In this past week I’ve seen 3 situations where business owners did not take the advice of the specialist engaged to deliver it.  Here is what happened.

Situation One: Involved a company in financial distress; where the business owner simply had no idea how to get out of his situation.  He conveyed his situation to several different advisors and each were adamant in the direction he should take.  The trouble was, the advice from each was so diametrically opposed, it only became more confusing.  In the end he simply chose one to follow, angering the others because each felt they were right.  Time will tell, but it’s looking like his own gut feel was correct.

Situation Two: Involved a successful company that was heavily impacted by the Global Financial Crisis.  Sales had declined by half yet costs remained unchanged, and it was clear the company had to restructure urgently or perish.  Retrenchments were necessary, but the method recommended for this did not sit well with the owner who had a strong and caring relationship with his employees.  He agonised over the decision about how to do it in a way that would meet his own moral code, and in the end went against the advice to do it his way.  The outcome was a tremendous success with the exiting staff actually agreeing to the need to be retrenched, and using his own style has those staff leaving on a friendly note.

Situation Three: Involved a business owner negotiating to sell a family asset that was co-owned by a sibling.  Relations had broken down so significantly, it was almost to the demise of all parties.  Advice had been sought and a plan of action had been agreed, but when the deal was required to settle, the family business owner went with his gut feel rather than taking the advice entirely.  He orderd a change in tact, resulting in a successful outcome for all.

What this tells us is that Experts can only provide you with so much guidance, and their advice will only ever be as good as the information you provide about the situation or problem and the experts own experience.  In some of the cases, the experts involved were put out and even became angry at their client, but their clients were correct to follow their own intuition.

So as a business advisor, you’re probably wondering why I would share with you about cases where the clients were clearly in a better position to decide for themselves ultimately, as it seems a bad advertisement for specialist consultants.  However that is my point entirely.

No specialist is going to be right every time, but you are quite right to consider many alternative views before you make your decision about the matter at hand.  By listening to others in the know, you are learning valuable information formulated from their previous experience and knowledge base.  When you blindly follow advice, there is likely to be more trouble ahead than can handled, so listening, thinking through and weighing up the options for an outcome that sits well with you, is the most effective thing you can do.

Here to Your Profitable Exit!

Leigh Riley

Situation:

Matt was a sole director of a thriving manufacturing company. His wife Harriet held a senior position in the company; however, she had no sign-off rights to any of the business accounts. When Matt had a stroke and fell unconscious for three months the accounts of the business were inaccessible. Although payments were being received and banked from fulfilled orders, no authorisation was available to make payment of staff wages or to suppliers for new materials.

Implications for their Business:

• Harriet attempted to obtain credit from suppliers and bankers to alleviate the cash flow crisis, however this was not easily reached due to the uncertainty of Matt’s condition and her own ability to secure a credit application
• Some staff were patient and continued to work regardless, however the reality of their own personal cash flow pinch soon resulted in them having to find work for payment
• Rapid consumption of materials meant the company’s ability for production was substantially impeded
• Customers were soon forced to order from competitors due to the lack of production.

Harriet’s application to the courts to gain authorisation to access the business accounts was long, involved, tedious and stressful. The business suffered a significant downturn and took a long time to recover.

Solution:

The matter of Matt and Harriet would never have been a problem had they received the right guidance from their advisors to arrange an enduring power of attorney (EPA). An EPA would’ve allowed a trusted person to authorise payments on Matt’s behalf so that the business could have continued to operate as smoothly as possible, at least from a cash flow perspective.

Here’s To Your Profitable Exit!

Leigh Riley

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I think it is bad enough to close your Business doors because you can’t sell, but consider this GPs story.

Dr Francis had served his community in a Practice established over 30 years.  With no business operational skills learned throughout Medical School, Dr Francis was like many of his peers: a very good doctor concerned for his patient’s welfare, with little interest in the business matters of his private Practice.  Honourable as that may seem, it did not serve him well.  Nor did it serve his loyal staff or the patients he’d so diligently cared for over 3 decades.  When he was eventually forced to exit due to ill health, and a new owner could not be found for his Practice, his only option was to close his doors. 

