Have you programmed your company GPS?
Ken was a 57-year-old contractor who bought out his partner and was thinking about handing over the reins in a few years to the nephew who worked for him. Ken’s wife thought it would be a good time to bring their son-in-law into the business. But neither happened.
The nephew did not want the son-in-law as a business partner. Then, Ken suffered a heart attack on the job and died the next day. Having built relationships with clients and employees, the nephew offered to continue running the business. The demoralizing downside: He agreed to give Ken’s wife only one-quarter of what the business was worth when Ken was alive. Ken thought he had all the time in the world to work on a business transition plan, but he did not.
As a longtime certified public accountant and business consultant, I see people, like Ken, who always think they have more time. They are so focused on the daily responsibilities of running a business they don’t take a longer view and treat their business like an heir for which they are responsible.
Chart a transitional course
Half of businesses in the U.S. are owned by baby boomers, in their late 50s or 60s. Statistics show that only one in five owners will successfully transition their wealth to someone else in the next 10 years. Most businessmen and women are concerned about making good decisions and their income tax burden; they are not thinking about next year or the next five years. You must program your company’s destination into your corporate GPS now.
Seven out of 10 small to medium U.S. companies will change ownership by 2025, according to Corporate Value Metrics. Many reasons to transition your business emerge unexpectedly. Usually, it is one of the five fateful D’s: death, divorce, disability, distress, or disagreement.
Eighty percent of business owners have no transition plan, leaving them as vulnerable as Ken’s wife and family. If you don’t plan, your company might lose clients and employees. You might lose the company itself.
With so many baby boomers approaching retirement age, many companies are likely to be on the market at the same time. A seller’s market will allow buyers to be more selective. Business owners must position their business into one that buyers will find highly desirable.
In developing company roadmaps, you should begin with an assessment of the entire enterprise to reduce risk and enhance long-term value.
At Boyer & Ritter LLC, we utilize a Value Opportunity Profile©, which looks at eight specific modules: planning, people, leadership, operations, sales, finance, marketing and legal. Within those modules, the process looks further into 47 operating categories to establish a baseline from which to develop a dashboard of tools. The goal is to reduce company risks and enhance long-term value which will propel you to your destination — whether it is a sale, transition to others or exponential growth.
With expert help, you can answer key question such as:
Did you negotiate with your business partners when you were in a position of strength?
Do you have a business transition plan that is in writing and legally binding to all parties?
Does your family know when to expect a payout if something happens to you and how much that will be?
Look to the future
Many former business owners have said they emotionally regret selling their company, mostly because they feel that they “have no life” afterward, or they think they could have gotten more. One way to mitigate this is to retain an advisory group which can assist the owner through the process of transitioning companies to outside parties or to their children. This advisory group can also assist in securing an accurate valuation, vetting prospective buyers, structuring deals, handling negotiations, and reviewing contracts.
To reduce risk and increase value, a sale should never be made in haste. You must allow enough time to find the right buyer and execute a plan.
When a company sells, the price might not be a huge number. But it is significant to the family who devoted their lives to it. A good deal, monetizing something they spent their lives building, will allow them to retire in a manner they have always envisioned.
You have to protect your family and your life’s work by being proactive. You will be enabling your business and your loved ones to thrive.
Thomas J. Taricani is a principal at Boyer & Ritter LLC and is a key member of the firm’s Transition and Tax Services, and Valuation and Litigation Services practice groups. He can be reached at 814-234-6919 or firstname.lastname@example.org.