Evaluating your Business Ownership - Doug Baumoel
2020 impacted our lives and businesses in ways we would have never imagined. The pandemic forced us to sit back and reflect on many aspects of our lives. For many business owners, that included contemplating the ownership of their organization. Family businesses don’t normally evaluate whether or not they are still fit to be the owner of their business, but it is a thought worth delving into.
I created a list of 5 signs that may lead you to find that you are no longer the best owner of your business:
Your risk profile no longer matches the opportunity profile
“If the business is growing and in need of an investment, but your ownership group is no longer willing to take on new risks — either because you’re getting to the end of your career, or you no longer want to risk capital — your risk profile may no longer match the opportunity profile of the company. When there’s a mismatch between the two, you could be inappropriately holding the company back when there’s a potential for another owner willing to come in and make the necessary investments to move the business forward. Additionally, if a market turndown is feared or expected (they are inevitable), and you know you can’t weather that next storm, the business may benefit from a new captain.”
Unwillingness — or inability — to explore growth opportunities
“Oftentimes companies will have the opportunity to grow — whether that means expanding to overseas markets, integrating vertically, or developing new technologies. This means added complexity, risk and time, and new expertise. If you are either unwilling or uninterested in seeking out and exploring these opportunities, you could be holding the business back and affecting its future ability to succeed. Moreover, when these opportunities present themselves, they beg the question of if it’s time to sell to a larger company with the global infrastructure and complementary product lines. If there are other, larger companies with the capabilities in place to take your product or service to the next level more efficiently than you can, they might be a better fit to own your company.
“It’s also important to note that some companies are just built to sell at some point. If your company has a small product line with regional distribution, or which requires significant manufacturing scale to continue to stay competitive, it may simply have a limited lifecycle and a sale may be inevitable and necessary for the company to grow and succeed.”
The next generation isn’t active — or interested
“If a business leader no longer has access to a trusted staff to continue running the business well, perhaps because the next generation is uninterested in the business, it may indicate the need for new owners. Businesses with limited capitalization often necessitate owners to also be managers. For many small companies, the financial benefit of ownership is, primarily, the job itself. Trying to retain ownership when you retire while funding the salary of your replacement may strain the business, and new blood may make for a better owner. Additionally, if your inheritors are uninterested and won’t be actively engaged owners, or if finding new executives proves difficult without them having an ownership stake, the business may not succeed and it may be time to search for a new owner.”
The passion has faded
“Maybe your business is thriving, stable, and its lifecycle is fine — great! But are you still passionate about the work you’re doing? If you have lost a passion for the industry or lost your entrepreneurial edge, your business is the one that will suffer. When owners stop thinking like entrepreneurs and start thinking like caretakers, they’re no longer doing the business justice. Most companies — including your competitors — are run by entrepreneurs. At least, you should assume that. Running your business as a caretaker rather than an entrepreneur puts your company at a competitive disadvantage.”
Lack of understanding of technology
“In today’s day and age, technology is a crucial part of the way we live, work, and even the way we run our businesses. If you’re falling behind in your understanding of technology or unwilling to learn about new technologies, you’re not doing your business any favors. An owner who is interested in learning and utilizing the latest and greatest technology will be better for the business in the long run.”
If you find that you may not be the ‘right’ owner of your business, you have a couple options. You can figure out what needs to change in order for you to become the leader your business needs, or you find someone else who already is fit for the job.
This decision comes with an extreme amount of pressure, so it is imperative to consider an outsider perspective. With an advisor, it you mitigate some of the risks of such a huge transaction. At Continuity, we can assist you and your family in making these major decisions, and then aiding in an execution plan.
