Strictly Business

Friday, Mar 22 2013 12:00 PM

RUSS ALLRED: Old business owners should not be sheepish

BY RUSS ALLRED Contributing columnist

"March roars in like a lion and bleats out like a lamb," much like the life cycle of many owner-operated businesses. The entrepreneurs enter the market bold and brave. With skill or luck they build a livelihood. They squeeze every dime out of the shop, then after a few years meekly lock the door and walk away from a broken business.

Many aging entrepreneurs have approached me about selling their business. My visits to their ventures have revealed the legacy of their ingenuity and thrift. These once-thriving enterprises are now dreary and dusty. Before I list the business for sale I typically ask, "Do you really want to go out with your tail between your legs?" Often, just a few hundred dollars a month separates the owner from success and profits. However, when I see the entreaty of exhaustion in their eyes, I know I have asked too late.

If you intend to retire or sell your business in the next five years, here are some things you should do now in preparation:

Grow. There is nothing more important to your financial future than to make a business that is more than a job. If you have management in place and can still show a profit, you could retain the business and keep the profits as your retirement or leave the business to your heirs or sell the business for more money. Growth doesn't mean to have a few good months of sales, but rather to double or triple your business revenue.

If you can't see a way to grow that much, you should at least clean the place up. Visit a thriving business and try to recreate the look and feel of their operation. Buyers like baubles. You can get more money for your business if it simply looks good. A good cleaning and a coat of paint are cheap investments. Don't stop inside. Re-stripe the parking area. Plant some new plants and sweep up the cigarette butts from the back entry. The outcome of orderliness is more than just appearance. We often see a resurgence of energy among the staff after an inexpensive renovation.

Take the plunge after 20 years and buy a computer with an accounting software program. They are easy to operate and any interested buyer will need to see the numbers. Buyers want your year-to-date figures, a balance sheet and P&L for at least three years. They will also want tax returns for the same period. Regardless of your tax strategy in the past, in the next five years you will need to show profitability. Regular and accurate accounting information can help you make the right decisions to make that happen.

If you own your real estate, you should write a lease and begin paying yourself rent. The new owner wants to see that there are still profits after lease payments. A lease can also increase the value of your real estate by showing a real estate buyer the income from the asset.

You may be a little older, but that's no excuse to be sheepish. Be bold and brave, like a lion.

-- Russ Allred, MBA, is a business consultant and author with Sunbelt Business Brokers & Advisors. These are his opinions, not necessarily those of The Californian.

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