Reynolds + Rowella

GET THE LATEST NEWS CLIENT ACCESSONLINE PAYMENT BLOGCOVID-19
  • About Us
  • Who We Are
    • Meet the Partners
    • Our Team
  • Consulting
  • Tax
  • Industries
  • Assurance
  • Culture
  • Careers
  • Contact

GROWING A BUSINESS FROM REVENUE TO EXIT

November 20, 2017 by Reynolds & Rowella Leave a Comment

Most businesses start with an idea that is brought to market. Customers purchase the product or service and the business begins to grow. Eventually, if the company grows enough it acquires ‘value’. And it is that ‘value’ that a buyer will purchase in an exit transaction. This newsletter is written to help business owners think through this cycle of growth as they proceed towards an eventual exit. This newsletter is a guide to thinking about revenues, profit, valuation and how they will impact your eventual exit.

An Initial Business Focus on Revenue

In the first few years of a business, the business owner(s), almost always, are solely focused on attracting revenue to the new company. Simply put, revenue is the gas that keeps the engine going, without which bills cannot be paid and the enterprise cannot continue. At the beginning, the businesses’ very survival is at stake. At this stage in the business, and with the mindset of the owner, there is a myopic focus on revenue. One of the challenges that owners face is the initial transition from generating revenue to accumulating consistent profits.

The Consistent Generation of Business Profits

Once a business is successfully growing – meaning that revenue alone is no longer the daily obsession – there should be a shift in a business owner’s mindset to thinking about company profitability. At this stage owners need to consider how the revenue that the company is generating is helping to drive and shape the business profits. Their vision starts to broaden and they start to become more strategic in their thinking, seeking to attain higher-quality, more profitable revenue. So, the initial shift from revenue to profitable revenue begins to take shape as the company’s growth depends on profits to fund its increased overhead.

Moving from Consideration of Profitability to Increasing the Value of the Business

At the more advanced stages of a business, owners start to ask themselves ‘what is my business worth?’ The focus at this point in time begins to look beyond revenue and profits and starts to look at the company value. Here, an owner should be thinking about the ‘quality’ of its revenue and profits. In other words, is the revenue and profit recurring in nature or is it project-oriented and one-time in nature? Are competitors squeezing margins or are there high barriers to entry (or other factors) that help protect your margins?

These types of advanced questions indicate a focus on what a future buyer will see when they look to acquire the business. By having protected margins, consistent profits, and organized systems and people, the value of the company increases. And when owners begin to focus on these critical areas, they are only one small step away from asking the ultimate question, i.e, ‘who will own and run my business next and how will I benefit and/or get paid the value of the business?’

The Final Step, from Value to Exit

Finally, when the business owner has successfully transitioned their thinking through this entire process, they can begin to focus on their exit. At this point in time, an owner begins to consider who will pay them for the value that lies within the business. Some owners want to transfer the business to co-owners, managers or family members, while some want a buyer to pay the highest price. Whatever exit path is chosen, the owner is now thinking about how value will be extracted from the business while the business continues on into the future.

A Caveat on Advanced Planning

Ideally all business owners think about their eventual exit before they begin to build a company. Very few owners will actually succeed in doing this because new businesses are risky ventures and it is difficult to see beyond the survival phase, far enough ahead to figure out who will want to own the business next. That said, consideration of who will own your business next is always recommended, at any stage of the business.

Concluding Thoughts

It is only when the business owner can successfully bring themselves to the highest level of thinking, are they in the position to plan their exit from that business. So, how many owners of privately-held businesses will advance their thinking this far? That is the ultimate question when considering how many business owners will be successful with their exits and we hope that this newsletter provides a bit of guidance for your thinking towards a successful exit.

Contact Steve Risbridger at stever@reynoldsrowella.com or 203.972.5191
for assistance navigating the complex matters related to exit planning.

Filed Under: Exit Planning Tagged With: Accounting Services Fairfield County CT, Best Accounting Firms Fairfield County CT, Financial Planning Fairfield County CT, GROWING A BUSINESS FROM REVENUE TO EXIT, Tax Returns Fairfield County CT

The Problem with “The 5-Year Exit Plan”

August 21, 2017 by Reynolds & Rowella Leave a Comment

Most business owners who are asked about their exit plans will reply that they want to exit their business ‘in about 5 years’. Often times, 5 years later, the same owner will give the same answer to the same question. In reality, the 5-year window is a subconscious resistance to beginning the process of planning for an exit. This newsletter is written to help owners see that the perpetual 5-year plan is not good for themselves or their businesses and that the natural tendency to delay the planning for your eventual exit may be costly to both you, your company, and the people who depend on your business for their livelihood.

The Five (5) Year Exit Phenomenon

The 5-year, universal answer to ‘when will you exit your business’ represents a number of interesting factors relating to the challenges associated with developing and executing an exit plan.

