7/22/24

Know What Port You Are Sailing To

As the Roman statesman and philosopher Seneca wisely observed: “If a man knows not to which port he sails, no wind is favorable.”

Put slightly differently, French philosopher Michel de Montaigne suggests: “A man who does not have a picture of the whole in his head cannot possibly arrange the pieces.”

Or, as St. Louis de Montfort stated: “What does it avail an archer to know how to hit the outer parts of the target, if he does not know how to hit the center?”

The first step listed in a famous rabbit stew recipe is “Catch rabbit”. Likewise, as you and your advisors begin the Fourth Quarter Planning process, we don’t want to overlook the obvious. Every business owner must begin the Fourth Quarter Planning process by reviewing his or her primary personal, business and financial objectives. Once established, your objectives become the final destination towards which your Fourth Quarter Game Plan needs to advance.

The Fourth Quarter Planning process, whether you intend to sell the business to an outside party or to transfer it internally to a family member or an employee, cannot proceed until the owner’s objectives are thoroughly analyzed, understood and internally consistent.

Where Are You And The Business Going?

Often the startup entrepreneur is more focused on this than the business owner who has owned the Company for many years. Many startup entrepreneurs have a clear plan when they begin as to how big they want to grow the Company and how soon they want to trigger their exit.

Are You A Golf Ball On Your Way To Becoming A Basketball?

• Think of it this way – no matter which quarter you are in. If we could think of your Company as a ball, are you a golf ball with plans to remain a golf ball, or are you aiming to become a baseball then a softball, then a soccer ball and then a basketball? Are you positioning yourself to grow a little or to grow a lot. It’s important that we all understand this up front.

Define Your Universe

This review of the owner’s objectives needs to be thorough, specific and forthright. A successful Fourth Quarter will involve help from a number of advisors. If these advisors don’t understand the mission, they won’t be working in a coordinated effort. If the team quarterback isn’t clear if the play is a run to the left or a pass to the right, the likelihood of successfully scoring is remote.

Before addressing your primary objectives as a business owner, the Fourth Quarter Planning process needs to begin with an understanding of your personal, business and financial objectives.

This review of your objectives is the time to consider what you want to do post-exit and to address the type of legacy you want to leave to your family, your business and your community.

Prime Fourth Quarter Objectives

In the Fourth Quarter Planning process, your Fourth Quarter Game Plan and the various planning tools are dependent on six prime objectives. These in effect represent different forks in the road. While a good Fourth Quarter Game Plan includes fall back plans, it is critical that you and your advisors begin by having a keen understanding of the following six prime business owner objectives:

1. Who – Who do you presently believe you will want to eventually transfer your business and duties to?
2. What – What part of the business (or businesses) do you presently believe you will eventually want to transfer or keep?
3. Where – Where are you taking your business to and then where will your next personal or business adventure be?
4. When – When do you presently believe you want to eventually exit or slow down from active duty and/or ownership?
5. Why – Why are you a business owner in the first place?
6. How Much – How much net cash-in-pocket do you presently believe you need or want to have when you eventually exit your business and how close are you to this goal?

First, it’s necessary to start to identify your primary and fallback plans. For example, if we were to discuss your ownership, your options normally include a sale to outside third parties, or sale to inside key employees, a sale or transfer to family members, or a sale to your partners.

Second, its necessary to know what part of your business or businesses you intend to transfer or keep. This can entail a review of personal, business, investment and tax objectives.

The third prime objective is to determine where you are taking your business to and where you want your next personal or business adventure to be. In other words, what will you “retire” to. And, if you are considering a move to another State upon your retirement and if you presently are a resident in a State which will tax the gain on the sale of your business, then you should consider whether a move to a State which doesn’t impose a tax should be considered before your sale. Certain actions are needed ahead of your sale to establish your new legal residency in another State.

The fourth prime objective is to determine approximately when you want to exit your business. This addresses not simply your desire to transfer ownership, but also the time you desire to reduce or retire from your active leadership.

The fifth prime objective considers why you went into the business in the first place. This drives everything. This will help us all to address what’s missing and what’s still needed.

The sixth prime objective is to determine your “Cash-In-Pocket Target.” If the “Cash Needed From Sale of Business Today” is more than the net cash which can be realized from selling your business today, then your Objectives need to be coordinated accordingly.

Family Bootcamps

Fourth Quarter Planning needs to address the interaction of business dynamics, family dynamics and financial dynamics. As you begin to consider your personal, business and financial objectives, we typically work with our clients to address one or more family bootcamps or conferences where we can discuss, evaluate and consider your objectives in light of the wishes and expectations of your loved ones.