Knowing What I Know Now ... Life After Consolidation
First of all, let me thank all the people in the business who have supported me in my choice to sell. It’s gratifying to know there are many people out there who are concerned enough to pass on some kind words and share my success. It makes me feel good about the people in this business, its future and their future.
There are some people in the industry who pride themselves in remaining “independent” — whatever that means. Some people make it clear they would never sell. That’s all right. Selling is, of course, a very personal decision. I would never attempt to impose my decision criteria on anyone else. So, all the insight and recollections I share are from my perspective, applying my goals, values and choices.
Should someone want to remain in business as the same entity they always have operated, it’s perfectly OK with me. Just because I elected to take advantage of a favorable business situation certainly doesn’t mean I advocate everyone following me. Not everyone has the same opportunity or desire. For those who want to consider doing what I did, selling to a consolidation company, I will offer as much as I can in the way of tips and feelings before and after the sale.
The opportunity to receive a substantial amount of money for your business is a goal for many business owners. Until now it wasn’t easy to meet that challenge. I was able to do it, and I am grateful. I feel like a winner.
Leaving the business, I understand, can be traumatic for many people, particularly if they are not ready to retire. What would you do? It’s easy: You don’t have to go. I still work at the business. In fact, most agreements that are part of the sale of a service and repair business to consolidators includes a provision that the seller maintains a job as manager at the business. Most of the other business owners who have sold that I have spoken with didn’t want to “get out” of the business. Like me, they stayed put. Now, they run the business and get paid for it. So they’re still in the business getting paid and they sold their interest. It’s a win-win.
Instead of impacting only the local community, consolidated businesses have a national impact. I, like other business owners who have sold, want to be a part of something bigger — an enterprise that will help shape the industry nationwide. It makes me feel like I am doing something important and significant, more than I could accomplish on my own. Sure there are some trade-offs, but I think it’s worth it. Let’s look at what’s different.
You have probably read prior columns or heard me speak about the importance of operating your business on a solid financial basis. You know, using budgets and forecasts to determine your cash needs and control expenses. Well, if you thought it was just good advice, let me tell you, when you are running part of a public company (owned by shareholders nationwide) you learn what a budget really is. If you are a paper clip off, they want to know why; and if you used a paper clip too many, they want to know why. So budgets are not just something to see how well we did or see how far we were off any more — now they are serious business.
Looking Back: In retrospect, there are a few things I wish I had done differently in my business that might have made it more efficient and profitable. The effective use of budgets is one of those activities I think would have pushed our profitability even higher.
Another area I am noticing where I could have applied some more stringent controls is in holding people accountable for performance. Once the rules are clear and standards for behavior and performance are thoroughly explained, people will follow them. And when they do, the whole company performs at a much higher level. Good people will meet a reasonable performance standard, as long as they are aware of it and understand it. Those who are either unable or unwilling to adapt to the rules won’t fit in. It’s unfair for you, your business and for them to constantly try to get people who won’t perform to measure up. If they don’t want to be part of the team, it’s their choice.
Accountability for performance must be part of any successful company’s plan. It’s definitely necessary when your company is spending public investment dollars.
One of the least popular management activities, especially in a small business, is long-term planning. Often called strategic planning, it seems like something that is too theoretical for the service and repair business owner to think about, let alone spend time doing. Not so with a consolidation company manager. Setting specific strategic goals is part of your job. After those goals are defined and measurable performance standards attached to them, you are held to those standards.
Honestly, I wish I had insisted our people think more strategically in the years before the sale. We accomplished many goals and implemented new and innovative techniques that were successful, but I think we could have done even more with a greater emphasis on strategic planning. Maybe that’s a good lesson for your business — excellent planning produces excellent results.
Another aspect of managing a location of a large, consolidated organization that is a little different from managing your own operation is your perspective must change. For example, now, I am part of a much bigger team. So we must act like a team and work together. It’s very effective, but it’s different and takes a little getting used to. You can’t arbitrarily make a decision that affects the way you do business on a whim. You need to consult with others and be prepared to support your idea. It make sense and it works — but it is a little different at first.
One aspect of selling is more financial opportunity. Although it wasn’t the major part of my decision to sell, there is a very favorable tax treatment and financial growth opportunity from selling to a consolidator. If you take stock in the larger publicly traded company as all or part of your payment for your business, you profit in two additional ways. First, the stock you receive has the potential to increase in value. It’s like getting an increasingly greater amount of the purchase price you were paid for your business.
Naturally, there is a risk; it could decline in value, too. However, I don’t think anyone selling would want to take stock if they thought there was a sizeable risk the value of the company acquiring their business would be worth less in the future. Actually, what the seller does as a manager in the new company can affect the ultimate value of the stock. If they perform well, and the other sellers who are managing locations they used to own do the same, there is little chance the stock value will decline. Improved earnings will push its value higher.
In addition to the benefit of increasing stock values, a seller can also get a lower rate of tax on their profits from the sale. Since increases in the value of stock are capital gains, they receive special tax treatment. The rate of tax could be as low as half of that a seller would pay on money taken out of their existing company.
Still In The Business: Although I have enjoyed some of the benefits of selling, I have never left the business. My job is different than it was. I am working harder than ever, and enjoy it. What I like about my new job as manager of one location of a larger company is I can do more of what I really like to do: Educate and share with other business owners some of my victories in successfully operating a service and repair business. It’s hard to imagine a more rewarding job than helping other people succeed, which is why I travel around the country giving training seminars and developing training courses.
It’s never easy to decide to sell the family business. I thought for a long time about whether to sell. I, like you, have a family and want the best for their future. That concern was a significant input into my final decision. And I think it was a good decision.
The consolidation companies, I believe, looked at my business because it was profitable, innovative and well run. Other companies that fit that mold also get attractive offers.
Early in this consolidation movement the competition remains tough. Only the best companies are going to be targets for acquisition. Eventually, well managed companies who may not be their local market leaders but offer quality management and profitability will be approached. What can you do to prepare? If selling is your goal, you need to get your company ready now. No different than selling a car, you shine it up to make it look its best.
I have always said you’ll be more profitable if you run your business like it’s for sale. Specifically, you need to be using a proven flat rate pricing system, have call takers who professionally answer your telephone and schedule service calls, operate an efficient dispatching system, maintain fundamental business control systems through your administrative people, conduct motivating meetings with your technicians and implement all of the processes and techniques you have heard me urge you to do.
If you have any doubts about how to straighten up your business and make it attractive for sale, call me and I’ll give you some suggestions. In the future, I will be working with companies, grooming them for purchase, tuning up their management systems to maximize customer service and profitability.
It’s nice to have the option to sell if you want to, that way you can truly decide if you want to sell, or not — and under the most favorable conditions. If your business isn’t operating efficiently and profitably, you really don’t have a decision to make. No one is going to buy it. However, if your business is the leading company in the community, you are completely in control of a decision to sell. You choose.
If I knew years ago what I know now, I would have readied my business for sale even sooner. All the controls we use every day now would have made sense all along.