First – the 5-year window of time is, in many ways, a simple refusal to commit to anything immediate. This means that an owner who says that they will exit in 5 years is essentially saying “I don’t have any idea when and / or how I will exit, but if I say ‘5 years’ then this is enough time to begin to think about it at a later date.’

Next – the 5-year window can many times reflect an accurate amount of time that it will take for an owner to properly exit a business. However, if that owner does not take any action today, then the 5-year window will often times become an indefinite period of time before the exit planning occurs. The ‘rolling 5-year phenomenon’ then begins to take form.

The Challenges Associated with Planning an Exit Strategic vs. Tactical

Most owners of private businesses lack the ability to see beyond their day-to-day running of their business. This leads to a natural delay in doing long-term planning such as ‘exit planning’.

WHY IS THIS THE CASE?

Quite simply, most business owners are tactical and not strategic in their approach to their businesses. Time is not put aside for looking far into the future to try to see where the owner thinks that he/she and the company want to be.

The beauty of 5 years is that it is just far enough to be ‘out of sight’, conveniently delaying the process of planning for the event. Most owners can see what is ahead of them for the next year and perhaps the next 2 to 4 years. However, few if any owners can look ahead 5 years to anticipate what will become of their business. Therefore most business plans – written or otherwise – address the next 1 to 3 years, and not the longer time horizon.

Planning for an exit often requires going beyond the next few years. And, because it is difficult for most owners to do this, the planning gets put off until some point in the future.

An Outside Force is Often Needed as a Motivator for Many Owners

Business exits do not happen by themselves. Too many owners rely upon a hope that something good will happen to them in the future. However, exit planning is complex and often does not occur without an outside motivating force compelling it to happen. Unfortunately, many owners will experience that outside force in the form sickness, disability, divorce or just simple burnout from running the business.

Because these outside forces compel an owner to react, the process is not proactive. And as a result of being in a reactionary mindset, these outside, uncontrolled forces tend to diminish the value of what you receive at the point of your exit because you are being compelled to exit in a manner and time period that is not suited to your needs. A proactive, strategic approach to planning your exit is the significantly better way to go.

Do you have a rolling / permanent 5-year window?

This is a good question to ask yourself to begin the exit planning process. The real answer to this question requires a bit of time and reflection about ‘why’ you are in business to begin with. Did you start your business because you wanted to be independent and autonomous from previous employers? Or was there a more logical reason for starting your business – such as the fact that a well-built business would, one day, provide you with enough financial resources to be permanently independent to live a life of your choosing? There are many challenges associated with any business exit but the first one is figuring out if the trap of the 5-year phenomenon is really you just putting off the planning aspect of your business exit.

Overcoming the 5-Year Plague – Begin Planning Your Exit Today

The best way to avoid the loss of wealth and discomfort associated with losing your business to a rolling 5-year plan is to reject the idea that you cannot begin your exit planning today.

There is a system and process in place that can organize your exit planning. The money and time that you invest today in the exit planning process will reward you with peace of mind and the knowledge that you have not have fallen prey to the ineffective and non-existent 5-year plan that so many of your business owner counterparts will continue to falsely believe in. Take action today. Make exit planning one of your top business planning priorities. And, finally, be aware that if your answer to when you will exit your business is ‘in 5 years’, then you too need to heed the false assumptions that exist with the 5-year phenomenon. The good news is that this 5-year obstacle is easy to overcome.

Need some help? Want to explore your exit plan with Reynolds & Rowella? Give us a call at 203.438.0161 or email us!

Filed Under: Exit Planning Tagged With: Accounting Services Fairfield County CT, Best Accounting Services CT, Exit Planning Services, Exit Planning Services CT

Leading Your Business Transition/Exit

September 28, 2016 by Reynolds & Rowella Leave a Comment

Many owners of privately-held businesses are not pro-active in planning for their exit and the company’s transition. This is true mostly because the ‘exit planning industry’ is nascent and many owners are simply not aware that a service exists to help owners with this complex issue. This newsletter is written to advocate the position that owners should be pro-active and should actively lead their exit plans by involving those that help them manage the business. An owner’s successful exit is an entry point for another owner to take the company to the next level, creating potential opportunities for the leaders in your organization. However, without leading the process, it is not something that you can rely on without proper planning. You might get lucky, but luck is rarely a solid strategy.

Exit Planning & Mountain Climbing

Let’s first examine how leading an exit is different from growing a company. We will use a helpful analogy – mountain climbing.

Climbing up a mountain requires determination, focus, strength, and management of many obstacles. The ascent is often arduous, creating doubt in the mind of the climber as to whether they will reach the pinnacle. There is a summit that can be identified and a specific point at which one turns to begin the equally, if not more so, challenging act of descending down the mountain.

