What's your endgame?

What's your endgame? article image

Ask people why they started their own business and nine times out of ten you get the same answer: "I wanted to be my own boss."They might not all arrive at self-employment in quite the same way. For some people, it’s more of a necessity than a true calling. For others, it follows a genuine Eureka moment - the recognition of a gaping hole in the market that’s begging for a solution to be commercialised. Whatever the reason, this theme of being able to control one’s own destiny (as clichéd as that sounds) seems to be a consistent one among entrepreneurs.

Boom or bust?

Fast-forward a few years and start-upshave normally gone one of three ways: bust, boom or steady existence. What next? Today, I’m looking at the last category: the group of manufacturers, wholesalers, distributors and service-based industries all over Australia who’ve grown steadily, kept people employed and turned over reasonable profits in the process. For those business owners, the question about what to do when it’s finally time to hang up the spurs is very real. And it’s not always an easy one to answer.

Which way now?

When contemplating your exit strategy, there are three main options: 1) sell your business (to a competitor or other interested third party) 2) pass the business on to family members 3) gently wind the business up. Let’s look at those in reverse order.

Winding up

Winding up is normally considered by smaller businesses; businesses who may have generated a decent income during their lifespan, but perhaps not grown to the point where a competitor or third party feels there’s enough value in making an offer. Small owner-managed creative or software businesses might fall into this category. But it’s rarely a case of simply walking away. If clients are still on contracts or agreements, they’ll expect a level of service or support, possibly beyond your intended wind-up date. Even if you honour your contracts, you’ll still be leaving loyal clients unsupported after the contracts end. Managing that in a responsible and ethical manner will involve forward-planning. Many of the businesses I speak to - even the very small ones - feel that simply letting a business fade into nothing is a somewhat unceremonious end to something they’ve spent a large part of their lives working on. Selling it or keeping it within the family, are usually far more preferable options.

Passing it on to family members

The principle advantage of keeping it in the family is continuity. Even if your family members haven’t been involved in the business during its lifespan, they’re likely to have been, at the very least, aware of the main product offerings and services. While agreements still need to be drawn up and new directors appointed, the transition between one family member and another can be a less formal affair. This approach is not trouble free of course. If you’re inheriting a business, you may have different ideas from your parents or relatives about how to take the business forward, which can lead to conflict. Worse still, they may have kept a lot of the knowledge about the inner workings of the company to themselves - inadvertently concealing the true health of the business. Keeping the business in the family might not net you a nice lump sum either. But it can be a good way of maintaining a steady income while phasing out your involvement.

Selling the business

Building up a business and then selling it is probably the end game that most of the business owners I speak to are aiming for - largely because of the potential to make money. It’s fair to say this is also the route that businesses are most unclear about. It can be hard to know who to approach and when to do so. Announcing your intention to pull out of the game prematurely (even if your business remains in it) can send the wrong signal to competitors and potentially cost you clients. Announce it too late and you may miss out on opportunities.

Anticipating the end game

Whichever route you end up taking, knowing exactly what lies ‘under the hood’ of your business is vital to make the right decision. And the best way to get that visibility is with an integrated Enterprise Resource Planning (ERP) system. To position yourself for a sale, you need to be as transparent as possible about the workings of your business, making it crystal clear to a potential purchaser exactly what they are buying into. The same applies for family members. Up-to-date and reliable information is essential for you too. If you knew the true health of your business, selling the business may be a viable option. However, even with the best ERP system, nothing beats planning for an exit strategy. All too often, businesses get so tied up in the day-to-day running of things that they forget about the end game. Without adequate planning, there may not be enough time to court suitors or induct family members into the business. Then, even large businesses face the prospect of having to wind up - even when there’s a far better outcome. This article first appeared on MYOB’s The Pulse.


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