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April, 2011

Exit Planning: Plan or Accident?

Owners and senior executives who are involved in the decision to sell and exit a company may have a good plan for the company but an important question is, "Does it satisfy the long term individual interests of those participating in the transaction?" When approached by a prospective buyer the focus quickly becomes the ability to do the deal and if not carefully considered long term interests are a low priority.

Long Term Need?
This is an exciting event and those close to the transaction become completely absorbed in it. The question that is not asked early in this process is will "it" - the check or stock shares - meet your post sale needs.

"Obviously a big number should be
more than enough to do . . . . ?"

What I have found in a number of cases the "big" number was not big enough because the right planning had not been applied to the process to have a good idea what the value (after tax) from the sale should be to satisfy long term needs and support the current style of living or living and travel the owner or executive (and spouse) aspire to.


Strategic plans are rigorously developed for the company. That process or something similar to it should also be applied to retirement requirements after the sale. You cannot assume that you can just go get another job (if you are still young enough to have that expectation) or supplement your income with “consulting” revenue to backfill to meet your needs.

You should assume that what you have (proceeds from the sale plus existing assets) after the sale is all you will have to finance the rest of your life. What is your plan for the rest of your life and handling any post sale tax liability that will erode your gross proceeds?

Right Sizing
Your plan should include your significant other, as meeting expectations post sale will be very important. Making up a deficit after the sale is problematic. In one example the company owner had not anticipated that his "retirement" expenses would be 30% above what his assets would produce in good times, which resulted in liquidating assets and "right sizing" his living expenses consistent with his retirement plan. I am not sure what measures he has had to take to deal with reduced investment income as a result of the financial crisis.

Right sizing after the fact is always possible but avoidable if the right planning process is applied well before the prospect of a company sale emerges on the horizon. If you are the owner you may also consider the impact of this process on your senior team that will also face the same issues.

Investment Returns
In this new retirement age investments do not produce the attractive returns that they used to. Stocks have unpredictably lost significant value almost overnight thereby reducing dividends and more significantly principle. Lower risk monetary funds are more liquid but their interest rate returns have dropped to half (or less) of what they used to be. Does your plan account for these downside conditions? While these low returns may not remain indefinitely you need to plan for some level of staying power to see you through a bad period (3 - 5 years?)

Healthcare Cost
Health insurance prior to qualifying for Medicare can be quite high. Even healthy people in their 60’s, without any medical problems, may find themselves paying over $20K per year for basic coverage. Relying upon Medicare and Social Security to make up a portion of your retirement may be questionable if any level of means test is used to reduce payouts as the federal government tries to solve the debt crisis.

Length of Life
Another overlooked issue is outliving your plan. People are healthier today than they have ever been. Your long-term plan may need to survive for 25 years. It is very common to see mid-80 executives today that retired when they were in their early 60’s – or before. Fortunately for much of their retirement they enjoyed good investment returns which is something that may not be available to someone retiring at 65 today and yet will need a financial plan to last out to their 90’s.

Action Plan
To get a better handle on how to reinforce your Exit Planning process you need to start before someone walks into your company ready to present an offer. You need to work with someone who can bring a variety of elements to the table to help you to bring your long term needs inline with where the value of your company is heading. This may result in overhauling your company’s strategic plan to prepare it for a higher value deal, producing a value that will in the long run account for a large number of the variables and meet your long term objectives.

One company in the Northwest that addresses this broad look at Exit Planning for business owners and key executives is Washington BBI. Peter Busacca, founder of BBI, reported in a recent meeting with me that his number one issue is working with business owners early enough to bring the long term issues into perspective as they manage their businesses so that a value plan can be developed that will meet their needs when the exit plan is executed.

Peter advises his clients to bring their team of advisors (spouse, business valuator, Insurance, estate attorney, business consultant, business broker) together and develop a plan that helps you understand where you are coming from, exactly where you want to get to, and provides a roadmap for how to get there. The result is focusing on adding value to the company and not just going day-to-day managing the crises.

