Before we discuss transitioning to the kids or a trusted employee, we need to realistically discuss “why” you would want to do so, especially today. Let’s consider it.
There are three kinds of transitioning you can be faced with when you’re at the end of your rope, er road. Sell the business to a stranger, transition to a son/daughter or trusted employee, or run it into the ground, lock it up and walk away after selling your accounts to the printer down the street.
To transition (sell it) to a stranger, it must be a real business. It needs enough sales for the new owners to generate $100,000 in Income before Owner’s Compensation (sales minus direct materials, wages paid to others, and overhead) and to be sold by a business broker.
Also needs to be able to function as a business. If you spend all day being a press operator, then the new owner will have to be a press operator.
Since most business buyers don’t want to be press operators, then you need to organize around functions, not people.
However, many times mom and pop decide not to transition the business to children because they don’t want them to lead the same miserable lives they have lived. And sometimes the offspring bail before the parents get a chance to bring up the subject of transitioning.
Then there’s the whole tax thing. If pop, usually it’s pop, is a strident tax avoider then he will often devise many ways not to pay taxes. Too many to discuss here, but the point is minimizing taxes rarely makes good transition plans. It’s even trickier if there are multiple siblings. Message me at firstname.lastname@example.org with your ideas and I’ll be glad to chat.
For the most part, mom and pop should grow the business and then sell it to the off spring, whether it’s one or a gaggle. Meaning you can’t “retire in place” and you will usually finance. But the future owners “buy” rather than receive it by gift preventing “fairness” issues among siblings.
However, there are some basics needed.
The business must be a real business. Essentially that means it’s large enough, makes enough money, and is growing, if only slightly. The way you make that happen is to do what’s needed in the way of selling, production, and finance.
Today, there are many folks who think they would rather their children do anything else other than take over the successful business. Here are common stinking thoughts.
Printing has no future. Pish posh. Yes, things change. They have changed over the years I’ve been involved. From strictly letterpress to office machine offset, to real offset which sprung off quick printing, to digital do-dads, to digital presses, web-to-print and more. And, yes, printers who don’t change have no future.
But you’re not using the same equipment you were using in 1980. And that’s the way it’s always been. Tomorrow’s printing company will not look like today’s, so we change. But our function of time-sharing technology within an area is still valid.
So, if we have remained competitive, then why wouldn’t we want to give them the opportunity to achieve the American dream? What’s that? Today it’s earning $200,000 a year which is possible on $1 million of sales. And that’s possible in most markets. Not all, but most of them.
Beyond money, what about time? Why not give them the chance for time flexibility? It’s true, a business owner must work as much as anyone else, but they don’t have to spend 80 hours a week if organized properly. So, they can have the flexibility for births and other special family events.
Why wouldn’t we give them a chance to work with their family if that’s what they want to do? Not saying they must do so, but it can work well if done properly amongst willing and capable partners.
Why not give them a chance to be an important member of the community? A business owner is held in high esteem and can enjoy it if they don’t spend all their time working. What’s better is that our business operates during normal hours. Yes, I know we must work nights and weekends from time to time, but we don’t have to live like that forever. We’re in a business with weekday hours. We’re not operating a sub shop open until 2 am or are in retail with excessive seasonal hours.
There are many things that can go wrong in transitioning. If they do, we need to fix them. Point is if we choose, we can transition the business to the children. In fact, we’d most often be doing them a favor.
Tom Crouser is chairman of CPrint International, a printing industry consulting firm specializing in companies with fewer than 25 employees. You may reach him at email@example.com or call his cell (304) 541-3714. No cost or obligation.