A version of this article was previously published in the December 2019 edition of  Wine Business Monthly.

No matter where you are within the life cycle of your business, there are questions, decisions, and solutions that need to be determined.

Whether your business is in the start-up, growth, or maturity phase, or if it’s preparing for an exit or transition, entering a new stage is often exciting as well as challenging. Critical activities like strategic planning need to take place during each of these phases to meet future goals—and to prepare for an eventual exit. This article identifies key activities that should be focused on in each phase of your business.

Start-Up Phase

The start-up phase begins when you decide to turn your idea into a business. Start by breaking down this phase into concrete steps, such as:

• Write a formal business plan
• Secure financing
• Choose a business structure
• Pick and trademark a business name
• Secure proper licenses and permits
• Define job positions and hire staff
• Choose an accounting system
• Find a business location
• Insure against risks

There are myriad resources available to guide business owners through the start-up stage. Browse the internet; check with your local chamber of commerce and industry associations; and seek guidance from professionals, such as lawyers, accountants and experienced wine business consultants.

Taxes

It’s important for founders to explore the potential impact of international, federal, state, and local taxes for each entity type: C or S corporation, LLC, and partnership. Making the right decision can help lower the tax burden of growing, running, and eventually exiting a business.

Accounting and IT Systems

Smart business leaders know making good decisions depends on having timely access to good information. Businesses that invest early in accounting and IT systems that can scale as a business grows often find the investment pays off, providing a competitive edge.

Economic Considerations

If your company is looking to grow quickly through acquisition, then it’s important to conduct due diligence on targets prior to any deals. This provides a risk assessment as well as insight into the past, present, and future financial performance and value of a potential acquisition.

Strategy, Planning, and Operations

In a startup phase, a business plan can be critical to raising funds, securing banking relationships, and establishing strategic market connections. The business plan will articulate your value proposition, market strategy, management team, operations model, and financial forecast.

Staffing and Management

To attract and keep the right people involved and motivated, it’s important to align potential financial incentives with desired behaviors, outcomes, and company goals. This can be achieved through cash, equity and/or deferred performance-based compensation programs for key employees.

Board Considerations

Some board positions might be empty when starting your company. Don’t rush the process of filling empty positions. These appointments carry a lot of weight and will affect the future of the company, which means they should be thoughtfully made.

Risk Management

There’s a great deal of risk in starting a business. Mitigate personal risk through proper entity structuring, internal controls, and personal insurance. For the business, focus on protection planning with the following items:

• Crop, fire, and flood insurance
• Property, plant, and equipment insurance
• Disaster recovery plan
• Business interruption plan
• IT data security, back-up systems, and protocols
• Key-man insurance
• Standard operating procedures

Evaluate and upgrade these risk-management measures at each stage of the business.

Other Key Considerations

Avoid surprises by taking time to understand how the funding used to start your business might impact its growth. At the same time, keep your lender and any shareholders apprised of the company’s performance—including changes in plans and opportunities. Stakeholders are more likely to be accommodating and provide additional capital if they’ve been kept informed.

Growth Phase

Expanding and innovating is a fundamental piece of the growth phase but anticipating and managing consequences of that growth should also be considered. This is the time to target and acquire new assets as existing assets continue to be developed.

Taxes

Tracking changes to federal, state, and local tax laws can feel daunting because there are so many areas to juggle and because the laws can change frequently, with little notice. Understanding if, and how, tax changes impact your business enables you to reassess major components of your business, such as entity structuring, employee incentives, and investment capital.

Accounting and IT Systems

Companies are best served at this juncture by focusing on consistently generating income and attracting new customers. It’s also a good time to evaluate the performance of any IT and accounting systems. Having clean, accurate financial and operational information provides critical insights into company performance and reinforces overall business value.

Economic Considerations

A company continually spends money during the growth stage, which makes it imperative to manage cash flow and monitor the amount of available leverage. Be sure to consider the needs of all stakeholders, including royalty owners, customers, and regulatory bodies.

Personal Finances

Your personal net worth grows with your company, which means now is the time to start estate planning. Take the time to assess your tax exposure and to whom your asset base will pass. Additionally, start finding ways to diversify your holdings, taking cash from the business in a way that’s strategic and in alignment with personal financial goals.

Strategy, Planning, and Operations

A strategic plan provides the opportunity to both engage your employees in the planning process and, ultimately, convey your roadmap for operational success. The planning process offers the opportunity to identify strengths, weaknesses, opportunities, and threats that need to be addressed through strategic initiatives and operational tactics.

Staffing and Management

If you’re able to offer performance-based compensation programs and benefit plans to employees, now is the time to consider how to offer and distribute them.