This was a disaster with a threefold effect:

1. His staff were adversely affected being suddenly without jobs

2. His community was impacted heavily due to loss of his valuable services

3.  His personal finances were hit hard, because not only did he not receive any financial consideration for his lifetime of efforts, but he had to meet an obligation owed to staff for long service leave payments and other entitlements.  The insult to injury was that it meant he must pay out money to leave his Practice.

Avoid a similar situation

• Start by educating yourself about the options you have.  In the books ” Your Business Succession”  and “Your Practice Succession” you can find all the practical tips to positioning your business on a course of strength and success through any of the identifiable succession triggers.  
• Sign up for the Live FREE Webinar to learn more about what you can do to successfully exit from your business, despite the circumstances. You can do this by emailing your interest to my office at support@ybsprofits.com  or   call 1300 499 255 or (03) 9584 5099 to book your place. The session will be on 21 June 2011 and it will run in two timeslots , 2pm or 7pm for 45 minutes.

Here’s to Your Profitable Exit!

Leigh Riley

Currently, I’m in Chicago USA attending the MBA style intensive exit planning study program for Small to Medium Enterprises.

I’ve had 3 days to adjust for jetlag and tonight I treated myself to the Broadway hit show – The Million Dollar Quartet.  This was not only a brilliant display of talent and showmanship, but also raised some interesting points relevant for business owners.  The story is told through the eyes of the Sam Phillips, owner and manager of the recording label “Sun Records”, that gave new talents their chance to make it in show business.  It’s been said that it takes talent to know talent, and that is what comes across loud and clear to me about Sam as I enjoyed the show.  Sam discovered the big names such as Elvis Presley, Johnnie Cash, Carl Perkins and Jerry Lee Lewis. Sam had the knack of understanding the wants of the teenage music market at the time, and hand picked the talent that would provide it.  The rest is history.  Despite Sam’s great ear for the up and coming sounds that would pay dividends for his company, he didn’t understand the need to protect his business what he had worked so hard in business to achieve.  He’d taken the risk with these young unknowns, and was so successful at promoting them, it attracted the intense interest of bigger players that enticed these young ambitious artists with lucrative contracts involving greater exposure and success for them.

Sam made some key business mistakes.

1. He had not conceptualised a continuity strategy that would protect his revenue streams.  When he lost his best artists, his business was virtually worthless.   

2. When the offer presented for him to merge with a larger competitor, his ego would not allow it, and hence he suffered financially… Sam didn’t know when to relinquish control for the greater good of him and his company.

3.  Sam did not know how necessary it was to grow his company along with his clients.  They outgrew his service offering and had no choice but to move on, despite them being very appreciative for all he’d done for them.  Not one of them made the decision to move very easily.

Sam was a great guy and a very talented one, but it takes more than this to succeed in business.

I have to ask you now, are you making some of Sam’s mistakes? Or have you implemented strategies to protect your business income?  Is your business developing in a manner that will retain your clients?

 Have you thought about your business exit strategy and is it prepared for all possibilities?

Without a plan to address these fundamental business attributes, it’s likely your business has no real value that can be sold, which is likely to impact your financial future.

 If you want to know what you can do to protect and grow your business value, start by reading the book, “Your Business Succession…proven strategies to boost business profits from start up to step down”  It’s all about how to enter, execute and exit from your business for maximum cash flow and profit.

You can also sign up for the Free Webinar on 21 June 2011 by emailing your interest to my office at support@ybsprofits.com    or   call 1300 499 225 to book your place.

The session will be run in two timeslots, 2pm and 7pm of 45 minutes duration.

Places are limited so don’t delay.

Here’s to your successful business exit strategy!

Leigh Riley

Prescription for business succession disaster!

Bill and Ben were equal-share directors of a profitable medical supplies distribution business for ten years. They estimated the business value at around one million dollars. When Ben suddenly died in a car accident, Bill thought he would automatically borrow to buy out Ben’s shares from Ben’s beneficiaries, but he faced a number of unexpected problems.

• Problem 1: Ben’s estate attorney arranged a business valuation to determine the value of Ben’s ownership for distribution to his estate, revealing that the business value had grown to $1.5 million. For Bill to buy Ben’s shares, he would need to borrow $750,000.

• Problem 2: Although the business was going well (with both directors operating it), Bill struggled to find adequate finance (the maximum he could borrow was $350,000) because his personal debt commitments were significant and he had forgotten the business had previously provided personal guarantee security against a mortgage for Ben’s family home.

