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1.03 Case Study: Chris

BEI December 4, 2022

“James,” owner Chris began, “before we talk about my wish to leave my business down the road, let me tell you what’s going on with my business now. I have good reason to believe that a competitor is courting two of my key people. I pay them well, but the possibility of them leaving is keeping me up at night.”

 James, Chris’s advisor, immediately threw out his original meeting agenda—one that included re-introducing Chris to the topic of Exit Planning because Chris had mentioned he was beginning to think about exiting. While a comprehensive Exit Plan would include addressing motivating and retaining Chris’s key employees—Chris brought to James a problem that needed to be resolved—quickly.

 “Chris, I think I can help,” said James. “Let me ask you a few questions.” In short order, James asked:

  • When do you want to exit your company?
  • How much income do you want each year after you exit?
  • Who do you want to transfer the business to?

 Chris interrupted, “We are way off topic James. What does any of this have to do with keeping my key employee?”

 James explained, “I ask because when we design a plan to motivate your key employees to stay with you, that plan should do some heavy lifting. The plan I envision will reward your key employees only if their performance helps achieve the level of company cash flow and value growth necessary to also reach your exit goals and aspirations. Until we establish your exit requirements, or exit goals, we can’t know what level of cash flow or value growth you need.”

 “Wait a minute,” said Chris. “You’re suggesting that we start with my endgame and work backward from there?”

 “That’s exactly what I’m saying,” James responded. “I want to understand your exit goals first so that any plan for the business we design helps you to achieve them.”

 “What exit goals?” Chris asked.

 “Your goals,” explained James, “related to the questions I just asked about when you want to leave your company, how you define financial security for yourself and your family and who you’d like to see assume ownership of your company when you leave. In addition, your goals are too important to rely on any assumptions. That’s why I want to collect some hard data about the amount of resources you have today and the amount you’ll need when you exit. Then, if there’s a gap between the two, the incentive plan we design for your key employees will help us bridge it. We’ll set up the incentive plan to grow company cash flow and value at a pace that enables you to achieve your exit goals and aspirations.”

 “Now I get it,” said Chris. “What do you need from me to get started?”

If James had not first understood Chris’s exit goals and resources, they could have resolved the issue of keeping the key employees by simply increasing salaries or adding a cash bonus. Those actions would do nothing, however, to move Chris closer to his exit goals, and would perhaps cost more than designing and implementing a solution that would be both long-lasting and help Chris achieve his goals.

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