Guiding Your Client’s Value Creation Process

exit planning

To help your client obtain their desired exit, it is essential that you, as an advisor, guide the value creation process. The current company value is rarely enough to meet the owner’s retirement needs. A vast majority of M&A deals fall apart. And, the number one reason is price. In most instances, you cannot help a client get to a successful exit if you do not solve this single value problem.

To be successful as an exit planner, you need to show your clients the value of their business today and the value they will need at a specific future date to exit the business and retire. You have to help your clients focus on their desired future state, build the roadmap to get there, and guide them along that journey – like a coach.

Begin with Baseline Value (V0)

Exit planning begins with value, and as an advisor, you need to weave value into all the efforts and initiatives connected. It is essential to have a value conversation early and often.

You can’t get to where you want to go if you don’t know where you’re starting from. For instance, we can plot a trip to Albuquerque, NM, from New York City; but the trip looks a whole lot different if we start from Santa Fe. But we don’t even know where to begin if we don’t know where we are.

Baseline Value is the initial business value today that you are starting with, and it helps set the basis for your exit planning roadmap. So, you need to know the starting point before you get too far ahead in the exit planning process.

There are a handful of ways to establish baseline value – Value Scout being one. Some are pretty vague (a range of multiples based on previous transactions). Others, traditional valuations, are expensive. Of course, we have our opinions of what way works best. But, regardless of what path you choose, you have to establish VO.

Identify the Value Gap

Work with the business owner to determine the DESIRED future value of the business so the owner will WANT to retire. In some cases, this number is based on what they NEED to retire. But, other times, it’s just a gut check number of what they’d like to see. The owner may randomly pick any number as their goal to retire, say $25 million, only to find out later that that amount was not good enough.

So, you must undertake a thorough financial needs analysis early. Understand what they need and what they want. If you wait until it’s time to transact, it may be too late. Here are some questions you need to answer to establish this number:

  • When does the owner want to retire?
  • How many retirement years do you forecast for the owner?
  • What are the estimated annual expenses for the owner in retirement?
  • What are the owner’s aspirations and goals to be completed post-retirement?
  • What are the owner’s responsibilities towards family, employees, community, etc., in retirement?
  • What are the owner’s expected pre-tax and post-tax sales proceeds?
  • What are the exit options available?
  • What kind of exit transaction does the owner prefer?

So, with this exercise, you can draw the exit planning road map ahead and know that the ship is moving in the right direction.

Once you zero down on a figure based on both the needed and the desired value of the business owner, the next step is to determine if it is possible to get there. There are a lot of factors that will come in the way of actually achieving that target.

Conduct reality checks to know if the goal is feasible and viable. Again, sit with the owner and think through what the company will look like, say six years down the road.

Suppose it’s a $10 million company today and needs to get to $40 million. How different will the company look? How will its staff, leadership, and management look like? Will there be one office or four separate offices? It can be an eye-opening experience and help in better strategizing and planning.

Build the Value Creation Roadmap

Together with the business owner, determine strategies to close the value gap between where the company stands today and where you are trying to take it. So, suggest methods that have worked for your previous clients. You can tailor them to fit into the current client’s unique situations or devise a new strategy that could bring desired results.

Help the business owner identify problem areas after thoroughly being present in the business and understanding how it earns revenue. Give a set of recommendations to overcome issues in the path of value creation.

Use your expertise to suggest steps to overcome the roadblocks such as company-specific risks, market conditions, competition, etc. Even if something is out of your area of expertise, keep the client’s interests first and serve as a trusted advisor in finding workable, objective solutions from other sources.

Work towards helping the company identify opportunities for business growth and value acceleration. And give suggestions on how to grab these growth opportunities in time.

Guide the Value Creation Process

As an advisor, you need to build processes and plans using the company’s limited resources and link them back to value. So, everything the company does is to create enterprise value.

You must stay committed to helping your client turn their exit plans into reality. Involve the company’s key employees in the plans and ensure that they are on the same page when it comes to initiatives for value creation.

As the advisor, you have the privilege of seeing things from an outsider’s point of view. You should guide and provide an objective perspective to the owner concerning their business goals and personal financial situations.

One of the essential steps in guiding value creation is taking corrective action to ensure a consistent outcome. So, you did all the previous steps correctly, and processes started running as per your plan. And it continued in the same fashion for, say, one or two years. But at some point, you need to go back and check if the exact plans are still working towards your objectives. Is there a deviation? Did what you thought was going to happen?

You need to identify what has changed for the company that is giving different results. And you should re-evaluate, re-analyze, and re-strategize to ensure that you reach the desired value creation target.

How Value Scout Can Help

While complex in practice, value creation is seemingly simple enough, right? Establish value today, agree on desired value tomorrow, pinpoint the value gap, develop and deploy value creation strategies to get there. For more on the value creation process, check out our recorded webinar in the Guidon Community, Exit Planning Framework 2.0. In this session, I detail the complete process and toolsets Value Scout provides advisors to this work.

The mission of Value Scout, the world’s first complete value creation platform, is to enable every business owner to exit on their terms successfully. When you bring a client onto the Value Scout platform, we provide a baseline value for their business. Our valuation combines a black box algorithm with human QA to give you a specific and unique opinion of value. Simultaneously, we give you the tools you need to quantify and visualize the value gap. Finally, we give you a robust set of tools to identify and execute value creation opportunities. Value Scout lets your clients build and execute their annual, quarterly, and weekly plans.

Access our open demo in the Guidon community or schedule a personalized demo here.

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Author Summary:
Dan Doran

Dan Doran

Is the Founder of Value Scout, Quantive and the 2019 Exit Planner of the Year. He is a recognized expert and speaks frequently about M&A, valuations, and developing more deliberate value creation strategies.

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