• Problem 3: Ben’s wife, who didn’t work, needed the money from the business to pay off the mortgage and meet other family expenses, so was applying legal pressure to Bill to do something to release some cash.

• Problem 4: Bill was extremely traumatised by the loss of his long-term working partner and the resulting financial challenges. The situation took months to resolve and affected the business operations in a way that negatively impacted sales fulfillment, which was predominantly Ben’s area of strength in the business. Customers became disgruntled and began purchasing from competitors, which in turn affected sales, cash flow and ultimately the business value.

• Problem 5: Ben’s eldest son Tom had been working in the business as a storeman, and felt he was entitled to move into Ben’s role automatically as a beneficiary to the estate. Although Bill had tolerated Tom working under Ben’s charge while he was alive, Bill could not entertain the idea of working directly with Tom because he was too inexperienced. On top of that, Bill had always found Tom to be spoiled, immature and irresponsible, so considered him to be an undesirable working partner or co¬owner.

• Problem 6: Bill was desperate to find another equity partner, but aside from Tom, no candidates presented. Bill was not able to form an agreeable arrangement with Ben’s widow, who was represented by strong legal counsel. The situation had become quite acrimonious and Bill was forced to sell the business. The business sold 18 months later for $1.1 million, some $400,000 less than its valuation immediately after Ben’s death.

A poor succession outcome for Bill

Bill had lost a large part of his life’s work through his inability to arrange capital funding to take full ownership of the business when Ben died. This was a heartbreaking loss from which he took years to recover.

Although Bill and Ben were excellent business people in so many ways, they made an enormous error of judgement by failing to plan certain aspects of their business that were essential to ongoing good management. During all their previous business planning sessions, they had never discussed a succession plan or taken the simple steps that could have easily prevented the stress and heartache that Bill, Ben’s widow, and Tom all endured.

How to prevent the forced sale of your business

1. Implement thorough succession planning measures, such as forming an agreement that contains funding mechanisms to release owners from debt and guarantee commitments, to ensure that all owners remain in a strong position to negotiate a sale no matter what the circumstances.
2. Educate yourself - read in detail about what Bill and Ben could have done to prevent this situation in the solution suggestions in Part 5 of my book “Your Business Succession: How To Exit Your Business With Maximum Cash Flow & Profits”
3. Conduct a FREE self-assessment of your readiness to exit your business profitably under any circumstances at www.BusinessExitQuiz.com

To Your Profitable Business Exit,
Leigh Riley

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Poorly Communicated Succession Plans Can Lead To Business Failure

One of the biggest mistakes made by business owners when it comes to succession planning is making all the decisions alone. Often the most difficult decision is how to a divide a business in a family situation, particularly if the main asset you hold is your business and you have one or more children competing to eventually take control.

As the business owner, it is more than likely your right to ultimately distribute and hand over the business in the way that you feel is most appropriate.

However, if an amicable outcome with business continuity and harmonious relationships are important to you, then you would be wise to include all the family members involved and communicate your intentions to gain feedback and acceptance from the main stakeholders. If you fail to communicate your intentions accurately with all involved, the outcome could spell disaster for the business, resulting in financial disappointment and relationship breakdown for all the interested parties.

CASE STUDY – Family disputes after succession cause business closure without a sale

Business owner Stuart was the father of three children. His eldest child, Tim, had worked in the business all his life and had contributed significantly to building the business value. When Stuart died, leaving an equal share of the business to each of his three children, Tim felt short-changed because he had made the business his life’s work.

The business had insufficient borrowing capacity and Tim could not afford to buy out his siblings, who insisted on liquidating the asset, forcing the sale of the business. Tim contested the will, insisting he deserved more than one-third.

Unfortunately, the business remained closed during the lengthy and costly lawsuit that continued for two years, resulting is irreconcilable family breakdown and decline in the business value due to loss of income and clientele.

To add insult to injury, an opportunistic competitor established a similar business across the road, effectively gaining all of the business clientele.

