Here are the 10 key issues that typically lead a CEO or business owner to decide to exit the business, usually through a sale, at less than desirable financial results.
• The company is overly dependent on short-term debt. No cash reserves have been established to meet short-term cash situations. Also, cash shortages preclude funding essential business growth strategies. Serious cash needs can cause short-sighted actions.
• Management structure is too thin. The CEO is so tied to the business that there are no resources for the CEO to share management responsibilities. Thus decision-making, sales, marketing, operations and growth are restricted to the CEO’s abilities and available time.
• There is no succession planning. There is no training and grooming of a potential trusted successor. And, there is no active plan or resources to recruit from the outside if an internal candidate is not available.
• Managers have no “ownership” in the business. Senior managers are vulnerable to outside offers when they have no real economic ties to the business. Equity incentives or bonus plans can support vested interest in business performance or solid, committed succession.
• A specific business strategy is lacking. There is no strategic business plan to focus resources effectively toward goals and to increase profits. This is critical and rarely done consistently in small business today.
• The CEO dies or is disabled. Being prepared for the calamities that can ruin a business is a responsibility a lot of business owners do not take seriously enough. Insufficient financial and management preparation for the death or disability of the CEO can create chaos for those left to sort out the issues.
• There is disproportionate risk through personal guarantees. Because of personal financial guarantees required for the business, a major crisis could ruin the business owner. Overlooked are the opportunities to share the responsibility and liabilities of the business.
• Family and other ownership issues exist. Family succession, majority shareholder issues including divorce, the death or departure of a shareholder, or even conflict between shareholders often precipitate non-economic exit decisions. More often than not, decisions are made with more emotion than reason. The opportunity most often neglected is to engage a business advisor to assist in sorting out the varied interests and prepare viable alternatives in advance.
• The business is no longer enjoyable or CEO fatigue sets in. Many CEOs and business owners reach a point where they no longer wish to endure the pressures of the business. They have lost their enthusiasm and commitment. This condition is not only an impediment to growth, it often creates a lull that puts the business in a vulnerable position. An interim, part-time CEO/business advisor may be the alternative that works best outside of a sale of the business.
• The assets of the CEO or business owner are unbalanced. Most personal assets are in the value of the business. Little independent retirement savings have been established for the CEO/major shareholders in the event of a business downturn. In the absence of a strategic exit, the sale of the business is required as a retirement alternative.
Source: CEO Advisor Blog, This entry was posted on October 6, 2010. You can follow any responses to this entry through the RSS 2.0 feed. Retrieved: 30 November 2010