DEFINITION OF BUSINESS GROWTH AND TRANSITION
I often refer to my business planning as “Business Growth and Transition,” because I consider the business and the owner, as two separate and distinctive entities.
For example, when the business is growing, the owner of the business needs to grow with the business and envision needed growth. As a business owner, he/she needs to continue to learn, ask more questions, depend on their instincts, experiment, be willing to fail, along with many other experiences to create the changes needed. Without the business owners’ creativity and involvement, the business will stop growing.
Likewise, when planning for the business entity, we also plan for the owner personal needs. The business success creates personal challenges for the business owner, such as succession, estate taxes, family distribution, protection of the assets, and a host of financial and personal planning areas.
STAGES OF A BUSINESS
The business has two distinct stages it goes through which are critical; I define them as survival period and growth period.
Survival period is just what it means! Staying alive! This is where owner learns how to maneuver through the maze of “business savvy” strategies. “What doesn’t kill you, will make you stronger.”
The survival period of business consists of:
- Excessive amount of time, sweat, and patience, luck, and much more.
- Bottom line: Survive staying in business.
- Cash flow, Capital improvements, Inventory, client development create many challenges.
The Growth Mode:
Not to simplify, but this is where the action is. It is up, up, and away! What needs to be done during this stage:
- Creates the opportunity for the future value of the business.
- To expand in all areas of the business.
- Inventing yourself and the company if needed, this includes building value drivers and transferable values.
- To become creative, reinventing of products, customers, process.
- To reinvent your markets and your clients.
- To build a customer base with loyalty, creating culture, and next level management.
- Much More…
The expansion in Growth, (NOT ONLY) in markets and products, but also employees and the culture of the business. This is extremely important for the future of the business value, with the focus on growing your business value and to create transferrable value for the future. Owners need to start the process of giving up some of the control to middle management. This also means creating strategies which allow the owners to walk away and allow the business to run effectively and efficiently normally. This is my “Can you Take three months off” question, without an impact on your business profits?
Disadvantages of Growth/ and letting Go
You are giving up control to your management team! You are giving up things you controlled from the very infancy of the business. This is good because a future purchaser wants to buy your business as a running entity. They want a business that can run, and without YOU!
When you start to delegate to others, things can happen. Your key people will learn how to run your business, and start thinking like an employer. They will develop greater relationships with your customers, advisors, and vendors. They will start to create profits for you, ease your time in the business, and allow you to enjoy more free time, however, there could be a price to pay!
Tough Questions to Ask
- What if your key people got to know your business so well, and they wanted to buy it from you, what would you do?
- What if you did not want to sell it to them at the time they want to buy? Will they walk? Will they stay? Will the relationship change?
- Will they go to a competitor?
- Will they take your customers and employees with them?
If this happened, what are you doing to protect yourself?
Consider this: I recently had a client who went through this nightmare. The key people (2 key employees), left and started their own business. They also took other employees and customers with them.
Unfortunately, the protection which we outlined to the owner three years prior was never implemented, and they are paying the price for it now.
We told them to make sure they had programs in place to protect themselves from the business growth and success.
Things Such As:
- Key person documents: such as non-compete, non-disclosure and non-solicitation of customer and employee agreements.
- Benefits with Vesting: We also suggested that they put in a vested benefit package for them and stagger the time where they would only have a partial vesting immediately (we have found this to be a valuable motive to stay).
Lesson to be learned. If it happened to them, it could happen to you. Your key people will take over your business, which is good because as it creates transferrable value for the future. However, you must protect yourself from your business success.