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Written by Mike Gruley


A conversation with Gary Rose about exit planning, making the most from your business, and what you need to do today to make sure your company is taken care of tomorrow.

In this conversation, I spoke with my friend Gary T. Rose,founder of Blue Sea Advisors, LLC. Gary is a business and estate planning attorney who became General Counsel and then CEO of a middle-market family manufacturing business. Surprised by the absence of a business and personal financial planning firm for business owners in the middle market, he opened Blue Sea to help business owners plan for and achieve successful transition outcomes. A wise friend and an expert planner, he’s also fun to talk to. You can touch base with Gary here.

Mike: Gary, we’ve talked about this before, but what exactly is exit planning?

Gary: Whether you plan for it or not, at some point all business owners face an exit from a business, or a life transition where they are no longer at the helm. Exit planning is a long-range planning idea for any business owner who wants to maximize the transferable value of their company. Ultimately, many business owners want to know how to sell their business so they can enjoy their years of retirement. Planning for your exit from the business is one of the most important ways any owner can spend their time, so that they can be rewarded for their life’s work. 

Mike: In your experience, what percentage of business owners have a real plan for when they may exit?

Gary: Mike, it’s actually shocking. We have studies that show that 98% of the business owners out there don’t even know the value of their business, which makes it very difficult to plan. Without knowing where you are currently, you don’t know what makes your business interesting to a potential third-party buyer, how to build transferable value, or how to create a management team that’s incentivized to grow the business even without you there. 

Mike: So if I want to make a plan, what’s the lead time on this? I’m sure people come to you and want to sell their businesses tomorrow, but what is the appropriate time frame if you’re planning to sell?

Gary: The founder of the Business Exit Planning Institute had a client who asked him for help. “Okay, no problem,” says the founder. “When do you want to sell?” The guy said, “Oh, I was thinking Friday!” (Mike laughs)

It’s human nature to avoid the difficult issues facing you, but it’s important to plan for them. Any kind of buyer wants to see 3-5 years of continued growth and profitability. Nobody wants to pay top dollar to buy somebody else’s problems. They also don’t want to buy a company where, when the owner leaves, the success and future potential of the business goes with them.

Mike: For owners who want to exit in 5 years, how can they increase their company’s perceived value in the marketplace?

Gary: The best way to do this is to view the company from the standpoint of the buyer. Some of the key variables: How stable are the company’s earnings? How stable is the key employee team? Are the right people in the right seats? Is there adequate net profit on the sale of their goods and materials? How much investment is required to produce the income? If the company for sale has all these questions figured out, they could be very attractive to a buyer. This is why it’s important to bring someone in who has no bias and who can help create management systems to hold people accountable to the right metrics. An exit planning specialist can also help the company create the documentation for all key processes in their business, whether by videos or reference manuals, so that there’s documented evidence that the company has established processes that create value.

Mike: It’s like creating a franchise model, even if the business isn’t a franchise. It should be able to run on its own.

Gary: That’s a perfect analogy. When you really look at it, a business is nothing more than a system of processes repeated continuously to get a desired result.

Mike: As an EOS Implementer, one of my core values is grow or die. When I hear owners say, “I’ve been at this business for 30 years, so I’m not interested in growing it any further. I’d just like to ride it out,” I really hear them say, “I’m going to die; I’m exiting.” They’ve chosen to stop growing or improving, so they’re essentially winding down the business. Am I wrong about that?

Gary: You’re right on point, Mike. The problem with that mentality is that there is little value to buy from the standpoint of a potential buyer. Prospective buyers who will pay up for equity positions want to see growth plans in place—plans for increasing their market share. When a runner gets tired, he needs to prepare to hand the baton to the next team that can move the organization forward.

Mike: Even outside of the business aspect, I think from a personal standpoint, the owner has to think about what their decision means to the employees and their families. It’s almost a duty and a responsibility to make sure that you’re setting the course of the business to be successful for the next generation.

 Gary: It’s not only a duty and a responsibility, it’s gratifying. Your management team has been dedicating their lives, solving a myriad of problems day after day, and putting in overtime too. So they want a growth path just like the owner does. When you can create a team that’s motivated and incentivized to step up to the plate, you’re preparing them to feed their families for the next 20 years or so, until they can pass along the baton, too.

Mike: How do you see EOS playing into this exit planning process?

Gary: It could not play in better, Mike. What you don’t want to do is sell a company when different areas or departments within the organization are pulling against one another. EOS gets everyone on the right track and headed the same direction, which is exactly what successor owners would want to see. EOS builds companies that are customer-centric instead of living with a cost-only mentality. Companies who adopt this philosophy,combined with putting in the right metrics for success, will be the winners of tomorrow.

Mike: What is the number one reason people decide to sell their businesses?

Gary: There’s a variety of reasons, but sometimes it’s that the owner has just run out of energy. They’re exhausted. Other times, they see an industry disruption coming down the pipeline, and don’t want to funnel more capital into a risky attempt to keep up with the industry.

Mike: Do health issues ever come into play?

Gary: I have so many examples from my involvement in the Young Presidents’ Organization. Successful executives who have built tremendous enterprises will be hit with something out of the blue, like leukemia or pancreatic cancer, and all of a sudden, their company has to function without a leader at the helm. If the business isn’t prepared, it will really suffer.

Mike: What’s a logical place to begin for anyone trying to proceed with planning for an exit or transition?

Gary: That’s a great question. Logically, the starting point is to ask, what is the current value of your business? In the past this was really invasive and expensive question to figure out. Today, using big data and well-tested algorithms, we have technology at Blue Sea that allows us to figure out the value of a business for a very affordable fee. If the proceeds of that business if sold today would be adequate for you, when combined with your other assets outside the business, now is a great time to put it on the market. If you’re not ready, we’ll help you ask the right questions and make the right moves to close the financial gap between what your business is worth and what you want for it.

Thanks to Gary for taking the time to share his knowledge. Reach out to me anytime if you have questions about transition planning or how to ensure that your business is on the right track for a successful exit.