SMART-EXIT-WORKBOOK_2017-03-17

Smart Exit™

Steer Your Business to Success

Companion Workbook

John E. Anderson, MS Management



SMART EXIT™
STEER YOUR BUSINESS TO SUCCESS

COMPANION WORKBOOK
JOHN E. ANDERSON

AMERICA PUBLISHING COMPANY
Longview, Washington and North Bend, Oregon

COPYRIGHT

Smart Exit™ - Steer Your Business to Success – Companion Workbook

Copyright © 2017 by John E. Anderson, MS Management

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any
means, electronic or mechanical, including photocopying, recording, or by any information
storage or retrieval system, without written permission from America Publishing Company,
except for the inclusion of quotations in a review.

DISCLAIMER The purpose and intention of this publication is to provide accurate and
authoritative information in regard to the subject matter covered. It is sold with the
understanding that the author is not engaged in rendering legal, accounting, tax or other
professional services. Individual assistance should be sought for your particular legal and tax
circumstances. This book is a summary of some of the issues that may be encountered in the
optimization, succession and exit from an organization, and is for educational purposes. It does
not purport to describe the entire fields mentioned but to be an introduction into those subjects.
The author and publisher specifically disclaim any liability, loss or risk, business, personal or
otherwise, which is incurred as a consequence through the use of any of the contents of this
publication either directly or indirectly.

Library of Congress Cataloging-in-Publication Data

Author - Anderson, John E.

Title - Smart Exit Sub-Title - Steer Your Business to Success Companion Workbook.

Print Version - ISBN # 978-1-58600-002-8

Published by America Publishing Company, 67539 East Bay Road, North Bend, Oregon 97459 •
800-249-1622

Printed in the United States of America.

TABLE OF CONTENTS

PREFACE ................................................................................................................................................. 9
THE AUTHOR ......................................................................................................................................... 11
INTRODUCTION ...................................................................................................................................... 13

PART 1: WHY PLAN YOUR EXIT NOW?.....................................................................15

WHY PLAN YOUR EXIT NOW? ................................................................................................................... 17
READINESS QUIZ .................................................................................................................................... 20
FOUR ORGANIZATIONAL RISKS .................................................................................................................. 22
REDUCE YOUR RISK ................................................................................................................................. 25
DEMONSTRATING LEADERSHIP .................................................................................................................. 26
BUSINESS VALUATION ............................................................................................................................. 28
DETERMINING A BUSINESS VALUE .............................................................................................................. 31
STRATEGY AND ENTREPRENEURSHIP ........................................................................................................... 35

PART 2: BUSINESS NAVIGATION ..............................................................................43

BUSINESS NAVIGATION ............................................................................................................................ 45
YOUR BUSINESS ADVENTURE .................................................................................................................... 46
INITIAL FINANCIAL ANALYSIS ..................................................................................................................... 47
HOW SMART ARE YOUR SYSTEMS? ............................................................................................................ 50
KEYS TO BUILDING VALUE ........................................................................................................................ 56
YOUR MOST VALUABLE ASSET .................................................................................................................. 57
INTERNAL AND EXTERNAL COMMUNICATIONS ............................................................................................... 62

PART 3: TURN TYPHOONS INTO GENTLE SWELLS ................................................69

HEADING TOWARD YOUR HOME PORT! ...................................................................................................... 71
IDENTIFY LEADER CANDIDATES .................................................................................................................. 72
FINANCIAL ANALYSIS ............................................................................................................................... 75
STEADILY GROW VALUE ........................................................................................................................... 77
SELLING ALTERNATIVES ............................................................................................................................ 78



RESOURCES ........................................................................................................................................... 85
GLOSSARY ............................................................................................................................................. 87
FURTHER READING .................................................................................................................................. 88



Smart Exit™
Steer Your Business to Success

Companion Workbook

Plan Yours Now!
A practical guide for growing the value of your business,

identifying and mentoring a successor,
selling the business to the new leader,

and making a Smart Exit™.
Smart Exit™ is intended for firms with 3 to 100 employees,

revenue of $100,000 to $100 million.

By John E. Anderson,
MS, Management



Preface

The Companion Workbook supplements the Smart Exit™ - Steer Your Business to
Success. By using these together you’ll receive business concepts and easy-to-use ways
to apply them in your business. In this way, you will have a more successful Smart
Exit™!

A business is a group of people organized and dedicated to provide specific
services and products to alleviate particular circumstances for a narrowly focused
cluster of customers.

By planning strategy, tactics and comparing actual results to targets, we learn and
apply that verified knowledge to our next plans. Our vision, mission and ultimately our
advertising messages are succinct expressions of those plans. These written plans
support the company’s culture and conversation. They enable every employee from the
CEO to the janitor to express that purpose in everything they do.

The succession of employees from new hires through training, advancement and
demonstrated expertise leads ultimately to them moving on within the firm to greater
responsibility or to another organization, and then to retire. It’s your job as
CEO/stockholder/owner of your firm to demonstrate, model and train employees to be
leaders.

Department supervisors, managers and upper management must write their
plans and figure their financial forecasts. Align your teams to achieve objectives. Write
it, speak it, do it!

Our adventure began on the day the area's largest logging firm laid off most of
their employees pulling their equipment out of the forests. That day, I happened to call
and introduce myself to the executive director of the Economic Development Center of
Wahkiakum County, Washington. It was December 2009. He explained that 10% of the
jobs in the county had just ended.

Be Cause Business was hired to produce a business fair to stimulate a spark of
hope in the business community. We worked with local business leaders and brought in
seven speakers, including a member of the Federal Reserve, Sandra Suran, and
Marketing Ninja Jerry Fletcher. There were business exercises, collaboration, and new
ideas that day at Norse Hall on Puget Island in February 2010.

Business Navigation 101

Later in 2010 and following years, I offered my Business Navigation 101 classes
streaming online and in Pacific Northwest communities including Longview, Coos Bay,
Oregon City and Wahkiakum County. I created an online platform so business owners
could participate on their own schedule. There were further classes on strategic
planning, teleconferenced from the Small Business Development Center at
Southwestern Oregon Community College from Coos Bay to the Brookings campus. A
"Right Person, Right Job" course was developed based upon firms using the Core
Values Index assessment to have high performing teams improve effectiveness,
efficiency, and profit.

