I met with a business owner last week who completed a very emotional soul search about selling his business. The decision hurt. It really hurt!
The company was founded over 40 years ago. The original owner and his wife made their first product in their home garage using war-time machinery. The current owner and his wife bought the business from them in the 1990s. Today, they employ over twenty-five equivalent full-time employees and generate millions of dollars a year in a metal/machine-related business. The company also employs family members.
They also bought a building during one of the expansions several years ago and managed to pay off the mortgage in less than 10 years. They have room to expand and the business continues to be fully booked three to six months in advance with orders from all over the world. Total estimated valuation of the operating business, equipment and machinery, inventory and real estate is $10 Million.
The owners are now preparing for a sale. He was talking to me about the top three and most obvious options he has to sell to—family members, the management team and his competitors. This article is about family. The breaking point with family came after a staff function held at the company. The owner asked a family member to stay and help clean up after a staff pizza and beer party on a Friday afternoon. That’s when it happened: his son went to the punch clock and punched back in to get extra time on his pay sheet. Clean up took less than 20 minutes. Then he punched out and went home. The owner has taken great strides to treat all staff equally—even his children. And like all other employees they are required to keep a timecard. The owner told me this story in a private setting and he shook his head and wondered, "How is this next generation ever going to learn to think and act like an owner?” What does it say to an owner when a family member stays a little late to clean up from a staff party and punches in to get an extra 20 minutes on the weekly timesheet?
Family business owners have struggled with the next generation for generations. There is something different this time around. Baby boomer business owners are between the ages of 55 and 75, give or take a few years on each end. We think
differently than our parents and grandparents did.
The bottom line is this: We do not want to be partners with our children and we do not want to be their bank. Our parents and grandparents encouraged us to become their partners and in many cases they borrowed against their homes or
lent us the money in order to allow us to buy them out over time using a variety of partnership structures. I am sad to say that my informal research indicates that baby boomers do not want to follow this path. We raised this entitled generation and as baby boomers we blame ourselves for the attitudes of the next generation behind us. What is also patently obvious is baby boomer business owners are not interested in complicated partnerships or long-term phase-out/transition structures. We want a cash offer and we want out—period. It is the “cut and run” or clean break phenomenon that I have talked about for years. It is not easy to stick around and watch a new owner run your company. It is not easy to be their partner.
As a baby boomer business owner looking toward a timeline for an exit, it is very important to come to some very difficult decisions or come to grips with the fact that you probably do not want to partner with the next generation and that you do not want to be their banker.
Take the money and run.
Timothy A Brown, CEO of ROI Corporation, Canada’s largest and longest standing appraisal and brokerage company.