Beginning With Your "Fourth Quarter" In Mind
My Dad could see that I was getting frustrated. He had introduced me to puzzles at a young age. He always liked to work out how the pieces needed to fit together.
Working on a book of mazes, I kept making the wrong turns and hitting dead ends. “The secret to solving maze puzzles”, he said, “is to start at the end and work backwards.” Little did I realize as a young boy how this well known “secret” drove my Dad’s approach to his life and business. Or how it would drive my future approach to working with Family Business Pioneers.
Reaching The Results You Want
As author Stephen Covey has reminded us, “Begin with the end in mind.” For Family Business Pioneers, this means “Begin with your Fourth Quarter First.”
This is the key to success which I’ve seen time and again put into practice by successful Family Business Pioneers and it is the mindset they’ve asked us to deploy with them.
Eventually, every business owner will reach the Fourth Quarter of their time as a business owner. At that time, every owner wants to accomplish certain personal, financial, business and estate planning goals. Yet, way too many fail to do so. They went through the first three quarters of their life as a business owner without fully considering what would be needed to successfully win their Fourth Quarter too. Our team is working to change that.
Efforts by business owners to be fully satisfied with their eventual success have been, on average, less than satisfying. For example, some studies show that over 75% of former business owners regretted the decision to sell their Company because the sale did not accomplish their personal or business objectives. What was the reason the business owners gave? They did not understand all of their options, so they didn’t make informed decisions.
Create Opportunities Now So You Have Options Later
Over the years, we have worked with hundreds of business owners from around the U.S. to help them overcome these odds and achieve a successful outcome for the time and capital they have invested in their businesses. Our discussion is intended to help you to see more of a Business Continuity and Succession Planning process which will help you to create and understand your options and will provide the active steps which we suggest you look at taking today so you can successfully retire from, pass on, sell or exit from your Company someday tomorrow.
What Will Be Your “Fourth Quarter” Outcome?
What do you hope will be the future outcome of the time and financial investment you are making or planning to make in your business? Based on over 37 years of working with owners of small, middle-market and large closely held or family businesses in practically every business sector, I’ve found the answers to this question tend to be very similar. Most owners of closely held or family businesses have some or all of the following hopes or wishes:
- That your income from the business will continue to grow and provide an increasing standard of living for you, your family and your colleagues.
- That your business will help you accumulate sufficient financial resources for a comfortable retirement.
- That your business will not suffer or be lost through the negative influence of either internal or external adversities or claims.
- That both your business and your family can financially survive your unexpected, premature disability or death.
- That you can retire upon your own terms, while leaving your business in the good hands of successor leadership which you have selected and groomed.
- That ultimately you can either pass on a successful and valuable business to your family, or sell your business to your fellow owners, management or an outside buyer of your choice at a full and fair price, while minimizing potential federal and state taxes.
- That you can accomplish all of this with minimal shareholder, management and family squabbles.
- That your advisors will work together with you on understanding your options to help you make informed decisions.
These tend to be common business owner wishes, whether you own all or part of your business, whether your business is small or large, whether you are in the business of selling products or services, and whether you started the business yourself or inherited or bought it from someone else.
The Present Atmosphere
This is no small matter for business owners and their families in our country. Fortune Magazine has reported that the largest intergenerational transfer of wealth in history is now underway, totaling $45 trillion, which it says will be transferred over a 55-year period through 2052. It says about one third of this will pass to baby boomers, while the rest will go mainly to baby boomer children. Cornell University economist and demographic expert Robert Avery has predicted that baby boomers themselves will transfer $10 trillion to later generations. The Exit Planning Institute reports that the vast majority of this wealth is stock in more than 12 million closely held companies and that over the course of ten to fifteen years more than 70% of these businesses are expected to be transferred. A study by Boston College has projected that over the next 50 years $41 trillion of American wealth will transfer from the current generation to the next generation.
A recent survey of business owners by the Business Enterprise Institute found that 69% plan to exit in the next 10 years. Most of these business owners were in the 50 to 75 age range.
How Do You Achieve The Future Outcome You Want?
Almost all of the Business Pioneers who we have worked with over the years are very good at what they do. They also all realize that a business is not successful or profitable simply because they might wish it to be so. It’s a basic and well understood principle of business – to be profitable and successful, you need to actively take the steps needed to efficiently provide, at a competitive price, products or services that a significant segment of the consumer or business public needs or wants.
You know you cannot simply wish or hope this will happen on its own. The successful family business requires years of hard work, planning, dedication, and good business decisions. Likewise, you can’t simply wish for your future Fourth Quarter to be successful and then expect it to be. You need to actively cause your Fourth Quarter to be successful – by starting very early on.
Over the years, I’ve had the opportunity to work with my own family in a number of their business operations, which have included restaurants, supermarkets, ranching, farming, retail merchandising, construction and real estate. They have provided good examples of the “entrepreneur’s work ethic,” not just by working hard in their businesses, but also by working hard on their businesses.
