I spend lots of time talking to owners of private companies like you who aren’t sure how they’re going to leave their business. You might think that you want to sell your company to an outsider….someone who can pay you lots of cash. You also might find that after a conversation with someone like me you realize your business isn’t going to get you the cash you thought.
No, I’m not saying is your business going to be sold tomorrow. I’m assuming it’s not. I’m asking whether your business is sale ready. Sale ready is when your business could be sold but you’re not interested at this time.
A sale ready business is when you’ve become operationally irrelevant.
You’re probably a lousy employee.
If you’ve run your company for twenty years or more you’re not used to taking orders from a boss. When the new owners tells you what to do you’re going to balk at orders being given to you. You might even just plainly do what you want and ignore the requests from the new owner.
If your buyer has bought several businesses, they know the drill. They’ll try to work with you for a period of time. After that they’ll just pay you for the rest of your employment contract and be glad that you’re not around anymore.
Your key people know how to take orders.
On the other hand, your key people have been working for you for years. They’re used to having you tell them what to do. A new boss will either do it more nicely or not. That’s not the point. Your managers are used to being told what to do.
Most likely your managers will be more compliant when it comes to requests from the new owner. They might not even ask why which is what you’re likely to do. It just makes it easier for a new owner to integrate your company into their operations.
If you’ve done your job well, you are out of day to day operations.
A business that’s highly saleable will be one that doesn’t depend on you for day-to-day operations. I’m hoping that you’ve done a good job of making yourself into a passive owner. If you have, then you’ve become irrelevant to the operations of your company. This makes your company more valuable and makes you less important in the eyes of a new owner. Both of these are good things.
Change will come more easily for your employees.
Many business owners I know are more than a little stubborn. This is what has made you successful. When someone asks you to change what you’re doing, you often push back. Change for change's sake just doesn’t make any sense to you.
On the other hand, you’ve asked your employees to change how they do things many times. It’s not an unusual event and if they don’t believe in the change, they’re likely to do it. The boss told them and that’s the way it is.
Your managers will run the new companies systems.
When your company has a new owner they will almost surely have new systems. Someone is going to have to change your old systems over to the new systems. An experienced buyer will know you’re not the one for this job. They know your managers are.
I hope you’ve gotten the idea that becoming a passive owner is important to build enterprise value. An effect of this is you know less about internal operations than you used to know. If you let the new owner off easy and gracefully exit your business you’ll do both of you a real service. Most of the time they want to get on with running your company. Hopefully you’ll have come up with a second act in your life that you’ll be happy with.
Let the new owner have your company. You do something else. You’ll both be much happier.
We’ve put together a case study on how to become a passive owner. It’s a step you’re going to want to take as you move towards a succession strategy in your business. I think being a passive owner is one of the two things a business needs for a successful sale, or at least in Vermont it does.
I have a problem. My problem is: How do I explain what I do to someone I don’t know? I’ve tried telling people I help them work less. That’s a problem if you don’t want to work less. I sometimes tell people I help them create value in their business. If someone told me that I would have no idea what they meant. I’ve even told people I help them become operationally irrelevant in their business or become a passive owner. Again, it just doesn’t seem to resonate.
There is one thing that I really do help you with, and that’s making your business one that’s sale ready. You probably have a pretty good idea what that means. The problem is you might not be interested in selling your business. You see, I’m once again stuck.
I recently ran across a situation that is not uncommon. A seller of a restaurant had hired a broker to represent him in the sale. A buyer appeared that the broker didn’t bring to the table. The seller decided not to tell the broker, do the deal himself and try to cut the broker out.
First, look at the morality of this situation
You probably got into a business with no thought of ever leaving. Then after ten, fifteen ,or twenty years the thought pops into your head, “When do I know its time to leave?”
Most people I know do nothing the first time this thought pops into their head. You might be different, but I bet it took ten, twenty, or more times before you thought it was a good idea to answer the question.
We all need one. That is of course unless you plan to live forever in which case you can skip this post. For the rest of us a successor is someone we need and something we should think about.
Many times a selling owner has to hold paper as part of the sales transaction. Often the buyer just doesn’t have enough credit and can’t get a bank to loan them enough money to buy your business. Other times you as a seller are required to hold paper because the buyer is worried about something happening that could decrease the revenue of the business they bought.
Some negative issues could be losing customers, having lawsuits appear that the buyer didn’t know about, or employees riding off into the sunset with customers that used to be served by your business. These are all legitimate concerns and as a seller you need to do everything in your power to minimize the chance of any of these things happening when it comes time to sell your business.
I was recently speaking with an investment banker who told me that the vast majority of his deals are going to private equity groups and not being sold as strategic sales. I’m not sure if this means larger companies have stopped doing strategic purchases or if selling to a private equity group is just an easier road.
Even if larger companies aren’t buying smaller ones in a strategic market place you might want to position your company for this type of transaction.
I didn’t, and when I learned I said to myself, “this just makes so much sense…why didn’t I think of it?”
A mentor board is an organized group of people that helps younger generation members in a business learn necessary skills to run the business. This board is different from a family council, business board of directors, or board of advisors. Their only purpose is to get the next generation ready to take over the business.