On the way down a mountain a different skill is required. One’s weight is now working against them. There is a different need for balance and coordination of activities. In fact, Sir Edmund Hillary is not so much known for his ability to be the first Westerner to scale Mount Everest. Rather, he is famous because he was the first to survive the descent. Will you, and your business, survive your exit? The answer to this question may depend upon the new leadership skills that you learn.

First Set the Path for Your Exit

Before the climb and descent begins, a plan is established to reach milestones as well as the ultimate goal – you don’t climb a mountain in one day. It takes months, if not years, of preparation and the climb and descent requires careful planning.

A strategic, long-term plan for the business – including alignment of key employee’s incentive compensation with that plan – is an excellent start to setting the right path. When you take the time to formulate a strategic plan as well as align key people, you put the Company on a path to [eventually] succeed without you. When you can define a vision both for the Company as well as for yourself, you can work faster towards being the leader that your organization needs you to be to more effectively handle your exit plan. Without direction, there is no catalyst for positive momentum forward.

You Need to be a Leader in Your Exit, Not Just a Manager of the Exit

Your exit will require a different skill set than growing your business, the same way going down a mountain requires different skills than going up. You need to adopt a leadership mindset towards your exit. In fact, it will mostly be your ability to let go of the responsibilities that you have grown so attached to that will define the success of your exit. In order to let go you need to build a team who can assume your responsibilities. And in order to build that team effectively, you need to become a leader.

Empowering Others – An Unselfish Act

As you set your company plans remember that you are leading, not managing these tasks. For example, management is more about getting a task done, often with the self-centered objective of successfully driving a result. Leadership, however, is about the empowerment of others.

When you move from management to leadership, you focus on the strength of your team and begin to more effectively work yourself out of your job. Your overall strategic plan should have you working hard to eliminate yourself from the day-to-day running of the business. This is not so much to put you out to pasture but more to increase the transferability of your Company to someone else in the future.

Your Team Will Help Your Future Owner Manage the Business

Your exit will depend on your team because that team will lead your company into the future. Think of the situation in these terms – no matter how you decide to exit, it is the company that will pay for the value. Simply put, if the ‘golden goose’ stops laying eggs then an exit cannot be financed.

It will be the team that you develop and lead to self-sufficiency that will run and grow that company into the future. This is true whether you exit via sale to an outsider, or whether you exit via internal transfer to managers, family or employees. Someone has to run the business and be empowered to do so. The team that you build and lead will be that catalyst for the future and will define your exit.

Are You Developing Your Talent on a Regular Basis?

A leader is able to see out over the horizon and prepare for changes within the marketplace and the business. The success of your exit will depend upon your ability to replace yourself in this regard.

Do you have a process for recruiting new talent and assessing existing talent within your organization? Are you able to let go of large responsibilities and trust that they will be handled well by those that you lead? These are critical questions to ask and answer in advance of your exit because turning over the reigns of a business is often an emotional event for an owner. Working through this emotion and putting the right people in place is an unselfish act that is done for the long-term growth and survival of the business.

Concluding Thoughts

You worked hard to establish your position in your company, industry, and community. Now you need to work just as hard to replace yourself in that role. This unselfish act (or more appropriately, series of acts) sets the stage for a successful exit because you are building your own replacement by leading the organization to a whole new level.

Contact Steve at stever@reynoldsrowella.com or 203.972.5191 for assistance navigating the complex matters related to exit planning.

Pinnacle Equity Solutions © 2016

Filed Under: Exit Planning Tagged With: Accounting Services Fairfield County CT, Best Accounting Firms Fairfield County CT, Exit Planning, Financial Planning Fairfield County CT

Exit Planning is a Path to Diversification of Wealth

June 8, 2016 by Reynolds & Rowella Leave a Comment


Most owners of privately-held businesses have the majority of their wealth trapped in their illiquid business. What this means is that without a path to turn the value in your business into cash, your overall wealth will continue to stay concentrated in your ownership of your business. So the fact that your business provides for a solid income and lifestyle is separate and distinct from considering how and when you will be able to turn that illiquid wealth into cash. This newsletter is written to help owners see that a business exit plan can be a vital first step towards diversifying your overall portfolio while also protecting the wealth that resides in your illiquid, privately-held business.

The Basics of Diversification

There is an old saying that applies to many business owners – that “in order to get rich, you need to own a lot of one thing, but in order to stay rich you need to own lots of different things.” Many business owners today ‘got rich’ through the ownership of their privately-held business. However, in order to stay rich, many owners will need to diversify their personal wealth through the transfer of ownership of their companies.
If you are like most business owners, your business comprises the majority of your wealth. Also, like most owners, your business is likely highly dependent upon you. Therefore, if you want to protect your overall wealth through the process of diversification, you can consider planning for the eventual transition of your business, whereby a point in time will come for you to turn your illiquid wealth into cash.

