Business

What is Your Big Why?

Here’s a glimpse into mine…

Several years into my career, I realized it was increasingly daunting to live according to my values across what felt like the increasingly independent worlds of a corporate career, family, and community. I took some time to reflect and draft a Life Plan with an aspiration to align the various dimensions of my life to a central life’s mission-

“To be a living testimony to the glory of God by transforming the lives of others while continually striving to be the best man I can be.”

The mission encapsulated my intentions around daily choices on what was important, the types of quality of interactions with others, and served as a north star when faced with conflicting or tough decisions. It became my Big Why? Did my actions today positively impact others or improve me? In the years that followed, I was amazed at how consistent focus on a concept caused it to manifest in my life.

Six years ago, the demands of two young children and a dual career household propelled me into entrepreneurship and PGP Advisory was born. Although it wasn’t planned, the change put me on a pathway to align my priorities, gain greater autonomy over my time, and increase the transformative impact. I created more value for clients while being present for my kids during their formative years. I wanted to be an entrepreneur from my first entrepreneurial program at MIT in High School. The pathway to this destination was not linear, predictable, or easy. The Big Why helped me connect the dots between a Mechanical Engineering degree, an MBA, and a breadth of business experiences with a fulfilling profession.

Why is the Big Why important for you in a business transaction? It ultimately drives the priorities around the outcomes and informs the business transaction strategy. If a seller is unclear about what’s next for her or him, it is more difficult to make trade-offs in a deal. The strategy helps define sources of value and uncovers the win-win-win scenarios for a seller, buyer, and the business- an important tool when navigating the minefield of issues that can kill a deal. Here are some of the Big Why’s from previous clients:

• A client moved to their desired destination and started a new business with the deal proceeds
• A client pursued a new career in healthcare after sale of their business
• A client was able to retire and enjoy free time with family
• A client was able to secure the financial future of his family and focus on aspects of work that were most fulfilling
• A client acquired a business to run and grow as part of the long-term strategy towards wealth creation for his family

Not only did my clients in these deals win, but the businesses won also. They buyers all had sound strategies to improve and grow these businesses which is good for them, employees, customers, the community, etc. The deals supported everyone’s pursuit of her/his own personal Big Why.

Deals are ultimately about people and positive outcomes. I get to bring all of me to work every day in an effort to transform the lives of my clients and in the process live out my life’s purpose.

Are you a “Baby Boomer” Business Owner?

What is so special about “Baby Boomer” business owners?  Well, there are a lot of them.  It is estimated 52 percent of businesses are owned by people between 50 and 88 years of age. This equates to 9 million businesses in the United States. Put it another way, a business owner is turning 65 every 57 seconds.

So, why is this important?  Typical of most business owners, the value of their business amounts to 50 to 75 percent of their net worth (if not more); the remainder in personal real estate and financial investments. Ordinarily, the business owner has only one chance to monetize his or her largest asset through the sale of the business.

It is estimated that 11,000 people are turning 65 years old every day, with this trend continuing for the next 18 years. Being that many of these Baby Boomers are also business owners, one would suspect that every year for the next two decades more and more business owners will be wanting to sell their businesses to cash out and fund their retirements. These businesses amount to some $10 trillion worth of assets.

Yet while more and more businesses go up for sale, the audience of buyers is decreasing. Today, the highest segment of business buyers is the same Baby Boomers in the age range of 55 to 64 years old. The 80 million millennials in the U.S. make up a larger demographic, though their abilities to purchase these businesses are quite low.

Applying the law of supply and demand, there is going to be a growing inventory of businesses for sale each year, while the number of qualified buyers is decreasing each of those years. The law of supply and demand would suggest there will be pricing pressure on these businesses. In addition, overall only 1 out of 4 businesses actually sell after being put on the market; however, the success rate increases to 1 in 3 for businesses with sales of $10 million, and the sale success rate grows to 1 in 2 for businesses with sales greater than $10 million.

Now What?

The PriceWaterhouseCoopers accounting firm estimates more than 75 percent of business owners have done little planning for their single biggest financial asset. It is sad to say, but business owners spend more time planning their next vacation than planning for their exit into retirement.

Business owners should start the exit planning process today. Serious consideration should be given to creating a timeframe to place the business in the best position to be sold at the highest possible valuation.

Fortunately, the window of opportunity is quite good. Current conditions of rock bottom interest rates, low inflation, historically low capital gain taxes and overall high business valuations make this an ideal time to sell a business. In real estate it is all about “location, location, location,” whereas in business it is all about “timing, timing, timing.”  Now is the time to cash in.

Exit planning, however, is a process that requires a significant amount of work. Most important, business owners need to assemble a team of professional advisors to assist them in this process.  The team may consist of all or some of these professionals: a business intermediary firm, CPA/accountant, business attorney, financial planner, investment advisor, insurance advisor, valuation specialist, investment banker, banker and business consultant.

Using the analogy of an actual roadmap, this process can be broken down into five exits:

Exit 1:  Making the Decision to Sell
Exit 2:  Exit Planning Process
Exit 3:  Maximizing Business Value
Exit 4:  Preparing the Business for Sale
Exit 5:  The Deal Process

The actual Planning Process often includes the following seven steps:

1.  Identify Exit Objectives
2.  Quantify Business & Personal Financial Resources
3.  Maximize & Protect Business Value
4.  Ownership Transfer to Third Parties
5.  Ownership Transfer to Insiders
6.  Business Continuity
7.  Personal Wealth & Estate Planning

There is no time better than right now to start planning an exit, whether that is tomorrow, next month, next year or the next decade. Just be careful not to miss your EXIT…else you will hear your GPS (or significant other) say, “when possible turnaround” or as my GPS would say, “you idiot, you missed your exit…proceed on this road for another 20 miles.”

This article appeared in the November 2015 edition of Traverse City Business News.