So You Want To Keep That Varsity Jacket

Business owners realize that the day will come when they will no longer want to run the business or will be able to run the day-to-day operation of the business.?However, the business is the owner’s creation, baby and life’s work.?I had one business owner say to me that selling it would be worse than getting rid of his varsity jacket from high school.?I should not have said, but I did ask “does it still fit?”?

A lot can be revealed with that question.?Let’s be honest, how many of us have stayed in contact with our best friend from first grade??Even if you have, do you see that person as regularly as you did when they lived next door??Of course not.?Priorities change and there is only 24 hours in a day, yet we may not want to completely let go of our past.?????

There are many ways to sell or transfer a business.?You can sell to a family member, third party, private equity or a host of other options.?However, what are the options to retain ownership and control??

There is a growing, albeit slow, movement to “professionalizing” the business.?That is developing the business, largely the management structure, so that the business can operate without the owner.?This tends to make sense in instances when:

·???????The business is of a reasonable size.?A lower middle market business with EBITDA in excess of $1,000,000 would be a good candidate.

·???????The owner starts to treat the business as an asset or investment and makes objective decisions about the business instead of emotional decisions as the owner’s life’s work.?

·???????The business has contributed to the owner’s wealth over time and although the business is substantial, the business, as an investment is no longer most of the owner’s net worth.?In other words, no individual investment in an owner’s portfolio should represent most of its holding and neither should the business.?

Here are some of the steps to put this in place:

·???????Recruit a leader to run the business.?

·???????Identify local business leaders to act as a board of directors to the business.?You may need up to four people and they could have expertise in areas of law and compliance; finance and operations; sales and marketing; business growth.?The sales and marketing or business growth expertise should preferably be someone who has industry experience.?The owner should also have a board seat and one of the owner’s heirs.?

·???????Have an annual audit performed by a local reputable accounting firm.?Remember this is an investment and even if you did not have an audit performed in the past, you would want one now, as will the board.???

These are a few of the steps that could be taken to run your business in a formal professional manner while still maintaining control of the business.?

What if you are not happy with the structure??Remember this is an option to move the owner away from the day to day of running the business.?Reverting back to more owner involvement, literally for whatever reason, would indicate that this structure was not successful.?The owner needs to give some time to allow a solid attempt to make this structure operational.?If the structure still does not meet the owner’s expectations, selling the business could be the next best option.?In all likelihood selling a business with a formal board and audit will greatly increase your chance of a successful sale.?

So go into that that closet, put on that varsity jacket and call your best friend from first grade, at least to say hello.?However, at the same time, allow yourself to move away from the day-to-day operation of the business and partake in the many things you have earned as a successful business owner.?

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