Meet your evolving needs with three integrated business lines in one professional services firm.
Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.
Preparing for transition
How the Decision to Sell Led a Business Owner Down an Unanticipated Path of Discovery
This is a story about a successful manufacturing business owner who set out a plan to sell his business. But the story didn’t play out exactly as he anticipated.
Our story begins more than 20 years ago, in a 6 foot by 9 foot working space. From these humble beginnings he built a full service business that designs and manufacturers solutions for some of the most complex and rigorous shipping environments in the world. The company weathered the most recent recession, and was well-positioned for continuing growth.
But family, faith, and personal adventures have always played a big part in the owner’s life. So in 2013, after more than two decades in business, he decided that selling might be the best way to secure his financial future and create the personal flexibility to pursue his next adventure. With the recession fresh in his mind and a business that was performing well, he also felt this was the best way to reduce the personal risk and stress that had become so familiar.
However, going through the selling process transformed his original goal. Instead of selling the business, the owner is now working with his leadership team to ensure that the company continues the legacy he set out to create more than 20 years ago.
Crystallizing goals and dreams
The decision in 2013 to explore the sale of the company was one step in a planning process that started back in 2009. At that time, the owner wasn’t sure exactly what transition plan was best for the business, but his goal was absolutely clear: maximize business value and create lasting opportunities for those who had worked beside him to build the company. He also sought to preserve the culture and values that had been so critical to the company’s success. To do this, he approached the business like a homeowner views improvements: do those things that have the broadest appeal to the widest range of potential buyers and the value will follow. Because he was creating real value, he knew there would be multiple suitors from which he could choose the best for the company.
Creating lasting value
Working with his CLA advisors and using a proprietary tool called The Value Triangle, the owner began to put a critical eye to each of the four engines of a business that create lasting value (financial, growth, leadership, and execution). He engaged his leadership team members in the discussion so they could better understand how their day-to-day efforts improve the value and stability of the business. Line managers began to take a broader and more holistic view of their role. In essence, more of the management team began to think and operate like owners. Business performance continued to improve, and the value in the business that was once so dependent on its founder suddenly translated into sustainable enterprise value that went beyond one person’s capabilities.
Personalizing the plan
In tandem with his business‐building efforts, the owner began to address another area of inflexibility that was limiting his transition options and creating stress: his concentration of personal wealth within the business. As is the case with many privately held business owners, the company was his only source of income. The owner realized that any long‐term adverse impacts on the company would also have significant personal consequences.
The owner worked with his CLA advisors, who used a proprietary asset/liability planning tool to create a plan to diversify his stake in the business and increase his personal liquidity. The idea was simple: use financial resources created within the business to reduce personal obligations and increase personal liquidity. That way, if business conditions eroded the owner would not be dependent on the business income to meet non-business obligations. This was accomplished by creating a capitalization plan that slowly shifted excess capital to personal liquidity.
The implementation of this plan created some surprising business benefits. Now that the business had a line of credit, managers became much more aware of the need to actively manage the collection of accounts receivable and monitor inventory levels. Over a five-year period where sales increased, the working capital requirements of the business actually decreased. The owner not only created his own liquidity and financial security, he reduced business risk and managers became more effective at managing working capital.
Planning for transition and preserving the legacy
Fast forward five years to 2013. The owner was now prepared to transition the business. He was in a great place personally, and the business was performing at peak levels. So why did he change direction? Suffice it to say that the journey of prepping the business for sale created a strong desire in the owner for his team members to enjoy the fruits of their labor. Selling the business, while potentially a positive, could put that goal at risk. For the owner, continuing to own the business was the surest way to accomplish his personal and business goals, and preserve the legacy he has worked so hard to create.
Five years of work did not go to waste. The owner has an even higher level of flexibility today than he did five years ago along with the confidence that whatever the market brings, his business has the sustainability to work through the challenge. He continues to personalize the plan, build value, and evaluate his dreams to make sure they become a reality.
What is your dream?
Whatever your goals and dreams for your business, one thing is clear: planning ahead creates more options and flexibility for the inevitable changes in direction, challenges, and opportunities that come with business ownership.