According to recent statistics, the US has 12 million businesses owned by Baby Boomers. The oldest members of this cohort are now 71 years old and the youngest are 53. According to recent surveys, 2/3 of business owners in this cohort expect the sale of their businesses to make a major contribution to their retirements. But will they? The statistics don’t look pretty. Experts expect at best 70% of these businesses to close rather than sell. Many more will sell but not bring the price the owners hoped for. While there can be many reasons a business fails to sell or fetch a desirable price, one factor shows up prominently in the literature on the topic. Before we discuss that factor directly, let’s engage in a thought experiment to help bring the situation into focus.
Kidnapped by Space Aliens: A Thought Experiment
Imagine that you are out for a walk one Sunday afternoon when a spaceship suddenly appears and beams you on board. You have no time to let anyone know. For all intents and purposes, you have disappeared. For 90 days the Aliens hold you captive somewhere in outer space. Then the Aliens return to the place they picked you up and beam you back down. You have had no communication with your business for three months. What do you find when you go back to your business? Be honest with yourself. Then decide which business below best describes the condition of your business without you there for 90 days.
Which is your business?
|Activity||Business A||Business B|
|Customer Service||Your business has continued to serve your customers effectively without significant disruption.||Without you, service to customers has slipped significantly with major unresolved issues.|
|Customer Retention||Your longstanding customers have hung in with the business even with you not there.||Without you there to manage customer relations major customers have gone over to competitors.|
|Business Development||Your business has continued to add customers and complete negotiations with prospective customers.||Without you, sales efforts have ground to a halt. Negotiations with prospective customers remain unresolved or prospects have lost interest.|
|Vendors and Lenders||Your company’s vendors and bank have remained comfortable with the company. Business as usual.||Without you there, your vendors and banks are nervous and concerned about repayment.|
|Key Processes||The processes your business uses to produce products or provide service remain intact with no decline in quality.||Without you to direct the activity, processes have begun to break down, affecting product or service quality.|
|Key Staff||Your key employees have hung in with the company and continue to perform at a high level.||Without you there, key employees have left the business or have drifted off track.|
|Initiatives||Major initiatives the company was working on when you disappeared have continued according to plan.||Without you there to drive the initiatives, initiatives have pretty much gone by the wayside.|
Can you honestly answer that your business would resemble Business A even if you disappeared for 90 days? If so, congratulations. You have structured your business to sustain itself beyond your daily involvement. By doing so, you have avoided the most common reason businesses fail to sell, over-dependence on the owner.
On the other hand, if you have to admit that in your absence your business would most resemble Business B, then you are far more likely to have serious difficulties selling your business. When you think about it from a potential buyer’s perspective it makes sense. If nearly everything good about your business depends on you personally, then your company has limited value once you leave. Nobody will pay for value that leaves the company with you.
Hope for the owners of Business B.
If you currently own Business B, you have reason for hope, but you must actively and intentionally face the situation. Here are some steps you can take to get things rolling.
- Evaluate your own business activities. Before you can begin to remedy this situation, honestly and thoroughly determine what functions you alone perform for your business. List those functions and separate them into two categories, those you could delegate right now and those where you currently are irreplaceable. You may find that you have retained tasks out of habit that you could easily have others in your organization perform. Be very specific in this step. If you own specific customer or vendor relationships, list them; if you are the only one who can prepare certain kinds of bids, or invoices or proposals, list those too. You must have a clear and comprehensive catalog of duties that you will want to assign to others.
- Make a plan. Moving responsibility from you to others in your business cannot take place in a vacuum. The plan should answer the following questions. What resources will the company need to absorb the duties you currently perform? Does the company have the necessary resources currently in-house to absorb your duties? If not, how will the company acquire resources it doesn’t already have? How will the company execute the transfer of duties?
- Focus on processes and technology. Oftentimes owners see people as the sole solution to over-dependence on themselves. People are a critical component of the solution, but adding staff hours to your business is not the best answer. The business will need processes to allow your staff to replicate what you do consistently and with a comparable level of quality. I also find that many companies under utilize technology. Often they already own technology but do not take full advantage of its functionality. Technology running properly could automate many of the hours the company spends performing certain tasks. You bought the technology solutions, let them solve part of your problem.
- Get help. You’re an expert at what you do. You may not be an expert at developing processes, restructuring an organization or preparing a business for sale. You can hire the expertise you need to make this happen. B2BCFO® Partners have helped thousands of businesses deal effectively with these issues. Learn about our capabilities at www.b2bcfo.com. A partner in your area will be happy to have a no obligation conversation with you about these and other matters that concern your business.
Experts in business sales have a rule of thumb that companies with strong management and processes double their possibility of executing a successful sale. Many Business A’s were once Business B’s. Why not yours?
About the Author
Jeff Mann is a Fort Wayne, Indiana based Partner with B2BCFO®. He is a senior financial executive with over 40 years’ experience and has been the lead financial executive for several business sales and purchases. Jeff holds a BS in accounting from the University of Virginia and an MBA in finance and marketing from Northwestern University. He is a Certified Business Transition Expert. See more of Jeff’s articles at www.indianab2bcfo.com/professional/jeffrey-mann/.