Why Plan to Sell Something So Valuable??

Many owners understand the logic of diversifying their wealth through an eventual exit but they do not take immediate actions because they have a very good thing going with the success of their company. For owners who agree with the logic of diversification but perhaps have not taken any action in this direction, we offer another question to ask yourself:

“If I sold my business today [for a reasonable price] would I turn around and invest all of those proceeds back into the same business or into a single stock that does not have an actively traded market?”

The answer for most owners to both questions is a resounding ‘no’. Not only would most owners not turn around and repurchase the business that they just sold but they would also not be looking to reinvest in a concentrated, single asset for the same sale proceeds. The obvious reason for not repurchasing your business or to re-concentrate your wealth is because the RISK of only owning one stock – after achieving liquidity – is too high. There is a single point of failure with that financial plan because the investment dollars are not DIVERSIFIED. This is the financial reality of many owners of privately-held businesses today.

Why Most Owners Do Not Begin the Process of Diversification with a Plan

An exit plan is a written document that assists an owner with consideration of different ways to diversify their wealth by eventually becoming liquid from a transfer of ownership. Given that the sale of a business is the largest and most emotional transaction for most owners, it makes sense that a plan would come before an action that is taken. However, we find that most owners do not take action to plan for their diversification for a variety of reasons. Many business owners offer a number of reasons, listed below, for their lack of planning, including:

1. “I don’t perceive my business to be a RISK” or

2. “I am not ready to SELL the business so I cannot DIVERSIFY, or

3. “I bought plenty of life insurance to take care of my family if something should happen to me (in other words, ‘my demise is the only RISK that I really perceive to exist regarding the future profitability of my business’) or

4. “I am DIVERSIFIED. My business sells many lines of products and/or services”
In each instance we see that the owner’s ‘plan’ is quite limited and does not actually diversify the owner’s family’s wealth. Perhaps somewhere in this list of common responses you see one that fits your reaction to this question of planning for diversification?

The Psychology of ‘Selling’

If there is so much logic behind diversifying wealth through an exit plan, then why don’t more owners do it? One answer lies in the psychology of an exit.
As an owner of your business you are the master of your own destiny. You have survived the odds against ‘making it’ in business and continue to fight them each and every day. For the most part, thinking about an exit strategy plan cuts against the grain of thoughts of business growth and expansion.
So, given this gap between logic and action, how do you begin to turn this bridge, this divide and start developing an exit strategy plan that protects all of the wealth that you have accumulated?

Seeking Help is the First Step in this Planning Process

The most successful owners know that they do not climb a mountain all by themselves. Rather they surround themselves with a team that knows more than they do about areas that they are venturing into.
The same process holds true for planning for a business exit. We advise that you seek out professionals with experience in this area to help you begin the planning process that ultimately leads to the protection of your illiquid wealth.

Concluding Thoughts

In closing, most business owners will make up their minds to do something when they are good and ready to do so. Therefore, we can only continue to impress upon the millions of business owners out there that diversification is a key component to securing the success that you have worked a lifetime to achieve. In this regard, one can say that it is never too soon to begin thinking about an exit plan, but without a plan, it could one day be too late. We hope that this newsletter has assisted you in thinking about your overall wealth and how an exit plan can begin the process of helping you protect it.

Contact Steve at stever@reynoldsrowella.com for assistance navigating the complex matters related to exit planning.

Pinnacle Equity Solutions © 2015

Filed Under: Exit Planning Tagged With: Accounting Services Fairfield County CT, Exit Planning, Financial Planning Fairfield County CT

Receive Our Blog Updates by Email

Recent Posts

  • FFCRA Paid Leave Extension Until September 30, 2021 with Tax Credits
  • COBRA Subsidy Under the American Rescue Plan Act of 2021
  • The American Rescue Plan Act (ARPA)
  • U.S. GAAP Accounting for PPP Loans
  • What Employers Should Know About the COVID Vaccine

Contact Us

  • This field is for validation purposes and should be left unchanged.
  • About Us
  • Meet the Partners
  • Our Team
  • Consulting
  • Tax
  • Industries
  • Assurance
  • Culture
  • Careers
  • Blog
  • Contact

where to find us and how to call us

90 Grove Street / Ridgefield, CT 06877 / Office: 203.438.0161 / Fax: 203.431.3570
51 Locust Avenue / New Canaan, CT 06840 / Office: 203.972.5191
© 2021 Reynolds + Rowella. LLP
follow us on twitter follow us on facebook follow us on linkedin
Website Design: Wieting Design
  • About Us
  • Who We Are
    ▼
    • Meet the Partners
    • Our Team
  • Consulting
  • Tax
  • Industries
  • Assurance
  • Culture
  • Careers
  • Contact