I am going to make this post a little more personal than I have in the past because I think there is a principle here that many business owners ignore but every business owner needs to understand and apply without exception. If you fail to apply this principle to your business, it will end up costing you, and potentially your family, a lot of stress and money.
The principle is very simple:
Every business must be set up and operated in a way that allows it to be easily packaged sold at any time.
In September 2014 my brother in law was killed in a tragic accident. He was an amazing husband to my sister, father to his children, mentor to many kids, founder of an orphanage and successful entrepreneur. He had started and run many ventures over the years and had three successful and active companies when he passed away. Although these businesses were running quite well, they did have some issues like;
- uninsured business debt secured against personal assets
- personal assets mixed with business assets
- business processes were not defined or recorded
- accounting systems were not set up properly
- expenses were not tracked properly so understanding the true cost of business was difficult
- there were no systems or tools in place for bidding projects
- contracts and purchase orders were not written clearly, documented properly or stored consistently
- there was no clear management structure in place for occasions where my brother in law might not be present to operate the business himself
Because of these issues, his companies were very difficult to keep running, evaluate, package and sell after his death. This caused significant stress on my sister and others as we struggled to keep the doors open and to find someone who could run the businesses and then eventually buy them.
It can take substantial effort and money to clean up a business that has not been run properly when the time comes to sell it. In fact, it may end up being more expensive to sell a business that has not been run properly than it is to just close it down and walk away.
However, it doesn’t take any more work or money to set up and run your business in a way that would allow you to easily sell it than it does to run it without following this principle. In fact, it is much less work and more profitable when you set your business up with the intent to sell it at some point in the future. You will find your business runs more efficiently, effectively and with a lot less stress.
At a bare minimum, every business must;
- Build a succession plan. This requires the owner to hire and develop key people who can run the business efficiently and profitably in their absence. This allows the owner;
- To take time off and not worry about how the business is doing in their absence
- Flexibility to start other businesses
- Options as these key people could buy out the business in the future
- Build business systems that allow the business to run efficiently and effectively. This includes but is not limited to;
- Well defined tools and processes. Document how the business is to be run and automate as much work as possible. This builds consistency and repeatability into the end product or service while reducing the cost of operations.
- Well defined accounting and business systems.
- Well defined process for contract review, approval, storage and management
- A system that cross trains staff so more than one person has the industry certifications, licenses, training and skill sets to do all aspects of the business. This way if one person leaves the business, there is not a period of time where the business cannot operate properly.
- Isolate or insulate the business debt and liability from the personal assets of the owner.
- Build barriers to ensure that personal assets are not mixed with business assets.
My challenge to you this week is to make sure that your business is set up and operating in a way that allows it to be easily packaged sold so that it does not create an undue burden on you or your family at some point in the future. Note that the book The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It offers a lot more detail on this topic.
In addition to this important business principle, I have written about many more in my weekly blog posts. My top five blog posts for 2015 are;
- How To Get Unstuck And Start Moving Towards Success
- What Boats Should You Be Burning?
- Discover The Secrets To An Engaged Workforce
- Your Employees Are Happy And Other Popular Myths
- 65% Of All Mega-Projects Fail
I will leave you with this question: What is it that you need to take responsibility for in 2016 to make yourself and your business even more successful?
Wishing you a happy, successful and prosperous New Year!
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