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Beginnings and Endings

by Bob Irish

Published in CEO-IQ, Volume 5, Mar-Apr 2004

Plato said, "The beginning is the most important part of the work," and so it is in business. How a new enterprise begins exerts significant influence on how it operates and ultimately how it ends. The majority of all privately held businesses that have made it successfully through the start-up phase are now busy growing. However, in the beginning they did not visualize and plan for the end. Thus, when the owner-entrepreneur reaches the stage in life where retirement is desirable, it will be out of reach. True, the founder imagined what life would be like when he or she sells the company, but did not design the initial business plan to ensure the company would achieve its full potential value in time for retirement.

A very important part of the work in the beginning is deciding how long the company will be run by the founder, when retirement will come and what a life of leisure will look like. This means that in addition to a plan for the business, the CEO needs to have a personal/family financial plan that is supported by the success of his company. In the college course I teach for entrepreneurs, I have yet to find anyone who has developed both plans and linked them together. Yet, they all expect their new enterprise to sustain them into old age.

Without a business plan that describes in financial terms the enterprise’s increasing value, when the time comes to collect on sweat equity, the valuation will not be sufficient to support the retirement lifestyle envisioned. Typically, the CEO stays meaningfully busy in his or her company, making money, sending kids to college, taking vacations, doing deals, and enjoying the ride. The missing ingredient that was not planned for in the beginning is what the company will be worth when the CEO/founder of the company is no longer there.

Planning is generally not what start-up founding CEOs most enjoy. Growing the business, finding new customers and creating new products are where they usually find enjoyment. If an exit strategy is built-in to the long-term plan, then when a buyer has an independent firm derive a valuation of the company, it will yield the price the owner had long ago calculated to meet the need for twenty years of retirement. Unfortunately, this is the exception rather than the rule. Usually, the verdict is that while the company has assets and a healthy cash flow, without the chief entrepreneur there, it is not worth half of what it could be to a new buyer.

Even if a CEO has been in business for a few years, it is not too late to marry his exit strategy to his personal financial plan. Mid-course corrections can be executed and he/she will have the comfort of knowing that when they are ready to "hang it up," life will indeed be sweet. Once the plans are married, all they have to focus on is execution, which I’ll discuss in my next column.

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