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Value Creation Blog

7 Ways Passive Ownership is a Stop on the Way to Business Transition

Posted by Josh Patrick

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I write a lot about moving to passive ownership.  Recently I’ve been spending a fair amount of time thinking about whether passive ownership is a permanent state or at some point does one move from passive ownership to transitioning ownership of the business to another owner.

My guess is that for the majority of business owners transitioning to another owner is something that will eventually happen.  My other guess is that business owners who successfully move their business into a state of passive ownership will transition the ownership of their business at a later stage of life than one thinks is the usual time for leaving your business.

The first step of having more choice in your life by becoming a passive owner would require the following actions on the business owner’s part:

  • The owner must systemize and document all processes in the company.
  • The owner must understand and communicate what niche the business occupies to all stakeholders in the business.
  • The owner must have a one page dashboard that they get weekly that shows them critical measurements in the business.
  • The owner must have a robust system of using KPI’s (key performance indicators) and KPI drivers so everyone in the organization understands what’s important in the business.
  • The owner must share the results of KPI measurements with all in the company.  You can’t expect great performance from your people unless you have an informed work-force.
  • The owner and all people in the company must understand what the profile of the best customer is for the company.  The sales department can’t be allowed to call on anyone except these best customers.
  • The owner must delegate and get out of the way of key managers in the company.  Key managers need to be compensated for successes they achieve that grow the profits and cash flow of the company.

After putting together and installing a robust management system, the owner can start moving towards a passive ownership structure where the owner has made themselves operationally irrelevant.  Once this is done successfully the owner can then decide whether they want to stay as a passive owner or start the business transition process.  Starting the business transition process is a new road with just as many pot holes as becoming a passive owner.  In future blog entries I’ll write about some of the pot holes and things you can do to improve your possible success ratio when you make the final business transition.

Josh Patrick

A first step you could take is fill out our questionnaire for our Stage 3 Exit Readiness Report.  I find that moving to passive ownership and understanding how attractive your business is to outside buyers is something that provides you with real value.  This report is complementary and will only take about ten minutes of your time to fill out our questionnaire that gives the information to provide you this special report.  Click on the button below to get your report.

click-here-for-exit-readiness-report  

Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.

 

Topics: business exit planning, passive ownership, succession planning

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