As my friend Jane Johnson wrote on her blog last year – the majority of boomer wealth in the US today is held in 12 million privately owned businesses and 70% are expected to change hands [or try to change hands] in the next 10 to 15 years!
With the economy showing signs of life, I thought it was worth noting down some questions that owners should consider to reconcile the often difficult and conflicting issues of personal shareholder objectives and corporate strategic objectives.
In a previous life when I was buying and selling businesses every week, prospective clients coming to see me about selling their business would ask one question every time, they couldn’t help themselves – how much am I worth? On the other hand my question to them (there was often several family members there) was – what do you want to do with the rest of your life?
You see as majority owners you get to choose what to do with your company. It’s your vehicle.
Personally I find questions help to clarify the issues so to be helpful here are two lists of questions to consider. You might need help figuring out the answers but at least you will be worrying about the right issues and you will be ahead of the other 12 million considering what to do!
Shareholder Objectives
- Is it wise to keep the majority of your wealth in one single company?
- Are there any compelling personal events arising in the next 3 to 5 years that need to be aligned with an exit or partial cashing out?
- Do you want to buy out your non executive brother/sister/aunt?
- Does your personal tax situation affect the timing of an exit?
- Do you need some cash now to buy that Boston apartment?
- Do you want to see your new company strategy properly executed?
- Are you bored and longing to spend your time doing other things? e.g. investing in other businesses, mastering hobbies, educating entrepreneurs, achieving a better balance, travelling more for fun. (of course these ideas may confirm to you that managing your business is exactly what you want to do)
Equally there are huge factors driving your company’s strategy which need to be synchronized with these personal objectives. I’ve listed some of those that materially impact on shareholder value
Corporate Objectives
- Does the company define and dominate its niche? (Positioning drives everything)
- Do the operations of the business revolve around one owner?
- Does one customer account for greater than 25% of the sales line?
- Is there a sustainable, repeatable order book?
- Are the products seen to be innovative or legacy?
- Is the company growing at 15% or above?
- Are the operations aligned with the vision, do all the moving parts join together?
- Are the margins achieved significantly ahead of the competitors?
- Is the business free from non-core subsidiaries?
Answers to these questions will allow you to formulate both personal and corporate solutions that makes sense.
By reconciling these personal shareholder objectives with the corporate strategy on a regular basis you avoid huge disappointment and mutual mystification between shareholders, management and all employees.
This alignment will bring a new level of energy, passion and commitment that will engulf all stakeholders, driving them towards a common goal.
Give me your thoughts.
Well done Ian! Too many owners wait until “an event” occurs: an unexpected illness; a divorce; or sadly, a partner’s death. Then it’s “wow, how much can I get for this business?” They forget that the new owner needs to see a growth opportunity, or a fire-sale price. The more critical question for the owner should be: “who am I and what will I do when I no longer own my business? Once you get a personal transition planner to guide you through these questions, you can start to resolve all the financial/practical ones raised in this excellent post. – Paul Cronin, Successful Transition Planning Institute
Thanks Paul, we need more awareness of these issues – Ian