How to prevent family disputes after succession from destroying your legacy

This situation could have been prevented and all parties’ interests could have been protected if only Stuart had chosen to communicate with Tim about his intention of leaving equal shares in the business to each of his children. Tim could have expressed his passion for the business and his desire to one day own the business, which would have provided the opportunity for them both  to seek advice about how to structure it so that Tim could take over without his siblings missing out on their share of the inheritance.

The simple solution to this problem would involve Tim entering an agreement with his father to buy out the business upon certain succession triggers. The agreement could be arranged to provide Tim with full funding by using insurance and vendor finance terms to facilitate the transaction. Full details of the strategy and options for this case study are revealed in Part 5 of my book ‘Your Business Succession: How To Exit Your Business With Maximum Cash Flow and Profits.”

Revealing your succession intentions is only one part of the communication required within a business to ensure every stakeholder understands their rights and responsibilities. Communicating the exit terms from the very start of your business relationship is essential for a fair outcome during times of internal disputes, as you’ll discover in the next case study about situational errors in succession plans.

How prepared are you to exit your business with maximum cash flow and profits?

51% of small business owners in Australia exit before retirement age  in unplanned circumstances. Take the FREE business exit quiz to see how prepared you are to prevent this happening to your business and your family.

To Your Profitable Business Exit,
Leigh Riley

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Infighting and Disputes Devalue a Thriving Business

When you decide to join forces with colleagues in a business, your natural response is to focus on all the positives of the union.

The last thing you are likely to have on your mind is the possibility of an acrimonious separation that could result in you losing part or all of the capital you contributed to the business, as well as being denied the value that your efforts contributed.

Let’s face it – if you thought that was a possibility, you would never enter a joint venture, but the reality is that some business relationships do sour, and the worst time to attempt to negotiate fair exit terms is during a dispute.

CASE STUDY – Effects of infighting and disputes among business owners

The situational errors made by business partners Andy, Phyllis and Johanna in a professional services firm caused a tragic loss  of value due to infighting and disputes which resulted in one partner being forced out without her rightful financial entitlements.

A thriving professional services firm’s three partners began to argue among themselves about the business operations and workload. Two of the partners, Andy and Phyllis, felt they were working harder than the other, Johanna, although all were earning the same pay.

The arguments escalated into a dispute when Andy and Phyllis, who were romantically involved, ganged up on Johanna, leading to her unplanned, forced exit. With no formal agreement about succession terms in place, an unreasonable exit payment was offered to Johanna.

Johanna engaged legal representation and a costly legal battle ensued regarding equity value. The outcome was less-than-fair terms for the departing partner after costs. With all parties focused on the dispute, attention was diverted from the business operations. The result was a sizable decline in the practice value.

What’s more, during this disruptive period, some staff left, while others took advantage by slackening off. Many clients left the firm to engage alternative options due to the poor service they were receiving, some following departing staff members, effectively destroying the original value of the firm.

Cases like this demonstrate why you want to start your business relationships with the end in view, and why you must negotiate the exit terms while all partners are in a positive frame of mind.

Why Succession Solutions MUST Be Planned At The START of a Business Partnership

This situation could have been resolved easily had they started their partnership with a succession plan agreement. The conditions of the agreement would need to include the full financial terms applicable to any partner of the firm exiting under each of the possible succession triggers identified in Chapter 2 of the book, “Your Business Succession”. This would have allowed Johanna to decide whether or not the terms of exit suited her before she committed to entering the business. She would have had the ability to negotiate more favorable terms from the start, which would have saved her from the stress, legal battle and financial loss that eventuated.

You can read in detail the actual strategy outlined for the agreement in Part 5 of “Your Business Succession”.

How well prepared are you to exit your business with maximum cash flow and profit under any circumstance?

Take the FREE Business Exit Quiz and find out!

To Your Profitable Business Exit,
Leigh Riley

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Are Verbal Agreements in Business Succession Plans a Good Idea?

In business situations, verbal agreements about succession plans, or indeed any aspect of the business, are usually made because the people involved share a relationship of trust. Operating on verbal agreements appears to be quite acceptable among members of the extended family, with friends, or with partners, because there is the belief that the quality of the relationships will ensure that agreements will be honoured in the manner intended.

What happens to the verbal succession plan when things change?

However, the problem with verbal agreements in business is that circumstances can change – people’s recollections become distorted over time, and the resulting misunderstandings can cause not only relationship breakdown, but also breakdown of your business.

