Business Survival Kit?
Do you need a business survival kit? Suze Orman, the personal finance guru on TV has a great saying. “People first, money and then things.” That makes perfect sense to me but what about if you own a business. I guess her saying may therefore be “People first, your business, money and then things.”
That too works but I was recently at a monthly meeting of the Turnaround Management Association (which helps business owners either turn around a distressed business from closing their doors or just as interestingly, help business owners manage too much growth that’s too fast.) One of the CPA’s in attendance, Ramona Farrell of Ueltzen and Co. spoke about an approach written to help business owners from losing their business or practice if the owner becomes very ill or is dealing with a personal issue and as a result is unable to own and manage the business and therefore is at a high risk of closing it down.
Last month I received calls from two different business owners. Both were from a member of the family and they were totally unrelated. The first call was from the wife of a doctor. She was phoning as she needed to urgently sell her husband’s pediatric practice that he owned and operated for 40+ years as he had just passed away. The second phone call was from a son and he was in the same situation. His father had a psychiatric practice and had just passed away so the need was urgent to find a buyer and a new owner.
In both cases they wanted to know the value of the practice and how quickly it could be sold. If only life was that simple.
The bad news for these business owners comes at many levels. In a lot of cases, the business is losing value and losing value immediately because the stable hands on management is no longer in place. Customers, clients or patients are calling to schedule meetings or consultations but no one is available and so have to go somewhere else. Bills are either not being paid or are paid very slowly, employees are extremely nervous as they do not want to step into the management role because they lack the experience, confidence and/or training and are looking for another job as they can see the business is no longer viable and so it goes on.
Because of all these deficits and more, the response is to find a buyer and let them deal with all the problems. That’s simple enough but it takes time to find the right buyer and if you can find the right buyer, they will only offer a bargain price as they will be risk averse to paying too much for many reasons. These reasons include their investment is more at risk as they don’t know how many customers/clients have been lost, they may receive little to no training, can they get a lease that helps them stabilize the business, can they get a loan if they can’t pay cash for the business and more.
With these challenges and more, it is a very difficult situation for those left owning and operating the business. However, there is an alternative and that’s to have a plan in place before anything negative happens. This is the focus of a book called “Practice Continuation Agreements: A practice survival kit” written by John Eads. Although the book is written primarily for the accounting industry, there is no reason its core ideas can’t be applied to any service industry where the owner may unexpectedly find they are unable to work in their business and keep it going.
The book is only 78 pages long and talks about basic preparation to protect the business, placing a value on the business, identifying potential successors, putting together a legal agreement, how to agree on payment methods and putting processes in place if there is a need to execute the agreement.
If you would like to know more, you can download a copy by clicking the following link to get a copy of Practice Continuation Agreements: A practice survival kit.
If you would like more information about valuing a business or practice, please visit my webpage Business valuation.