Why You Can't Sell Your Business
Many founders are under an illusion. They believe registering a company as an LLC means they are a business owner. They think they own a business, but in reality they own their job and some extra cash flow. Owning a job is not a bad thing. In fact, all businesses start like this. The key is to decide whether you want to remain a job owner or make the transition to a business owner. This will not happen accidentally. It takes intentional action, and most importantly the ability to remove the linchpin.
Founders are the linchpin that holds the organization together. Being the linchpin means they hold the value. If they are out of the picture, the business will cease to function. Many owner/operators fit in this category. While it is not a bad thing, it can create a false illusion of value. In the coming years, many Baby Boomer led businesses will meet these crossroads. They want to sell their business, but they are the linchpin. The organization lacks value without them involved. You cannot sell a business if you are the linchpin because their is not a business to sell. You can sell customer lists, assets, or materials, but you can't sell a business because it doesn't exist without you as the linchpin.
For aging generations of business owners, this is a scary reality. Many of them are counting on selling their business for their retirement. If they can't sell the business, then they must continue working primarily for financial reasons. While they may enjoy the work they are doing, they must continue bringing in the income from the business to take care of their current financial needs.
For these aging founders, many are looking for an apprenticeship model individual to come in and learn the business. In essence they are trying to replace themselves with a new person as the linchpin. This can work in some industries, but it severely limits who your successors can be. If the potential successor is a family member, you have increased the risk of both success and failure. You need to proceed with caution. It could work well, or it could tear apart the family. Additionally, Millennials are not as loyal to employers as previous generations which makes it more difficult to find an owner/operator among this generation.
So how do you know if you are the linchpin? See what your answers are to these questions. These are easy questions to add clarity to your situation.
- If you are gone for a week, does it take three weeks to prepare you being out of the picture?
- If an emergency happens, are you the only one who can fix it?
- While your title says Owner/President, could you also describe yourself as accountant, ordering manager, janitor, head of sales, etc?
What do you do if you are the linchpin of your organization? The first step is recognize the limitations of the situation. The second is to seek advice from an outside party who can provide a valuable perspective on what steps could be appropriate to help you reach the goal you want.
Being a linchpin is not a bad thing, but it will impact your ability to sell your business or hand it off to a successor. If you are facing issues like this, contact me at firstname.lastname@example.org. I can help you gain clarity in this time of uncertainty.