R. Shawn McBride recently spoke to Kevin Wright about exiting your business.
Kevin: I wanted to ask you about exits. What do you do when clients who are solo- entrepreneurs who maybe have a professional practice that’s more transactional and there’s not an ongoing value of an existing client.
R. Shawn McBride: Yes.
Kevin: What kind of exit opportunity do they have available to them?
R. Shawn McBride: Exit is an interesting situation. We need to plan for the exit in a lot of different things. What you raise is the professional service side, which I’ll get to in the second. Let me deal with the other side first, which is the operating business, the manufacturing business, the one where the personal owner of the business is not as critical. I had a client of mine, a guy named Rick Petrakowsky who owns a company named Surface Armor. He’s given me permission to use his name. He came to me several years ago because he wanted to sell Surface Armor. It was a successful company.
We brought him advisors in there, and we looked at business brokers, and they all said “You can’t sell the company because it’s all Rick. Rick’s taken control of everything. Rick’s making all the calls. Everybody knows Rick. If Rick’s not here, nothing happens. We moved Rick into a senior managerial role, and we put a general manager in to run the business. When I called Rick to get his permission to use his name to tell his story in connection with some of my speeches, there’s bells and whistles going on in the background. He’s ordering another cocktail at 10 AM on a weekday. Because he doesn’t go to work every day. His general manager goes to work every day.
Now he has to sell the whole business. Because Rick doesn’t have to be there, so he can sell the cash flow. Now Rick doesn’t want to sell the cash flow because he likes traveling the world and collecting checks. That’s what’s possible. We can do that in the operating business. In professional service, it’s a little bit harder (Attorney, CPA, doctor). People are coming to see that person, a lot of times. That doesn’t mean it doesn’t have value. What we’re doing a lot now is a generational play. We have older established professionals that have a book of business, people that come in regularly. You’ve got younger people who want to learn the skills and learn the trade, and need an entry into the market.
If we compare them, we often find a great option here. Bring a senior professional in and get a young mentee over the course of a couple of years to learn the business and get to know the customers. Then the senior person can exit out the back door and collect some money off of it and work out the economics between them. That’s been a very popular thing we’ve been working with, with the professional services. Does this transition make it bigger? To make that get other people involved. That’s an option for professional service. Again, it’s about “How do we disconnect it from a particular person?” That’s an underlying thing.
Kevin: Thank you. When you bring that younger person in, is there the agreement going into it that at some point we’re going to have this financial agreement? That this is going to be worth X, and you’re going to take over the business. Because I’ve seen a few times where you bring this younger person in, and they get into it, and they say “Ah, this isn’t for me,” and they’re out. Then you lay all this stuff out.
R. Shawn McBride: You lay it out and figure it out. Yes, a lot of times you’ve got to have fail-safes. Because you’ve got to know each other and see if it is a thing. Part of that value is getting the younger person to actually take over the core business and do the work, and yes, you’re going to have to. There’s going to be times where there’s not a stop and a start. Being realistic. If the owner’s being realistic, you probably want to start this process a little bit earlier. Because you may have to make one or two attempts before you can get better on the sticks.
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This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Freeimages.com/photographer Thad Zajdoatcz.
About the Author
R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment, gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can email R. Shawn McBride or (214) 418-0258.