Business Transition Planning ensures Options
St. Louis area owners are learning the essential themes of planning and timing…sometimes the hard way. Metro has conversations with those ready to sell, planning to sell, and occasionally with owners who must reach the emotional understanding that their life’s work will not sell for an amount greater than the liquidation value.
This is the second of three examples to help you plan or avoid missteps in your journey to your “Life Beyond Business.“ TM
This call was really unusual! The person on the other end of the line was NOT at the typical point when business owners reach out to have a conversation about their business transition.
The caller is in his forties and wants to build his business into one that will provide for his family and present him with options in the future. He has three young children, ages 6, 9, 13, that he wants to have the option of joining the business, yet does not want to predestine any of them to taking over. “They are so young,” he said, “and I would like to be in a position of choice within the next 15-20 years.” He wants to retain the choice to involve any one of the children or to sell the business.
Many owners with young children find themselves in this situation.
How can you position the business for maximum value AND deal with the uncertain future interest of the kids?
Furthermore, if and when (maybe never) any of the children do express interest in the business, how do you handle serving the needs of a parent – supporting your child while also striving to meet your own financial and emotional needs?
This is not an easy task.
You cannot place your own succession planning on hold to determine your child’s interests because doing so burns the most precious resource you have… time!
You only have one clear option:
Run the company to maximize value each day as if you will be selling within the next few years to provide the flexibility for future decisions.
One thing is certain, you will exit your business in the future.
That transition may be to a family member or key employee, (neither of whom will have the money needed to send you off in grand style), or to a third party who may provide the moonshot you seek.
The common elements a buyer looks for when buying a business are:
- Solid, positive cash flow
2. Financials tied out to operations that paint a picture of how the business runs
3. Strong management not dependent on intense owner direction
Regardless of who you eventually turn the business over to, these elements are essential.
- Family members or key employees generally do not have a big pile of money, therefore the value of ownership will need to be transferred over time. If the financing of your “Life Beyond Business” will be in the hands of others for a period of time, how can you minimize your future financial risk? Having built a solid company with good cash flow and strong management increases the likelihood that the obligations to you, the exiting owner, will be fulfilled.
- If no family/employee eventually expresses an interest in the business, or does not have the leadership or financial capacity to take over the business, your business will be attractive to a buyer that will be able to finance your “Life Beyond Business.”
With the correct mindset, you can position yourself and the business to provide for your future needs, whatever they may be. Follow this owner’s example to proactively operate with the plan to sell the business for maximum value, knowing that creates the most options.