It is not uncommon for a business owner to put this subject off to another day. I know I did! I was fortunate enough to have benefited from a plan that resulted in company performance and value that produced a good result. I was lucky!

What about you? If Clint Eastwood’s Dirty Harry character said, "Do you feel lucky?"


Don’t leave your long-term interests to just "luck." There are too many variables in play to sit back and achieve your long-term plan by being lucky. Engage your team now to design a plan that will provide a high degree of certainty that you will get to where you want to get to - when you need to.

Mike Brice
Phone: (206)226-1617

Executive Poll

The March poll on Mentors produce a significant increase in participation over last month. Twelve people responded.

The March poll looked to examine the relationship between executive, mentor and company.

Question Responses %

Board member 0 0%
Executive/principle in company 2 17%
Retired Executive or Consultant 2 17%
Executive at another company 3 25%
I do not have a mentor 5 42%

While the total responses was low the results were interesting:

  • Three were over age 45, 6 in their early 30's (30 - 36) and 3 were in their 20's.
  • More than half responded that they had a mentor.
  • Most used mentors outside of the company.

Although the sample size was still relatively low it was interesting that no board members were used as mentors. The poll was not able to determine if any of the companies where mentors were used also had board members.

One generalization can be made: The majority of mentors were from outside the company.

I look forward to more of you participating in these poll's in the next few months.

Click here to participate in the April poll on Strategic Planning. All poll responses are confidential.

Feature Article

"Listening but Not Really Hearing You"

by Christine Crandell, Published by

This article deals with the chronic problem of businesses making it look like they want feedback from the customer but in reality they are not really listening. Customers participate in surveys and focus groups but rarely see any change in their customer experience. It is not that the right content to make effective change is not captured; it is the absence of an effective process to create improvements and integrate them into new company practices that is the problem.

Root causes are:

  • Companies are not effective at sharing and collaborating on ideas.
  • They still use antiquated methods for collecting customer feedback.

Companies that are successful incorporating customer concerns.

  • Tap sales people and customer service reps that are exposed to customer concerns daily.
  • Use CRM system as a central repository for collecting input from customers, prospects, sales staff, channel partners and others.
Management Resources
Communicating Your Message: Starbucks CEO Howard Schultz taught me a valuable lesson in communication skills - what you stand for is more important than what you make.
Starbucks CEO: Lesson in Communication Skills

Customer Support: When one of our products malfunctioned, thousands of stranded customers erupted in fury. Yet we came out of the crisis more credible than ever. Here’s what we did.
How to Turn Disaster Into Gold

Innovation: The ability to be innovative isn't some genetic gift you're born with. We all have the necessary skills
How to Plan Innovation

Personal Development: Sports stars draw on their past successes to give them confidence in new situations. That's a formula all of us can use
Self-Confidence and Success

Productivity: As a global employment platform, oDesk enables companies to hire, manage and pay a flexible online workforce. With 38 employees they can - at any moment - have the skills and productivity closer to those of a team of 138 full-time workers.
When to Hire a Contractor vs. Full-Time Employee

Security: Bouncing back from a financial crisis, product default, or natural disaster is difficult but not impossible. Focus on fixing the problem and finding opportunities for growth.
5 Steps to Keeping Your Small Business Secure

Productivity: Flying Solo's Robert Gerrish speaks with the managing director of Rob McKelvey Associates to examine ways in which small businesses can prevent fear from crippling performance.
Banishing Fear (3:30 min)

Workplace Bullying: Bullying at work is a real problem.  Bosses bully,coworkers bully, and though I’d deny it unless under oath (or perhaps with the offer of a donut), even HR can and does bully employees.  All of us (except the actual bullies) agree that this should stop.  And the best way to eliminate bullying is to pass a law prohibiting it.

That’s worked so well with sexual harassment, hasn't it?
Why Workplace Bullying Should Be Legal

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