I’ve also had the opportunity to get to know many business owners. Most business owners whom we’ve worked with tend to realize, some sooner than others, that the future outcome they want for their business (and family) will be realized only if they apply the same skills to work ON their business as they have applied to working IN their business.
How is this done? It’s done by realizing that your business should not rule your life. It’s done by realizing that you need to take the steps necessary to rule one of the most important but too frequently overlooked aspects of being a business owner – the proactive, successful future transition and future exit process. It’s done by asking the two fundamental questions mentioned earlier and then taking decisive action based on the answers.
Question 1: What Will Be The Probable, Almost Certain, Future Outcome Of Our Present Course, If Left Unchanged?
I encourage business owners to take some time to answer this. What will be the outcome of your present course? The probable almost certain future outcome of a business owner’s investment of time and capital depends on how well you understand this.
What we do through Business Continuity and Succession Planning is to work with you ON your business through various Business Continuity and Succession Planning tools and techniques which have a proven track record of producing a better outcome for those who utilize them.
Learn From The Past And Create Your Future
So, where do we begin? The first step is to understand the “probable, almost certain, future outcome of your present course, if left unchanged.” Will you be able to sell your business? Will your business be in a position to be sold at top dollar and minimized taxes when you are ready to depart. Will you have a capable successor, whether amongst your family or key employees or recruitable from outside the company? Are you prepared for the unexpected?
Understand What Is Right. Deal With What Is Wrong
We begin this review by making certain, as advisors, that we both have a solid understanding of your business and personal situation. A good physician will not make a diagnosis or recommendation without first doing a thorough “Patient History and Physical” (known in the medical field as an “H and P”). Likewise, a good Business Continuity and Succession Planning advisor first needs to do a brief “History and Physical.” Like a medical History and Physical, this typically reveals the areas of most concern which need to be addressed.
What we have found over the years is that to the extent this reveals that certain tools are missing, the probable almost certain future outcome for your business investment will be less than that hoped for. This “History and Physical” leads to the next question.
Question 2: What’s Missing, The Presence Of Which Will Make A Substantial Difference In Producing A Better Future Outcome?
There are many different Business Continuity and Succession Planning tools and techniques from which we select for business owners to successfully provide the missing components, the presence of which equips you and your business for achieving a substantially better present and future for your business.
These tools and techniques can help assure that you can successfully enhance and protect your current and future business profits and value during your First, Second and Third Quarters, as well as successfully pass on or sell your business when you reach your Fourth Quarter – whether that is due to your retirement, disability or death – or just a desire to do something else.
Stop, Look Both Ways, Proceed With Care
My purpose, as a Business Continuity and Succession Planning advisor, is to help you determine which of these tools and strategies can best assist you. Based on your particular needs as a business owner, this process requires a certain amount of detailed discussions and planning over a period of time with one or more other professionals working together.
I’ll Wait Until…
“I’ll wait until… the economy bounces back… or until we reach our next revenue milestone… or until my family pushes a bit harder about my plans…” or until this, that or the next thing. This is what we call the “Wait and See” Game Plan. It is a recipe for failure.
Don’t Overdo It or Underdo It
Don’t overdo it by spending so much time planning for your future that you neglect the continuing needs of running your Company. Likewise, don’t underdo it by neglecting to determine and take the actions needed to be successful in protecting, transitioning and exiting from your Company. What good is it to reach the Fourth Quarter only to realize you only had a “Third Quarter Game Plan” and now find yourself without the game plan needed to actually win the game.
Triage
A medical professional will, after an assessment of the situation, prioritize the most immediate and secondary needs of the patient and then address the most critical needs first. Likewise, we find that in the Business Continuity process (what we call Fourth Quarter Planning), a similar triage is almost always necessary or appropriate. While we advocate the need to address all of the actions described in our discussions, this does not mean they need to be addressed in the same order described in our discussions.
Avoiding Fourth Quarter Train Wrecks
Family Business Leaders/Pioneers tell us they most want to avoid Train Wrecks. Throughout our discussion we will identify the 24 avoidable Train Wrecks that Business Leaders/Pioneers face during their Fourth Quarter.
The Key To Success
Our firm has helped plan ahead for, design, negotiate and implement the purchase, sale or transfer of hundreds of businesses with values ranging from a few hundred thousand dollars to several hundred million dollars. Each transaction presents unique objectives, hurdles and opportunities. And each business owner’s success was dependent on the focus on Business Continuity which occurred well in advance of the sale or transfer of the business.
The key to success is to get started well in advance - to become engaged early in the Business Continuity process. The best results are achieved when the business owner “begins with the Fourth Quarter First”, whether you are presently in your First Quarter, Second Quarter, Third Quarter or Fourth Quarter.
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