The following article originally appeared in the October 2009 edition of The Myers Report newsletter published by the firm.
Don’t Let Your Business Turn To Dust
By Jane M. Myers, Esq.
I saw a sad sign. It said, “Going out of Business after 45 years.”
Just a small, suburban florist shop. The business was not the most exciting or glamorous. In fact, it was a bit macabre. Their flowers, fresh and plastic, were spread over acres and acres of nearby cemeteries. There were only one or two other florists in the area. No other competition around and a steady source of clients. Seemed to me like a sure formula for success. What business owner wouldn’t want that set-up??
No “LOST OUR LEASE” banner across the store front plate glass. Just gone.
What could have happened?
Were there no children interested in taking over the business? No key employees groomed for ownership? No outside buyer interested in a business with a great location, minimal competition and a ready-to-go stream of “clients”?
Instead, 45 years of hard work simply turned to dust.
Typically, situations like this occur when business owners fail to plan or don’t budget enough time to plan a workable strategy to “cash out” of their business. They’re just too busy running the business to think about how to transition out. And yet, they all know that one day, one way or another, they will transition out. As attorneys, we often see that what may appear to be an owner’s all consuming preoccupation with their day-to-day business responsibilities is really denial fueled by fear. When that happens, the exit strategy can easily become the “going out of business” banner – usually the worst possible scenario for the owner.
The good news is . . . there’s no need for fear. Every business owner can learn what they need to do and get the assistance to avoid biting the dust.
Linked to experienced professionals who can provide guidance and planning, the business owner will have time on their side; they can control when they want to leave the business and on what terms. They can maximize their “cash out” by structuring tax savings and have the time to carefully select successors.
Once the business owner connects with professionals to guide them through the transition process, the next step is to make the business as attractive as possible to a prospective buyer.
What will impress a buyer?
A company with a healthy financial bottom line and straightforward business operations.
Selling tips: Business owners should:
Collaborate with tax/financial advisors to determine specifically what is needed to achieve a healthy bottom line. This may require cutting overhead while implementing strategies to develop business growth. Depending on the severity of the overhead cuts, these decisions may not make the business owner “popular” with their employees, but following the plan to solidify the business in the long run is key. It’s critical to see the big picture.
One sure way to make the business attractive to a buyer is to demystify the business operations process. A buyer will not be impressed with the burden of having to learn complicated systems.
Document business systems in writing to serve as a guide to running every aspect of the business. A turn-key business is a stand-out selling feature . . . your competitors are most likely not focused on that. There are companies who can assist with the documentation process.
Consult with attorneys, accountants and business advisors experienced in selling/buying businesses to learn about the process. Knowledge will eliminate fear.
With some thought and planning, your business won’t turn to dust.
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Please note that this article is intended only as a general discussion of issues pertaining to business succession planning and that it should not be taken as creating an attorney-client relationship or as legal advice with respect to any particular person, business or situation. Circumstances and the applicable legal principles vary and you should consult with an attorney and/or other professionals regarding the facts of your particular situation.