Business schools teach students how to start businesses. Baby boomer entrepreneurs must learn how to stop their businesses. Business schools teach students to innovate in order to thrive. Business owners’ age 45 and older must innovate to retire.
To prepare and successfully sell, a veteran business owner may have to change deeply ingrained habits. Such owners haven’t typically ever sold a business.
All business owners can think of themselves as “venture capitalists,” which means having a clear plan of how much they need to retire, how to create that value and choosing when they will exit.
Just like a homeowner can spruce up their house, business owners can consider improvements to increase their venture’s value.
Baby boomer entrepreneurs, in particular, must begin preparing to transfer ownership before a health issue threatens them or one of their key employees. In many cases, owners of long established businesses have one or more key employees who have worked by their side for many years.
Unless there are efficient business systems and up-to-date written procedures, the absence of the owner or a key employee can seriously affect daily business operations.
Recently, I met with a second generation business owner in his early 60s. His manager has worked in the company for many years and is retiring. The owner has one employee who could conceivably become the new manager, but there is little in the way of written systems and methods to guide him. This business must prepare for the departure of its old manager and the training of its new manager.
In the last month or two, the firm hired its first new employee in 10 years. It’s wonderful that they have many long-term employees. The negative factor is that they are facing the prospect of the turnover of their entire staff over the next few years.
Beyond having written procedures and job descriptions, owners wishing to sell need to be growing sales and net profit. Having three years of tax returns showing steady increases is proof to a prospective buyer that a business has real possibility. Three years of documented growth will create a sense of opportunity for the prospective buyer.
Since 2008, bank financing for the purchase of a small business has been much harder to secure. Bankers look much closer at the credit score, professional experience and personal assets of the buyer and the bank’s possible risk. There is a much higher likelihood that the business owner wishing to sell will have to finance the buyer instead of cashing out, as was common 10 years ago.
How can a seller reduce the risk of having to step back into the business if the buyer can’t make a go of it and keep payments up to date? That could be disastrous for the seller. One strategy is for the seller to gradually mentor the prospective buyer in how to successfully run the business. There are complications taking on a partner, but they may be preferable to the risk of a failed sale.
How can an owner suddenly start to systematize their venture, write procedures, grow sales substantiated with tax returns after years of running the business without formal structures? No question; it’s a tall order!
An owner can begin by first practicing delegation of daily operational responsibilities. If the owner stops operational duties such as answering phones, waiting on customers and bookkeeping, he or she can focus on marketing, merchandising and managing.
Next, they can practice innovating with new marketing methods like business students studying entrepreneurship today. When these owners began many years ago, they introduced new ideas, ways to improve customer satisfaction and streamline order fulfillment. They were committed to their new business. They worked long hours every day to succeed.
More than just operating the business, owners must mentor a prospective buyer and, in fact their entire workforce, to participate in “steering” the business toward success. If they treat their established business as if it were a “new” start-up, they can move beyond their entrenched habits.
Rather than the simple goal of doing “better than last year,” owners must set specific, measurable targets. Complacency and exhaustion can drive business owners to limit their vision to be satisfied that last quarter was better than the same quarter last year. That accomplishment is great, but steeper goals must be achieved if the value of the business is to be increased and the venture prepared for transfer.
Very specific, measurable goals for key performance indicators are needed with written plans for how those goals can be reached. Actual results must be compared to weekly, monthly and quarterly plans; lessons learned must be applied to upcoming periods to continue progress towards an increase in business value.
The owner can ask young staffers or the teenage-20 something kids of employees how to reach younger customers using social media, while learning more about it themselves. Inspire staff to use their cell phones to shoot short video clips for both marketing and staff training. Empower staff to contribute to the business’s expansion.
By comparing actual results to the planned activities and profit which results, an owner can form predictions and apply what’s learned to subsequent periods. The practice of guiding staff to plan, predict and compare fosters a culture of learning and opportunity. Mentoring staff enables potential leadership to blossom.
By shifting perspective, the atmosphere and culture of the business will shift. Staff will definitely notice and so will customers. When the staff is excited, there’s a magic in the air that can be felt, seen and heard. Staff engagement in the success of the business is electric and noticeable.
Nurture, stimulate and support staff can enable the new leader to navigate and compete in this new economy. Train the most interested employee to become a supervisor, then a manager. Mentor that manager to become a partner. More than one new partner may be needed to create the enthusiasm needed to revitalize the company and inspire the employees to function as a genuine team, achieving great results!
Out of this environment, one or more new leaders will emerge, leading to partnership and an exit pathway for the retiring owner.
Both effort and imagination will be required by the owner and the protégé. This is the challenge of millions of baby boomer entrepreneurs today. It starts with an honest self-evaluation of the future, what’s possible and the risks. What is the most graceful future that can be created for your business and yourself?
This edition of Tip of the Week was written by John E. Anderson, president of Longview-based Be Cause Business Resources Inc. The company provides management consulting, coaching and facilitation with a focus on strategic exit planning for $1 million firms. He can be reached at 360.200.5740.