A few months ago I watched the movie “1917.” It tells a true story about the audacious heroism of a British soldier during World War I. Beyond being a great story, the filming was incredible. There were times I felt I was the guy in the muddy trenches.
There is much to learn from this wonderful movie, not the least of which is war is awful and should be avoided at all costs. But there is another lesson that has direct applicability to the world of business ownership: don’t get caught in no-man’s land, that place where your business has no transferable value. That’s right, no transferable value means you can’t sell it, you are in no-man’s land.
Here’s the irony, a business that creates value for the owner might still be in no-man’s land. While that sounds illogical, I’d estimate that 50% of the “successful” businesses I see do not have transferable value. I got a call last week from a business owner, let’s call him Joe, who is ready to sell his business. He is making about $350,000 per year in compensation and benefits. A business like Joe’s might sell for $1.2 to $1.6 million. But not this one.
When Joe is gone from the business, the customers might not stay because he has been their only point of contact for 15 years. Working 60 hours per week, Joe directs his staff on a daily basis. Not much happens without his approval.
How confident can a buyer be that when Joe is gone from the business, the business can still function? In most cases like this, a buyer won’t take the risk to pay what would otherwise be market value for the business, so the business sits in no-man’s land.
Just like the movie “1917,” venturing into no-man’s land usually doesn’t end well. I told Joe he had two options. He could wait to sell the business until he had developed the staff and systems to ensure the business’ sustainability after he’s gone. Or, he could work until he’s completely ready to let go, then sell his assets for pennies on the dollar and close the doors.
I don’t have hard evidence to back this up, but I’m guessing that over half of baby boomer-owned businesses are in this no-man’s land. Unfortunately, most of them don’t know this until it’s too late. Give me a call if you’d like an independent and free assessment as to whether your business sits in no-man’s land.
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The principles above are true, but the story, names and fact patterns are changed to preserve the parties’ identities.
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