Here’s What a Perfect One Looks Like!
The first article in this series listed more than 25 tactics to increase your business success. I have used all of them. I started with nothing and didn’t get to college, so I know you can achieve maximum success, regardless of your education. E-mail me to get the first or any of the other articles in the series. Each one after the first takes a closer look at one of the tactics.
Well over half of my consulting assignments end up being about succession. It’s always the same story, the business isn’t doing as well as it used to, the leaders, many times dads, are getting older, and haven’t changed enough, and are waiting for the industry and marketplace to return to the way that “they used to be”.
Business owners, again, mostly men, almost never sell at the top. Ego prevents them from doing so. From the top, the businesses have only one way to go: down. Slowly at first, but eventually reaching a critical point at which the business won’t support the lifestyle of the owner or even pay the bills. Also, even those who consider selling usually have unrealistic expectations about what the business is worth. They ALWAYS think it’s worth more than it is. That’s human nature. The owners wait too long to sell partly because they never created a smart succession plan.
If you own a business, when should you start talking about succession? You should at least talk about it 10 years before you expect to turn the business over to your successor. If you are about 50 years old, now is a good time to have a conversation about what will happen to your business after you exit.
Usually when I get a call for consulting about succession, this is how it goes: The business is headed downward and the owners have figured out that they don’t have a succession plan. If there are kids, the parents are convinced their kids aren’t ready to run the business.
That’s why I recommend having a talk about succession long before you think you need to. With a decade to the time of succession, you can do quite a bit to create a mentoring plan to ensure that, if the kids are keeping the business, they will be prepared to run it successfully.
Of course, successors are going to make mistakes, just as you did when you started the business. In some ways, they can make mistakes that you couldn’t because a mature business insulates them more from failure than you were insulated when you started from scratch.
The successor you choose should be attending at least six seminars or industry conventions every year and taking notes in the sessions that cover topics related to leadership, marketing and finance.
If you are an owner, trying to value your yard, I offer you this one caution in assigning value to inventory. Just because your warehouse is full does not mean that everything you have really adds value to the business. Let’s get real. A lot of what is in the warehouse is there because you have not been able to sell it, because no one wants it.
When I was growing, I bought a few salvage yards. Almost the first thing we did, after the transaction closed, was to back a dump truck up to the roll up door and start throwing away what our systems showed us would not sell quickly enough or for enough to be worth holding. Sellers were always shocked at what we disposed of, but we needed the space for inventory we could turn profitably.
Here’s some good news: Your relatives can likely pay you a little more than market price for your business. The premium they can pay is partly because you will have to offer seller financing. They are paying extra to get reasonable terms. No one else is going to finance the sale of your yard to your sons or daughters.
So, what does a perfect succession look like for a current owner? Write a succession plan at 50. Prepare the next generation for a decade. Sell it when you are 60. Get a 20-year note that provides income and a comfortable standard of living for you in retirement and that offers your children an opportunity to carry on your legacy through the business that you started.
Another way that can work well is selling the business first, on a shorter note, and renting your successors the land with an option to buy the real estate later, with little or no down payment and financing over a longer term.
You may want to add a modest salary for staying around and doing whatever needs to be done (taking bank deposits, helping with banking and community relations, etc.) during times when you are not out traveling and enjoying life.
Perfect or not, make a succession plan. I admit that it’s hard to talk about the future of a business that you founded. I try to make it easier. Usually, I talk to potential buyers and sellers separately, then together, and reach agreement or lay the groundwork. Having a facilitator can be helpful because he or she is not emotionally involved. Often, owners thinking about succession planning make the wise choice to work with an attorney, an accountant, or an industry expert.
No matter where you are on the journey in succession planning, it is also wise to have more than one source of income. Don’t rely solely on your business. Before you get to 60, make sure you are investing some of your profits in rental property or other assets that will produce income for you after you sell the business. Put your eggs in a few baskets. That will also make it a little easier to pass the business on, when the right time comes.
Remember only you can make business great!
Ron Sturgeon, Mr. Mission Possible, has been a successful business owner for more than 35 years. As a small business consultant, he can deliver wisdom and advice gleaned from an enviable business career that started when he opened a VW repair business as a homeless 17-year-old and culminated in the sale of several businesses he built to Fortune 500 companies.
Ron has helped bankers, lawyers, insurance agents, restaurant owners, and body shop owners, as well as countless salvage yard owners to become more successful business people. He is an expert in helping small business owners set the right business strategies, implement pay-for- performance, and find new customers on the web.
As a consultant, Ron shares his expertise in strategic planning, capitalization, compensation, growing market share, and more in his signature plainspoken style, providing field-proven, and high-profit best practices well ahead of the business news curve. Ron is the author of nine books, including How to Salvage More Millions from Your Small Business.
To inquire about consulting or keynote speaking, contact Ron at 817-834-3625, ext. 232, rons@MrMissionPossible.com, 5940 Eden, Haltom City, TX 76117.