I presented one-hour Smart Exit™ panel talks with attorneys and accountants
backed by insurance and commercial real estate brokers at the Bay Area Chamber of
Commerce, Umpqua Banks in Vancouver and Roseburg and various business
gatherings in Portland, Vancouver, and Longview. Other Smart Exit™ and Strategic
Planning talks were presented at the Castle Rock Washington Chamber and
Washington's Cowlitz County Small Business Development Center.

Smart Exit™ Strategic Planning

In October - November 2015, I produced a "Smart Exit™ Strategic Planning"
course in a five-session, 10-hour program with eight guest speakers in Vancouver.
These programs were video recorded and coursework developed.

My research, client experiences, and management studies gave rise to the course
workbooks and now have gradually coalesced into this book.

Acknowledgments

If it weren’t for my consulting colleague, editor and friend Janice Aday, this
workbook would still be a project in my computer. It’s her commitment to creating
professional educational materials so business owners can more easily navigate the
choppy waters of balancing daily operations with genuine business improvement.

Of course, my wife Kate, my clients, colleagues Shanna Woeller and Phyllis
Harmon have helped greatly. I also rely upon my Institute of Management Consultants
colleagues and many other people too numerous to name (you know who you are), all
contributed greatly to completing the Smart Exit ™ Companion Workbook.

Thank you. I am truly grateful and appreciative!

The Author

John E. Anderson has founded five companies, two of which he sold. He was born
in Syracuse, New York. He graduated from Jersey Preparatory School in 1964 and from
Monmouth College in 1967 with an Associate of Arts majoring in English. In 1969 John
earned a Bachelor of Arts degree in philosophy at Bloomfield College, Bloomfield New
Jersey.

Newspaper/Trade Paper Editor

After six months reporting and editing at weekly papers (the Newark Record and
Bellevue Times) John was a staff writer at daily Passaic-Clifton Herald News while
attending Bloomfield College. Upon graduation, John became a writer and editor at
Fairchild Publishing, New York, at the daily trade paper - "Home Furnishings Daily"
from 1969 to 1971.

Between 1969 and 1972, John completed a full curriculum of philosophy and
anthropology graduate courses at the Graduate Faculty of Social and Political Science,
New School For Social Research, studying with philosophers Hannah Arendt, Hans
Jonas, Aaron Gurvitch and the anthropologist Stanley Diamond.

Founding & Selling Ventures

John resigned from Fairchild, traveled and then with a friend, Steven Finkelstein,
founded and operated Unison Natural Foods in Middletown, New York during 1971
and 1972. He later worked with his family in Anderson Travel Agency.

In 1976, John founded America Publishing Company in Florida specializing in
tourism development. During the following 10 years, he produced 100+ color
brochures, began a monthly cultural magazine "Space Coast News" and a wholesale
inbound tour operation, Sunny Tours. Sunny Tours was a reception tour operator
working with Amtrak and 100-passenger ultra-yachts on the Intercoastal Waterway
stopping at the Kennedy Space Center. John marketed the first cruise ship from Port
Canaveral and he was awarded contracts to operate a Florida Greyhound Bus Station
and Western Union Agency. John sold two businesses during this time, the Space Coast
News and the Western Union Agency.

Between 1986 and 1989, John studied accounting and finance, passed the H&R
Block Tax Course, and health/life insurance license examinations. He worked with an
insurance agency in Florida and wrote business plans for clients' marketing, finance and
retirement. Between 1989 and 2001, John moved to Oregon, operated an art gallery and

published greeting card lines for 12+ artists which he marketed with the gift lines of
many artisans to 1,000 independent retail stores coast-to-coast.

International Consulting Group & Master’s Degree

From 2001 to 2005, John worked for an international management consulting firm
appraising hundreds of businesses and earning a Master of Science degree in
management from Antioch University in Seattle with two professional certifications in
change management. John founded Be Cause Business Resources in 2003 from the
study of coaching and large system facilitation.

John has been a professional member of the Institute of Management Consultants
(IMC) since 2007, and served as membership chair on the Oregon - SW Washington
board for three years. He received national recognition from IMC for doubling chapter
membership. In 2016, he was elected chapter president by acclamation.

At Washington State University’s Carson School of Business, John serves as a
mentor for graduating business majors doing a community consulting project.

He's been a member of Toastmasters International Early Words club in Longview,
Washington since 2009. He served as public relations officer in 2014 - 2015 for Oregon
and SW Washington, achieving the highest honor of Distinguished Toastmaster in 2015.
At Early Words, he's a past president and has held various vice president roles. John
has facilitated the monthly non-profit speakers' series at the Thursday Member Focus,
Vancouver, since 2013.

John works with trade associations to assist member businesses. He developed a
broad range of services for Be Cause Business clients in Oregon, Washington,
California, and other states with a focus on organization optimization and staff
succession with leadership transition and exit.

Smart Exit™ Steer Your Business to Success - Companion Workbook

Introduction

This companion workbook to the popular Smart Exit™ Steer Your Business to
Success will enable you to take the concepts from the book and apply them directly to
your business. Together we will explore the fundamentals of small business
management for the purpose of preparing for a successful exit from your business. The
principles from Smart Exit™ Steer Your Business to Success will be transformed into a
personalized guidance system for you, individually, and for your firm.

Early preparation for succession involves optimizing the venture, developing staff
talent, and creating a strategy for the owner’s exit. This work improves stability in the
leader’s life, in the lives of their families, and in their communities.

While business owners aged 50 and older face the most immediate need for
planning, all organization managers of any age, for any size venture, both for-profit and
non-profit, should be developing staff and preparing for succession. Employees and
owners are inevitably replaced by new ones. Healthy organizations require change and
growth.

Smart Exit™ Steer Your Business to Success is a nautical-themed adventure, and you
are the captain of the ship! So, get ready to hoist your sails and set off for a nautical
adventure across the ocean of business to the future of you! As we travel this journey
together you will build your own sea-worthy ship to carry you on your unique journey
to the destiny of your dreams. Find additional resources at www.smart-exit.com.

Part 1 - Why Plan Your Exit

In Part 1 you will learn why exit planning is critical to your business, now and in
the future. You will learn about the risks that every business faces and how to prepare
for the unexpected.

