Learn From Other Owners When Preparing For Business Transition

example 2 of 3 on how to learn from other owners’ positive and negative experiences

by Dave Driscoll

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 or 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.

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 transition from their businesses.

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 he 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 to 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 striving to meet your own financial and emotional needs? This is not an easy task. You cannot place your own planning on hold to determine your child’s interests because doing so burns the most precious resource you have: time!

You have only one clear option: Run the company to maximize value each day as if you will be selling within the next 15 to 20 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 or to a third party who may provide the moon shot you seek. The common elements a buyer looks for when buying a business are:

1. 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 whom 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 has 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 mind-set, you can position yourself to provide for your future needs. Follow this caller’s example to proactively operate with the plan to sell the business for maximum value, knowing that creates the most options.

Dave Driscoll is president of Metro Business Advisors, a mergers and acquisitions adviser to small businesses and  business valuation and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or 314-303-5600. For more information, visit www.MetroBusinessAdvisors.com