The Facts of Business Life (15 page)

Having clearly assessed your current situation and determined that you want to move on, you have to develop a plan. At this point, even if you have not yet decided on a date for your exit, you should have a good idea of what you need to do to get the business ready to sell, pass along, or close. Developing a plan to do that starts with answering the questions I raised earlier and subsequently dealing with the hundreds of other issues that must be addressed. The important thing to bear in mind, though, is that whether you are thinking about selling, passing your company along to a successor, or closing it, the process is going to take time—usually years, in fact—if you want to do it right. And for that reason, the sooner you start developing a plan, the better—there is really no downside. Remember, too, that the goal here is to sell your business for as much as you possibly can, turn it over to a successor in such good condition that it will continue to be successful, or maximize your earning power prior to closing it down. And as the leader, you are the only one who can accomplish that.

Humans are the most complex beings on the face of the earth. And business owners, like all humans, have both positive and negative traits. Some of those positive traits are likely to play a role in the exit process, such as fairness, honesty, loyalty, a sense of humor, and common sense. But some negative human traits can also come into play when exiting a business, including being overly emotional, unwilling to listen to other people's opinions, disinclined to deal with difficult issues, and acting as if we know everything. In order to counter these less-than-positive traits, owners at Level 5 need to build a group of people around them who can remind them of the goal, help keep them focused when things go wrong or unexpected developments occur, and provide knowledge they might not otherwise have.

One of the people you need on your team at Level 5 is an attorney. I know that, on the whole, attorneys don't have particularly good reputations, and perhaps with some reason, but the fact remains that a good business lawyer will keep you out of trouble. There is more to a sale, succession, or closing than negotiating a price. The devil, as they say, is in the details, and where an owner's exit is concerned, the devil can be in the contract. And since the contract has killed many a deal, making sure you have a good lawyer on your team is essential. Another important member of your team will be an accountant, particularly one who has experience in buy/sell agreements and understands the tax effects of the transaction, among other things. In addition, if negotiating is not your strong suit, it would be advantageous to have someone who can either do the negotiating for you or can at least help you set up negotiation parameters. Finally, as I mentioned earlier, you are much more likely to conclude your negotiations successfully if you have a counselor, or mentor, who has already done what you are trying to do and can provide you with advice on the entire exit process.

Obviously, whenever you choose advisers, you want people who are both skilled and experienced in their fields. But when selecting people to assist you in exiting your business, you want professionals who also have two other attributes. The first is leadership ability. This is important because the more leaders you surround yourself with, the keener the focus on the prize. Leaders are also not shy about voicing their opinions and at certain times in the selling process both the buyer and seller need to hear from someone other than themselves. The second is creativity. Having people around you who possess this trait is important because you may not be able to get exactly what you want in the negotiation process. However, since there is always more than one way to accomplish almost anything, if you have creative people on your team, they are more likely to be able to find an alternative that is acceptable to both sides or to think of ways to make additional money that hadn't occurred to you.

At Level 5, developing the individual is a multifaceted process. As an owner, you must first develop the individual members of your team so they will work together and focus on what you need from them. And that's not always easy. Unlike the situations at earlier levels, the members of this team are not your employees. In fact, in all likelihood they have their own businesses and their own concerns, so while they will presumably do the best they can to assist you, your company is not their first priority. It is, however, your responsibility to make sure they are there when you need them, to learn from their experiences and turn it to your advantage, and to pressure them to outperform on your behalf. In other words, it's up to you to get the most out of them that you can. And the only way I've found to do this effectively is to prepare yourself by learning everything you can about the sales, succession, or closing process, knowing exactly what their roles are, defining those roles for them, making them accountable, and stepping on them when they are not.

If you are selling your business, though, there is still another individual you may have to develop—the buyer. If the buyer is someone who already knows what he or she is doing—that is, who understands the value of what you're selling and has a good general understanding of business—the process is likely to be easier than if he or she does not. If, though, you find yourself in a situation in which the buyer is not knowledgeable, it's your responsibility to remedy that. The reason it's your responsibility is that your buyer is likely to need help from bankers and/or outside investors to purchase your company, and as the leader of the sales process, your leadership has to extend through the buyer to his or her financing source. Only if your buyer has a solid understanding of your business will he or she be able to effectively present and sell it to others and guarantee that you get paid what your business is worth.

If you are implementing a succession plan, however, it might be equally necessary for you to develop a different individual—your successor. As the owner, you are responsible for making sure the successor knows the business and has a good general understanding of basic business concepts. This may seem obvious, but we've all seen or heard of sons or daughters who have taken over family businesses only to see them flounder, if not entirely collapse. And the truth is that in a lot of cases like this it's the outgoing owner who is at fault rather than the successor. But your successor doesn't only have to know your business—it's equally important that he or she knows how your business operates. And there's a difference. If your successor doesn't understand that processes operate the business, and people operate the processes, it will be your responsibility to make sure he or she learns it.

