Nick Neimann, a business friend of mine (we occupy adjacent seats on a family owned business advisory board) wrote a book a few years ago to help family business owners think about their exit in a more effective way. His book, “Fourth Quarter First,” tries to get business owners to look down the road further than they typically do, in order to get the best possible result when that time finally arrives. The concept isn’t new, but the thoroughness of his approach will give many owner/operators of well-run businesses some food for thought. I particularly like his chapter 6, which carries the bold title: 12 reasons for incredible “Fourth Quarter” results. I like it mostly because of the solid list that follows, so I’m going to reproduce it here, with credit to Nick:
- Sustainable Business Growth – a no-brainer if there ever was one – no one buys history.
- Capable Leadership and Successors – read my post from last week for my thoughts on this one.
- Co-owner Issues and Disputes Avoided Up Front – Resolve issues early via buy-sell agreements and the like.
- Well Designed Company Structure and Key Asset Protection – This speaks to intellectual property protection and other legal tools that protect its most valuable assets.
- Clear and Consistent Owner Objectives – it sounds like having a plan, but it’s also ensuring that personal and company plans are consistent with one another, short term and long-term.
- Cash Flow Impact on Company Price is Determined – You should know that the price of your company will ultimately be determined by its predictable future cash flow, emphasis on predictable.
- Management of Personal Wealth – Ensure you have managed your personal wealth so that your personal needs will not impact your flexibility in making the best deal for the company.
- Business Owner Estate Plan – There are estate planning differences to take into account when you have a business and a family, and you’ve considered that in your estate plan.
- Keeping the Business Always Ready for Sale – This is about “fourth quarter” timing, and its impact on current earnings.
- Pre-Exit Tax Tools – You’ve taken steps to legally minimize the tax bite regardless of when you sell.
- Capable Inside Buyer Exists – You have groomed an insider – partner, key employee, family member – to be ready to step in when it’s time.
- Understanding the M&A Market – Another no-brainer; understand the marketplace in which you will be dealing, or have the right advisor(s) around you to support that need.
Clearly I could write an article on each of those points. Nick wrote 290 pages on them and did a great job of it. You might want to read the original to fill in the details we didn’t have room for here.
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