Chris Snider, in his book Walking to Destiny, describes the Triggering Event as the single most important thing to do if you’re considering selling your business. Why? It results in action 70% of the time. When asked what the key benefit is to completing a Triggering Event, Snider simply responds, “clarity.”
The Triggering Event is like that quote on the T-Shirt: “It’s simple, not easy”. But hopefully, by engaging the right WHOs in this process, your Triggering Event can be a bit more simple, and maybe just a bit easier.
Perform Financial Recasting to Determine Your “Real Numbers”: If you are paying yourself and your spouse a combined $2.5 million per year, when your jobs could reasonably be done for $1 million in total compensation, you can justify adding back $1.5 million to your company’s earnings. The key here is to be accurate, reasonable, and not excessive. But this step helps account for the true earnings that the company is generating. Said differently, it shows a potential buyer what the company could spin off in revenue if they bought it.
Conduct Financial Analysis and Benchmarking: Now that you have your adjusted numbers, what are they telling you? What trends can you see forming in your business? Are there any forecasts that you can make? Depending on your industry and size, you might benefit from engaging an economics consulting firm or other private equity consultant to bring in industry data.
Determine Your Range of Value and Profit Gap: For your initial purposes, you may not need a formal valuation. Tools like The Exit Assessment from Cultivate Advisors can do a great job giving you a range of value in your industry, both based on revenue and based on profit. There are certainly other resources, and Snider even goes into a formula for establishing valuation points in this chapter in his book. But the point here is to get an understanding of where you are at compared to businesses in your industry, and then find ways of improving and accelerating your business value.
Complete a Business Attractiveness Scorecard, as well as Personal, Financial, and Business Readiness Scorecards: We are happy to show you examples of these at your request, and have fillable forms you can use. But we also agree with Snider that you consider having an outside CEPA or other consultant ask these questions, and to interview multiple employees in your firm. Getting past “false kindness” to a person’s accurate viewpoint is crucial for progress. It’s an investment. But since your business might make up 80% of your net worth, it’s likely worth it to take this step of the Triggering Event seriously.
Place Your Business into the Range of Value, and Determine Your Value Gap: Again, here is where the Exit Assessment tool or a similar analysis may be helpful. Given the scoring from the assessments that you did in Step 4, you will be able to place your business on the range of value. Given the best in class value of businesses in your industry, you can subtract your current estimated value and identify your value gap.
Some owners might be tempted to get discouraged at this point, seeing the difference between the best-in-class value and their industry and their own enterprise value. However, we would encourage optimism at this point, and here’s why:
It's at this point of the triggering event that you have a road map for value acceleration. You know which areas of your business are strong, and which need emphasis. You know what aspects of your personal and financial readiness need the most attention, and which are squared away. Depending on how many leaders you involved in Step 4, you might have a much more broad understanding of each of these aspects of your business.
Basically, you have clarity. And that’s the goal.
If you want help conducting a triggering event, we are happy to help you build a solid team and set of resources. And if you want to learn more, we strongly recommend you read Chris Snider’s book, Walking to Destiny, where you can dive into all the math regarding the triggering event, and also learn more about the value acceleration methodology.
We hope this has been helpful for you, and look forward to seeing you tomorrow!
Any opinions are those of Timothy Weddle and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.
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