Prepare Gate: Elevating Business Value Through Strategic Planning and Risk Mitigation
When business owners embark on the journey of transitioning ownership and exiting their business, advisors can leverage the Value Acceleration Methodology. This comprehensive framework is designed to align the business owner’s goals across three areas: their business, personal life, and finances.
Within the Value Acceleration Methodology, REAG provides Certified Exit Planning Advisors (CEPAs) with insightful guidance throughout the process to help refine strategies, enable well-informed decision-making, and ultimately lead to successful outcomes for business owners.
In our previous post, we explored how REAG supports CEPAs and their clients through the Pre-Discover and Discover stages of the Value Acceleration Methodology. This methodology encompasses three phases: Discover, Prepare, and Decide, guiding the exit planning process from start to finish. In this post, we will explore The Prepare Gate.
Gate Two: Prepare (90-Day Sprints)
The Prepare Gate is particularly crucial as it translates insights into actionable plans, driving value enhancement and risk mitigation. According to thought leader and architect of the Value Acceleration Methodology, Chris Snider, “the Prepare Gate is all about executing your Action Plan relentlessly.
The Action Plan is crafted to bridge the gaps identified during the Triggering Event analysis. It presents a strategic vision spanning the next 3 to 10 years, with actionable steps broken down into 90-day increments called 90-Day Sprints. A 90-day Sprint is a continual loop of prioritizing, measuring, reconnecting and recalibrating every 90 days – “this is the primary tool for executing relentlessly,” notes, Snider.
How Does REAG Fit Into the Prepare Gate?
REAG are not Exit Planners ourselves, but we collaborate with Certified Exit Planning Advisors (CEPAs) to provide the mergers and acquisitions (M&A) perspective. This can include valuation comparables, industry data, or market insights. Engaging with us early, even before the formal exit planning process begins, can lead to extraordinary results for your clients.
Understanding the factors that drive valuations in your industry allows you to focus efforts on creating value and potentially achieving higher multiples at the time of exit. Additionally, our involvement helps address risk factors that impact valuation, complementing the exit planning process’s focus on maximizing returns.
The Capital Stack
Capital stack considerations can be effectively integrated into the 90-day sprint approach during the Prepare phase. Here’s how:
During the Prepare phase, REAG’s expertise in capital stack structuring becomes invaluable for CEPAs and their clients. REAG can provide guidance by:
- Educating on debt financing options
- Analyzing equity considerations
- Evaluating capital stack implications
- Providing insights on exit planning impact
Understanding the current capital structure and potential financing options is crucial for optimizing the business’s value and ensuring a smooth transition.
By addressing the capital stack early on, business owners can identify opportunities to enhance value, mitigate risks, and tailor their exit strategy to align with their financial goals.
These capital stack considerations can be broken down into actionable steps within the 90-day sprint cycles, for example:
Sprint 1: Assess current capital structure, debt positions, and equity holdings.
Sprint 2: Evaluate financing needs, debt capacity, equity requirements.
Sprint 3: Explore debt financing options.
Sprint 4: Analyze equity restructuring and identify potential investors.
Each sprint can focus on specific aspects of the capital stack, such as debt restructuring, equity recapitalization, or negotiating terms with financing partners. This iterative approach allows for continuous progress and adjustments based on the evolving needs and goals of the exit plan.
By integrating capital stack planning into the 90-day sprints, CEPAs and their clients can methodically address this critical financial component, positioning the business for a successful transition while maximizing value.
Strategic Planning for Value Enhancement
Risk Mitigation: Identifying and Addressing Potential Challenges
One of the primary objectives of the Prepare Gate is to uncover and mitigate risks that could hinder the business’s value or its readiness for a successful exit. Risk mitigation involves a thorough analysis of both internal and external factors that could impact the business. This includes examining the strengths and weaknesses of intangible capital such as customer relationships, intellectual property, and organizational culture.
As *Walking to Destiny* points out, removing risk from personal, financial, and business situations inherently increases value. Risks and underlying issues have a direct correlation to the overall value of the business. For instance, an owner-dependent business, where the owner is the key to customer relationships and operational processes, poses a significant risk. Decentralizing the owner from the business by documenting processes and building a strong management team can mitigate this risk and enhance the business’s value.
Continuous Support and Ongoing Adjustments
Throughout the Prepare Gate, REAG remains a steadfast partner, offering ongoing support and guidance to CEPAs and their clients. This continuous support is critical as it allows for the refinement of strategies, addressing emerging challenges, and reassessing goals as needed.
Regular workshops and strategic meetings are integral to this process. Monthly, quarterly, and yearly workshops enable teams to collaborate effectively, share insights, and adjust plans based on current performance and market conditions. This iterative approach ensures that the business remains on track to achieve its strategic objectives and can adapt to any changes in the market environment.
Implementing Value-Building Systems
The Prepare Gate is also about putting value-building systems in place. These systems serve as proof that the business is not only performing well but is also sustainable in the long term. Justin Goodbread, in discussing the Value Acceleration Methodology, highlights that each iteration of the process reveals new areas for improvement, whether it’s updating the business plan or aligning sales and marketing efforts for greater efficiency.
By focusing on incremental improvements and constantly seeking ways to enhance operations, businesses can create a robust infrastructure that supports growth and increases value. This proactive approach to improvement not only prepares the business for a successful exit but also enhances its attractiveness to potential buyers.
Resources for CEPAs and Business Owner Clients
Visit REAG’s CEPA portal to access the comprehensive resources we’ve created to support the advisor community. Start by reviewing the Pre-Discover Checklist, a valuable tool that provides a list of information to gather and questions to ask to gain a high-level understanding of the business’s strengths, weaknesses, needs, goals, and record-keeping practices.This information is crucial for guiding strategic decisions in later stages of the exit planning process.
Additionally, explore the Confidential Information Memorandum (CIM) Checklist & Due Diligence Request List.These resources are invaluable regardless of whether your client’s ultimate goal is to grow or exit. Having this information readily available can serve multiple purposes, from securing bank loans to establishing efficient systems or identifying key performance indicators (KPIs) to track throughout the exit planning journey.
Key Takeaways and Next Steps with REAG
The Prepare Gate is pivotal, focusing on strategic planning and risk mitigation, including identifying potential obstacles like end market concentration or customer concentration risks that could impact the business’s value or readiness for a successful exit.
REAG stands alongside CEPAs and their clients by providing expert advisory support to optimize value, structure the capital stack, mitigate risks, and align the exit strategy with personal and financial goals.
By collaborating with REAG during the Prepare Gate, CEPAs can ensure their clients are well-prepared for a successful exit or transition. The Value Acceleration Methodology serves as a comprehensive roadmap for businesses seeking to enhance their value and achieve successful outcomes.
Whether pursuing growth through acquisitions or contemplating an exit, REAG offers comprehensive advisory services aligned with your client’s goals. Our expertise spans buy-side representation for strategic expansions and astute sell-side guidance across exit pathways like LBOs, MBOs, and recapitalizations. Leveraging robust relationships with private equity, family offices, and strategic buyers, along with a refined process, we ensure optimal outcomes. When you are ready to unlock unrealized potential, engage REAG to navigate this transformative journey with strategic counsel and execution excellence.
If you are ready to unlock the unrealized value of your client’s company, reach out and let’s begin together.