Board Considerations

During the growth phase, the board is more active in business decisions involving acquisition or divestiture. It also focuses on monitoring internal controls, which means the board is more involved with the management team. Keep a watchful eye and adapt how the board and management interact to facilitate effective communication.

Other Key Considerations

It’s a good time to begin solidifying a potential exit strategy or succession plan. While a plan may have been previously discussed, it’s important to revisit and adapt the plan while considering a capital infusion or company sale, both of which can have different implications.

Maturity Phase

The focus during the maturity phase is to remain competitive and sustainable by continuously improving productivity and best practices. While maintenance and growth are a priority during this phase, it’s also important to start evaluating your exit strategy and its impact.

Taxes

It’s important well in advance of an exit to understand the income-tax implications of a transaction or sale. By making decisions during the maturation stage, a company can more effectively deploy mitigation strategies to lower its income-tax liability. It’s worth noting certain estate-tax savings strategies may also be employed in advance of an exit.

Accounting and IT Systems

Your winery will likely be seeing increased efficiencies and a stable cash flow. Maintaining clean, accurate financial records and multiple-year forecasts will be critical to implementing a successful exit.

Economic Considerations

Continue to monitor and manage cash flow, but be aware of coming financial-reporting requirements. A company’s internal controls significantly impact the strength of a company’s financial reporting, which is why controls are critical for all companies.   

Personal Finances

Your net worth has grown, and its structure has changed. There are three key items you’ll want to revisit during this phase:

• Your financial plan
• Your estate plan
• Charitable intentions

Strategy, Planning, and Operations

As your organization achieves critical mass, it’s important to regularly update your strategic plan and associated departmental operating plans to adapt to market changes. These plans will continue to play a critical role in aligning your plan, performance, and people with your mission and vision. They can also keep your employees engaged in what you’re trying to accomplish and institutionalize a culture of continuous improvement.

Staffing and Management

Using effective, efficient systems and processes, such as performance-based compensation, that align with your strategic plan may help to increase the profitability of the company. It’s also time to develop a succession plan that:

• Identifies candidates for future leadership and management roles
• Outlines specific training and development for those candidates
• Establishes methods for evaluating their performance to help determine eventual successor selections

Board Considerations

During this phase, the board should be evaluating assets and divestitures as well as assessing how they’ll impact the company’s exit strategy. 

Other Key Considerations

Preparing for a transition or exit should be top of mind during this phase. Communicate to key individuals their assigned roles and responsibilities related to the exit strategy. It’s also important to begin carving out financial statements and conducting earnings-and-profit studies to assess how they’ll support and impact the exit strategy.

Transition or Exit Phase

All of your hard work culminates in the exit phase. Whether you’re selling, closing your business, or taking a different step in its evolution, you need a transition plan.

Taxes

If you’ve already outlined an exit plan, now is the time to implement it. If you haven’t decided on a strategy yet, it’s important to, at minimum, understand the federal and state income tax implications of a transaction.

As part of a negotiating strategy, understanding these issues before you sell your company can give you the leverage to structure the transaction in a way that reduces your tax burden.

Accounting and IT Systems

To instill stakeholders’ confidence in your company’s current and potential value, you’ll want to provide:

• Well-organized and accurate financial records from the last three years, at minimum
• Financial statements audited by an independent CPA firm
• A multiyear forecast

This information increases the odds you’ll receive as much as possible for the years of hard work that you and your team have invested.

Economic Considerations

Prepare to pay the owners and participants in the company’s incentive programs. Additionally, be aware that post-closing settlements can often be contentious. You’ve worked hard to build your company—don’t leave money on the table.

Personal Finances

Ensuring the exit plan is directly linked to your personal financial goals is especially important during the exit phase. Take the time to organize liquidity in a smart and strategic way, such as into buckets for retirement and living, taxes, and new ventures.

Strategy, Planning, and Operations

Update strategic and operational plans to ensure they’re aligned with your transition aspirations.

Staffing and Management

It can be challenging to keep employees motivated and engaged if their future roles with your organization are uncertain. Having the future executive team either identified and aware of their career path or already in place can lend greater stability and value to the company.

Board Considerations

The board continues to actively work with management on decisions related to the exit.

Start Planning Now

Growth, maturity, and exit aren’t just the transition phases of your company. When you’re an owner, they’re also moments in your life when you must evaluate where you’ve allocated your financial resources.

By laying the groundwork for each transition phase, you can help ensure your assets are positioned where they’re most needed and of greatest benefit— to you, your team, and the company.

We’re Here to Help

For assistance with any of the phases outlined here, please contact your Moss Adams professional.