Part 2 - Business Navigation

In Part 2 you will steer your business as you prepare to teach your staff to steer in
your absence. Every effort you make in this area will make your company stronger and
more attractive to potential leaders and buyers.

Part 3 – Turning Typhoons into Gentle Swells

In Part 3 you will learn how to teach your staff to steer. You will be able to step
away more often as you prepare for your departure, whether in one year or 10. Your
efforts will strengthen your team and their ability to run the business successfully.

Copyright © 2017 Be Cause Business Resources, Inc. • All Rights Reserved 13



Part 1:

Why Plan Your Exit Now?

When a man does not know which harbor he is heading for, no wind is the right wind.
- Seneca (Roman Philosopher)



Smart Exit™ Steer Your Business to Success - Companion Workbook

The best way to predict your future is to create it. - Abraham Lincoln

Why Plan Your Exit Now?

The focus of Smart Exit™ is the development of a mindset to successfully
navigate the tricky waters of your changing roles ̶ as entrepreneur/owner/operator ̶
to securely depositing the fruits of your many years of labor in that business into a tax-
protected retirement account.

It’s time to prepare your Smart Exit™ regardless of your age or how many years
you’ve been in business. You’ve got to prepare or you may lose most of the business
value you’ve created and your organization may falter and fail before you leave, or
shortly thereafter.

You can avoid calamity, but you and your organization will need to make changes
to achieve the greater success you desire. Depending on your situation, this could be
next year or 10 years from now. Begin now to prepare the conclusion of your
involvement with the firm – on your profitable terms.

Can your business operate without you? If not, what will happen? In an
emergency, time is not your friend. Without planning your business could collapse.
Business failure can happen fast. In a matter of days, weeks, or months a few challenges
can make or break you. Instead of being at the mercy of the storms of life, you can take
control of your ship and begin to plan and prepare today!

Congratulations on taking the first step. Let’s look at some of the benefits you will
receive as a result of working this program.

The Benefits

As your plan comes together you will begin to experience the tangible benefits of
your efforts.

• Your company’s value begins to increase, and you become aware of the value
of your company.

• Your customers are happier than ever.
• Your schedule is more flexible.
• Your employees have a sense of ownership that previously did not exist.
• You take vacation and time off without stress or worry.
• You have a sense of ease knowing that should an emergency arise, you are

covered.

Copyright © 2017 Be Cause Business Resources, Inc. • All Rights Reserved 17

Smart Exit™ Steer Your Business to Success - Companion Workbook

Steps to Business Transfer Success

In its simplest form, Smart Exit™ uses a four-step method for exiting smartly from
your business.

1. Deliver customer delight. Grow an efficient venture that delights your customers.

2. Teach staff to steer. Train and develop your staff to operate and steer the
business, based upon written policies and procedures. Identify a new leader.
Support leader candidates – who wants it most?

3. Financial and management controls. Monitor company performance, keeping
close reins as staff and the new leader practice with less of your direct
involvement.

4. Make your Smart Exit™. Smoothly and gracefully, transfer responsibilities,
leadership, and ownership and make a Smart Exit™ to go on to your next
opportunities, enterprises or retirement.

Tools of the Trade

The following tools and machinery are needed to achieve these steps:

Reliable Accounting

• Maintain your accounting with software like QuickBooks and possibly a point-
of-sale system or online shopping cart.

• Post deposits and payments and reconcile to your bank frequently so your
checkbook balances are fully accurate. The frequency will be a function of the
volume of transactions and the level of cushion in the bank.

• Categorize transactions so your financial statements are correct and
informative.

Strategic Planning

• Conduct scenario planning with projections into the next year or beyond,
based upon your history.

• Write lists of the ideas to improve and sustain your business and manage these
initiatives with project management methods.

• Write strategies and tactics for how to implement the lists of improvements.
Clarify the value proposition you offer. Explain why customers want to do
business with you. Determine how you will steadily improve your service.

Copyright © 2017 Be Cause Business Resources, Inc. • All Rights Reserved 18

Smart Exit™ Steer Your Business to Success - Companion Workbook

Business Valuation

• Maintain spreadsheets of your assets, liabilities and obligations for an
understanding of routine commitments you must fulfill to remain in business.

• Establish for yourself and stockholders the value of the enterprise. Do this
yearly.

Communication

• In all that your firm says and does, communicate the vision, mission, purpose,
your culture, your brand and the “why” of what you do.

• Engage and develop a team of supporters, stakeholders, customers and
employees to build your fulfillment process.

• Develop win/win written agreements with vendors, employees, and
stockholders to fulfill your promise to customers. Build trust and confidence in
all your relationships.

Does this sound like a big project? It is. We’ll show you how you can learn,
practice and perfect your methods, improve your business value and transfer
leadership in the coming pages using thought-provoking questions, hands-on exercises,
and examples.

Copyright © 2017 Be Cause Business Resources, Inc. • All Rights Reserved 19

Smart Exit™ Steer Your Business to Success - Companion Workbook

Readiness Quiz

How prepared are you and your business to transfer leadership responsibilities if
necessary? This Readiness Quiz is designed to capture information for your initial
Smart Exit™ Strategic Plan. It is a QUIZ that will score your exit readiness. Concise
responses are encouraged. Let's get started!
1. What got you started in your current venture?

2. What has astounded and delighted you as a business owner?

3. What urges you forward? You can’t help yourself—your imagination ignites. Your
curiosity awakens. Your brain demands that you engage.

4. Estimate how many days your business has operated without you during the last
year. Enter the number of days: _____
5. How many consecutive days could your business function if you were suddenly
incapacitated? Enter the number of days: _____
6. How many persons have an ownership interest in your business? Enter the number
of owners: _____
7. Do you have a written buy/sell agreement in place for current and possible future
partners?

Enter 100 if yes, the plan is written
Enter 0 if no agreement of plan
Enter -50 if you have an informal, unwritten agreement or plan. _____
8. What would you estimate is the current value of your company? _________
9. What do you believe the business would sell for if forced to liquidate and it was sold
in the next 30 to 90 days?

