Did you know?
- Approximately 50% of businesses fail within five years
- Over 70% of businesses are owned by Baby Boomers who are nearing retirement and most will never find a buyer
- Over 80% of these Baby Boomer Businesses are not “transaction ready”.
- Only 4-5% of businesses listed are actually sold in any one quarter (BizBuySell.com).
- Over 70% of businesses sold fail to meet the expectations of the buyer.
We all are in business to make money unless you are a non-profit organization, but profit is not a manageable activity, it’s a “Result”.
Certain activities are directly linked to profitability like Sales and Expenses. Performing these activities more effectively leads to greater profit.
The accounting system is the historical “System of Record” that captures all physical transactions. Geared primarily around financial criteria, profit, cash flow, assets & liabilities. Measuring profits only is imperfect and influenced by many variables like inventory, sales cycles, timing issues and more. It is historical and therefore purely retrospective.
There is a better way, switching from past tense management to current and future-facing management. Here are the three Stages of Management:
- What happened (Accounting View – Financial KPI)
- What is happening (Real Time KPI)
- What’s going to happen (Future Facing Management – Leading KPI)
Weather forecasters are using radar to predict the short-term weather changes (we all knew when and where the hurricane would make landfall and could prepare in time). Leading KPI’s are like a Radar for your business. You can see the changes coming and prepare in time.
What leading indicators are critical in your business? Share your experience.
When the buck stops with you, people tend to share selectively. Here are some tips to avoid blind spots…
There was a disruption in your business recently and now it is time to do an analysis and report to your Board about the incident. This is your chance to be a Leader or demonstrate that you may not be in charge of your business.
I was working with a client recently and during a break I was having a quick conversation with their Director of Finance. He told me how much respect he had for the CEO, and I asked why. He told me that each month he attends the Board Meetings with the CEO to cover the financial aspects of the business.
He told me that anytime the CEO needed to advise the Board on any recent challenges, he never once pointed the finger at any of the employees. The CEO’s only comment when asked who had the problem was that he is in charge and the buck stops here. The Director of Finance also told me that when there was a great accomplishment to discuss, the CEO always gave credit to the employee or employees involved.
After a few meetings, the Director of Finance mentioned what he was observing and hearing to his peers on the management team. They were stunned, they had never worked for a person who was quite like this CEO.
What a great example of a Leader!! Take a look in the mirror and ask yourself if you could be compared to that CEO.
If you are the CEO, President, Owner or Founder, you are in charge. Do you act like it? Do you have the kind of respect and trust that this CEO’s team and Board obviously have of him?
If not then Who’s in Charge?
Every business owner thinks about exiting their business. Some hope to sell. Others may have plans for somebody to ‘take over’ (e.g., next generation; partner/co-owner; employees via employee stock ownership plans; etc.). Maybe the plan is to step away slowly and continue to take an income or profit. Regardless of the plan, the success of each is largely contingent upon the health of the business.
Any buyer will want some assurance of continuing revenue, as well as the ability to continue operations at a profit. The likelihood of recurring revenue lessens when the ‘Selling CEO’ exits and there is no team in place to drive sales. Let’s assume there is a sales and marketing team to drive revenue. Is there an operating system with the accountability in place to execute on delivering the products and services sold? Does the system measure the effectiveness of those responsible? Do you have trusted relationships with suppliers? How well documented are your systems and processes?
It might seem counterintuitive, but a good test of this happens with a passive CEO. What happens when you (the owner/CEO) take time off? Imagine taking a two-week vacation with no access to your phone or computer. Would the business thrive or would you come back to a firestorm? Take it a step further. Does your management team have a clear direction for the next 3-5 years? Are your vision, values, and goals clear? Would they share the same view of that long-term goal in your absence?
Based on our collective experience in leading Peer Advisory Boards (Mastermind Groups) and one-on-one executive coaching, if the answer is ‘no’, it’s unlikely the team will be able to provide strategic direction, much less daily tactical direction.
The following article shares similar guidance. Please tell us about your experience, as you dream about exit and begin to move closer to leaving your business.
Why Many Small Businesses Cannot Be Sold (NY TImes)