When to Quit Your Business

Tom Crouser September 22, 2011 0

Reader asks about how to sell their business but out of the discussion comes a principle: how to know when to quit your business.
= = =
Reader Asks Tom: How is the best way to sell my business?

Tom’s Answer: For the MOST part, our types of businesses are successful sold through your local business broker BUT that also depends. Give me some details on your business please. How many employees, sales, how long in business, type of equipment, how old are you and what kind of business do you have (Proprietorship, Partnership, S Corp, C Corp etc.). I might be able to offer you some more specific guidance with that.

Reader Responds: The way I see it, I can try to sell the company, auction of the equipment and sell the accounts or have someone run it for me. Sales this year will be around $1 million (4 years ago we did $2 million). Employees – 7 1/2 including me. Business started in 1957, I have owned it since 2002

Way to much equipment for amount of business we do now – (not going into specifics here so the printer won’t be recognized but sufficie it to say he is putting it mildly: five color with coater, two-color 29″ offset, one small format two-color offset and number of other smaller presses [offset and THREE letterpresses] and a well-equipped bindery).

My best guess on the value of the equipment in this market would be around $400,000. I’m will be 62 this year. I am the sole owner of this S Corp.

I have approached an employee with the idea of him running it and me working part time doing receivables, payables, payroll) and still owning it. Profit is very little this year, although things are looking up.

Tom Responds: Okay. Lemme give you some answers.

1) You are an S Corporation so if you sold, you would do a bulk or asset sale as opposed to a stock sale. This is mostly desirable especially if you are selling to someone you don’t know. IF you were a C Corp and IF you had someone inside (like family member); then there’s another route that could be taken … but disregard in this case.

2) << I could … have someone run it for me. >>

Let me bust this bubble right now. Nopey. Can’t and won’t happen. There are too many reasons to go into at length here but it rarely works out unless you have someone special in mind (relative, son, daughter, etc.?). To hire someone to do this is to go FIGMO – forget it, got my orders – and the business slowly sinks into the sunset.

3) << I have approached an employee with the idea of him running it and me working part time doing receivables, payables, payroll) and still owning it. >>

Well, we could talk about this BUT I’m not going to run your business for you and you still own it and I don’t see them doing it either.

And running the business isn’t doing AR, AP and payroll. We (or they) can hire a clerk to do that. IF something like this comes to pass, then you need to enter into a deal (real sale in an arms’ length transaction), assure it’s fair and then make it happen. But you can’t sorta own a business. You’re either all in or all out.

4) << Way to much equipment for amount of business we do now >>

So tell me, would you rather this business crash and burn before you would willing go sell something to someone or not? Lots of owners have that attitude. Time to be truthful here. I have contingencies either way, but do need to know where you stand on that.

Now, here’s my honest evaluation given a couple years of working with folks in similar situations. You’ve done this for twelve years or so now and your entrepreneurial enthusiasm is waning and you are looking for a way out. USUALLY this isn’t because a person is getting a certain age. Nope. If you were making $200k now, would you still want to sell? My guess is not.

The general reason we drop into this malaise is because we don’t have a PLAN. We have run out of things to try. And we’re considering selling out or giving up while we are weak as opposed to while we are strong.

I see you faced with challenges and, lacking specific answers, are thinking like you don’t want to do it again.

So, how far am I off the mark? I can give you some guidance either way (get out or get it on). Lemme know.

Reader Responds: After spending 24 hours in the hospital over the weekend I am even more serious about getting out of the day to day stress. Nothing serious, but enough to confirm that I don’t want to be here any longer. Looks like I should put it up for sale and hopefully rent the building to the new owner.

Tom’s Review: people, as animals, have two basic reactions to fear: fight or flight.

Fight and bite and scratch and claw until they remove the store keys from my cold, dead fingers. Or, get the heck out of this business anyway I can. There are even logical reasons for both actions that don’t necessarily come from gut instincts. Our reader has made his mind up to abandon ship and so, I offered him help in doing so. Perhaps that will turn into a post of its own someday.

For now my focus is on what we can learn. My role as a consultant is to help people get where they want to go. I’ve helped folks claw their way back from adversity and I’ve helped them get loose so they can pursue other careers. But what’s sad here is probably the back story. I say probably because I don’t know for sure. But I’ve seen it work like this time and time again.

Boy drops out or gets downsized from big corporation and often has a pile of money. What to do? They look around where THEY ARE LIVING NOW and think, “What business can I buy to live here? After all, I’ve been in big business for twenty years and I was vice presidents of marketing. How hard can running a small business be?”

So, like our reader, they buy a print shop with too much equipment (think of the work you can produce the seller said) as well as outdated technology (there are niches for letterpress but not THREE of them in most shops). Hum. Some help here when he bought the shop would have been best; even lacking that there are ways to effectively budget your way out of the equipment overload over time – he’s owned it about ten years now).

He also thought he could (can) run the business without dealing with selling (hint: employee will run the business and I’ll just do accounting …. but still own it). In serious need of some reality coaching here. You have to lead people and lead a business. That’s the reason they don’t have the supply sergeant lead the troops into battle.

Oh gosh, there’s more. But let me just close with the secret you should know.

When is the time to close the business instead of trying to save it?

The time to close is when the entrepreneur has given up.

No consultant, friend, advisor or family member can love the business more than the leader. The best course when the leader has given up is then to assist them in getting it closed. However, if the leader still thinks they can make it; well, my money is on them doing so.

Leave A Response »