Life is ultimately about odds. The odds may not be as overt as betting on a football game or the likelihood of it raining today, but most conscious decisions ultimately come down to a gut instinct about the required action steps to achieve the desired outcome. In other words, what are the odds of achieving the desired outcome if I take one specific set of actions versus taking another specific set of actions?
Increasing the odds of a desirable outcome may be as simple as understanding cause and effect. I do not want to get a speeding ticket in a school zone so I will not drive faster than 20 miles per hour in that zone. I want my bread to rise so I will include yeast in the recipe.
Other outcomes cannot be determined with the same specificity since the desired result is not absolute. I want to retire comfortably when I am 60 years old so I will religiously save 20% of my gross salary as soon as I start working full time. This approach certainly increases the odds of achieving the desired outcome, but there are too many potential speed bumps over a long working and investing career, both in and out of one’s control (life, health, family size, divorce, stock market, timing of recessions, unemployment, etc.), to say with absolute certainty that this step will result in 100% likelihood of achieving the goal.
Conversely, I want to retire when I am 60 years old and maintain my lifestyle, but I am going to spend all of my salary, not save, go into debt, etc. This does not mean that I cannot retire comfortably at age 60. It just means that the odds are heavily stacked against achieving this goal. Of course, I could get lucky and win the lottery or be the beneficiary of an inheritance and achieve this goal while at the same time taking very few positive (if not in fact detrimental) steps toward achieving the goal of retiring at 60. The odds of achieving the goal under this scenario are still greater than 0%, although arguably not by much.
There is also the middle ground in which one can achieve their objectives even if they procrastinate taking the steps toward achieving their goal. In the prior example, perhaps I do not start saving for retirement until ten years after I begin working full time but I still want to retire at age 60. Of course I would need to save more than the 20% example, perhaps 30%, and the overall odds of achieving the goal are lower than if I had started 10 years earlier since more can go wrong; however, the odds are greater than the “do nothing” example but less than the “start saving right away” example.
There are many situations where there is only one opportunity to achieve the desired outcome. There is no “do over” or “mulligan.” The significance of the situation often drives the amount of effort and the attention to detail; however, that effort and attention to detail can only increase the odds of achieving the desired outcome. They cannot guarantee achieving the desired outcome. And, as noted above, irrespective of the importance of the desired outcome, lack of attention to detail and limited effort does not reduce the odds to zero of achieving the desired outcome. It just dramatically reduces the odds of achieving the desired outcome.
For most business owners (other than perhaps serial entrepreneurs), selling their company is the ultimate lifetime transaction. So why not do everything within their power to increase the odds of achieving the best outcome possible when it comes time to sell their company? We have droned on through the history of this blog about some of these action steps to achieve this goal: run the company to create terminal value, maximize reported quality of earnings, prepare budgets and projections, have a deep management team, make the owner dispensable, etc.
This is not to suggest that the moment the owner founds or purchases the business that they need to take all of these steps (although there is also nothing wrong with this strategy). Some of these steps, like making the owner dispensable, take time to achieve, but should be part of the long-term objectives. It does suggest though that there is some point in time that it would be advisable to begin acting on these steps in order to maximize the likelihood of achieving the best sale outcome at that indeterminate point in time in the future.
In addition, the earlier the owner begins to the implement these steps, the more control the owner will have in choosing the timing of the sale of their company. As we have noted before, the best time to sell a company is when the stars are aligned (the company is doing well, the industry is in favor, valuations are high, banks are lending, etc.). Managing the company in anticipation of the sale in that indeterminate time in the future increases the odds that the owner will be able to sell their company when the stars are aligned and achieve the best outcome. Of course, it is still possible to achieve a premium outcome without taking most or any of the preferred steps to increase the odds. It just suggests that the odds are lower to achieve the desired outcome.
A client once told us: “Every day, I get up and think about what I need to do today to get one step closer to selling my company.” Said differently, every day they were taking steps to increase the odds that they not only could sell their company, but that they could sell it on their terms and achieve the best possible outcome. Increasing the odds of achieving the best outcome is often about time, money, and effort and it is often in the owner’s control to determine if they want to make that investment in time, money, and effort to increase the odds of selling their company in a transaction that meets all of their objectives.
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