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Smart Exit™ Steer Your Business to Success - Companion Workbook

10. How did you arrive at that figure?

11. Are you purchasing or do you own the real estate which houses your business?

If YES, enter 100. If NO, enter 0. _____

12. If yes, how is the real estate titled?

Enter -20 if the business owns property,

50 if you/spouse own personally and in your own name(s),

100 if owned by a separate corporation

200 if a separate LLC owns it _____

13. How have you prepared for yourself and your family? Enter 50 if bank accounts
have multiple signers. Enter 100 if you/spouse have a professionally prepared will.
Enter 200 if estate planning is up-to-date. _____

14. If your ability to work changed suddenly, who would you ask for help? What would
you ask them to do?

Enter the numbers from selected questions below:

Question 7 = _______ Question 11 = _______

Question 12 = _______ Question 13 = _______

Total = _______

Readiness Quiz KEY
400-600. Excellent! You are on your way to a SMART EXIT™! This workbook will
support the work you have done to date and help you prepare for a successful transfer.
200-400. Great start! You have made some good decisions in key areas. This workbook
will help you increase the value of your business as you prepare for a SMART EXIT.
0-200. You are in the right place! Use the strategies and exercises in this book to value
your business, improve organizational structure, and prepare for a SMART EXIT.
Below 0. It’s time to focus on your SMART EXIT! Your business is probably more
valuable than you think. Use the strategies in this workbook to improve operations and
increase the value of your business!

Copyright © 2017 Be Cause Business Resources, Inc. • All Rights Reserved 21

Smart Exit™ Steer Your Business to Success - Companion Workbook

Prevention is, as in other aspects of seamanship, better than cure.
- Sir Robin Knox-Johnson

Four Organizational Risks

It may be difficult to accept that YOU represent several risks to the ongoing
success of your organization. You could drop dead, be diagnosed with a terminal
illness, or win the lottery and no longer be interested in or care about your business.
Things like this can and do shut businesses down every day.

Here are a few questions to ponder.

• If you were incapacitated or dead, what would your family have to do to
close your venture and liquidate assets?

• Is your organization stable enough to survive if you have a personal
calamity?

• How would your family and business recover and carry on successfully?

Your early death or disability would be a “train wreck” for your family. If your
business functions successfully with or without your daily involvement, your death will
still be devastating to your family, but less so for the business.

All organizations face four primary risks: the TRUCK, the DIAGNOSIS, the
LOTTERY and EXHAUSTION. You’ve navigated these waters well so far, but the
currents in this next section can be trickier than what’s come before. You must explicitly
deal with these possible scenarios or they can wipe out all you’ve worked to achieve.

The Truck

The Truck is some unexpected event that radically changes your involvement in
your business. It could be an accident, a stroke, or a heart attack. One day you’re fine
and the next minute you are out with two broken legs, a broken back, head trauma or
dead. Think major auto collision, criminal attack, tornado, volcano, tsunami, or a raging
fire at your office or home. Generally, we just don’t see the TRUCK coming. If we have
substantial resources available, it can help. Sometimes resources don’t matter and it’s a
struggle for those left behind to move forward.

Copyright © 2017 Be Cause Business Resources, Inc. • All Rights Reserved 22

Smart Exit™ Steer Your Business to Success - Companion Workbook

The Diagnosis

The Diagnosis is a surprise that portends significant change ― SOON. It could be
any number of things ― your major vendor dropping you, a change in government
regulations, your business partner says she is done and abruptly leaves, a medical test is
positive for disease. Everything is operationally the same, but some big change is
headed your way. You still look fine, but you know everything is going to be different
from here on out. No one around you knows or suspects what that phone call means.
You’re holding the phone and wondering what to do next.

The Lottery

Winning the lottery may be wonderful for the individual winner but terrible for
the people who have depended on the lottery winner. You, the owner or a key
employee, wins the lottery and life is completely different once the news is received.
Life’s priorities suddenly and dramatically shift. If a key employee or your partner
wins, you could be left ill-equipped, holding those keys, the proverbial bag, and
wondering what to do.

Exhaustion

Exhaustion happens when business or life’s struggles have worn the owner down,
and he hasn’t or won’t give up. He’s a fighter and refuses to let go. The six and seven-
day work weeks, the 10 to 14-hour days have drained the life spirit from him. While he
may be present at work, he’s cynical, depressed and resigned. Joy and possibility are
memories. Customers are just tolerated and it shows. If the success relies solely on you,
the all-consuming responsibility can lead to stress-related physical and/or emotional
illness.

Scenarios

The four organizational risks are listed on the next few pages with room to
brainstorm scenarios and solutions specific to your business and life.

Complete the SCENARIOS and identify a possible SOLUTION for each. An
example in each category is provided for your consideration.

Copyright © 2017 Be Cause Business Resources, Inc. • All Rights Reserved 23

Smart Exit™ Steer Your Business to Success - Companion Workbook

Four Organizational Risks – Exercise

Write scenarios for each organizational risk that would apply to your business or
life. Write a solution to mitigate the risk, or solve the problem when it happens.

TRUCK DIAGNOSIS LOTTERY EXHAUSTION

• Injury • Disease • A windfall for • Feelings gone
• Death • Partner or spouse
• Death of a you or another • Motivation
leaving
loved one • Supplier gone key person. barely there
• Natural • Government
• Poor decision-
Disaster regulations
change making

• Unfortunate

circumstances

SCENARIO Sick in bed for 2 Landlord raises rent in Manager receives Working 60 hours
SOLUTION weeks. per week.
60 days inheritance and

resigns.

Work from home Run a promotion to Give advance Identify and
with remote increase sales. training to delegate one task
access to assistant manager. per week.
computer.

SCENARIO

SOLUTION

SCENARIO

SOLUTION

Copyright © 2017 Be Cause Business Resources, Inc. • All Rights Reserved 24

Smart Exit™ Steer Your Business to Success - Companion Workbook

Reduce Your Risk

The list below includes strategies to mitigate risk in your personal life and your
business.

• Put a check next to the ways you already mitigate risk.
• Circle the ones you need to work on.

