I spend a lot of time talking with business owners about the next generation in their business. If it happens to be a family business we always get into a conversation about which children should own stock.
I’m often asked to help business owners add another owner to the mix in their company. Sometimes this person has worked in the company for years and sometimes it’s someone from the outside they want to add to the ownership group. In either case having a shareholders agreement with an exit clause is a crucial part of the transaction.
You never really know who you’re getting.
Over the past few weeks I’ve had several spouses visit our site and download reports on selling a business. I don’t know the reasons why and can only guess it’s because the spouses of business owners are interested in knowing how the business actually fits into their financial security.
Learn about your spouses business.
I would be willing to bet the answer is no. You might think you know what your business is worth. You might even have done a formal valuation to find out what your business is worth. Knowing what your business is worth is both complicated and easy at the same time.
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.
For the past twenty years or so there has been a movement by a group of advisors to establish a profession called Exit Planning. This profession is supposed to help business owners get ready and execute transitions from their business to another part of their life. From where I sit (and I’ve been involved with this group from its inception) it looks like Exit Planning isn’t working.
It should be about exit planning and not exit plans.
The exit planning business seems to focus on creating very expensive exit plans for business owners. There’s one problem with this: Businesses are not static and as soon as the exit plan is delivered it’s out of date.
Instead of focusing on creating an exit plan, those who want to help business owners leave their business should focus on exit planning. This means we don’t create a plan. We help business owners look at options that make sense and work towards one or more of those options. We try to help business owners create more value in their business.
We need to help make a business sale ready at all times. If we do this well, the owner will enjoy better cash flow today and a better outcome tomorrow.
You’ve just come into my office, sat down, and have received a cup of coffee. We’re talking about your business and you drop a bombshell: You tell me you’ve decided to sell your business.
This is not an unusual situation in my world. I often have owners come in and say they’re ready to throw in the towel. If you want to start this conversation with me, here’s what I’m going to ask you:
Such a simple statement and yet so hard to do. You have a small business, somewhere between 5 million and 20 million dollars in sales. You have nice profits and are looking to sell your business.
Rob Slee from the Midas Institute writes a lot about different values a private business lives in at one time. These various values all depend on how the buyer looks at your business. Besides the formal value worlds that Rob talks about is the size of your business. When you sell a business the smaller your business, the riskier the sale will become. Buyers of small businesses have different resources available than buyers of larger privately held businesses.
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.