In the first article of this series, David Rodarte addressed business owners’ professional and personal frustrations of managing through a pandemic. For many business owners, the unspoken dreams of retirement suddenly became a nightmare. To make things worse, business suddenly wasn’t fun anymore. His article ended with a call to action—to no longer take for granted the success of your business and personal life and to take control of your future.
David’s article brings to mind the phrase “If I knew then what I know now.” Many songs, books, and movies espouse a similar theme, and it’s no surprise that country music has dealt with this issue. In his aptly titled song “If I Knew Then What I Know Now,” Kenny Rogers sings:
And if I knew then what I know now
I'd have found the way
To make things work out somehow
I'd have held you tight
I'd have treated you right
If I knew then what I know now.
While Kenny Rogers’ song is about a woman, in this current environment many business owners can probably assign the same sentiment to their business. In a business context, this song begs the question “What does it mean to treat your business right and hold it tight?” In other words, knowing that you could have done things differently and that you perhaps took your business’s success for granted, what do you do now to position your business for future success, in good times and in bad?
To answer this question, we simply need to look at the core concept of BKDnext, which is to build what we call transferable value. While we often think of a business as having a value, or being worth something, it’s important to consider what the value of your business might be to others. Too often, business owners control so many aspects of the business, e.g., customer relationships, decision making, etc., that removing them would significantly affect the business’s ability to generate comparable levels of profit, and, thus, the value declines. On the other hand, transferable value looks at building value that’s not dependent on one person, so not only is risk mitigated, but an environment for innovation and growth is perpetuated.
While building transferable value has many elements, two key components are contingency planning and strategic planning. Contingency planning is primarily about mitigating risk, particularly in the event a key leader or owner is suddenly unable to work in the business for an extended or indefinite period. A well-thought-out contingency plan focuses on the responsibilities, tasks, and relationships of key leadership. One key question in this process is “What knowledge and relationships do I have within the business that are critical to the business’s success that no one else knows?” Another key question is “What key metrics or other information do I review on a routine basis that helps me understand and predict the direction of the business?” Contingency planning begins with identifying these risk areas but also must evolve into an intentional plan to disseminate the leader’s knowledge, experience, and relationships to others in the firm. This not only provides value if the leader is unable to come to work but also adds value when the company is managing a crisis, such as a pandemic. In the case of a crisis, the company now has multiple leaders who can collectively and simultaneously manage a myriad of related issues and relationships. Otherwise, dependence on one person can result in a bottleneck, limiting the flexibility and ability to move quickly in a rapidly changing environment.
A second component, strategic planning, also is a valuable tool in mitigating risk and, if done correctly, takes advantage of the collective experiences, knowledge base, and insights to develop the business’s strategic direction. To be effective, developing a strategic plan must involve a broad group of management. It’s often overlooked that different individuals throughout the business have different vantage points and perspectives on the business, where opportunities are, and where cost savings can be achieved. By including a broader group, the owner can gain insights about the business they previously didn’t have. Likewise, the management group will gain a clearer understanding of the direction the company wants to go. As a result, employees’ efforts will be better aligned in working toward a common goal. In a crisis environment, companies that are familiar with and have gone through the strategic planning process can quickly reformulate a new plan that will allow the company to seize potential opportunities while also identifying areas of the business that aren’t as critical and where costs can be cut.
These two components have an additional benefit of empowering and engaging other team members. Owners often aren’t aware of their team members’ true talents and capabilities until they allow them to think creatively, critically, and freely. To further enhance the benefits of implementing a contingency plan and strategic planning, we recommend using deferred compensation and other bonus arrangements to incentivize management to execute and achieve goals set in strategic planning. If structured correctly and given to the right team members, these individuals will cause the business’s value to grow well beyond the costs of providing such incentives.
While there are many other items to consider in building transferable value, the two outlined above are critical. Developing a contingency plan and strategic plan will help you better manage the next crisis. More importantly, it will help you build transferable value and develop a business that not only survives but thrives after you’re out of the business, allowing you to achieve your personal and retirement goals. In the context of Kenny Rogers’ song, this is what you might call not only treating the business, but also treating yourself—right.
For more information on this topic, reach out to your BKD Trusted Advisor™, or submit the Contact Us form below.
Read the next article in this series: “You're Not Getting Any Younger – Plan for Your Future Now.” For more information on this topic, watch this archived webinar: “Building a Confident Future in the Midst of Uncertain Times.”