☐ Healthy Diet and Exercise On a scale of 1-10
☐ Routine Checkups with Doctor and Dentist
☐ Established Work/Life Balance Rate yourself on how prepared you are
☐ Meditation in the event of an unexpected situation?
☐ Hobbies
☐ Social Activities My Rating on a Scale of 1 – 10 is: ______
☐ Health Insurance
☐ Life Insurance Explain why you gave yourself that
☐ Business Insurance rating.
☐ A Trained Successor
☐ An Emergency Plan
☐ A Will
☐ Diversified Investments
☐ Cash Reserves for 6 Months
☐ Business Coach or Consultant

Copyright © 2017 Be Cause Business Resources, Inc. • All Rights Reserved 25

Smart Exit™ Steer Your Business to Success - Companion Workbook

The most powerful leadership too you have is your own personal example.
– John Wooden

Demonstrating Leadership

When a firm has a leader, who is a genius and crucial to operations, there can be
significant opportunities, but also great risk. The more dependent the company is upon
the genius leader, the greater the urgency to craft and maintain a management system
with a succession and exit plan for that leader.

Regardless of the size or situation of your business, you, as the owner, have
chosen the role of leadership. Use the rational skills of strategy, opportunity and threat
to consider your alternatives and craft a prudent course for your business future. This is
what differentiates you, as owner, from being an employee in someone else’s venture.
Your paramount responsibility, as owner, is to lead, even if you are just leading
yourself!

Our objective is to create a business structure that trains regular, entry-level
employees to grow in skill, and to make sound decisions and work in teams to support
each other and complete larger projects.

Owners sometimes dream of hiring a genius or industry savant to “solve” their
problems. Or the owner is such a genius. Both cases are risky because the rest of the
staff comes to depend upon that person instead of taking individual responsibility and
acting. The “genius” must be in the system, not any individual. Individuals come and
go. When each employee contributes to making the system more intelligent, that
business is more sustainable.

An organization dependent upon one or a few genius-like individuals is at risk for
loss of one or all of their experts or of being held for ransom by the high value, and
probably high-priced, expert. Build an expert system which anyone with average ability
can learn from, operate and produce remarkable services and products. This is a more
viable arrangement than one with a few employees with unusual gifts. The more gifted
the owner, the more difficult it may be for him or her to make a successful exit, unless
the owner’s gift is mentoring and inspiring the team.

We’ll discuss ways a venture can take steps toward better organization and smart
systems in the coming pages.

Copyright © 2017 Be Cause Business Resources, Inc. • All Rights Reserved 26

Smart Exit™ Steer Your Business to Success - Companion Workbook
Who Could Be a New Leader?
Answer the questions:
1. List one or more people, in or out of your firm, who could possibly become a

manager, then a partner and buy you out?

2. Or, do you plan to sell to someone outside the firm and cash out?

3. If so, how might you structure a deal?

Your Succession and Exit Team

A succession and exit team typically includes the following professionals. Write in the
names of people you have on your team, or could ask to join your team.

Professional Exit Team Member Name of Professional

Accountant

Attorney

Insurance Broker

Investment Broker

Valuation Expert

Business Exit Consultant

Copyright © 2017 Be Cause Business Resources, Inc. • All Rights Reserved 27

Smart Exit™ Steer Your Business to Success - Companion Workbook

The process of determining the value of a business in and of itself actually increases the value.
– John Anderson

Business Valuation

Three Components of Business Value

1.Assets with multiple uses beyond just your business,
2.Potential growth in cash flow and net profit supported by tax returns,
3.Your operations, represented by dependable staff using efficient systems to satisfy

established clientele.

What Is the Value of Your Business?

Buyers want to know a firm’s genuine net profit as supported by tax returns. Few
serious buyers give much credence to a seller who says their federal returns are
purposefully low to avoid taxes. It may be true, but in that case, the buyer has a very
strong negotiating position to drive a valuation and offered price downward. Another
way to look at value is to consider the customers, staff and functioning equipment as all
contributing to value.

In an efficient operation, these components result in revenue and cash flow, net
profit, assets, and equity. Repeat customers, efficient staff, modern equipment can each
potentially increase the value of the business. However, all components must work
together to comprise a functioning unit.

Transferrable Value

Here are some examples of assets that are transferrable that may not be initially
considered when valuing a business. All of these elements have value. It may take
creativity to find a way to capture and sell that value, but that doesn’t mean it cannot be
done!

• The business phone number
• A valuable lease in a desirable location
• Loyal, competent employees
• A growing customer base
• Updated database of customer contact info
• Facebook, other social media and current website
• An app created for customers
• The business name and brand
• An established delivery system

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In all circumstances, you must determine what your business is worth.
Determining business value is more complex than valuing real estate. Typically, there
are several values that can be established and a single value is chosen or determined
from the range of value approaches.

Valuation methods can vary depending upon the industry as well as its stage of
organization. A newly organized firm may have an office, equipment, and inventory
with little revenue, much less profit. In this case, what is the value of the assets less
liabilities? The accounting balance sheet equity may be close to its street value. Even in
this situation, if this firm is in a highly dynamic industry niche and has possible “first
mover” or “early mover” status, has big name talent with deep pocket resources,
pedigree education, and high power connections as investors, advisors or contracted
management, then the value can be many times the “book” value.

If the firm has average or higher than average revenue, then the revenue may be
useful as a multiplier in conjunction with balance sheet equity. A more mature firm
with revenue and net profit can in turn use profit as a multiplier in the value formula.

Examples of industry factors include how Facebook, Twitter, LinkedIn, and other
famous websites use unique visits. Retail drug stores use the value of each prescription
times $5 to $10, and print publications use the number of paid subscriptions or
advertising contracts. The basis of value is what is most prized and sought after by
leading firms in your industry.

Business values involving revenue and net relate directly from the IRS 1120
corporate and Schedule C proprietorship tax returns and the quality of the accounting
which is their basis. Obviously, if there is a hint of duplicity in the accounting, a wise
buyer will only consider the purchase of assets and want nothing to do with
corporation stock which might later be subject to an unfavorable IRS or state revenue
department audit for improper sales tax or employment reporting.

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Practice Shopping for a Business
One way to understand the sales process for a business is to research buying a

business yourself. It is easier to sell a business if you understand the buying process.
Your mission this week is to research at least one company in your industry that is

for sale and pretend that you are going to purchase it. Fill in the worksheet below:

Business 1
Name of business
What is for sale?
What is the purchase price?
What is the probable cash flow and
profit?
What are the obligations and risk?
What is the probable resale price?

