One of the issues that an event company owner needs to address at a fairly early stage in his or her company's existence is how to get out of the business. This is not in recognition of having made a mistake and wanting to recover from it. Rather, it is an understanding that the business is serving a function in the life of the owner, and once that function is achieved, the owner can — and perhaps should — move on with his life. At some point, he will be ready to convert the fruits of his labors into cash and ride off into the sunset. How can this day be planned for? What can be done leading up to it to maximize the value of that business?
TIME TO GO?
The owner can decide that he wants to sell his business by the time he reaches a certain age. He may decide that once the company achieves a certain value, he will sell. He may decide that he will not put in any additional capital or take out any additional loans, and he will sell if it appears that such steps may be necessary in the near future. He may have it in his mind that he wants to create the largest company in the industry and will not retire until he does so. Whatever the motivating factor may be, a road map for getting to that point is required. Keep in mind, however, that plans and conditions do change. An owner may see the beginning of a trend that he does not think bodes well for his business, and he may feel the need to speed up the timetable.
Exit strategy will and should have an effect on how the business is managed and grown. The first question that the owner must ask himself is how he hopes to exit. If an owner knows that he wants to grow large enough to attract a takeover from a large company, then he will want to increase the value of the company as much as possible, perhaps by building or purchasing hard assets, or by creating a distribution system that will be of value to a purchaser. He should be thinking about what would make his company valuable to the type of purchaser he anticipates. If an owner feels that his business will most likely be purchased by a competitor, he might instead focus on building a strong marketing presence and client base, which will be of more value than facilities or equipment similar to the potential purchaser's. If the owner wants to preserve the company for the next generation of his family or for some key employees, then planning for that will have to begin well before retirement.
Remembering that many event companies bear the name of their owner or have been marketed solely around the owner's unique skills and persona, it is not hard to believe that the transfer of such businesses may present some interesting issues. As a whole, it may be more difficult to sell a business that has been built around a cult of personality. An all-star decorator may have a booming business, but when he wishes to leave, what is left? He may have a talented staff and wonderful props and vases and urns, but what value will be put on those assets? Certainly, the business is not worth enough to satisfy someone who has put his heart and soul into a company that has become synonymous with him for many years. The same could be said of a catering business that has built its reputation and clientele around the flamboyant chef who now wishes to move to Tuscany. A company that is viewed as a one-man show will not create good value for the owner, if the “one man” — or woman — is the one wanting out.
WHAT ARE YOU?
There are a number of ways that event companies can be classified. One way is by event discipline — floral, decorators, set-design companies, draping companies, lighting companies, audio companies, video companies, caterers, planners, producers, destination management companies, transportation companies, and on and on. Another way of classifying them is distinguishing between those that are heavily invested in equipment and those that are more invested in ideas. Some deal in recognizable hard goods, such as tents, tables, chairs and linens, while others provide creative design ideas, logistical plans, lighting plots and room layouts. Some are “trade” based, relying on electricians, carpenters and riggers to do their work. Others are service companies, providing transportation, entertainment, script writing and other services.
Event companies generally offer a blend of creativity of design, quality of service, and quality and quantity of event equipment of some sort. All three are important in varying degrees in every company. In a rental company, the quantity and quality of equipment would come first, followed by quality of service, with quality of design ranking third. In a decorating company, creativity of design and quality of service are more important than equipment. This type of analysis becomes relevant when a company owner sits down to think about an exit strategy. The question becomes, “What is it that the purchaser will be buying, and how can the value be maximized?”
Some companies derive their value mainly from their inventory. A rental company with 2,000 place settings of the best china and glassware and 2,000 of each of four different chairs may have a huge competitive advantage based strictly on its inventory. If the inventory is kept in prime shape, the company is saleable on the basis of inventory alone. Add in a top-notch sales team, an up-to-date inventory control and rental software package, and an operations manager who makes sure rental deliveries and pickups happen when and where they are supposed to, and the business should have maximum value, even with the owner who set everything in place walking away immediately after the sale. In this instance, the owner established the company — not himself — as the star. So his leaving the company still leaves all of the value in the business.
There are some companies that fall in between. Full-service lighting companies in the top rank provide creative design, quality technicians for installation and operation, and quality, up-to-date equipment. Their business is creativity along with equipment, service and quality. The smart owner will position himself out of the necessary mix in valuing his company. If he is a top-notch sales person, he should make sure he still has a crack sales team around him to hand clients off to. If he is the chief designer sought out by clients, he should begin acclimating clients to other designers in his company over time. It is best for the business in the long run.
Exit planning, like any other type of planning, must be flexible and will be subject to many changes outside of the control of individual owners. Changes in the economy, new trends in the market, technology changes and actions by others within the same or parallel product or geographic market may have an effect on an owner's well-laid plans. Even within his own company, an owner may discover that his heir would rather play guitar in a coffeehouse than take over the reins of the company; or the well-chosen and -trained successor is not quite as honest or as talented as he or she was thought to be. Plans must then change, and the owner must adapt.
Remembering that a business is supposed to serve its owner, and give the owner what he wants in his life, it is incumbent upon the owner to know and plan for those things. If he does, his exit from business can be successfully executed, leaving him where he wants to be in life, and leaving the business in good shape for the next owners.
This article is an excerpt from David Sorin's upcoming book, “The Special Events Advisor: A Business and Legal Guide for Event Professionals,” available from Wiley next month. Sorin also operates a Philadelphia-based consulting service, Event Company Advisory Services. He can be reached at 610/783-5305 or [email protected].