If you’re like me, when you think about your business, there are likely a number of items that run through your mind. Should you sign that new lease? Should you buy that additional property? What about the new hire? Am I preparing for retirement? Are my investments structured the right way? How much more can we or should we expand? Could you better manage cash flow? Lower taxes? Is your insurance coverage adequate? How will future profits be? Which direction will interest rates take? Are you trying to live and work smarter, harder, or would you rather spend more time with your grandchildren or travel?
Constructing the right business sale, merger, or succession plan is not a simple process. Yet in nearly each type of environment, funds are often available for the “A” to “A+” businesses. Those with good credit histories, upward sales trajectories, and stable management can expect to receive the best terms. Often there can be competition for such enterprises.
The biggest obstacle in these scenarios is lack of preparation. Whether you’re engineering a sale, expansion, or acquisition, you must understand payment terms, interest rates, rental agreements, consultant fees, etc. Get your books in good order. It is difficult to make an informed decision on a company with poor records. Be sure taxes and debts are covered. A good credit score demonstrates responsibility and reliability. Are there liens or pending legal action regarding your company? Is your key equipment relatively new or ready for the scrap heap?
While historic performance cannot indicate future success, it can provide perspective. Data showing how you have done compared to the general market can be useful. Numbers, however, do not tell your whole story. There are often worthy intangible assets, such as experience, competition, whether you’re in a growing market, have stable personnel, and whether your product or service is unique.
Nothing Succeeds Like Succession
Although we’ve each heard the phrase: “do not keep all of your eggs in one basket,” many businesses are largely managed by one or two individuals. If you’re thinking of passing your business to a family member, consider that about 90% of businesses in the United States are closely held, according to the Small Business Administration, yet just 25-30% have a succession plan. Consequently, just 30% of these businesses are passed to the second generation, and less than 10% reach a third. If you’re one of the few firms with a succession plan that has not been updated for some time, it may be wise to reexamine it. While a large company can maintain a “deep bench” of talent, there are steps for smaller firms:
- Acknowledge you need a succession plan.
- Consider a consultant to provide objective advice.
- Discuss the issue with key personnel.
- Make a concrete plan and sensible timeline.
- Separate Emotions from Business
Emotions and business do not mix. They are usually not helpful when making business decisions. Your focus should be on reaching sensible, long-term goals by identifying what is important to you.
You may wish to do something else with your life, and the sale proceeds may enable you to do so. Your personal or health status, or that of your spouse or partner, may have changed.