Business 2
Name of business
What is for sale?
What is the purchase price?
What is the probable cash flow and
profit?
What are the obligations and risk?
What is the probable resale price?

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Determining a Business Value

Quantifying the value of your business involves several interrelated activities.

• Assets and liabilities are studied in greater detail than just the balance sheet.
• Historical and recent financial trends are compared.
• Expected relationships with customers, vendors, and competitors are studied.
• Marketing strategy, merchandising plans, budgets, risk and projected cash

flow are mapped to create a range of possible values for the business.
• The same business can have a different value depending on the buyer.

Types of Buyers Vendors Employees Family Members
Competitors

May buy your firm May buy your firm Have watched you Have been taught
to absorb assets to enjoy the retail and think they can by you, want to
and reduce profit as well as do better or at least carry on the family
competition. their wholesale as well. tradition and
profit. believe they can do
it.

Step-By-Step Valuation

The following is an overview of how to determine a simple business value.

DESCRIBE YOUR BUSINESS

Major customers, vendors, and competitors, as well as the firm’s place in the
market, should be described and analyzed objectively. This brings us to the current
circumstance.

LIST YOUR ASSETS

Make a list of assets. Include both physical and intangible assets. A physical asset
list can be made in a spreadsheet with columns for the price paid, date bought,
depreciation to date, the year you expect to replace the asset, replacement cost, and
your estimate of its liquidation value if you were to sell it.

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LIST YOUR OBLIGATIONS

In a list of obligations include all debt, the balance due, description of the item
purchased that created the debt, monthly payments and interest rate and term
remaining on the debt. Other obligations are leases and all contracts for products, such
as copiers or cell phones. Other ongoing obligations could include insurance, employee
benefits for retirement, bonuses, or promised salary increases.

Another obligation list could be regular recurring expenses such as payroll,
utilities, and rent.

As you can see, this is a more detailed financial picture than a typical balance
sheet or financial statement. A well-done asset and obligations summary with an
accurate balance sheet begins to better describe the main components in an
organization’s valuation.

CHART REVENUES

The next step in determining the value of your business is a description of
revenue, costs of goods, and net profit annually and perhaps seasonally for the last
three to five years, with comparisons between last year and the current year-to-date.
Compare and analyze monthly and quarterly totals.

OUTLINE YOUR PLAN

From these descriptions, individual reports can be prepared to outline your plans
to expand clientele, and the changes you want to make to your mix of products and
services to better fulfill your clients’ changing needs. Add a review of the strengths and
weaknesses of your vendor alliances as well as options you have if a major vendor fails
to perform.

CONDUCT A COMPETITIVE ANALYSIS

Prepare a competitive analysis of the other industry players serving your clients.
What firms are filling the needs of clients like yours in adjacent markets who might
decide to enter your market? How does your marketing and merchandising strategy
compare?

WORK THE NUMBERS

Substantiate your views with simple financial scenarios. Build scenario
spreadsheets for probable, best, and worst case financial projections. The next 12
months should be done by month based upon those same months in prior years. A

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simple cash flow projection showing estimated revenue, cost of goods sold, staff
payroll, officers’ compensation, and all other expenses, including debt service, can be
built by month for at least 12 months and preferably 24 months. Once done, it’s easy to
extend the cash projection by quarters for two to five years to substantiate your strategic
product development, marketing, merchandising, and competitive plans.

GOODWILL

Goodwill is the respect and admiration the public has in a company. Goodwill is a
complex subject and of great importance in business operations and valuation. Google
defines goodwill as a noun and the second meaning applies in business:

friendly, helpful, or cooperative feelings or attitude, i.e., "the plan is dependent on
goodwill between the two sides"

the established reputation of a business regarded as a quantifiable asset, e.g., as
represented by the excess of the price paid at a takeover of a company over its fair
market value.

Investopedia.com defines "goodwill" as an intangible asset that arises as a result of
the acquisition of one company by another for a premium value. The value of a
company's brand name, solid customer base, good customer relations, good employee
relations and any patents or proprietary technology represent goodwill.

SELLING ASSETS

An asset is anything of value. A business owns assets; therefore, a business is an
asset. It can take time and money to transfer an asset properly. Using the principle of
materiality, it's unwise to spend more on an asset than it is worth, whether that is to
purchase it, transfer it or in many cases improve it. Sometimes, the value of an asset has
dwindled so much that it's sold at auction, donated to a non-profit or given away.

There may be many reasons why not to "sell" a business, and sell or transfer assets
instead.

Here are two of many possible reasons to consider selling assets rather than the
business entity. 1) The company has operated at a loss, and assets and goodwill are
worth less than the expense of improvement or transfer. Other reasons for not selling
can include 2) the preference, for a variety of possible reasons, to transfer the business
or remaining assets to a family member or close friend. Some written agreement should
always be prepared to explicitly outline what is being transferred and how. Learn how
to write simple agreements, such as a legal receipt or a bill of sale. Without this
knowledge, "informal transfers" can be dangerous and should be avoided. For tax and

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legal reasons, always get professional advice when transferring assets. All asset
transfers should be recognized on federal tax returns. Failure to do so can have severe
consequences which can be avoided by merely following the rules and getting
professional assistance.

THE PROCESS OF VALUING

The process of valuing and then realizing the value you have determined may not
be a process in which you are interested or feel competent to complete. Annual
valuation by a professional can be done to be sure the firm is being managed in a
responsible and sustainable fashion. That being said, you can still get started on the
process!

Business Valuation Exercise

Answer the questions:

A More Considered Estimate for the Current Value of Your Business

1. Having given some additional consideration, what do you realistically believe you
could sell the business for, in a short-term time frame, say 30 - 120 days?

2. On what are you basing that figure?

What is the Future Value of Your Business?

1. What would you project the value of your business might be in 6, 12 or 18 months;
Or, you name the date you might want to sell and for how much.

2. What would be needed to achieve this? 34

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Strategy is about making choices, trade-offs; It’s about deliberately choosing to be different.
- Michael Porter

Strategy and Entrepreneurship

To be an entrepreneur is to see an opportunity and a way to seize it. In its simplest
form, that is strategy.

