By Kimberly Deas
John loved his quick lube business. He could not imagine a day when he would exit or sell his business. His son and son-in-law worked there, and he was anxious for them to take over the family business. He built this business for them and he could not wait to see its 50-year legacy continue with them.
The day came and the son and son-in-law took over the business and like a proud father, John watched the transition. At first it was good, the boys got along well. But then it seemed like overnight they could not stand each other. The business was suffering, the employees were leaving and no one was there to run the now failing business.
They had a hard decision to make: Would they just close the business or try to sell it?
Of course selling the business was the better option, but the books were not organized. They had never planned to sell the business. It had been the family’s cash cow for many decades.
In the end, they sold the business and the land for the value of the land. They lost hundreds of thousands of dollars because they did not have a plan in place to exit or transition the business.
Sadly, the family lost out on all the hard work and 50 years of effort, because there was not a specific transition plan in place.
Many business owners wrongly assume that their children or grandchildren will want to run the business and have the ability to do so. In this case, the son and son-in-law were not capable of running the business and they did not like each other either. It was a recipe for disaster.
The truth is a business will live long after the owner is gone with proper planning.
Here are some insider tips on how to build a sustainable (and valuable) business.
- Keep clean records. The only way to truly know your financials is to keep good, accurate and clean records. This means report all income and remove all personal expenses. You save 38 cents, to lose $2.50 for every personal dollar you put through your tax returns. (The buyer will pay on average $2.50 for every $1 of profit.)
- Optimize the business for profit. A well run, optimized business yields more profit, less stress. This means spend time to work on your business not just in your business. Review your financials and see where you can increase income and decrease costs.
- Create systems. Implement systems for each part of your business. Document your process and hold your employees to the process. This will make it easier for a new owner to take over the business with the same results that you are experiencing.
- Be ready for transition any time. Because business owners don’t want to think about transitioning, they avoid thinking about it. The most successful businesses and sales or transitions are those where the seller has been thinking about the transition for years and was ready long before they needed to or wanted to make the transition.
When you take the time to prepare your business, you have more choices. You can transition the business to a family member or sell the business for a higher price. The choice is yours. But without preparing the business you are rolling the dice and hoping the wealth thief does not steal your years of hard work and effort.
Kimberly Deas is a business intermediary with Murphy Business & Financial Services and can be reached at firstname.lastname@example.org. Website: MurphyBusiness.com/JacksonvilleEast