​Any owner-operator that has read even a single article on transition planning will know that the key starting point is to make the business less reliant on any single person, or more importantly, yourself.  For owners that are looking to sell, any risk (real or perceived) to future cash flows related to its reliance on any key person, can dramatically affect its transferable value (i.e. what it’s worth to someone else without you).  Even if the business is sold to management, employees, or transferred within the family, it must have transferable value or it may be doomed to fail.  However, simply knowing the path you must take is only the starting point: taking concrete steps as part of an actionable plan is what matters.
 
For small companies, the first step is to grow the business beyond your capabilities.  Most often, very small lifestyle businesses have no transferable value.
 
Even businesses with 5-10 employees can be difficult to transfer successfully if the owner-operator makes the key decisions and the rest of the staff are sales, administration, and operational assistants.  Many owner-operator entrepreneurs are so focused on keeping costs low that they get stuck in a rut, and the business never makes breakthrough performance.  Being the first one in the office and the last one to leave may be a great way to set an example, but it may also be a sign that business will never grow beyond what it is doing today.
 
Breaking through a size plateau is no easy task.  One way to start is by focusing on the critical tasks that play to your strengths and then slowly delegating everything else.  This is going to take some time and most importantly, it will take patience.  Unique knowledge and skills, as well as relationships with vendors and/or key customers, are transferable when the right people are patiently mentored and supported by the boss.  Most importantly, it will free up time to work “on” the business rather than “in” the business.
 
Building next-level management also requires the right incentives, support, and the ability of the boss to get out of the way by not second-guessing every decision or critiquing the process.  Instead, the owner-operator's energy needs to be spent nurturing next-level managements’ capabilities and focusing on the many other drivers that will increase enterprise value.
 
According to a Mckinsey report, between 25% and 50% of leadership transitions fail or were deemed as a disappointment after 2 years.  The main reason cited was organization politics and a lack of support.
 
Ultimately, the goal is to transition from General Manager to Chief Strategy Officer.  The key is to focus on ensuring the business is well-run rather than running the company well.  It is important to understand what it takes to evolve from a manager to a leader.
 
So how do you get there?  Every situation is unique however an interesting tip worth considering for small companies is to take an extended vacation, or perhaps shorter vacations more frequently.  Employees and next-level management naturally step up to the challenge when the boss is away because they will not want to bother you with every little decision.  Soon the “wheat will separate from the chaff” and the real leadership skills of key employees will begin to emerge.
 
For companies that already have a quality “next-level” management team in place, driving transferable value often involves more formal HR practices to recruit, nurture, and retain talent.  Best practices around your onboarding program, incentive programs, performance reviews, etc. will be necessary.
 
Building the skills and talent of the entire team drives transferable value regardless of the stage or size of any business.  And building transferable value is the only viable way to successfully exit regardless if the business is sold to a third party, transferred to the next generation, or kept as an investment in a family trust for future generations.

Many experienced business owners and management teams have lived through both good times and bad and have the scars to prove it.  Entrepreneurs late in their career may have experienced the exorbitant interest rates and high inflation in the 1980s, 911, the financial crisis in 2007/08, and the subsequent recession in 2008/09, amongst others.  Like every crisis, the COVID-19 pandemic has created challenges that require solutions that are unique to each business and industry.

For private business owners planning their exit, the pandemic can present some additional challenges.  Depending on the situation, it may mean that any exit plan that includes a sale is best delayed.  Perhaps there has been a drop in earnings and the business’s anticipated enterprise value, or there are fewer buyers with the financial wherewithal or interest in actively pursuing acquisitions.  Perhaps it simply creates challenges for buyers undertaking their due diligence as not everyone is able or comfortable with traveling or participating in face to face meetings.

Nevertheless, the demonstration of resiliency during adverse or unusual business circumstances, such as a pandemic, can enhance long-term business value and interest from multiple buyers.
Managing during difficult times usually means getting back to basics.  That is, watching and/or reducing expenses, freezing new hires, deferring non-essential capital expenditures, and perhaps even shutting down non-core parts of your business or selling off/discontinuing unprofitable product lines, etc.  In the current pandemic, it also means implementing safety protocols that keep employees healthy and limits absenteeism.

Presuming any downturn is not fundamentally permanent, the tough times can also create special opportunities as well; such as buying out a competitor or securing a “rock-star” employee or manager that has been laid off or downsized.

A business’s ability to survive a severe market down-turn boils down to two key items: 1) its capital structure, and 2) its management team and their problem-solving skills.  A well-financed business with a strong balance sheet and a talented management team that emerges from a downturn “leaner and meaner” is in a better position to withstand the next downturn and is fundamentally worth more to a buyer.

In some cases, when times are good and access to debt financing is easy and cheap, business owners are lured into investments that may impair their ability to weather the inevitable or unforeseen downturns.  Many businesses do very well during the good times simply because they have a “strong wind in their back”.  Sometimes this can lead to aggressive decisions on pricing to capture market share or recruitment of talent with “out of this world” salaries or incentives.  In good times, customer objections may be easy to handle with profitable solutions.  Even the poor performing salespeople, seem to hit their targets each month.  The key to management in the good times is to ensure that you don’t get complacent or sloppy.  A highly disciplined approach to investments and growth is critical.

It is also critical to build resilience into your balance sheet to withstand the inevitable turn for the worse that is down the road.
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So regardless of where your business stands under the current circumstances…regardless if the times are good or bad, entrepreneurs and management teams need to be keenly focused on continually improving performance across all functional aspects of the business and building resiliency into their capital structure.  As the adage goes, “Good times become memories and bad times become lessons!”