I recently went to pick up my dry cleaning at the dry cleaner I’ve been using for years. I have gone out of my way to patronize this particular establishment. It is nowhere near my house or office. The neighborhood it’s located in leaves a lot to be desired. This owner, who speaks very little English, was the best. He never damaged or lost an article of clothing that I dropped off. He never missed a deadline, was always smiling, and knew my name without asking. I really enjoyed frequenting his establishment even though it was in a bad neighborhood and it was out of my way.
I was shocked last week when I went to pick up my dry cleaning. The owner was gone. A new owner was there. He informed me that the previous owner had retired. No notice was given to existing customers. The first thought that sprung into my mind was: Maybe it’s time to find a new dry cleaner….
I’d like to compare this situation with a client of mine who owns a family dentistry practice. They have been grooming their daughter to buy their practice for over four years. Instead of springing it on their clientele, they have worked diligently over the past couple of years by setting the expectation that she would be taking over one day, through social media, and office conversation. She graduated from the University of Nevada, Las Vegas, dental school last spring. She worked on my teeth during my last semi-annual check-up, and is doing the upcoming dental work for all clients until she has interacted with everyone. My estimation is that client retention will probably be as close to 100 percent as you can get.
Not every business owner has the luxury to sell their business to a family member. With that being said, don’t assume every family transaction will be easy. The majority of family business transactions that I have been involved in have typically been like my dentist client, typically between parent and child. I have found this dynamic to be somewhat of a challenge for many of our clients.
The existing business owner typically struggle with control issues. They continue to view the business as their own even though they have agreed to sell it. It goes without saying that these business owners would be quick to tell you that they desire clients, patients or customers to continue working with the new owner (which could be their child). Deep down, they really would like both parties to succeed but they emotionally struggle with giving up control of their business. Most business owners I work with would rate their business just behind their relationship with their children.
To make a business transaction a win, win, win (buyer, seller and customer) for all, prospective buyers and sellers should consider the following:
Sellers
Start planning the eventual sale of your business three to five years prior to selling. You should ask yourself the following questions:
To whom will I sell my business? Family or stranger? If family, do they have the skill set required to run your business? If not, determine what needs to be done to qualify them. If stranger, how will you locate the buyer? Do you have a key employee who would be qualified and willing to buy your business? If not, do you have a relationship with a competitor who might be interested in acquiring your business? If the answer is no to all of the proceeding questions, it would probably make sense to ask your business attorney, your CPA or your Certified Financial Planner practitioner.
Create a standard operation procedure manual that details “how” to run your business. This will make your business more valuable and attractive to a prospective buyer. I’d recommend reading Michael E. Gerbers’s “The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It.” This book was an invaluable resource to me when I was starting my independent family wealth management practice.
Create a training manual for your standard operations manual. This will help you get new employees up to speed quickly. Think Starbucks. Handling the morning rush looks like a very difficult task yet each location seems to be hiring new people constantly. Their training is what sets them apart from the competition.
Communicate early and often your intentions of selling your business one day. I recommend you bring it up during casual conversations with your customers, patients or clients. I recommend setting up Facebook, Twitter and Linkedin pages. It does not matter if they are business or personal pages. I have found that personal pages work best. It’s easier to ignore a business social media page than a personal page. I suggest mixing personal content with business content. Be careful not to spam your connections with your personal social media pages.
Buyers
Insist that the seller stick around for a predetermined period of time after the transaction. It’s imperative for the buyer to start to interact with clients, patients or customers immediately. It is more important for the seller to help train the buyer and facilitate introductions with clients, patients or customers.
Do not assume that patrons will stick around after the transition. Assume a 50 eprcent attrition rate. Anything less will be a nice surprise. It’s better to underestimate cash flow than overestimate cash flow for obvious reasons.
Hire a public relations or marketing firm. It is important to have marketing plan in place from day one of operation. Make sure to include a plan designed to retain existing clients, patients or customers along with a plan designed to attract new clients, patients or customers. I find many business owners skip this important step.
I think that every business owner who plans to sell a business should consider both real life scenarios. I recommend following the suggestions above to ensure a win, win, win business transaction. Before I forget, does any know of a good dry cleaner in town?
Jim Marren is a Certified Financial Planner in Reno. Contact him at 775-321-6200 or jim.marren@raymondjames.com.