Case study – verbal agreements in a family succession plan leave the successors vulnerable

Sonya retired and handed over her farm business in equal shares to her two children, who had always worked hard on the property.

Sonya asked for no payment for the business, and the children agreed to pay a lease fee for use of the farmland to provide Sonya with the income she needed to fund her retirement.  They did not have a formalised lease and arranged the terms on a verbal agreement basis , which seemed fair to everyone at the time because of their family relationship.

When Sonya suffered a heart attack, she decided to liquidate her assets by selling the farmland. She felt entitled to do this because it was her property.

Verbal Agreements Can Lead to Relationship and Business Breakdown…

Unfortunately Sonya’s adult children could not afford to buy the land and the new owners plans for the land did not include allowing Sonya’s children to continue farming under a lease arrangement. This resulted in the children losing everything they had worked for – they were effectively out of business and even out of a job.

This sorry story is an excellent example of why verbal agreements are not suitable succession arrangements, even in loving or close families.

How to protect all members of your family in your succession plan

One straightforward succession solution to avoid this disaster would have been to arrange a written, formalised lease agreement between the family members so that the rights of all involved would be protected. The agreement could have been extended to allow the adult children first right to buy upon Sonya’s decision to dispose of the property.

Furthermore, funding could have been arranged with terms to arrange payment over time, or by using insurance to provide immediate funding upon certain events—such as a heart attack.

Discover more succession solutions

You can read the full details of suitable succession strategies for similar situations in Part 5 of my book “Your Business Succession: How To Exit Your Business With Maximum Cash Flow and Profits.”

To Your Profitable Business Exit,
Leigh Riley
Succession Solutions Specialist

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How your family’s health can impact on your business exit profits…

In this series, I am revealing 6 of the Situational Errors that can prevent your business from capitalising when you exit your business at any stage, particularly when the exit is beyond your control. My previous post revealed the first of these situations, where Brian, the owner of a Mechanic workshop, had made an error in judgement about succession planning.  He did not see the need to implement a business exit strategy because retirement seemed a long way off at his age. Unfortunately he developed a severe illness which forced him to exit his business at a very young age, causing financial hardship for his family and job loss to his employee.

In this post I’m going to insist that you don’t limit your thinking to how your own health can impact the continued viability of your business, because this would also be an error of judgement. In my book “Your Business Succession” Case Study # 8 discloses how Judy’s profitable, home based clothing manufacturing business was forced to a grinding halt because her child was diagnosed with leukemia and in need of constant, ongoing care.

How prepared is your business to enable you to care for a sick child?

Judy had some very capable employees, but none were driven or talented enough to run the business without her leadership.

The smaller your business, the more vulnerable it can be if you have to exit early

The smaller your business, the more vulnerable it can be, so structuring your business with an exit strategy for diverse situations is essential if you want to maintain financial viability in the face of the unexpected.  Now you have read about two situations where the business owners thought succession planning was only for people about to retire.  Each had no way of knowing they would soon be forced from their business well before retirement age due to situations beyond their control.   Don’t leave your business exit strategy to chance. Make sure you’re in a position to profit – no matter what the situation!

Business succession solutions

Succession solutions exist for all business ownership structures.  A typical small business exit strategy involves arranging a formal Buy-sell agreement with another interested party. This could be with an employee or a colleague already operating in your industry.

For dozens of tips and detailed case studies to kick start your successful business exit strategy  and invest in your future you want to read the book “Your Business Succession…how to enter, exit and execute your business for maximum cash flow and profit”.  If you don’t find a solution to help you with your business exit plan, I will happily refund the purchase price!

How well prepared are you to exit your business with maximum cash flow and profit?

Take the FREE Business Exit Quiz, and receive your own customised report which will reveal the strengths of your business exit plan and uncover any shortcoming that you must address if you want to maximise your profitable outcome from your business when you exit  – through any circumstances.

Here’s to your profitable business exit!
Leigh Riley

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Situational Errors That Prevent Your Exit With Maximum Cash Flow and Profit…

Yesterday I was speaking with a very experienced business motivator about Business Succession Planning.  I was very surprised to learn that she believed Succession Planning was something a business owner would only consider if they were thinking about retiring soon.  I was very quick to point out several reasons, many of them unplanned, that someone would exit from their business (see some of these in earlier blog posts).

