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The Stages of Value Maturity - Stage V: Manage

The Stages of Value Maturity - Stage V: Manage

October 24, 2022
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Once you have protected your existing value, your focus can expand to building value.

There are two ways to build value: increase your cash flow (EBITDA) and improve your multiple. Your multiple is the number assigned by the private capital market to the value of your tangible and intangible assets and their associated risks. Intangible assets include Human, Structural, Customer, and Social capital. Improving your intangible capital is critical to building business value.

Craig West shares, “The key to this stage is the word ‘manage.’ It is not a single transaction but an ongoing role. Whether managing the business itself or the proceeds from the sale of that business, managing the value really never ends. It is a significant change for most business owners when they no longer earn income from business assets. Their only income will be from investments, so a significant amount of planning is required to ensure this adequately funds retirement, protects assets, and delivers estate planning outcomes.” 

Managing Value Before the Exit

An advisor works to manage an owner’s business value before they even think to exit.

Ali Nasser reflects, “Managing value involves more than the exit, investment planning, and personal life planning. An owner must know what they want their wealth to provide. Holistic planning is critical to begin years before an exit.

Gordon Bell begins each engagement with a baseline understanding of the owner’s value, their goals, and what their journey has looked like thus far. He says, “Once we have established the baseline, we need to help them envision their next phase of life and what they will be doing. This process has many parallels to getting married or having children in that the more informed and aware of the changes that will take place, the more likely you are to adapt quickly and have success. Often the biggest obstacle is the client’s willingness to change. This is an area where dedicated professionals play a big role.

Managing During the Transition

Managing the owner’s wealth during their business transition is a crucial component to ensure they have intentional plans for their post-business life.

Gordon Bell shares that this stage depends on the preparation of the owner more so than the business. He continues, “Since we all accept change differently, it really depends on the individual and their willingness to work through the process.”

At the transition of the company, whether that be through a third-party sale or an internal option, the owner will have prepared for a while.

Ali Nasser explains to his owner clients that the exit of their business is simply their plan unfolding. He shares, “With a comprehensive plan, the exit is not a huge leap, because they have been planning for this transition for a while and are well prepared.”

Managing Your Life After Business

One of the most essential components in the Manage stage is the management of an owner’s business value and the wealth acquired from the sale of their business in their next act. Defining a path for the owner’s wealth to take in advance of selling their business is paramount.

Gordon Bell shares, “It is important that the client sees success in life after business ownership. Success will look different for each person, but the key is that they can envision and articulate their vision of success. They still have to put in the work to achieve that success, but without a vision, it will be more difficult for them to transition and find that success.”

Ali Nasser recalls the story of an owner he met. The owner shared that they had sold their business a year ago for $30 million, and they had it sitting in a checking account with no further plans for it. Ali says, “The owner was hyper-focused on protecting that current wealth that they had no investments or action in place to grow that wealth.”

He calls this “analysis paralysis,” in which an owner is so bogged down by the numerous options to invest their wealth that they ultimately choose to do nothing with it. This can be mitigated by talking about investment strategies, personal purpose, and third-act goals prior to exiting the business.

A business owner should continuously manage their business, personal, and financial goals. 80% of an owner's wealth is locked in their business. Without properly managing that wealth prior to an exit, they will be less likely to successfully manage it in their next act.

"It’s not just the value of your business you need to manage. You need to manage your personal value and personal financial net worth as well. If you actively manage value through the entire process, you emerge financially independent of your business, with lots of options when the time comes to exit, making the timing of that exit irrelevant.” Chris Snider CEO, Exit Planning Institute Walking to Destiny.

KEY ELEMENTS OF THE MANAGE STAGE

  • Continue to work with your financial advisor or wealth manager
  • This stage is where we are living our personal plans and vision
  • Are you actively managing your business value prior to exiting?
  • How are you effectively managing your life after your business?

Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. Integrity Benefit Partners is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. 200 Clarendon Street, 19th & 25th Floors. Boston, MA 02116. 617-585-4500. CRN202507-2694019.