Know when it’s time to harvest your company’s value
About this time of year, people daydream about escaping winter. Let’s sell the business, sell the house, sell the kids, get what we can, and run away. Other minds start to wander off to a simpler strategy — dreaming of summer days in the garden. My husband and I are usually in the second group (although, after this winter …). We start planning the garden, deciding what vegetables we want to plant, and which section of grass will be pulled out for another bed. We dream of harvesting and enjoying the sun-soaked tomatoes, green beans, and zucchini the rabbits have graciously left for us. With either daydream, harvesting the fruits of our labors is front and center.
In prior posts, we introduced the concepts of the Five Stages of Value Maturity of a business. Other posts discuss the first three stages — Identify, Protect, and Build. Stage Four — Harvest — embraces the daydream and brings it into reality. It recognizes the progress you have made toward your personal and business goals during the first three stages, and challenges you to consider what comes next.
At this point, you might be thinking, “Here we go again. Another advisor telling me I have to plan to sell my business.” Surprise! That’s not what this stage is about.
Certainly, if you want to start planning the transition of your business, this stage is where you do that. During the Harvest stage, a business owner may elect to learn about and explore his or her exit options. You may even start pursuing the actual transition — or you may not. This stage is about choices.
Harvest is one of my favorite stages. I find it to be very empowering for business owners because it provides direction. Harvest does bring the “exit” decision front and center, potentially for a brief time, but then always allows you to move forward on the path of your choice. Harvest entails purposefully choosing what you want to manage and what makes sense for you when you do want to harvest the business.
The first step of Harvest is answering a straightforward question on a regular basis — “Do I want to keep and grow my company, or do I want to go?” Grow or go? Yes or no?
This is an easy question to put off. Most owners answer, “Of course I want to keep my business.”
But have you given this question its due? Asked another way: “Are you willing to continue to invest in and grow the business?”
Owning a company demands ongoing investment in its growth. Keeping a business and not growing it is the equivalent of failing to water the garden but hoping you’ll still get the beans. Time and resources are needed today, such as water, fertilizer, bunny repellent, and back-aching weeding, to ensure that you can harvest in the weeks to come — or, in the case of the business, years to come. Do you want to, or can you, be a part of the business for that long a time to see your return on investment?
Another embedded layer in the question is, “Would you be better off redirecting some of your resources toward diligently planning for a transition?” Ask any business owner who has sold his or her company what they wish they had known before transitioning their company and it will come down to wishing they understood how intense the process is to transition the business.
Like “grow,” “go” takes time and resources to do it well and achieve the outcomes you want. It takes years, not months. If you woke up today saying, “It’s time,” you need to understand there is no magic wand or line of people with buckets of money waiting to give you exactly what fits your needs and desires. Transitioning a business involves working with your advisors to consider what’s important to you in the transition, what your options are, which is the best for you, and how do you go about it. Then you and your advisors have to put it into action. Depending on the option chosen, implementation could be several years.
Continuing with our garden example: You’ve planted the bean seeds, are watering them diligently, and they’re coming along nicely. You ask yourself the “Harvest” question weekly. Is it time? Are we eating beans fresh out of the garden tonight?
Clearly, early in the season, there’s nothing to harvest. Later, you have beans, and, for a while, you are enjoying the fruits of your labors every night. You’ve even canned some so you can enjoy them come winter. But now you must leave and be away for three weeks due to an unexpected family emergency. Do you pay the neighbor kid to water, weed, and pull the beans while you’re gone? Or do you harvest what you can today and pull the plants? Either action has risks and consequences. Both demand your time and resources. You decide.
While the example oversimplifies the reality of answering the “grow or go” question for yourself, it drives home the importance of a disciplined approach to asking the question, “Is it time to harvest?” Waiting until late July to check on the garden is an obvious mistake, but even missing a week could lead to unintended consequences. The same is true for you and your business-ownership strategy.
There is some debate as to how often business owners should ask themselves this question. My friend Chris Snider, president of the Exit Planning Institute and author of Walking to Destiny, advocates asking yourself the question every 90 days. While I agree with him conceptually, pragmatically I encourage you to ask yourself this question at least once per year. If you have multiple shareholders, each shareholder should go through this exercise. Share your perspectives with each other to ensure that strong communication exists, and as a group you can plan accordingly.
There’s a freedom that comes with Harvest’s disciplined quarterly or annual “grow or go” check-in. You know where you stand. You’re able to be more flexible and adapt your plans. You’re able to think and guide your team more strategically. The value of your company and current income will be enhanced today because of more informed decision making. You’ll be in a better position to move into Stage Five — Manage, the topic of the final blog on the Five Stages of Value Maturity.
The Five Stages of Value Maturity are copyrighted by the Exit Planning Institute, 2016.
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