If you want to retire – ever – you need to plan for it … now

[caption id="attachment_24650" align="alignleft" width="108" caption="Ken Danise"][/caption]

[caption id="attachment_24651" align="alignleft" width="108" caption="Steve Jannicelli"][/caption]

Since 2008 many business owners have seen profits diminish, cash flows and net income shrink and credit that was always available from community banks mostly disappear.  Some have focused primarily on sales, while others have slashed costs, all trying to satisfy lender requirements.  Many of these actions were meant to “stop the bleeding,” and they may have just worked – for now.  Meanwhile, the value of many small to mid-sized companies has dropped significantly without an imminent recovery.

The challenge

Many business owners have deferred their retirement over the past two years.  Today’s economic environment demands a complete rethinking of an exit strategy for a small business owner.  Events such as the recent recession have brought to light many more risks that a small business cannot control.  So how does a small business owner manage these risks and at the same time maintain business value and retire gracefully … and profitably?

By applying proven principles of other areas of business strategy and analysis, owners can both identify a path to success and begin to walk along that path.

1. Retirement planning principle: Know your number

In retirement planning, the initial goal is to determine what you need at the end of your career.  While this may fluctuate over time, it provides a goal toward which other plans point.  Applying this principal here, we want to start our process with the end in mind.  Where do you want to be when you retire? How long will it take for you to get there?  Setting that target gives focus and allows you to start measuring progress, not just historical results.

2. Valuation principle: Trend analysis and industry comparisons

It is important to assess your company objectively, as an outsider would. For example, analyze the trends in your financial results and compare them to those of other companies in your industry.  This provides context and starts to paint the picture of what your company is worth.

This may be where the trouble starts. Things are moving in the wrong direction. Perhaps sales continue to decrease, margins are tightening, cash flow is suffering and there is hesitancy to borrow more money even if you could. Every sale is more difficult and costly. Simply put, there is nothing “usual” about business anymore.

Many businesses have hoped that a quick recovery in the economy would solve their management and financial problems, which in some cases already existed before the recession became a reality. The recession has magnified these issues, and companies are facing increasingly harder choices in order to stay alive. Ultimately, it seems evident now that the hopes of a quick recovery are giving way to the reality that this is going to be a “slow crawl out.” For that, we need a plan.

3. Turnaround management principle: Create and follow a recovery plan

Turnaround strategies play a critical part in a company’s ability to retrench, maintain revenues and rebuild business values. Similar to the retirement planning principle, a key benefit to the application of a turnaround management process is the creation of a plan – starting with a 13-week cash-flow plan in certain cases, and certainly resulting in monthly operating and financial plans. The following factors are considered in this plan:

Identify and focus on key drivers of profits and cash.

Conversely, identify and eliminate elements of the business that are unproductive and/or are not assisting in the progression toward the goals.

Keep an open dialog with key employees and get their input on how to fix the company.

Meet with existing and potential customers on a regular basis.

Maintain continual contact with your bank about the company’s progress and plans to improve financial performance.  Give the bank progress reports, including bad news and how the company plans to fix the issues.

Meet with suppliers regularly to allay any fears about limiting your credit.

Implementing business management changes and thought processes using a turnaround management philosophy will have the effect of a leaner, meaner, more efficient operating environment.  Additionally, the business owners will more critically evaluate future operating and investment decisions.  The emphasis on consistent cash flow from business operations by both investors and lenders has never been greater than now. It will not change in the near term, and business owners need to embrace this reality, now and into the future.

Final thought – Hurry up, and be patient

Step 1 should be done this week – determine where you are and where you want to be. Then, create the plan to get there.  This provides the yardstick upon which future progress is measured. This will take patient, methodical management and execution. Rebuilding a business’ cash flow will take time as the country crawls out of this recession. Concentrating on running the business and operating carefully using some of the recommendations above will help to restore cash flow and build value.


Ken Dansie, CPA, is a shareholder and Steve Jannicelli is a manager in the Santa Rosa office of Burr Pilger Mayer (BPM).   Both are skilled strategists in providing guidance for ownership transition, strategic planning, growth, capital strategy and financial advisory services for privately-held and family controlled businesses.  Ken and Steve can be reached at kdansie@bpmcpa.com and sjannicelli@bpmcpa.com.