Definition: A plan of action or policy designed to achieve a major or overall aim,
as in “time to develop a coherent economic strategy.”

Synonyms: Master plan, grand design, game plan, plan (of action), action plan,
policy, program; tactics; exit strategy.

Strategic Planning

You may have a strategic plan. It may be out-of-date. Many entrepreneurs keep
their plans in their minds which makes it easy to change on the fly. Some go through a
strategic planning process only to get too busy to keep it fresh and meaningful.

Often strategic planning is done on an annual basis with the management team.
The sessions can last a day or two and are held offsite to ensure focus and performance.
Plans are then delegated to management and reviewed as a group once each quarter.

The exercises below will help you re-focus on strategy as you build a simple plan
providing the foundation for your Smart Exit™ efforts. Once you have completed this
simple exercise, consider scheduling a strategic planning session with your
management team!

A Strategic Plan includes the following elements:

1. Company Overview
2. Mission, Vision, and Values
3. Financial Projections
4. Goals and Action Plans

Answer the questions below to begin building a solid foundation for your
strategic plan.

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Company Overview

1. Write a few sentences to describe your firm and its history.

2. How does this history affect your current circumstances?

3. What is happening in your firm? It could be something new or the consequence of
your history.

4. What’s happening of greatest significance?

5. How could this influence the direction of your business?

6. What actions, if successfully executed, could benefit your business most?

7. Describe up to three opportunities you’d like to develop.

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Vision, Mission, and Values

Vision is WHERE you are going - The OUTCOME

• Project five to 10 years in the future.
• Dream big and focus on success. Use the present tense.
• Use clear, concise language.
• Infuse your vision statement with passion and emotion.
• Paint a graphic mental picture of the business you want.

Write your vision statement OR write some ideas about what your vision statement
COULD include.

Mission is WHY you are going there ̶ The PURPOSE

• What do we do?
• For whom do we do it?
• Why do we serve our clients in the way that we do?
• How do we serve our clients in the way that we do?
• Why are we in this industry?
• Why did we start this business?
• What image of our business do we want to convey?

Write your Mission Statement OR write some ideas about what your mission statement
COULD include.

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Values are HOW you will get to the Vision and Mission. They guide BEHAVIOR.

The goal is to identify the six or so values that align most closely with the company and
the people who are a part of it.

Values Examples of Values

Describe what matters Integrity

Guide behavior Respect

Establish norms Customer Service

Foundation for company culture Revenue and Profit

Help with tough decision points Teamwork
Contributes to brand

Support customer care Community

Help with focus Employees

List six values that reflect your company today:
______________________________________________________________________________

______________________________________________________________________________

Financial Projections

A strategic plan includes solid financial reports and projections. Your financial
portfolio for the plan should include:

• Budgets and over/under (simple budgets are okay)
• Specific project budgets – capital improvements
• Cash flow projections for one year, three years and five years
• Balance sheet
• Breakeven for one year

Answer the questions:

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1. What might be done to increase revenue and net profit?

2. What are the time frame, cost, and results you could expect?

Goals and Action Plans
Goals and actions are the engine of your plan. Work together with your team to

establish and write goals that are: Specific, Measurable, Actionable, Realistic, and Time-
Framed. SMART goals will light a fire of passion and stoke the flames of ownership
among your management team. Reviewing progress on the goals on a regular basis is
probably the one thing you can do as a leader that will net the most results overall! It is
worth the time and effort.

Categorize the key areas in your organization and group your goals into clusters
under each. For example, a company may have the following key areas:

• Sales and revenue
• Talent management
• Profitability
• Operations
• Customer care
Other companies may have marketing or merchandising, or inventory
management. These will be specific to your company.
Answer the questions:
1. What are your short-term (10 to 90 day) goals?

2. Identify major possibilities or obstacles to achieve these objectives.

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3. Are there urgent or crucial issues/opportunities?

Strengths, Opportunities, Weaknesses, Threats, Trends (SWOTT)
Consider the points below, then complete the SWOTT form to the right with your

answers to these questions.
Company Strengths

• List and describe the company’s main strengths.
• What do your customers love?
• What are the core competencies of you and your staff?
• What differentiates your firm from the competition?
Company Weaknesses
• List and describe any real or perceived weaknesses.
• Are there management initiatives in place to reduce or reverse them?
• Give examples.
Opportunities
• Detail current and possible opportunities.
Threats
• Detail threats to your firm.
• Are there competitors or changes in customer trends that could seriously

affect your business?

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SWOTT Chart

Helpful Harmful
Strengths Weaknesses

Internal

Opportunities Threats

External

TRENDS

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Using Strengths to Seize Opportunities
Answer the questions:
1. What are possible ways your strengths could overcome weaknesses to avoid threats

and grasp opportunities?

2. Name some trends that could benefit or threaten the firm in the months and years
ahead.

3. What trending market forces could be anticipated and built upon to improve
customer satisfaction, staff development, and the future of your venture?

Core Competencies
1. What are they? Focusing on your core competencies and what makes customers

really appreciate you, have been proven to be superior to focusing on "problem-
solving."

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Part 2:
Business Navigation

The pessimist complains about the wind; the optimist expects it to change; the realist
adjusts the sails. - William Arthur Ward



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If you want to build a ship, don’t drum up men to gather wood, divide the work and give orders.
Instead teach them to yearn for the vast and endless sea. - Antoine de Saint Exupe’ry

Business Navigation

Smart ships have dependable power and navigation tools to avoid the reefs that
are littered with ships that strayed off course. For thousands of years, explorers on
sailing vessels traded goods from port-to-port, rarely leaving sight of land. Dead
reckoning navigation, early maps, and star charts enabled merchants to cross oceans.
Risk has been gradually reduced with the compass and sextant, followed by radio,
radar, satellites and global cell phones. Sail and wind power were replaced by steam,
diesel, nuclear, natural gas, electric, and solar.

Are you an “old salt” with years of experience?

Are you considering how you might promote a promising lieutenant to become
the new captain? Preparing for a leadership change can be a good time to upgrade tools
and methods. Vessels can be refitted, updated and modernized to incorporate the
technology and deep cultural changes hurtling us forward.

