who already has your production capabilities, you may want capital equipment to be easily disposable. A competitor or much larger acquirer may want to leave the equipment out of the transaction. In a Main Street business, you may choose to have a strong tangible asset base for an entrepreneurial owner to use when obtaining acquisition financing. Real Estate: Should you own your building? Some buyers (say a publicly-traded acquirer) prefer to lease space. In that case, owning your building could provide a post-transition income stream in your retirement. On the other hand, a relocated company could stick the owner/landlord with a special purpose building that requires significant remodeling to be rentable. These are just a few of the decisions that are better made in the context of your long term plan. The decisions you are making in your business today all have lasting implications. Reason 3: A Plan is not an Action If you are taking a long trip, you likely determine the route before you start out. If it is complex, you may print out the directions. Nonetheless, you are still likely to use a navigation app to alert you to problems along the way, like traffic jams or construction. But everyone understands that printing out the directions isn’t the same as beginning the journey. You might take that step days or even weeks before actually getting into your car. It’s the same with your exit plan. Choosing your time frame and preferred method of transition isn’t the same as making it happen. Writing it down is a key component of preparation, but it shouldn’t be confused with implementation. Starting Your