Exit / Succession Planning - Top 7 Challenges

By Darren Cherry

Owners often ask me the common problem we observe in clients at the start of an exit planning engagement.

1.) Owner is MVP
With few exceptions, buyers purchase a business where the owner will exit in the near term. So as you might imagine, companies that can’t operate over a long period without the owner tend to be less attractive.

2.) Unrealistic Value
Generally speaking, a firm’s valuation is unique to its industry, size, risk factors, and attractiveness. An owner rarely thinks their value is lower than the current market price. So, when you have a business with $20 million in sales, using the EBITDA multiple from your neighbor’s $200 million in revenue business can create a bit of a rosy-colored picture.

3.) Tax Oriented Financials
It is not uncommon to see a business’s financial statements account for cost in the most efficient tax manner. These statements fail to paint a picture of what the company can produce in terms of income from operations. Even worse, they serve a minimal purpose in helping the team know how they are doing against what is important.

4.) Hidden Vision
The owner often has, in their head, a clear vision and future direction of the company. Unfortunately, it stops there and lacks integration with the team’s actions and responsibilities.

5.) Customer Service Disguised as Sales
Many companies have developed a highly respected and valuable customer service center. This group is often the cornerstone of their customer loyalty and reoccurring purchases. As the company grew, many incremental sales were from existing clients or word-of-mouth referrals. The hunting aspect of business development became less of a focus.

6.) Management Team – Strategic Blind Spot
Sometimes we encounter a tactical team that can operate the business without the owner. However, this team struggles with strategic and higher-level tactical actions and implementations.

7.) Outdated or Missing Standard Processes
“I’m not sure why we do these additional steps, but we’ve always done it that way.” We see many cases where new employees are “winging it” or performing tasks that make little sense today.

As your adviser, we’ll help you discover your “As-Is State” and work alongside you in your journey of where you need to be.
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