Last week we talked about the rising generation. This week I want to talk with you about why you need to have your company be personally and economically sustainable if you want the rising generation to take over your business.
Last week we talked about the rising generation. This week, I wanna talk with you about why you need to have your company be personally and economically sustainable if you want the rising generation to take over your business.
Hi, I'm Josh Patrick, founder at The Sustainable Business, and if there's one thing I know, it's that subcontractors wanna be able to transfer the business when the right time comes. I also know that if your business isn't economically sound, is gonna be that much more difficult to transfer.
So here's the story I wanna tell you, it's in a professional service industry, but it's still applicable to those of us who have businesses in the trades.
So here's a business. It's a really nice little business. It provides a really nice living for the owners, but there are three different owners with three different sets of financial needs. One of the owners is significantly younger, and two are older and getting really close to retirement times.
The problem that we have is that for the younger person to buy this business, the financial needs are not gonna be met. They're not gonna reach economic sustainability for the senior buyers. They need a lot more money for retirement. So the personal needs are probably not gonna get met.
So what happens?
Well, instead of being able to sell the business in an easy manner, in a way that we like to do to the younger generation, because it's affordable and the seniors have put enough money aside outside the business to make the transaction possible, it isn't happening. So what's gonna happen here?
Well, likely the business is gonna get broken up, the younger owner's gonna walk away with her piece of the business, her piece of the client's and go off on their own, and the other two folks are gonna have to find a third party to come in and sell the business.
Now, a lucky thing for them in the industry, there's lots of third party buyers, they'll likely make a sale. The bad thing is they're gonna likely end up holding a whole lot of paper when they do it, and that always causes problems.
So from this story, you can tell there's a problem. And that problem is there are three owners with very different needs. The rising generation isn't willing to bail out the older generation, at least from the rising generation's point of view. If this happens to you, it might be easy for you to think you're a total failure.
We know it's no fun to feel that way. We also know this doesn't have to happen. To avoid failure, you need to focus on creating a business that is personally and economically sustainable well before you transfer your business.
You know, in our last video, I talked about a company where this was done really well. We had time to train the rising generation, and just as important, we created a business that was economically sustainable, so the rising generation could afford to buy the business, and the senior owner of that business wasn't left out of the cold.
The senior owner was gonna get plenty of dough to live the life that they need to live, but most importantly, the senior owner of the business wasn't looking for top dollar. If he was, the transfer would have never taken place. What he was looking for is enough, enough for him to retire comfortably, and having the knowledge that the business could afford to pay him what he needed for retirement.
Because remember, when you sell your business to your children, or you sell your business to your managers, they're gonna have to use you as a bank. They are not gonna find a bank. that's gonna be willing to provide them with all the retirement funds that you need. So you're gonna be the bank, and it's really important to make sure that your business, when you leave, has enough cash flow for the next generation to afford to pay you.
So this was all caused, all these good things was caused by having a business that was economically sound with a management team that was solid. Because the owner who was transitioning out did the right things, it was an easy decision for the rising generation to say yes to ownership, not like that other organization I told you about, where the younger generation said no to ownership because the older generation wanted too much money.
Now, I know that creating an economically sustainable business is simple, you know it too. I also know that doing this is not easy and you know it's not easy. You know it's a fair amount of work and there'll be issues that come up along the way. When this happens, you just have to pick yourself up and learn from the mistakes you made, go back, apologize to the people you made the mistakes with and say, "Let's try this and see if it works better." After all, making mistakes is how you and everybody else learns.
So here's something you can do along the way that can help.
Number one, start by understanding what the success path is to create a personally and economically sustainable business.
Number two, talk with your rising generation about what you're doing to make it possible for them to economically afford the company well before you want to transfer the business.
And number three, have a call with us to talk about your strategy. We can help you avoid mistakes others have made.
You know, these three things will start you down the path of creating a business that others would wanna own, even if your children are your managers. That is the definition of a sale ready company.
So I'd love to have a conversation with you about what you need for your company if you wanna transfer your business to the rising generation. In the meantime, if you're not ready to talk, download our free infographic about the two sides of business. You'll learn what personal and economically sustainability is for your business and what it looks like.
And while you're at it, scroll down and let me know what you think about creating an economically and personally sustainable business for the next generation in your world.
Hey, this is Josh Patrick. You're at The Sustainable Business. Thanks a lot for stopping by. I hope to see you back here really soon.