Small business best practices

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BY TOM SHAY

Leaving the business , you have several options . These include : close it down , sell it to an outsider , sell it to employees , or transition the business to a family member .

In my family , only my great-grandfather had the experience of starting a store from the ground up .

While none of the first two generations are alive to talk about it with me , I believe my great-grandfather was like most business owners . When he first opened , the thought of retiring or selling the business was not on his mind . We jokingly say that my great-grandfather had the best retirement plan : he had five children . Surely one of them would want to succeed him in the family store .

That is exactly what happened . Three of his five children went into business . One opened his own store 20 blocks away , while the other two succeeded my great-grandfather . Eventually , my grandfather bought out the brother who had joined him in this succession . Somehow that managed to work , and the family business continued . This is where I must insert the disclaimer : Do not try this with your own business .

Compared with my great-grandfather ’ s general lack of vision for succession , which happened to work , there should be a more-concrete game plan for your future . When you start a business , think of it like the experience of opening a door and entering a room . You should also know how you are going to walk out of that room , closing the door on that experience of your life .

Leaving your business , you have several options . These include : close it down , sell it to an outsider , sell it to employees , or transition the business to a family member . You do not need to make this choice today , of course , but you do need to start thinking about how you will get out of the business , regardless of when it will be .

For example , keep this in mind . One of the benefits of owning a business is the expenses and deductions you have as an owner that average individuals do not . Examples include your business providing you a cell phone , automobile , insurance ( life and health ) and even letting you hire your children , as compared to giving them an allowance . You can pay for these perks with pre-tax dollars , while also diminishing the tax liability of your business . In the end , you wind up with more dollars in your pocket . Your business does not look as profitable , but since it is your business , it matters only to you .

Keeping all that in mind , when you decide you want to leave , the day of transition must be planned out for several years ahead . This is for time to clear up — and take out of the business — all those expenses I just described . For the sale , the buyer will base their offer on the profitability of the business . Hence you want your business to be as profitable as possible .

Transiting to a family member is a bit more complicated . Especially if that family member has been a part of the business . The challenge is that you are selling to a person who has helped build the business . Their work has helped you grow its value , but at the same time , these efforts work against them . I will offer a suggestion , which is what my parents used for me .

They looked at the value of the business on the day I joined , and then again on the day they left . Half of the increase in value over those years they credited to me as a “ down payment ” for the purchase of the business . It was fair to them , to me and to my siblings .

In this column I covered just a few quick glimpses of what you need to think about . But you definitely cannot wake up one morning and hang a “ for sale ” sign . You have got some planning to do . BD

Tom Shay is a lifelong small-business owner and manager . He has authored 12 books on small business management ; a college textbook on small business financial management and co-authored a book on retailer / vendor relations . Tom has written over 400 articles that have appeared in over 70 international trade magazines .

18 Beverage Dynamics • July / August 2019 www . beveragedynamics . com