If something unexpected happened to you, what would happen to your business? Do you have a plan for your company if you get hit by a truck? Is it written down? Who knows your plan? Unfortunately, many distribution company owners have not planned ahead, leaving the business in disarray or positioned for a quick sale in case of an unexpected passing or sudden change.
It’s not a fun task, and many don’t deal with the inevitable, thinking they can take care of it later. But eventually, you must decide what happens next. Don’t leave it to a distraught spouse or children to determine the path of your company.
Your exit strategy can be set far in advance. You have multiple options:
1. Pass the business to your son or daughter.
There are right ways to do this, but sometimes “love” gets in the way of seeing competence. Don’t confuse the transition of ownership with the transition of management. You may be able to pass it on to your son or daughter, but they may be too young or inexperienced to run the company. Set up temporary management in the case of your sudden passing or a sudden change in your health. And create a board of directors to manage the transition and serve as an outside check and balance.
2. Transition to professional management but maintain family ownership.
As I noted above, the transition of ownership and the transition of management are two different things. If you’ve spent a few decades building the business but have no one in the family to manage it, recruit professional management. Set up a well-functioning board if you haven’t already. If you die, the outside directors will know your wishes.
Design your business to survive beyond the entrepreneur. You could theoretically keep the business in the family for generations.
3. Sell the business.
Looking to retire in the next couple of years? If you want to sell, the next couple of years of mergers and acquisitions in distribution markets will be strong. If you want to create a liquidity event, there is and has been an excess of private capital available to invest. In addition, strategic buyers – other distributors – also continue to acquire to grow market share in a relatively slow-growth market. In fact, there's more available capital to invest than there are companies to buy right now. Private equity firms in particular need to invest the money they have to satisfy investors and continue to collect returns and fees. Distribution is an attractive market.
If you know you want to cash out a decade down the road, what do you need to do with your business to position it for the greatest return on your time, money and energy? Your best play may be to invest and become a platform company. That means investing in initiatives to improve operating scale, processes or productivity, or in systems that will require you to do new things and not just the same things better (strategic pricing or a good CRM system, for example).
Knowing what you want for your business before you have to make the decision is key. Do you want to become a platform company and sell down the line? Do you want to mold your son or daughter into the next great president of your organization? There are several options. Tap a board of directors if you don’t yet have one and bring in a third party for objective guidance. Every company is different.
You’ve put years into growing your business, so you need to find the right answer for you.
Mike Marks is managing director of Indian River Consulting Group and specializes in helping distributors and manufacturers accurately diagnose problems and identify risk-bound alternatives so they can take their next steps confidently. Call IRCG at 321-956-8617 or visit ircg.com.