I just returned from a five-city tour throughout Northern Wisconsin. The cities varied in size, but all would be categorized as fairly rural communities. This speaking tour has been such a unique opportunity to travel around the state with Mike Matthews of Economic Growth Advisors as part of a grant sponsored by the WEDC (Wisconsin Economic Development Corporation).
While I work with business owners every day, it was an excellent opportunity to hear from these rural business owners about the challenges and opportunities within their communities from an economic development standpoint.
As business owners, myself included, one thing we all have in common is that whether we decide to retire and relax with an umbrella drink or work up until our last day…our business ownership will end at some point! And with 70% of small business owners falling into the category of “Baby Boomers,” (again myself included!), there is a discussion about transition of ownership that cannot be ignored.
However, one major thing that differs between urban and rural communities is the impact each business has on the economic vibrancy of the entire community. When we’re talking about smaller cities, the companies run by these business owners are often the backbone of the community – or at least play a significant role in the employment opportunities and tax basis.
While it is important for every business owner to think about what their path will look like to transition out of ownership, it is especially important in a rural environment because:
- The pool of qualified buyers may not be plentiful when there is a smaller population
- The dependency on that owner to provide stable jobs is likely high
- The town itself depends on the activity generated by the business for its own vibrancy. A shuttered business is not good for any sized economy but has a larger impact on smaller communities.
So what can business owners do to start to prepare for ownership transition so they are ready when the time is right?
- Plan for transition – it’s never too early to start planning. Whether your motivation is getting to that umbrella drink on the beach as fast as possible, or wanting to make sure you are increasing value in preparation to sell or pass down to the next generation, having a plan will help you achieve your goals.
- Get your financials in order and understand the relationship between debt and equity in your capital structure. Did you know having no debt actually decreases the value of your business? (Give me a call or send me an email and I’ll explain ☺.)
- Start with a business valuation – without an accurate business valuation, how will you know what one of your largest investments is actually worth in today’s market? This offers a starting point so you can understand if there is a gap between what you need to live on in retirement and what your business is worth in today’s dollars.
Can you imagine going years without looking at the value of your investment accounts or 401-k? Why would you go 10-30 years without knowing the value of what is likely your largest asset?
- Increasing and unlocking value—If the value of your business is not as high as it needs to be to fund your retirement, knowing this sooner than later allows you the opportunity to work to increase the value in your business and achieve your financial goals. You can learn more about the 8 Drivers of Value in a recent blog I wrote on this topic.
Whether you run a business in a rural or urban community, these four steps are the best place to start laying the foundation for a successful ownership transition.
Cathy is the President of Capital Valuation Group, Inc., headquartered in Madison, WI. Capital Valuation Group has been helping business owners across the country understand, increase and unlock the value of their businesses for over 40 years through keynote speaking, valuation analysis, determining damages and providing expert witness testimony. Cathy welcomes conference and event speaking inquiries and can be reached at firstname.lastname@example.org.