During the past few months you have likely seen people doing the 10-year challenge where they post a photo from the end of the 00s and one from the end of the 10s. If you do that challenge in in 2029, what will it look like for you and your business? A new decade has dawned, so, in addition to figuring out your goals for the next year, it is the perfect time to do some long-term planning for your business.
How do you plan to grow your business in this decade? One way we are seeing our clients addressing this issue is through either acquiring competitors within their current business territory or acquiring similar businesses outside of their current territory in order to expand their footprint. In today’s low unemployment economy, it is tough to find skilled employees. These types of acquisitions allow your business to grow by obtaining competent employees and a built-in customer base. There are also efficiencies of scale that can be achieved. If acquisitions are not available, consider expanding your service or product line to items complimentary to current offerings. You already have a customer base that may benefit from additional offerings.
If you want that picture in 2029 to be you sitting on a beach without worrying about employees or other business matters, then you need to start taking steps over the coming years to make that a reality. For many business owners, the business provides the ability today to live a comfortable life with the current income generated from the business. Many business owners look at the sale of their business as their retirement plan as well. Businesses do not get ready for a sale overnight, so you need plan your exit strategy, and sometimes this involves multiple strategies.
Is your business a family business that you want to pass to the next generation? If so, the luxury of the family transition is that it is something that can (and usually should) be planned to take place over time. You should work with your team of advisors (accountant, attorney, banker and financial advisor) to develop an effective strategy that provides for the business transition in a smooth, tax effective way which allows both financial certainty for you and does not cause financial hardship on the business.
Does your business have one or more amazing employees that you see some of yourself in? Do they have the desire and do you think that in the coming years they could be ready to take over the business? If so, you need to work to (1) keep them as your employees; and (2) determine a path to full ownership that works for all parties involved. This too is usually a process that takes place over time, since, unless you want to seller-finance the entire sale, you may need to work with your team of advisors to provide for some level of ownership/equity that the employee(s) could then use to obtain a loan from your bank to purchase the remaining portion of your ownership.
The other exit strategy to always keep as a part of the plan is a possible sale to an outside party, perhaps someone that is in growth mode as described above. The great thing about keeping this option as a part of the plan is that some of the prep work you are going to do to maximize the sale value of your business are steps that also benefit you in the short-term. Areas to look at will vary depending on the type of business, and again, this is where working with your team of advisors, this time including a business broker, is so important. How long are your current contracts with customers and/or suppliers/distributors? In any sale, especially if it is going to be to a competitor, the longer the contract, the better for maximizing value. How detailed is your customer information? For example, if your business is such that you install products that require/should have routine maintenance or you provide services on a recurring schedule, does your customer database have that information and ability to alert you when you should reach out to the customer? In service businesses the customer list is often the main thing you are selling, so any way you can find to optimize the value that can be obtained from that, you will in turn maximize the value of your business both currently and long-term.
A high school history teacher of mine used to always say – “if you fail to plan, you plan to fail”, so work with your team of advisors to get your plan in order and help ensure that the actual picture you take in 2029 is what you want it to be.
For more information contact Mike Demerath at 920-430-1900