51%  of business owners exit their business before to retirement age

You may be just as surprised as she was to learn that 51%  of business owners will exit from their business prior to retirement age, with a large number of exits being due to factors beyond their control, or that they would not have considered possible.

My previous series revealed 8  Business Succession Strategy Weaknesses that prevented business owners from exiting with maximised financial benefits and outcome.  In this series, I’ll identify 6 Situational Errors that prevent business owners from capitalising when they exit their business, particularly when their departure is beyond their control.

Most business owners I’ve met are naturally quite driven and vibrant and it seems almost inconceivable that anything could happen to prevent them from achieving or maintaining their success in business. However, illness can be a major unplanned factor forcing a business owner to leave prematurely. Failing to recognise this is a situational error of judgement that can lead to an unfortunate financial outcome for you as the business owner, your family, customers, employees and suppliers.

Case Study #7 – The Impact of Unexpected Illness On A Small Business Owner and His Family

In my book “Your Business Succession” in Case Study #7 I refer to sole trader Brian, who operated a Mechanic Workshop from leased premises with one apprentice.  Brian earned a very good income that supported his wife, Sue and two children. However when he was unexpectedly diagnosed with a brain tumour at age 38,  his ability to function was swiftly impaired, impacting the viability of his business.

Brian’s apprentice was not skilled enough to continue operating the business without him.  His wife had very little understanding of how to run a business and wasn’t confident enough to supervise someone else to run it either.  On top of that, the business was not generating enough revenue to pay someone to manage it as well as pay Brian’s family the income which they had built their lifestyle.

Impact on Brian’s family and employee

Sue’s distress was two-fold; first due to the potential loss of her husband to their family, as Brian had only a small chance for survival , and second, due to financial hardship that meant their lifestyle was suddenly very stretched.  Sue could not seem to find a buyer for the business due to the transactional nature of it and the reliance on Brian to operate it.   She was forced to terminate the apprentice (whom she could no longer pay), wind up the lease (which cost money to do) and commence liquidation of the business assets (which were sold under fire-sale conditions as she needed money fast).

The financial outcome for Brian’s family could have been quite different had he sought professional exit strategy advice and implemented some simple key strategies.  Until that unfortunate situation arose Brian also had believed that Business Succession Planning was only for people who were about to retire.

Possible exit strategies Brian could have used

One possible exit strategy for Brian could have been to use a Buy-sell Agreement with a pre-agreed sale price based on the valuation of his business.  This would involve a legal agreement with a competitor, friend or colleague working in the industry to ensure there would be an automatic buyer for the business if it needed to be sold.  A simple life policy could have assisted with the financial burden and could also have been used to fund the buy-out in the Buy-sell agreement.

Mitigating the financial loss made in the face of illness was possible even though Brian operated as a sole trader. A Business Exit Plan would have ensured continuity of his business, with continued financial viability for his family, and maintained a job for his apprentice.

Small businesses can be most vulnerable to unplanned exits

The smaller your business, the more vulnerable it can be, so structuring your business with an exit strategy for diverse situations is essential if you want to maintain secured financial viability.  Brian had no way of knowing he would soon be forced from his business due to illness, or that he would exit well before the anticipated retirement age.

How to avoid situational errors of judgement

Don’t leave your business exit strategy to chance.  Make sure you’re in a position to profit no matter what the situation.  Ignoring this situation is to gamble with your future in a manner that could adversely affect you, your family, your employees, the viability of your business, your social standing in the community and your trading partners and suppliers.

Plan the right succession solution for your business ownership structure. One business exit strategy may be to arrange a formal buy-sell agreement with another interested party. It could be arranged with an employee or a colleague already operating in your industry. For your successful business exit strategy, take a look in the book “Your Business Succession…how to enter, exit and execute your business for maximum cash flow and profit” where you will find dozens of options to help you design the best business succession strategy for your profitable exit.

How well organised is your business exit strategy?

Take the FREE Business Exit Quiz, and get your own customised report which will reveal the strengths of your business exit plan and uncover any shortcomings that you must to address if you want to maximise your profitable outcome from your business when you exit through any circumstances.

Here’s to your profitable business exit!
Leigh Riley

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