Finally, if you decide to close down your business, as I mentioned earlier, it is essential that you get the most you can from your attorney and your accountant. The best way to do this, as I also mentioned, is learning as much as you can about the process and then asking educated questions. Again, because these professionals are not your employees, and have their own priorities, it's up to you to not only get their undivided attention when you need it but, even more important, their best advice and counsel. Closing down your business may well be your last act as an owner, so you should do it right by hiring the most experienced professionals you can find and take a leadership role in getting the most you can from your investment.

It is no coincidence that the first Fact of Business Life is about leadership. Without leadership we wouldn't know what to manage or control, what assets we should protect, which processes have to be developed, what our goals and objectives should be, who will be accountable, or about virtually any other aspect of running a business. In fact, leadership is such a powerful tool that virtually every element of success depends on it. Unfortunately, while leadership is one of those words that gets tossed around very frequently, I believe that only a small percentage of owners and businesspeople have a real working understanding of what it actually is and when and how to use it. Oddly enough, that can work to your advantage. By exercising your leadership skills you will be able to attack your market, create an opportunity, expand your ownership role, add quality to your life, and, eventually, exit your business on your own terms. If you have any doubts about this, ask yourself if you've ever heard anyone blame a business failure on having too much leadership. Chances are that you haven't, and that's because when you exhibit leadership, when you have the courage to step out from the ordinary and use it, it can mean the difference between failure and success—not only in your career but in your life as well.

What does control, or management, mean for an owner? If you asked a dozen business owners that question, you could get as many as a dozen different answers. That's because control, and what it means, differ not only from one industry to another but from one owner to another. As a working definition, we can use the one offered in Burton Kaliski's
Encyclopedia of Business and Finance
(Macmillan, 2002), which defines internal control as “any action taken by an organization to help and enhance the likelihood that the objectives of the organization will be achieved.” Regardless of how you define it, though, it's important to bear in mind that more companies go out of business because there is too little control than because there is too much. This is a point you cannot afford to ignore.

To my mind, control means developing and implementing procedures and establishing parameters around which employees are expected to do their jobs and be motivated to excel at them. This doesn't mean that the owner should be a dictator who determines every move each of his or her employees makes. What it does mean is that he or she decides what needs to be controlled, that is, in which areas processes are needed; determines exactly what those processes or procedures should be; and makes sure they are followed. The fact is—and this is something that every business owner knows or should know—that without control a company's sales, expenses, gross profits, and net profits will never be consistent. Without control there will constantly be chaos within the company, an ongoing need for crisis management, and continuous employee and customer dissatisfaction, all of which are a recipe for disaster. And as a business owner, it's your responsibility to establish that control. As I've mentioned before, and will again, ownership is not for the faint of heart. If defining what to control and consistently enforcing it—that is, managing an organization—is not in your personal DNA, then ownership won't be a good career choice for you.

There are a good many people who view control as something distinct from management and, because of that, place less importance on it. But as far as I am concerned, establishing and maintaining control over how your business operates essentially is management, and as such is fundamentally critical not only to an owner's success but to his or her enjoyment of that success. To my mind, then, control must stand on its own alongside leadership, marketing, and other important business disciplines. In fact, once a leader has determined where a company is going, decided how the company is to be an operated, and established processes to make sure it is operated that way, it is control's function to make sure the business is run along the guidelines established by the owner. In the end, it's the only way owners can guarantee that the way their companies perform will satisfy not only their customers but themselves as well.

The Benefits of Control

• Being in control forces you to determine and define what you want.
  
• Being in control means that employees know what you want and expect of them, and how they will be rated.
  
• Being in control makes it easier for you to pinpoint problems when employees are not performing as expected.
  
• Being in control provides you with a platform on which to base job performance and evaluation.
  
• Being in control eliminates most of the unpleasant surprises that businesses are prone to because it enables you to look into the future and see problems before they become crises.
  
• Being in control enables you to provide consistency in delivering your products to the customer, which is a key to customer satisfaction.
  

The Realities of Control

• Establishing and maintaining control is difficult to do.
  
• Establishing and maintaining control is not something you can do on your own; it requires others in the company to help.
  
• Establishing and maintaining control requires patience, constant coaching, and sometimes a firm and unrelenting hand.
  
• Establishing and maintaining control requires you to reward those who do it right and discipline those who do not.
  

There are four areas in which it is essential that ownership control or management be implemented—information, processes, people, and products. But since every level has different requirements, control must be exercised differently at each one. The one constant, though, is this: You must inspect what you expect. Regardless of where your company is in its life cycle, unless you, as the owner, constantly watch what's going on and make sure that the company is running as you want it to, it will run away without you.