As the creator and captain of your ship, craft your business to:

• Gracefully fulfill the needs of customers.
• Operate efficiently and profitably without your daily involvement.
• Be transferable to new owners at almost any point in the event of an

emergency or by your decision.

When your systems operate efficiently, when your procedures and policies are
written and in place, when everyone knows what to do in normal operations and when
something unusual comes up, your customers will receive the best service available.

You will also be able to step back periodically and then more often and regularly
to let your staff handle every-increasing responsibilities. In doing this you will also
provide an environment in which staff feels pride-of-ownership and improved
confidence in their ability to deliver results.

When these things are in place, you will have the peace of mind knowing that
should an emergency arise, you will be in a position to transfer the company with grace
and ease.

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The biggest mistake a small business can make is to act like a small business.
– Postfilm Design

Your Business Adventure

Smart Exit™ is for both experienced and new leaders. It is a nautical adventure,
an exploration aboard your sailing galleon into how you might optimize it for yourself
and the leaders who will follow you. Prepare for the next leader now and you’ll
accelerate your ease of management and the accomplishments you achieve.

Think Like a Venture Capitalist

Venture capitalists typically have a cardinal rule. When considering a business,
they will not invest without 1) a specific, expected return on their investment, and 2) an
exit date. They require a clearly written plan spelling out how they will proceed from
entry to exit, showing action steps, cash flow predictions and alternative scenarios for
the expected tricky parts. They know these plans will change, but it is with these tools
that they manage the venture to reduce risk and increase their success rate.

They compare the prudent possible gain from their investment against the risk of
loss. They compare the gain and risk in a prospective venture to low gain and low-risk
investments like bonds, annuities, secured notes or mutual funds. How does your
business' gain-to-risk ratio compare to "safer" but lower-gain choices?

Set Your Dollar and Date

Today, decide a date in the future when you might realistically transfer your business.

1. What is a reasonable date to make your exit?

2. When and what else do you need to do to prepare for succession and exit?

3. What would it take for your business to operate with less of your daily
involvement?

4. By what date could you have the business ready to transfer if faced by an upcoming
emergency such as a medical diagnosis or legal issue?

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If not you, then who; if not now, when? – Hillel the Elder

Initial Financial Analysis

Initial financial analysis begins with cash flow projections. In this section, you will learn
how to pull together analysis tools using your accounting software and Excel
spreadsheets.

Cash Flow Projections

Cash flow projections are critical to helping you to foresee the future and how it will
impact your available cash. Cash flow helps you to manage the critical inflow and
outflow of cash that enables you to pay your employees and keep the lights on! The
more you work with cash flow projections, the better you will become at using this tool
as a key component of your navigation system.

The following assumes a basic familiarity with your accounting software and
spreadsheets. If you do not have the necessary level of competency and comfort, contact
your accounting professional.

To perform a cash flow projection, complete the following steps.

Cash Flow Projection Procedures

1. Open your software accounting program, i.e., Quickbooks. You will be running
several reports. Each report will be exported to an Excel spreadsheet, then saved
as an Excel workbook file.

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2. Report 1. Select the following reports and options from the report menu.
• REPORT: ANNUAL CASH BASIS PROFIT AND LOSS
o SELECT: By Quarter
o COMPRESS: Income, Cost of Goods, Expense
o Categories

3. Export Report 1 to Excel.

4. Report 2. Select the following reports and options from the report menu.
• REPORT: CASH BASIS PROFIT AND LOSS
o SELECT: By Quarter
o COMPRESS: Income, Cost of Goods, Expense Categories for the
current or upcoming quarter. Note: This report can also be run as a
monthly report with weekly information.

5. Export Report 2 to Excel by adding this as a new worksheet in the existing file.

5. Report 3. Select the following reports and options from the report menu.
• REPORT: BALANCE SHEET
o SELECT: Prior year’s December Transactions (Export?)

6. Report 4. Select the following reports and options from the report menu.
• REPORT: BALANCE SHEET
o SELECT: Current month, weekly transactions (Export?)

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7. For the projected numbers we are going to use the ending checkbook register
amount as shown below as “Beginning Cash.”

8. Copy the Cash Basis Quarter that corresponds to your current date and paste into
a new spreadsheet tab. Insert a row above “Income” and label it “Cash –
Beginning.” In the three rows below “Net Income,” label each row as follows –
Debt Principal, Adjustments and “Cash – Ending.”

9. In the column to the right of the current period last year, title the next column
“Projected.” Post the beginning cash amount from the balance sheet. In this new
“Projected” column, predict your probable income, COGS, gross profit, expenses
and net profit.

10. Post the expected upcoming debt principal payment on the “Debt Principal”
row. In the “Cash – Ending” cell, enter the formula “=(Cash- Beginning)+(Net
Income)-(Debt Principal). This is your projected “probable” ending period cash.

11. This can be done for future quarters or monthly and weekly. Once you’ve done
the probable projection, use this template for “best” and “worst” case scenarios.

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If you are too busy to build good systems, then you will always be too busy. – Brian Logue

How Smart Are Your Systems?

People-Based or Systems-Based Management

Organizations can lean either toward a people-based or a systems-based
management approach. If you describe your work processes by the name of the person
who performs the tasks, you lean toward being people-based. Job duties are molded to
the abilities, skills, and preferences of the individual. Family businesses and those with
10 or fewer employees are frequently operated this way.

If you have developed systems that optimize products and methods to most fully
fulfill customer needs, you probably have written procedures, processes, and job
descriptions. The unequivocal expectation is that employees will follow the system to
maximize output and customer satisfaction. An automated factory with robots is an
example of a highly systematized organization.

Typically, systems-based ventures are more sustainable and automatically have a
higher business value compared to people-based firms. Systems-based ventures are
more productive and profitable. It is easier to train employees, promote staff to be
supervisors and transfer leadership duties and ownership in a systems-based venture.

Now let’s advance your systems. We map systems, processes and methods to gain
a clear understanding of what you are now doing to fulfill client expectations. Doing
this gives immediate insight and clarifies thinking on your part and that of staff. It
directly addresses the need we feel at times to “get organized.”

The following is a gentle slope approach to your “guidance system” development
with questions to explore and test your ideas. Capture your ideas as you work to
navigate, define and develop the systems in your firm.

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