NASHVILLE, May 14, 2019—Operators might view the topic of succession with caution, because it means talking about the end of business for the owner.
It could be planned or unplanned.
“That’s when you’re at the greatest risk in a business,” Joe Thissen said. “What happens if you don’t show up to work on Monday or ever again?”
The gravity of the topic is why Thissen said he’d like operators to be more frank about the end of business and plan for what comes next. He’s the senior vice president of sales for Auto Center Sales, and he opened up education sessions on day two of iFLEX in Nashville’s Music City Center.
Eighty percent of businesses don’t have a succession plan in place, he said. Creating one means that operators will know the value of their businesses, they will have processes in place if the worst happens and, primarily, the long-term health of the business is in good hands.
The biggest question might be who’s hands take on the business. Thissen said that it might take time to find the right person, whether it’s family, third party or manager, that has the skills. The next owner needs to be able to handle everything, from balance sheets to human resources.
“The biggest mistake you can do is take an individual who’s good at what they do, maybe technically, and put them in a role that they have no training,” Thissen said.
There’s also a risk proposition as well. A third party buyer with cash might be a low-risk situation. But family members and employee succession can come with special financial arrangements and transfer more risk to the seller. The right person to take on the business might not have the finances to buy.
There’s a lot to consider to set up a business for sale. The most important is a valuation, which should be an ongoing exercise.
“You need to pay attention to vital signs to know about your health,” Thissen said. “And it’s the same with your business.”
That provides the raw data to predict an operator’s own financial situation after making a sale. It can require the help of a financial professional to forecast things like capital gains taxes, which Thissen said are the biggest surprise expenses.
The bottom line, Thissen said, is to make sure everything is in order well before it’s time to pass the torch.