The Ugly Truth About Closely Held Businesses

Every business owner has a big dream for their business and wants to make it happen. The problem is many business owners think they can stop working without transitioning ownership. This belief says that these owners believe that their businesses are an asset that can produce returns without their involvement. To most people however, the value of the business is the value minus the business owner. If you’re a solopreneur, you may be in for a rude awakening about your value.

A well-run business should be able to operate without the owner’s direct involvement. The owner should have a team of capable employees who can manage the day-to-day operations of the business. The owner should also have systems and procedures in place to ensure that the business can continue to operate smoothly in their absence. 

This is the ugly truth about closely held businesses. Many business owners see their businesses as their legacy, and they may have difficulty letting go. They may also believe that they are the only ones who can keep their business running smoothly. Little time has been given to an ownership and management transition plan and it may not be in writing.   

I have a couple clients going through business exit planning. They are working through ownership and management succession issues. They do have a plan and it is in writing. However, the transition plan needs to contemplate management transition to get the right people in the right seats. The ownership plan needs to contemplate who has the ability and desire to buy the company stock. There is an increase in owners talking to advisors about planning. However, creating written documents continues to stay around 20%. 

For the other 80% of business owners that don’t have a written plan, here are some things to consider. A written succession plan should include the following

  • The owner’s goals for the business transition. 
  • A timeline for the transition. 
  • A list of potential successors. 
  • A plan for training and developing the successor(s). 
  • A plan for communicating the transition to employees, customers, and other stakeholders. 

There are a few things that business owners can do to make their businesses more transferable and to reduce their own reliance on the business. These include: 

  • Building a strong team of capable employees. 
  • Delegating tasks and responsibilities. 
  • Developing systems and procedures. 
  • Documenting all key business processes. 
  • Creating a succession plan. 

By taking these steps, business owners can increase the value of their business and make them more attractive to potential buyers. They can also reduce their own stress levels and give themselves more peace of mind. 

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