For Dr. John Binkley and the team at Generational Equity, preparing clients for the future is at the heart of what they do every day.
Whether its introducing techniques to enhance a company’s value, minimizing risk in the eyes of potential buyers, or helping an owner create a comprehensive exit strategy geared to achieving the maximum value when they depart, Generational’s M&A professionals are dedicated to giving clients the future they deserve.
Unfortunately, the future is now arriving faster than ever. Factors such as increased globalization, the rapid development of technology and an increasingly competitive business landscape means that the world we see today could look completely different tomorrow. And, for business owners who are too focused on the present day, there is a real risk that they’re missing out on a brighter future.
Consider this for a moment: in 1965 the average tenure of a company on the S&P 500 was 33 years. By 1990, this had dropped to 20 years and, if forecasts are correct, by 2026 it will be down to 14 years.
For Dr. Binkley, this significant shrink in company lifespan illustrates how important it is for business owners to place a priority on future-proofing their business and preparing for life beyond it. This is not something that can be placed on the back-burner while you worry about day-to-day operations – without a plan for tomorrow, your business might not have one.
Future-proofing your company not only helps to ensure its survival in an increasingly competitive business landscape, but it also plays a big role in convincing potential buyers and investors that your organization will be around for years to come. If your company isn’t set up to embrace the future, your chances of securing an optimal sale diminish greatly.
Here, Dr. John Binkley breaks down five ways you can help secure the future of your business in pursuit of your goals, from establishing your ambitions early to securing its legacy with a thorough succession plan.
1 – Establish Your End Game
First and foremost, ask yourself an important question:
“What does success look like to me?”
This is something Dr. Binkley recommends you ask whether you’re just starting out, or have been at the helm of your company for decades. Knowing your ambition for your company and for life after business is vital when deciding what direction to take both now and in the future.
Maybe it’s to be the top player in your industry? Perhaps you want to make a difference in the world? Or you could simply want to earn enough to retire comfortably and look after your loved ones?
Whatever your goal, write it down and reflect on it regularly. Your aspirations could change over time, so it’s essential to keep this up-to-date. Keeping your aims fresh adds clarity to your future and ensures the decisions you make to progress and develop your company are proactive, not reactive. This means you’re thinking clearly about how to tackle tomorrow in the best way in order to achieve your ambitions.
2 – Invest in Your Employees
When we hire new staff, we tend to do so to address a present need in the business. However, those who are focused on future-proofing their company will concern themselves with what their business will need tomorrow.
To keep up with changing demands in your industry and among your customer base, it’s crucial to invest in your employees’ development with training opportunities. This helps your business grow into new markets, enhances its repertoire and makes it a much more valuable proposition to buyers when the time comes to exit.
In addition, this investment shows your staff that you care about their future, as well as the future of your firm. This motivates them to work harder for your cause and helps develop a sense of unity and shared purpose. Let’s face it – without a happy, fulfilled workforce you can rely on, your business won’t have much of a future to look forward to.
If you’d like to learn more about ways to encourage employees to support the future of your organization, Dr. Binkley recommends reading the “5 Ways to Put Your People First” insight on Generational Equity’s website.
3 – Keep Up with Technology
A quote Dr. John Binkley likes to refer to in this situation is by the Danish physicist Niels Bohr:
“Technology has advanced more in the last thirty years than in the previous two thousand. The exponential increase in advancement will only continue.”
Remember that Bohr passed away in 1962. Technology has since developed at an even faster pace, to the point the world is almost unrecognizable to that of 1962. Keeping up with the latest technology is crucial to a business staying relevant and efficient, so it doesn’t fall behind competitors.
Of course, this investment in developing technology in-house can be extremely costly and time-consuming for companies. As a result, Dr. Binkley has noted a trend towards M&A activity with the goal of incorporating new technology and expertise, rather than investing in R&D, particularly as part of cross-sector M&A activity.
This helps companies address the need to keep up with technology demands in an effective way, as well as increase the appeal and value of middle market firms that have been more agile in adopting this technology.
4 – Avoid Dependencies
Next, it is crucial that a company looking towards the future embraces diversity and doesn’t place all its eggs in one basket.
Dr. Binkley and Generational Equity’s staff have previously spoken about how any business that is too dependent on a single customer, supplier or partner waves a massive red flag to prospective buyers. This is because it indicates that the company’s success is reliant on not only their own hard work and initiative, but maintaining a consistent relationship with a third-party.
As a rule of thumb, if a potential buyer would be worried about your organization’s future, it’s a good sign that you should be too. To avoid this, it’s important to devote energy to diversifying your customer and supplier bases, as well as your offering over time.
This enhances your company’s chances of survival and means when the time comes to secure an exit, a buyer will feel more confident that if a revenue stream is lost post-transaction, your business will continue to grow.
5 – Start Your Succession Plan
Finally – and arguably most crucially of all – create your succession plan as early as possible. Last year, an article in USA Today revealed that 58% of small business owners didn’t have a written succession plan, even though 60% of the 15 million privately held businesses in the United States are owned by people born before 1964.
This is a staggering statistic. Having a succession plan in place is vital to your company’s long-term viability, as well as the legacy you leave behind when you depart. Far too many fall into the assumption that the business will be taken over by a family member, or they’ll be bought out by one of their key employees. Both options carry substantial risks:
- What if the family member you’ve earmarked is not passionate about your industry, or has ambitions outside of your company?
- Are you sure your offspring/employees have the characteristics required to be an effective owner?
- Will other employees resent the person you handpick to take over the reins, especially if they’re part of your family?
- How will your key employees finance the acquisition, and will this be enough to support your life after business?
Considering these questions is not something you can afford to leave to the last minute. Plus, in Dr. Binkley’s experience as Chairman of Generational Equity, the most lucrative and trustworthy end goal for a succession plan is to negotiate with interested buyers.
By building your succession plan around your ideal buyer, you establish the key characteristics required to drive your company forward after you depart, greatly increasing your chances of locating a buyer that is willing to present an optimal offer.
The Future Is Now
Dr. Binkley hopes that this has demonstrated the importance of future-proofing your business in today’s landscape, while giving you an understanding of some of the core ways you can accomplish this.
Given the day-to-day responsibilities of owning and managing a company, it’s all too easy to let the demands of today overtake your needs for tomorrow.
Devoting time to plan and strategize for the future of your business not only helps to preserve it for years to come and craft the legacy you wish to leave behind, but also makes your company a more attractive proposition to buyers when you are ready to exit.
If you’d like to learn more about steps to future-proof your business or the process of building a buyer-ready business, Generational Equity’s regularly-updated, in-depth M&A insights provide a wealth of information on preparing for the future you’ve always hoped for.
In addition, Dr. John Binkley’s blog has several articles across the M&A spectrum, as well as other inspiring and motivational pieces.